Healthcare global enterprises ltd. ipo update

IPO Update
IPO UPDATE
Long Term Play
Salient features of the IPO:
• Healthcare Global Enterprises Ltd. (HCG) operating under the “HCG”
brand, is one of the leading private specialty healthcare service
providers in India focusing on cancer and fertility.
• As of 31st Dec. 2015, HCG’s hospital network consisted of 14
comprehensive cancer centers, including our center of excellence in
Bengaluru, three freestanding diagnostic centers and one day care
chemotherapy center across India.
• Majority of the net proceeds from the issue will be utilized to pre-
pay the debt. Rest will be used for the purchase of medical
equipment and upgradation of the hospital information system.
Key competitive strengths:
• Largest provider of cancer care in India with a proven track record
• High quality cancer care provided at a competitive price
• Entry into high potential fertility business
• Leveraging the business model and partnership arrangements
• Strong management team with successful track record
Risk and concerns:
• Longer stability period of centers to affect the profitability
• Higher contribution of business from third party payer agreements
• Higher future capex to nullify the benefits arising from debt
prepayment
Valuation & recommendation:
Based on TTM earnings, at the lower price band of Rs. 205 per share,
HCG’s shares are available at a P/E multiple of 12.8x, while at higher
price band, it is available at a P/E multiple of 13.6x, which are at
significant discount to its peers average of 78.2x.
• Out of the net proceeds, around 67% (i.e. Rs. 1,470.5mn) will be
used to retire high cost debts. Consequently, the debt equity ratio
will decline from current 1.2x to 0.4x post pre-payment of the debt,
which will be in line with its peers.
• As HCG is in expansion phase, it has planned a massive capex over
the next few years in the tune of Rs. 2,600mn. Assuming a
sustainable operating cash flow generation of around Rs. 500-
600mn, we feel that the company will be able to comfortably meet
its future capex requirement with minimal additional funds.
• In H1 FY16, on a stable EBITDA margin, the company has reported a
net loss of Rs. 7.5mn on a consolidated basis. Extrapolating this for a
full year FY16, net loss is expected to be at around Rs. 15mn as
against a net profit of Rs. 5.5mn in FY15. However, after the debt
repayment, HCG is likely to report a profitability (before minority
interest) of around Rs. 100mn in FY17E.
Hence, given the strong fundamentals of the company in the highly
lucrative healthcare industry, we feel that the premium EV/EBITDA
valuation is justified. Considering a long term view, we recommend a
“SUBSCRIBE” rating for the public issue.
1
Mar. 15, 2016
Recommendation SUBSCRIBE
Price Band Rs. 205 - Rs. 218
No of OFS Shares (mn) 18.2
Fresh Issue Shares (mn) 11.6
OFS Issue Size Rs. 3,731 – 3,967.6mn
Fresh Issue Size Rs. 2,378 – 2,528.8mn
Total Issue Size Rs. 6,109 – 6,496.4mn
Bidding Date 16th Mar. – 18th Mar. 2016
Book Running Lead
Manager
Kotak Mahindra Capital Co.
Ltd., Edelweiss Financial
Services Ltd., Goldman
Sachs (India) Securities Pvt
Ltd., IDFC Securities Ltd.,
IIFL Holdings Ltd. and Yes
Bank Ltd.
Registrar
Karvy Computershare Pvt.
Ltd.
Sector/Industry Miscellaneous
Promoters
Dr. BS Ajai Kumar, Dr.
Ganesh Nayak, Dr. BS
Ramesh, Dr. KS Gopinath
and Dr. M Gopichand
Pre - Issue Shareholding Pattern
Promoters and Promoter Group 28.7%
Public 71.3%
Total 100%
Retail Application Money at Higher Cut-Off Price
per Lot
Number of Shares per Lot 65
Application Money Rs. 14,170
Analyst
Rajnath Yadav
Research Analyst (022 - 6707 9999; Ext: 912)
Email: rajnath.yadav@choiceindia.com
Healthcare Global Enterprises Ltd.
* Represents per share calculation based on number of shares o/s post issue; Source: Choice Broking Research, Company DRHP
Particulars (Rs. mn) FY11 FY12 FY13 FY14 FY15 H1 FY15 H1 FY16 8M Ended Nov. 2015
Revenue from Operations 2,148.2 2,665.8 3,383.1 4,513.3 5,193.8 2,554.5 2,854.3 3,788.9
EBITDA 378.7 412.3 462.3 382.4 762.4 372.8 418.5 557.4
Reported PAT 63.0 (33.3) (105.1) (355.5) 5.5 (11.2) (7.5) (37.1)
EBIDTA Margin 17.6% 15.5% 13.7% 8.5% 14.7% 14.6% 14.7% 14.7%
Reported PAT Margin 2.9% -1.2% -3.1% -7.9% 0.1% -0.4% -0.3% -1.0%
RoE (%) 3.6% -1.5% -3.6% -12.6% 0.2% -0.4% -0.2% -1.2%
RoCE (%) 6.8% 4.1% 2.8% 0.4% 5.9% 3.1% 2.9% 3.8%

IPO Update
IPO UPDATE 2
About the Issue:
• HCG is coming up with an initial public offering (IPO) with total around 29.8mn shares (including 18.2mn OFS shares and
11.6mn fresh issue shares) in offering. Total IPO size is estimated at around Rs. 6,109 – 6,496.4mn.
• The issue will open on 16th Mar. 2016 and close on 18th Mar. 2016.
• Not more than 75% of the issue will be allocated to qualified institutional buyers. Further, at most 15% of the issue will be
available for non-institutional bidders and the remaining 10% for retail investors.
• Majority of the net proceeds from the issue will be utilized to pre-pay the debt (Rs. 1,470.5mn). Rest will be used for the
purchase of medical equipment (Rs. 422.1mn) and upgradation of the hospital information system (Rs. 301.9mn).
• Pre issue promoter group stake in HCG stands at 28.7%, while public stake is 71.3%. Post IPO, promoter group stake will
decline to 24.6%.
Source: Choice Broking Research, Company DRHP
Pre and Post Issue Shareholding Pattern (%)
Pre Issue Post Issue
Promoter & Promoter Group (%) 28.7% 24.6%
Public 71.3% 75.4%
Mar. 15, 2016

IPO Update
IPO UPDATE 3
Healthcare delivery industry overview:
India is the world's tenth largest economy in terms of nominal gross domestic product (GDP) which stands at USD 1.9tn and
accounts for approximately 20% of the world’s population with 1.2 billion inhabitants (Source: CRISIL). The population is
expected to reach 1.4bn by 2026, of which over 50% would be aged 30 years or older, compared to 40% currently. According
to World Health Organization (WHO), in 2012 around 9.8mn deaths occurred in India, of which 60% were on account of non-
communicable diseases and rest were caused due to cardiovascular diseases. While progress has been made in the past
decade in improving the quality of healthcare services in India, the overall standard of healthcare infrastructure falls below
global benchmarks.
As per the Global Health Expenditure database compiled by the WHO, in 2013 India’s total expenditure on healthcare stands
at 4% of its GDP. India not only trails behind developed countries in terms of healthcare spending as portion of GDP, but also
developing countries such as Brazil, Russia, China and Thailand. This is primarily due to under-penetration of healthcare
services and lower consumer spending on healthcare. The government’s expenditure on healthcare also ranks lower than
other developing countries in terms of general government expenditure on health as a percentage of total expenditure.
Total healthcare expenditure as a % of GDP in 2013 Government spending on healthcare as a % of
total healthcare spending in 2013
17.1%
9.7% 9.1%
6.5% 6.0% 5.6%
4.6% 4.0% 4.0%
3.1%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18% 83.5%
80.1%
55.8%
54.8%
48.2%
48.1%
47.1%
41.9%
39.0%
32.2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
The Indian healthcare industry comprises of five segments: (i) hospitals, (ii) pharmaceuticals, (iii) medical insurance, (iv)
medical equipment and supplies, and (v) diagnostics. As per 2012 estimates, the hospital segment represented around 70%
of the total healthcare revenue in India. (Source: Company RHP).
Healthcare delivery in India has two components: public and private. The public, i.e., the government healthcare system,
focuses on addressing primary healthcare needs across India and particularly so in the rural areas. The government also
manages secondary and tertiary care hospitals across India. The private sector comprises primarily secondary and tertiary
care hospitals predominantly located in metropolitan, tier I and tier II cities. The private sector accounts for almost 72% of
India's total healthcare expenditure. (Source: Company RHP).
Mar. 15, 2016

IPO Update
IPO UPDATE 4
Healthcare delivery industry overview (Contd…):
The Indian healthcare industry is expected to grow at a CAGR of 17% between 2008 to 2020; and is expected to stand at USD
280bn by 2020. (Source: Company RHP).
Growth in the Indian healthcare industry will be primarily driven by:
• Socio-economic changes such as growing health awareness, increasing per-capita income, increasing penetration of
health insurance, increasing instances of lifestyle diseases and an aging population.
• Technological advancements such as continuing development of mobile technology which will enhance the delivery of
healthcare through telemedicine.
• Affordability of healthcare in India, which will attract more patients. For example, treatment for major surgeries in India
costs approximately 20% less than the cost in a developed country; and
• Government policies in India that support growth in the healthcare industry such as tax reliefs on hospitals in tier II and
tier III cities, which will attract healthcare investment in these areas
Cancer Prevalence and Incidence in India:
The prevalence of cancer in India is estimated to be at 3.9mn people in 2015, with 1.1mn new reported cancer cases during
the year. As per the company RHP, the real incidence of cancer in India could be significantly higher than the reported figure.
Data from large randomized screening trials undertaken in India suggest that the real incidence of cancer could be 1.5 to 2
times higher than the reported incidence, or an estimated 1.6 to 2.2mn new cancer cases during 2015. (Source: Company
RHP).
Key factors driving the increase in cancer incidences:
The prevalence of cancer in India is expected to increase from an estimated 3.9mn in 2015 to an estimated 7.1mn people by
2020. The reported cancer incidences in India are expected to increase from an estimated 1.1mn in 2015 to 2.1mn by 2020.
(Source: Company RHP). The increase in cancer incidences is primarily driven by the following factors:
• Demographic changes (such as ageing population).
• Exposure to risk factors such as consumption of tobacco & alcohol, increasing use of processed food and meat, reduced
fiber content in the diet and rising incidence of obesity. Additionally, increasing levels of air pollution in urban India are
also anticipated to result in an increased risk of cancer.
• Narrowing diagnosis gap: Growing cancer awareness, a greater public emphasis on screening and improvements in
diagnosis of cancer, are expected to result in earlier and increased diagnosis of cancer.
Mar. 15, 2016

IPO Update
IPO UPDATE 5
Healthcare delivery industry overview (Contd…):
Cost of Cancer Treatment in India:
As of 2015, the annual expenditure in India for the diagnosis and treatment of cancer is estimated to be between USD 1.7-
2.bn. Even at for-profit hospitals in India, the cost of cancer care, including treatment with advanced technologies represents
only a fraction of the cost of treatment in the US even after adjusting for purchasing power parity. (Source: Company RHP).
The table below sets out the cost of cancer treatment in India and the US by service offerings, during 2014 and 2012,
respectively:
Cost Comparison of Cancer Treatment in India and the US (mn Rs.)
Even though the cost of cancer treatment in India is significantly lower than in the US, high quality cancer care is still
unaffordable and inaccessible to a large proportion of the Indian population due to low population coverage of public and
private insurance programs and low average household income levels. (Source: Company RHP).
Infertility Incidences in India:
An estimated 220mn women in India are of reproductive age (between 20 and 44 years of age) and about 27.5mn couples in
this group are estimated to be suffering from infertility. The number of infertile couples in India is expected to increase from
27.5mn in 2015 to between 29-32mn by 2020. (Source: Company RHP).
The total fertility rate (defined as the average number of children that would be born to a woman if she experiences the
current fertility pattern throughout her reproductive span (15 to 49 years)) in India has witnessed a rapid decline over the
last few decades. The total fertility rate in India has decreased from 3.9 in 1990 to 2.3 in 2013.
Below are the key factors responsible for the increase in infertility incidences in India:
• Demographic changes: The number of women of reproductive age in India is forecast to increase by 14% between 2010
and 2020.
• Lifestyle changes: Changes in lifestyle such as increasing marital age, increasing number of working women, rising alcohol
and tobacco consumption are among the factors responsible for growing infertility incidences in India.
• Clinical factors such as hormone imbalance in women, genital tuberculosis, obesity etc.
Type of Treatment India US US (purchasing power parity adjusted)
Chemotherapy 0.15 - 0.24 1.3 - 1.8 0.51 - 0.72
Surgery 0.06 - 0.1 1.5 - 1.8 0.6 - 0.72
Radiation Therapy 0.06 - 0.1 1.1 - 1.4 0.43 - 0.54
Mar. 15, 2016

IPO Update
IPO UPDATE 6
Company Introduction (Contd…):
HealthCare Global Enterprises Ltd. (HCG) operating under the “HCG” brand, is one of the leading private specialty
healthcare service providers in India focusing on cancer and fertility. As on 31st May 2015, the company had the largest
cancer care network in India (in terms of the total number of private cancer treatment centers licensed by the Atomic
Energy Regulatory Board).
As of 31st Dec. 2015, HCG’s hospital network consisted of 14 comprehensive cancer centers, including its center of
excellence in Bengaluru, three freestanding diagnostic centers and one day care chemotherapy center across India. Each of
its comprehensive cancer centers offers at a single location provides a cancer diagnosis and treatment services (including
radiation, medical oncology and surgical treatments). Freestanding diagnostic centers and day care chemotherapy center
offers diagnosis and medical oncology services, respectively.
In 2013, HCG acquired a 50.1% equity interest in BACC Healthcare, which operated the fertility centers under the “Milann”
brand in India. Pursuant to this acquisition, the company now operates four Milann fertility centers in Bengaluru.
Revenue Breakup in FY15 Business breakup of medical services segment in FY15
Source: Choice Broking Research, Company DRHPSource: Choice Broking Research, Company DRHP
65.4%
33.9%
0.7%
Income from Medical Services Income from Pharmacy
Other Operating Income
91%
9%
Oncology Business Fertility Business
Financial Performance over FY11-15 Operating Performance over FY11-15
Source: Choice Broking Research, Company DRHPSource: Choice Broking Research, Company DRHP
Primarily on the back of a 26.7% CAGR increase in the income from the medical services during FY11-15, HCG reported a
24.7% CAGR growth in top-line to Rs. 5,193.8mn in FY15. During the same period, total operating expenditure increased at a
relatively higher pace of 25.8% CAGR as compared the top-line growth, thereby leading to a 19.1% CAGR rise in EBITDA to
Rs. 762.4mn in FY15. EBITDA margins stood in the range of 8-18% during FY11-15. Depreciation and finance charge increased
by 22.6% and 25.9%, respectively, during the period and were mainly responsible for the volatility in the earning profile of
the HCG.
(500)
500
1,500
2,500
3,500
4,500
5,500
FY11 FY12 FY13 FY14 FY15 H1
FY15
H1
FY16
8M
Ended
Nov.
2015Revenue from Operations (Rs. mn)
EBITDA (Rs. mn)
Reported PAT (Rs. mn)
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
FY11 FY12 FY13 FY14 FY15 H1
FY15
H1
FY16
8M
Ended
Nov.
2015
EBITDA Margin (%) PAT Margin (%)
RoE (%) RoCE (%)
Mar. 15, 2016

IPO Update
IPO UPDATE 7
Company Strengths:
• Largest provider of cancer care in India with a proven track record: As of 31st May 2015, HCG was the largest provider of
cancer care in India in terms of the total number of private cancer treatment centers licensed by the AERB. Beginning its
expansion in 2006, the company has since added 11 comprehensive cancer centers, three freestanding diagnostic centers
and one day care chemotherapy center, spread across 13 cities and towns in eight states in India. With this extensive
network of HCG cancer centers, the company is able to extend the provision of cancer care beyond the metropolitan
cities to patients across India. At the same time, HCG has built a strong reputation within the medical community in India,
mainly due to the advanced technologies used, successful clinical outcomes and the extensive clinical experience of its
specialist physicians. The company believes that its market leading position, successful track record and strong reputation
in India provides it with a significant advantage over its competitors. Given below are the key operating data of the HCG’s
cancer centers:
Key Operating Data of the HCG’s Cancer Centers
Particulars FY13 FY14 FY15 H1 FY16
Comprehensive Cancer Centres in Operation 14 15 15 14
New Patient Registrations 28,546 34,344 37,458 18,079
Patients Treated with Radiation Therapy 10,225 11,181 12,647 6,163
PET-CT Procedures 17,750 21,040 23,988 12,253
Chemotherapy Administrations 40,052 43,988 48,360 25,453
Surgeries 7,333 8,454 8,707 4,630
Number of Available Operational Beds 746 829 875 912
Average Occupancy Rate per Operational Bed 57.6% 54.2% 53.5% 51.6%
Average Length of Stay per Admitted Patient 3.4 3.2 3.0 2.9
Average Revenue per Occupied Bed per Day 19,034 21,850 24,647 26,685
• High quality cancer care provided at a competitive price: HCG adopts an integrated multidisciplinary and technology
focused approach to provide comprehensive cancer care to its patients through its network. The company has a close
collaboration and sharing of information among specialist physicians, with medical technology vendors, pharmaceutical
and biotechnology companies, which enables it to offer a high standard of care to its patients and introduce and adopt
the latest advances in technology relatively early in India. HCG seeks to maximize the utilization of the equipment and
technologies used across its network through optimal scheduling of patients undergoing treatment, in particular,
radiation therapy. The company has also implemented a centralized drug and medical consumables formulary, allowing it
to maximize the utilization of generic drugs, thereby lowering the overall cost of drugs and medical consumables.
Additionally, with its scale of operations and the relationship it enjoys with equipment vendors give it a competitive
advantage in terms of favorable economic terms of purchase and financing of medical equipment.
• Entry into high potential fertility business: Fertility treatment is an emerging segment of the Indian healthcare industry,
which is currently relatively underdeveloped and fragmented. There are an estimated 27.5mn couples suffering from
infertility in India, which could increase to between 29-32mn by 2020 due to demographic, lifestyle and the presence of
various clinical risk factors among the Indian population. Of the estimated 27.5mn infertile couples in India, less than
0.3mn are currently seeking fertility treatment. This is mainly due to the lack of awareness of and access to fertility
treatment, as well as a high cost of treatment. Nonetheless, the number of IVF cycles performed in India has increased
from 7,000 in 2001 to 100,000 in 2015 and is anticipated to increase to 260,000 by 2020. With the acquisition of the
majority equity interest in the BACC Healthcare, the company currently operates four Milann fertility centers in
Bengaluru.
Mar. 15, 2016

IPO Update
IPO UPDATE 8
Company Strengths (Contd…):
• Leveraging the business model and partnership arrangements: HCG network operates on a “hub and spoke” model,
wherein its HCG center of excellence in Bengaluru serves as a “hub” to its other cancer centers. Through its center of
excellence, the company provides its other centers access to centralized quality control & assurance services, establishes
treatment protocols, centralized treatment planning & tele-radiology services, access to advanced technologies and
conducts weekly central board meetings to review complex cases. HCG believes that this model allows it to effectively
leverage the expertise and capabilities of its center of excellence to deliver quality cancer care in a seamless manner.
• Strong management team with successful track record: The company’s senior management team has an extensive
experience in the management of healthcare businesses. HCG believes that the experience, depth & diversity of its
management team, complemented by the clinical expertise and relationship base of its physician promoters, is a distinct
competitive advantage in the complex and rapidly evolving healthcare industry in which it operates.
Business Strategies:
• Expansion of the cancer care network in India: HCG plans to expand its HCG network in India by establishing new cancer
centers across India and by expanding the capacity and service offering of the existing HCG cancer centers. As of 31st
Dec. 2015, the company is in the process of establishing 12 new comprehensive cancer centers in India and which will be
operational between FY16 to FY18. HCG is also expanding its existing HCG comprehensive cancer centers at Cuttack and
Ahmedabad and is further planning to expand these centers by adding either new cancer care services or new equipment
to cater to increasing demand. In the future too, the company is planning to continue with its expansion drive through
green field projects, partnership arrangements and acquisitions.
• Further strengthening of HCG brand: Along with the cancer care network expansion, HCG plans to invest in building and
enhancing its brand image and visibility. The company intends to strengthen its patient support groups comprising of
cancer survivors to further spread awareness of cancer screening and to educate patients regarding cancer treatment
options and their relative outcomes and benefits. HCG also intends to continue to grow its base of referring physicians
through ongoing community outreach programs and continuing medical education programs targeting such physicians.
• Cancer care network expansion in Africa: In the past, the company has experienced an increase in the number of
patients travelling from Africa and other regions to its center of excellence in Bengaluru, as well as to other
comprehensive cancer centers in India for cancer treatment. During H1 FY16, FY15, FY14 and FY13, HCG derived 17.8%,
15.6%, 12.6% and 7.9%, respectively, of its total revenue at its center of excellence from such international patients. Thus
this growing demand presents it with an opportunity to establish a network of specialty cancer centers in Africa.
Currently, HCG is planning to establish a network of specialty cancer centers in Africa through partnership arrangements
and acquisitions. The company has entered into a definitive agreement with CDC, pursuant to which CDC will invest in
HCG’s subsidiary, HCG Africa, to establish a network of comprehensive cancer centers in Africa. In the first phase of the
development, the company plans to establish comprehensive cancer centers in Kenya, Tanzania and Uganda.
• Upgradation and strengthening of information technology infrastructure: HCG is in the process of significantly
upgrading its information technology infrastructure in order to enhance the quality of care delivered to patients and to
further enhance its clinical best practices and research capabilities. The company has planned an information technology
infrastructure based on a private cloud-computing system and will encompass a centralized EMR system seamlessly
integrated with various other centralized systems including HIS and ERP system. Adoption of a cloud-based centralized
information technology infrastructure will enable it to transition from the current paper-based and de-centralized
medical records system to a centrally managed and administered electronic medical records system. Adoption of these
systems will allow the company to efficiently manage its operations, including optimal utilization of equipment and
human resources, billing and receivables management, inventory management, central purchasing, formulary
management and financial controls.
Mar. 15, 2016

IPO Update
IPO UPDATE 9
Business Strategies (Contd…):
• Expansion of Milann fertility centers across India: The IVF market in India is under-penetrated relative to its potential
demand. The potential demand for IVF cycles could be nine to 12 times higher than the current actual number of patients
availing treatment in Delhi, Mumbai and Bengaluru. The number of infertile couples coming forward for fertility
treatment in India is estimated to increase from the current 270,000 to around 650,000 to 700,000 by 2020. (Source:
Company RHP). In order to address the growing demand for fertility treatment in India, HCG is planning to expand its
Milann network by setting up green field centers and also by entering into partnership arrangements and undertaking
selective acquisitions. As of 31st Dec. 2015, the company is in the process of establishing three fertility centers in India.
Risk and concerns:
• Longer stability period of centers to affect the profitability: Historically, the company’s business growth has been
primarily driven by the establishment of new centers and HCG expects this to continue to be the future key drivers for
growth. The company is in the process of adding 12 new comprehensive cancer centers to its network and is also
expanding two of its existing HCG comprehensive cancer centers to add more services and equipment. Normally during
the initial ramp up period, operational expenses exceed the revenue, resulting to an operational loss. HCG has longer
stability period of 2-3 years for each centers. Currently of the 14 operational centers, only five centers are operating at an
EBITDA margin of around 25%. Thus a longer stability period will be negative for the company as it will take time to
realize the potential of the economics of scale.
• Higher contribution of business from third party payer agreements: HCG’s patients include patients who pay for their
medical expenses themselves and patients who are beneficiaries of third party payer agreements. In the case of patients
who are beneficiaries of third party payer agreements, all or part of the medical bill is payable by the third party payer as
per the terms of the relevant payer agreement. To be eligible for reimbursement by a third party payer, the company’s
centers and hospitals need to be empanelled by the payer, and pursuant to such empanelment, HCG enter into an
agreement with the payer. Each third party payer agreement typically specifies the services covered, as well as any
exclusion, the approved tariffs for each of the services covered and the terms of payment. Consequently, HCG’s revenue
and profitability depend on the applicable third-party tariffs, the extent of third-party coverage or limits, the payment
terms or the reimbursement policies related to these third-party arrangements. Any favorable change in the third-party
tariffs and other elements of arrangement is likely to increase the revenue and profitability of the company and vice a
versa. Historically, HCG generated around 32-35% of the total revenue from third party agreements. Any non-payment by
such third party payers will impact the company’s revenue and profitability. In the past, there have been delays and
nonpayment by third party payers. As of 30 Nov. 2015, HCG had an outstanding gross receivables amounting to Rs.
900.1mn from third party payers, which also included provisions for disallowances and doubtful trade receivables.
Provisions for disallowances reduce the revenue from operations and provisions for doubtful trade receivables increase
its expenses and thus reduce its profitability.
• Higher future capex to nullify the benefits arising from debt prepayment: Out of the net proceeds, around 67% (i.e. Rs.
1,470.5mn) will be used to retire debt. As of 31st Dec. 2015, HCG has a debt of Rs. 3.697.5mn under various loan
agreements. With the retirement of debt, the company is aiming to reduce average cost of debt to 8-9% from the current
10%. As HCG has planned a massive capex over the next two years, we feel it will need additional funds for its capex, thus
we are not anticipating any significant savings in the finance cost on the retirement of the debt.
Mar. 15, 2016

IPO Update
IPO UPDATE 10
Peer comparison and our recommendation:
At the lower band of Rs. 205 per share, HCG’s share are available at a P/E multiple of 12.8x, which is at a significant discount
to the average P/E multiple of 78.2x of peers such as Apollo Hospitals Enterprise Ltd., Fortis Healthcare Ltd., Indraprastha
Medical Corporation Ltd., Fortis Malar Hospitals Ltd., Narayana Hrudayalaya Ltd. and Kovai Medical Center and Hospital Ltd..
At a higher price band of Rs. 218, the company’s share is available at P/E multiple of 13.6x. However, on P/BVPS and
EV/EBITDA front, HCG is priced at a premium as compared to its peers average of 78.2x.
At the higher price of the band, HCG is expecting a valuation of Rs. 20.6mn per bed as against the capital cost of Rs. 6.7mn
per bed. Moreover, the valuation per bed demanded by the company is also higher as compared to a valuation range of Rs.
10-16mn set by its competitors in recent acquisitions.
Out of the net proceeds, around 67% (i.e. Rs. 1,470.5mn) will be used to retire high cost debts. As of 31st Dec. 2015, HCG
has a debt of Rs. 3.697.5mn under various loan agreements. With the retirement of debt, the company is aiming to reduce
average cost of debt to 8-9% from the current 10%. Consequently, the debt equity ratio will decline from current 1.2x to 0.4x
post pre-payment of the debt, which will be in line with its peers. As HCG is in expansion phase, it has planned a massive
capex over the next few years in the tune of Rs. 2,600mn. Assuming a sustainable operating cash flow generation of around
Rs. 500-600mn, we feel that the company will be able to comfortably meet its future capex requirement with minimal
additional funds.
During FY11-15, HCG’s EBITDA margin declined from 17.6% in FY11 to 14.7% in FY15. Additionally, it reported a net loss for
majority of the period, primarily due to higher financial charge. In H1 FY16, on a stable EBITDA margin, the company has
reported a net loss of Rs. 7.5mn on a consolidated basis. Extrapolating this for a full year FY16, net loss is expected to be at
around Rs. 15mn as against a net profit of Rs. 5.5mn in FY15. However, after the debt repayment, HCG is likely to report a
profitability (before minority interest) of around Rs. 100mn in FY17E.
Hence, given the strong fundamentals of the company in the highly lucrative healthcare industry, we feel that the premium
EV/EBITDA valuation is justified. Considering a long term view, we recommend a “SUBSCRIBE” rating for the public issue.
Company Name
EPS
(Rs.)
BVPS
(Rs.)
DPS
(Rs.)
Debt Equity
Ratio
RoE (%)
RoCE
(%)
P / E
(x)
P / B
(x)
EV / Sales
(x)
EV / EBITDA
(x)
MCAP / Sales
(x)
Healthcare Global Enterprises Ltd. 16.0 37.8 0.0 1.2 0.3% 5.6% 13.6 5.8 4.0 27.2 3.4
Apollo Hospitals Enterprise Ltd. 26.7 240.5 5.8 0.6 11.1% 11.3% 52.6 5.8 4.0 28.8 3.7
Fortis Healthcare Ltd. 1.0 106.8 0.0 0.2 1.0% -0.2% 161.8 1.6 1.9 38.1 1.9
Indraprastha Medical Corporation Ltd. 3.3 23.2 1.8 0.2 14.2% 23.6% 15.3 2.2 0.7 5.9 0.6
Fortis Malar Hospitals Ltd. 3.9 50.6 0.5 0.0 7.7% 4.6% 14.0 1.1 0.6 10.8 0.8
Narayana Hrudayalaya Ltd. 1.4 38.7 0.0 0.3 3.7% 6.5% 207.0 7.6 4.8 47.0 4.6
Kovai Medical Center and Hospital Ltd. 35.4 144.3 1.5 0.7 24.6% 25.0% 18.6 4.6 1.7 8.7 1.6
Average 12.0 100.7 1.6 0.3 10.4% 11.8% 78.2 3.8 2.3 23.2 2.2
Company Name
Face Value
(Rs.)
CMP (Rs.)
MCAP (Rs.
mn)
TTM Total Operating
Revenue (Rs. mn)
TTM EBITDA
Margin (%)
TTM PAT
Margin (%)
Healthcare Global Enterprises Ltd. 10 218 18,547 5,494 14.7% 0.2%
Apollo Hospitals Enterprise Ltd. 5 1,403 195,220 52,165 14.0% 7.1%
Fortis Healthcare Ltd. 10 169 78,445 42,003 5.0% 1.2%
Indraprastha Medical Corporation Ltd. 10 51 4,639 7,236 11.2% 4.2%
Fortis Malar Hospitals Ltd. 10 54 1,007 1,269 5.9% 5.7%
Narayana Hrudayalaya Ltd. 10 293 59,878 13,076 10.1% 2.2%
Kovai Medical Center and Hospital Ltd. 10 660 7,222 4,501 19.9% 8.6%
Average 11.0% 4.8%
Mar. 15, 2016

IPO Update
IPO UPDATE 11
Financial Statements:
Consolidated Profit and Loss Statement
Income from Medical Services 1,318.9 1,648.3 2,221.0 3,009.8 3,395.7 1,690.7 1,951.7 2,578.6
Income from Pharmacy 826.9 1,014.4 1,150.8 1,477.3 1,762.9 847.8 870.4 1,170.5
Other Operating Income 2.4 3.1 11.3 26.3 35.2 15.9 32.2 39.8
Revenue from Operations 2,148.2 2,665.8 3,383.1 4,513.3 5,193.8 2,554.5 2,854.3 3,788.9
Purchase of Stock-in-Trade (637.1) (828.3) (1,057.9) (1,354.2) (1,493.7) (753.5) (753.7) (984.1)
Increase / (Decrease) in Stock-in-Trade 20.7 17.5 22.6 20.1 33.4 20.1 (0.9) (6.4)
Employee Benefits Expense (322.8) (421.5) (534.7) (767.6) (815.1) (396.3) (475.2) (642.8)
Other Expenses (830.3) (1,021.1) (1,350.8) (2,029.2) (2,155.9) (1,051.9) (1,206.1) (1,598.2)
EBITDA 378.7 412.3 462.3 382.4 762.4 372.8 418.5 557.4
Depreciation & Amortization Expense (176.1) (237.7) (295.7) (361.8) (398.3) (199.0) (217.2) (289.9)
EBIT 202.6 174.6 166.6 20.7 364.2 173.9 201.3 267.5
Finance Costs (136.1) (239.8) (291.8) (322.3) (342.3) (169.2) (177.8) (244.2)
Other Income 13.7 36.3 23.8 39.7 48.2 14.7 18.5 24.0
Exceptional Expenses (4.6) (45.6) (45.6) (27.2) (50.5)
EBT 80.2 (28.8) (101.5) (266.5) 24.4 (26.3) 14.7 (3.3)
Tax Expenses (9.8) (2.3) (7.1) (53.5) 16.8 34.4 1.7 (7.3)
PAT 70.4 (31.1) (108.6) (320.0) 41.2 8.1 16.4 (10.6)
Minority Interest (7.4) (2.3) 3.5 (35.5) (35.8) (19.3) (23.9) (26.5)
Reported PAT 63.0 (33.3) (105.1) (355.5) 5.5 (11.2) (7.5) (37.1)
Consolidated Balance Sheet
Share Capital 533.0 592.7 668.9 682.5 699.8 688.3 729.6 734.8
Shares Pending Allotment 1.1 5.8 5.8 8.5 8.5
Share Application Money Pending Allotment 72.9
Reserves and Surplus 1,103.5 1,519.6 2,159.3 1,949.4 2,086.6 1,975.4 2,188.2 2,210.6
Minority Interest 54.0 82.2 125.8 183.1 253.0 170.3 300.1 272.0
Long-Term Borrowings 937.2 1,354.0 2,393.4 2,518.0 2,802.4 2,423.7 3,311.7 3,582.5
Deferred Tax Liabilities (Net) 14.7 15.5 14.6 12.1 5.2 3.7 5.1 5.9
Other Long-Term Liabilities 106.2 130.9 19.4 13.7 16.1 11.8 11.1
Long-Term Provisions 30.5 23.9 32.3 21.9 22.6 19.2 25.2 24.7
Short-Term Borrowings 215.7 517.2 380.2 180.0 292.7 394.3 400.6 268.9
Trade Payables 361.7 362.8 527.2 705.4 832.7 926.7 967.7 989.4
Other Current Liabilities 301.5 477.7 647.1 582.9 709.9 656.5 693.9 772.6
Short-Term Provision 2.0 10.0 4.4 26.3 34.7 37.4 38.4 39.2
Total Liabilities 3,627.7 5,061.8 7,089.8 6,886.7 7,761.7 7,319.8 8,672.2 8,911.6
Tangible Fixed Assets 2,534.4 3,766.3 4,222.9 4,337.5 4,516.9 4,273.5 4,643.0 4,596.6
Intangible Fixed Assets 8.9 9.7 192.7 175.7 159.2 166.3 30.6 28.4
Capital work-in-Progress 37.3 48.2 62.7 108.7 422.4 190.5 878.2 1,334.3
Goodwill on Consolidation 88.7 98.7 606.6 602.0 608.9 608.8 608.9 608.9
Non-Current Investments 1.2 1.2 2.2 23.3 1.2 39.4 1.2 1.2
Deferred Tax Asset (Net) 19.1 17.7 11.4 2.3 58.8 60.4 77.5 72.3
Long-Term Loans and Advances 415.5 250.6 396.1 492.5 699.7 612.5 875.1 842.8
Other Non-Current Assets 19.4 29.9 47.5 48.2 74.9 45.9 82.0 94.8
Current Investments 8.3 0.9 603.7
Inventories 53.2 70.7 99.7 119.8 145.5 132.2 141.5 136.0
Trade Receivables 291.6 430.7 601.8 528.6 638.1 733.8 698.9 747.3
Cash and Bank Balances 57.5 166.3 106.7 254.8 269.5 201.4 272.4 195.1
Short-Term Loans and Advances 51.6 108.6 66.7 117.6 80.5 162.4 90.6 91.5
Other Current Assets 41.1 62.5 69.0 75.7 86.1 92.9 272.3 162.5
Total Assets 3,627.7 5,061.8 7,089.8 6,886.7 7,761.7 7,319.8 8,672.2 8,911.6
Mar. 15, 2016

IPO Update
IPO UPDATE 12
Financial Statements (Contd…):
* Represents per share calculation based on number of shares o/s post issue; Source: Choice Broking Research, Company DRHP
Consolidated Cash Flow Statement
Cash Flow from Operating Activities 363.7 186.9 311.3 514.2 596.5 196.0 362.4 474.5
Cash Flow from Investing Activities (343.8) (459.2) (1,970.1) (116.0) (797.1) (387.8) (846.1) (1,221.0)
Cash Flow from Financing Activities (8.4) 380.9 1,396.0 (268.5) 215.6 129.7 485.0 678.3
Net Cash Flow 11.5 108.6 (262.9) 129.7 15.1 (62.2) 1.3 (68.3)
Opening Balance of Cash & Cash Equivalents 46.1 57.7 369.6 125.1 254.5 263.5 271.1 263.3
Closing Balance of Cash & Cash Equivalents 57.5 166.3 106.7 254.8 269.5 201.4 272.4 195.1
Consolidated Financial Ratios
Revenue Growth 24.1% 26.9% 33.4% 15.1% - 11.7% -
EBIDTA Growth 8.9% 12.1% -17.3% 99.4% - 12.2% -
EBIDTA Margin 17.6% 15.5% 13.7% 8.5% 14.7% 14.6% 14.7% 14.7%
EBIT Growth -13.8% -4.6% -87.6% 1660.9% - 15.8% -
EBIT Margin 9.4% 6.6% 4.9% 0.5% 7.0% 6.8% 7.1% 7.1%
Reported PAT Growth -152.9% 215.6% 238.1% -101.5% - -32.9% -
Reported PAT Margin 2.9% -1.2% -3.1% -7.9% 0.1% -0.4% -0.3% -1.0%
Liquidity Ratios
Current Ratio 0.8 1.0 1.3 0.8 0.8 0.8 0.9 0.7
Quick Ratio 0.7 0.9 1.2 0.7 0.7 0.7 0.8 0.7
Interest Coverage Ratio 1.5 0.7 0.6 0.1 1.1 1.0 1.1 1.1
Debt Equity Ratio 0.7 0.9 0.9 1.0 1.0 1.0 1.2 1.2
Turnover Ratios
Inventory Turnover Ratio 40.3 37.7 33.9 37.7 35.7 19.3 20.2 27.9
Receivable Turnover Ratio 7.4 6.2 5.6 8.5 8.1 3.5 4.1 5.1
Accounts Payable Turnover Ratio 5.9 7.3 6.4 6.4 6.2 2.8 2.9 3.8
Fixed Asset Turnover Ratio 0.8 0.7 0.7 0.9 0.9 0.5 0.5 0.6
Total Asset Turnover Ratio 0.6 0.5 0.5 0.7 0.7 0.3 0.3 0.4
Return Ratios
RoE (%) 3.6% -1.5% -3.6% -12.6% 0.2% -0.4% -0.2% -1.2%
RoA (%) 1.7% -0.7% -1.5% -5.2% 0.1% -0.2% -0.1% -0.4%
RoCE (%) 6.8% 4.1% 2.8% 0.4% 5.9% 3.1% 2.9% 3.8%
Per Share Data
Restated BVPS 20.7 25.8 34.8 33.2 35.8 33.4 37.8 37.8
Restated Basic and Diluted EPS 0.7 (0.4) (1.2) (4.2) 0.1 (0.1) (0.1) (0.4)
Restated Cash EPS 2.8 2.4 2.2 0.1 4.7 2.2 2.5 3.0
Restated Operating Cash Flow Per Share
(OpCFPS)
4.3 2.2 3.7 6.0 7.0 2.3 4.3 5.6
Mar. 15, 2016

IPO Update
IPO UPDATE
es
13
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IPO UPDATE
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Name Designation Email id Contact No.
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Rajnath Yadav Research Analyst rajnath.yadav@choiceindia.com 022 - 6707 9912
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