Annual Report - Apollo Hospitals - 2009-2010

APOLLO HOSPITALS ENTERPRISE LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

Your Directors are pleased to present the TWENTY NINETH ANNUAL REPORT and
the audited statements of accounts for the year ended 31st March 2010.



Financial Results:
(Rs. in million)
For the year ended 31st March 2010 31st March 2009

Total Income 18587 14803

Profit before Extraordinary
Items and Taxation 2222 1763

Provision for Taxation 702 542

Net Profit before Extraordinary
Item after Taxation 1520 1221

Extraordinary Item - 40

Net Profit after Extraordinary
Item and Taxation 1520 1181

Balance of Profit brought forward 1209 1248

Profit Available for appropriations 2729 2429

Appropriations

Dividend (inclusive of dividend tax) 504 470

Transfer to General Reserve 750 750

Balance carried forward to
Balance sheet 1475 1209

Results of Operations:

During the year under review, the gross revenue of the Company increased to
Rs. 18587 million compared to Rs. 14803 million in the previous year,
registering an impressive growth of 26%. The profit after tax for the year
increased by 29% to Rs.1520 million compared to Rs. 1181 million in the
previous year.

During the year under review, the consolidated gross revenue of the Company
increased to Rs.20587 million compared to Rs. 16350 million in the previous
year, registering an impressive growth of 26%. Net profit after minority
interest for the group increased to Rs.1376 million from Rs.1025 million
representing a growth of 34%.

Consolidated Financial Statements:

Your Company has been granted exemption from attaching the financial
statements of its subsidiary companies in India and abroad, to the balance
sheet of your Company for the financial year 2009-2010, under Section
212(8) of the Companies Act, 1956 by the Ministry of Corporate Affairs
(MCA). A statement of summarized financials of all subsidiaries of your
Company, pursuant to the approval under Section 212(8) of the Companies
Act, 1956 forms part of this report. Any further information in respect of
the annual report and the financial statements of the subsidiary companies
of your Company will be made available to the members on request. In
accordance with the Accounting Standard, AS-21 issued by the Institute of
Chartered Accountants of India, Consolidated Financial Statements presented
by your Company include the financial information of all its subsidiaries.

Dividend:

The Board of Directors recommend a dividend of Rs.7/- per Equity Share (70%
on par value of Rs.10/-) (as against Rs.6.50 per Equity share, 65% in the
previous year) on the paid up equity share capital of the Company for the
financial year ended 31st March 2010, which if approved at the forthcoming
Annual General Meeting on 26th July 2010 will be paid to those shareholders
whose names appear in the Register of Members as at the closing hours of
business on 16th July 2010. In respect of shares held in electronic form,
the dividend will be paid on the basis of beneficial ownership information
furnished by the depositories viz., NSDL and CDSL for this purpose.

The Register of Members and Share Transfer Books will remain closed from
17th July 2010 to 26th July 2010 (both days inclusive).

Transfer of Reserves:

Your Company proposes to transfer Rs.750 million to the general reserve out
of the amount available for appropriations. An amount of Rs.1475 million is
proposed to be retained in the profit & loss account.

Credit Rating:

CRISIL has assigned to the company a grade of 4/5, indicating a superior
rating with strong fundamentals.

Subsidiaries:

Your Company has ten subsidiary companies as on March 31, 2010. The
statement in respect of the details of the subsidiary companies viz.,
Unique Home Health Care Limited (UHHCL), AB Medical Centres Limited
(ABMCL), Samudra Healthcare Enterprises Limited (SHEL), Apollo Hospital
(UK) Limited (AHUKL), Apollo Health and Lifestyle Limited (AHLL), Apollo
Cosmetic Surgical Centre Pvt. Limited (ACSPL), Pinakini Hospitals Limited
(PHL), Imperial Hospital and Research Centre Limited (IHRCL), ISIS
Healthcare India Private Limited (ISIS) and Mera Healthcare India Private
Limited (MERA) pursuant to section 212 of the Companies Act, 1956, is
attached to this report.

Unique Home Health Care Limited (UHHCL)

UHHCL, a wholly owned subsidiary of the Company provides medical and
paramedical services including doctor's consultation, physiotherapy direct
to patient homes and also offers paramedical service in hospitals to
critically ill patients. For the year ended 31st March 2010, UHHCL recorded
a revenue of Rs.23.60 million and net profit of Rs.11.08 million.

AB Medical Centres Limited (ABMCL):

ABMCL, a wholly owned subsidiary of the Company does not have any
commercial operations as it has leased out its infrastructure viz., land,
building and medical equipment to the Company for running the hospital. For
the year ended 31st March 2010, ABMCL recorded an income of Rs.6.64 million
and a net profit of Rs.3.98 million.

Samudra Healthcare Enterprises Limited (SHEL):

SHEL, a wholly owned subsidiary of the company, runs a 120 bed multi
speciality hospital at Kakinada. For the year ended 31st March 2010 SHEL
recorded revenues of Rs.216.79 million and a net profit of Rs. 17.40
million.

Apollo Hospital (UK) Limited (AHUKL):

AHUKL is a wholly owned foreign subsidiary of the Company and is yet to
commence its operations.

Apollo Health and Lifestyle Limited (AHLL):

AHLL, a subsidiary of the Company is engaged in the business of providing
primary healthcare facilities through a network of franchised clinics
across India offering specialist consultation, diagnostics, preventive
health checks, telemedicine facilities and a 24-hour pharmacy all under one
roof. For the year ended 31st March 2010 AHLL recorded a consolidated
revenue of Rs.87.97 million and a net loss of Rs. 2.45 million.

Pinakini Hospitals Limited (PHL):

As a part of its strategy to reach out to the tier II towns and cities, the
company intends to build a hospital in Nellore at a total project cost of
Rs.600 million through a subsidiary company, Pinakini Hospital Limited.

Apollo Cosmetic Surgical Centre Pvt. Limited (ACSPL):

ACSPL, a 66.91% subsidiary of the company is engaged in the business of
running cosmetic surgical centres. For the year ended 31st March 2010 ACSPL
recorded a revenue of Rs.10.72 million and a net loss of Rs.6.88 million.

Imperial Hospital and Research Centre Limited (IHRCL):

IHRCL, a 51% subsidiary of the company owns a 240 bed multi speciality
hospital at Bengaluru. For the year ended 31st March 2010 IHRCL recorded a
revenue of Rs.704.17 million and a net loss of Rs. 67.94 million.

ISIS Healthcare India Private Limited (ISIS):

ISIS, a subsidiary of Apollo Health and Lifestyle Limited is engaged in the
business of providing healthcare services. For the year ended 31st March
2010, ISIS recorded a revenue for Rs. 14.02 million and a net loss of
Rs.1.58 million.

Mera Healthcare India Private Limited (MERA):

MERA, a subsidiary of Apollo Health and Lifestyle Limited is engaged in the
business of providing healthcare services. For the year ended 31st March
2010, MERA recorded a revenue of Rs.8.99 million and a net loss of Rs.0.16
million (Mera was acquired by AHLL on July 11th 2009, the revenue and
profitability is for the period 11th July 2009 to 31st March 2010)

Corporate Social Responsibility:

This year too Apollo Hospitals undertook several initiatives as an
expression of its deep commitment to societal welfare. Some of the more
significant ones are listed below:

* 'Billion Hearts Beating' campaign, our Corporate Social initiative in
association with the Times of India Foundation for increasing awareness of
Heart diseases across the country has evoked a tremendous response with
more than 16,000 pledges within three weeks of launch. The momentum is
expected to accelerate with several leading corporates expressing eagerness
to participate in this fight against heart disease.

* The Apollo Hospitals Group signed a memorandum of understanding with the
Union Government to set up 'Central Government Health Scheme - Apollo
Dialysis Clinics' to provide specialised services to kidney patients
enrolled under the CGHS.

* Apollo Group completed 2,500 cardiac surgeries performed under the
auspices of SACH - Save A Child's Heart, our endeavour to support the
medical treatment expenses of underprivileged children ailing with serious
congenital heart disease.

* Under SAHI, our initiative to aid the hearing impaired children, almost
1,000 children were screened, over 150 were referred for surgery and 160
were provided with hearing aids.

* Apollo Hospitals set up on-site medical centres, to provide immediate
attention at various international sports events, exhibitions and pilgrim
congregations. This apart different hospitals in the group conducted
several free medical camps in their neighbouring areas, which were highly
appreciated.

Increase in Paid-up Share Capital:

During the year, the paid-up share capital of the Company increased from
Rs.602,357,020/-(consisting of 60,235,702 equity shares of Rs.10/-each) to
Rs.617,848,590/- (consisting of 61,784,859 equity shares of Rs.10/- each)
consequent to the allotment of 1,549,157 equity shares to Dr. Prathap C
Reddy upon conversion of 1,549,157 warrants on 18th April 2009 at a price
of Rs.497.69 per share including a premium of Rs. 487.69 per share.

These shares have been listed at Bombay Stock Exchange Limited (BSE) and
National Stock Exchange India Limited, (NSE), Mumbai.

Issue of Foreign Currency Convertible Bonds (FCCBs):

During the year, your company issued 1500 Unsecured Foreign Currency
Convertible Bonds (FCCB) with a face value of USD 10,000 each aggregating
to US$ 15,000,000 to International Finance Corporation, Washington, with an
option of converting the FCCBs into equity shares at a price of Rs.605/-
per share.

Issue of warrants convertible into equity shares to Dr. Prathap C Reddy:

Your company has issued 1,544,621 convertible share warrants to Dr. Prathap
C Reddy, one of the promoters of the company on a preferential basis under
the applicable SEBI guidelines.

These warrants have been issued with a convertible option to be exercised
within a period of 18 months from the date of allotment. Each warrant
issued can be converted into one equity share of the company of nominal
value of Rs.10/- each at a price of Rs.771.76 which includes a premium of
Rs.761.76 per share calculated in accordance with the Securities and
Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009.

The objective of this preferential issue was to part fund the expansion
activities, finance additional, working capital requirements and general
corporate purposes.

Proceeds of Preferential Issues:

The details of utilization of proceeds of preferential issues upto 31st
March 2010, are set out in the statement attached herewith as Annexure - A.

Corporate Governance:

Pursuant to clause 49 (VII) of the Listing Agreement with the Stock
Exchanges, a separate report on , Corporate Governance forms part of the
Directors' Report in the Annual Report. Your Company is compliant with the
requirements of the Listing Agreement and necessary disclosures have been
made in this regard in the Corporate Governance Report.

A certificate from the Auditors of the Company regarding compliance with
conditions of Corporate Governance as stipulated under Clause 49 of the
Listing Agreement is attached to this report.

Human Resources Development:

We at Apollo believe that employees are our most valued assets who live the
values of the enterprise in delivering excellence in patient care at every
touch point 24/7 symbolizing a ray of hope for millions, looking for a
cure. All our employees embrace the philosophy of 'Tender Loving Care'
(TLC) as a way of life and the entire Apollo family is committed towards
touching a billion lives.

Our human resources team strives to align the HR policies with the business
goals and help in creating a performance driven culture. Various
initiatives such as performance linked to rewards, transparent and
consultative review process, building a high performance work system have
facilitated businesses growth. The total employee strength as on March 2010
is 21,080 as against 19,088 for the year ended March 2009.

We believe that 'employee opinion matters' and hence carry out climate
surveys on a regular basis. The Organization Climate Survey 2009 covered
responses from employees on various themes such as Sense of belonging,
Organization, Work environment, Role of HOD / Superior, Role Clarity,
Employees Initiatives, CommunicationDecision Making process, Training,
Team Building, Interdepartmental Coordination, Compensation, Staff Welfare
& Customer satisfaction and based on the feedback development action plans
were evolved.

Highly structured Performance Management System (Apollo Performance
Management System) across the Group covering all Management cadre employees
was institutionalized focusing on alignment, measurement and reward and
recognition including Personal Development Plan.

In our endeavour to improve the efficiency and effectiveness of our
processes, we embarked on the journey of Lean Six Sigma (LSS) with an
objective to become the pioneer in Indian Healthcare adopting LSS for 'next
practices' in establishing world class reliability standards for excellence
in patient care service.

To integrate Six Sigma with every part of our organization we have launched
'Mission 2012' with a unique Apollo Logo - To have certified 50 Black
belts, 500 Green belts a 5,000 Yellow belts across the group. Today we have
400 Trained Green Belts in our group and 12 Black Belts. Black Belt and
Green Belt certification will be based on projects focusing on cost saving
and process improvement which helps in improving customer satisfaction
followed by an examination by the Indian Statistical Institute.

The HR teams have prioritized Excellence in Patient Care through TLC as a
way of life as the theme for the year with focus on Personal productivity
and Team work, improving young talent ratios and developing the next
generation leadership for the Group.

Directors' Responsibility Statement:

Pursuant to Section 217(2AA) of the Companies (Amendment) Act 2000, the
Directors of the Company hereby state and confirm that:

* In the preparation of the annual accounts for the year, the applicable
accounting standards had been followed along with proper explanations and
there were no material departures;

* The Directors had selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company at the end of the financial year and of the profit of the Company
for that period;

* The Directors had taken proper and sufficient care for the maintenance
of adequate accounting records in accordance with the provisions of
Companies Act, 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities;

* The Directors had prepared the annual accounts on a going concern basis.

Fixed Deposits:

The total deposits with the Company as on 31st March 2010 was Rs.510.67
million (Rs.136.15 million as on 31st March 2009) which include deposits
for an aggregate value of Rs. 7.53 million (Rs.4.64 million as on 31st
March 2009) not claimed by the depositors. Out of these deposits, an
aggregate value of Rs.2.37 million have since been repaid / renewed.

Directors:

As per the provisions of the Articles of Association of Company, four
Directors of the Company viz., Shri. N. Vaghul, Shri. T.K. Balaji, Shri.
Rajkumar Menon and Shri.Khairil Anuar Abdullah retire by rotation at the
ensuing Annual General Meeting and are eligible for re-appointment.

Shri. Neeraj Bharadwaj resigned as a Director with effect from 29th October
2009.

Shri. P. Obul Reddy relieved from the Board with effect from 28th January
2010 consequent to his inability to continue as a director on health
grounds.

The Board wishes to place on record its appreciation for the contributions
made by Shri.P.Obul Reddy and Shri.Neeraj Bharadwaj during their tenure on
the Board of the Company.

New Directors:

Shri. Sandeep Naik, was appointed as an Additional Director with effect
from 29th October 2009.

Smt. Shobana Kamineni was appointed as an Additional Director and Whole
Time Director designated as Executive Director - Special Initiatives, with
effect from. 1st February 2010.

Auditors:

The Auditors, M/s. S. Viswanathan, Chartered Accountants, retire at the
ensuing Annual General Meeting and have confirmed their eligibility and
willingness to accept office, if reappointed.

Particulars of Employees as per Section 217(2A) of the Companies Act, 1956.

In terms of provisions of Section 217(2A) of the Companies Act, 1956, read
with the Companies (Particulars of Employees) Rules, 1975, the names and
other particulars of employees are set out in the Annexure to the
Directors' Report. However, having regard to the provisions of Section
219(1 )(b)(iv) of the Companies Act, 1956, the Annual Report excluding the
aforesaid information is being sent to all the members of the company and
others entitled thereto. Any member interested in obtaining such
particulars may write to the Company Secretary at the Registered Office of
the Company

Particulars regarding Conservation of Energy, Technology Absorption and
Foreign Exchange Earnings and Outgo:

Particulars as required to be disclosed as per the Companies (Disclosure of
Particulars in the Report of Board of Directors) Rules, 1988 are set out in
the statement attached herewith as Annexure - B.

Acknowledgement:

Your Directors wish to place on record their appreciation of the
contribution made by the employees at all levels, to the continued growth
and prosperity of your company.

Your Directors also wish to place on record their appreciation of business
constituents, banks and other financial institutions and shareholders, of
the Company for their continued support.

For and on behalf of the Board of Directors

Place: Chennai Dr. Prathap C Reddy
Date : 28th May 2010 Executive Chairman

Annexure A to the Directors' Report

Details of Utilization of Proceeds of Preferential Issues upto 31st March
2010.

(Rs. in million)

A. Funds Received through Preferential Issue

Opening Balance as on 1st April 2009 2400.00

Amount received from the Promoter during the year 693.00

Total Funds Received 3093.00

B. Particulars of Utilisation

Investment into New Projects 1091.00

Investment into equity/debentures of /Loans to
group Companies 825.00

Capital Expenditure a Working Capital 1177.00

Total Amount Utilised upto 31st March 2010 3093.00

Annexure - B to the Directors' Report

Energy Conservation, Technology Absorption and Foreign Exchange Earnings
and Outgo:

Conservation of Energy:

The operations of the company are not energy-intensive. However,
significant measures are being taken to reduce energy consumption by using
energy-efficient equipment.

Your Company constantly evaluates and invests in new technology to make its
infrastructure more energy efficient.

As energy costs comprise a very small part 61 your Company's total
expenses, the financial implications of these measures are not
materialise

Technology Absorption:

Over the years your Company has brought into the country the best that the
world has to offer in terms of technology. In its continuous endeavour to
serve the patients better and to bring healthcare of international
standards within the reach of every individual your company has introduced
the latest technology in its hospitals.

1. PET/CT scanner:

PET/CT is a powerful non-invasive diagnostic tool that in many cases
renders answers that no other imaging test can provide. PET imaging can
reveal metastatic changes in a patient's body that will be further examined
by a physician. PET/CT streamlines clinical care by facilitating clinical
decisions and avoiding needless surgery or hospital stays with earlier
staging, and monitoring of disease and drug therapy.

Apollo Specialty Hospital, Chennai is equipped with India's First Phillips
GEMINI Time-of-flight -64 slice PET/CT system, which provides very high
resolution clinical images for better, accurate and early diagnosis. In
addition to its use in diagnosing and staging cancer, PET/CT is changing
the way cancer therapies are evaluated by predicting therapeutic responses
very early in the course of therapy. Based on changes in the tumor's
glucose metabolism, physicians can decide if chemotherapy treatment should
continue or if they should switch to another treatment modality. PET/CT is
also being used to improve radiation therapy planning. Physicians are able
to specifically target the metabolically active portions of the patient's
tumor - they can increase the radiation dose to active areas while reducing
the dosage to adjacent areas. Physicians can look for a decrease in the
tumor's metabolic activity following one or more rounds of treatment.

Philips exclusive 4D Time-Of-Flight (4D-TOF)PET/ CT technology represents
the latest step forward in imaging tumors in the chest, abdomen and pelvis.
4D PET/CT takes advantage of the new faster, more accurate PET and CT
technology to capture the internal movement of the organs and the tumor
over time, while also capturing the metabolism of the tumor. With the help
of 4D-TOF art oncologist can see how the tumor moves with breathing and
other normal body motions, and also see what parts of the tumor require
more or less radiation.

The Emory Cardiac Toolbox 3.1TM (ECTb) software provides advanced tools for
comprehensive cardiac PET analysis including fast and enhanced assessment
of myocardial perfusion and viability with minimal operator interaction.

The NeuroQ is an automated display and analysis program to quantify
regional cerebral activity from PET images and compares PET image data with
FDG-PET human brain study data from defined group of asymptomatic controls.
NeuroQ is an advanced quantitative analysis software and is very useful in
FDG imaging of dementia.

2. State-of-the-art Radiotherapy equipment at Apollo Gleneagles Hospital,
Kolkata:

Novalis Tx is useful for highly advanced stereotactic radiosurgery. The
Novalis Tx platform incorporates two complementary imaging systems that
work together to enhance treatment precision by enabling doctors to target
areas being treated. The ETXTM (ExacTrac@) room-based X-ray imaging system
provides real-time imaging and fine-tuning of a robotic couch that moves in
six dimensions to ensure that the targeted lesion is aligned with the
treatment beam during treatment. The OBI. (On-Board Imager) cone-beam CT
imaging system quickly generates a high-quality 3-D image of the targeted
lesion and surrounding tissues, so clinicians can see the precise location
and shape of the tumor, fine-tune the patient's position, and make sure
that the internal anatomy has not shifted or changed prior to treatment.
The platform's complementary imaging tools make it possible to track motion
during treatment, so targeting can be adjusted if the patient shifts by
even a few millimeters. The Novalis Tx platform also cart synchronize
treatment with the patient's normal breathing patterns to compensate for
motion when treating in or near the lungs.

The Clinac iX is an ideal platform for Dynamic IMRT and beyond. It is
designed to enable therapists to deliver the most sophisticated, complex
treatments within a normal treatment timeframe. It is a comprehensive,
workflow-oriented solution that will enable treatment facilities to
implement IMRT/IGRT more quickly and easily.

Foreign Exchange Earnings & Outgo:

Foreign Exchange Earnings : Rs. 180.45 million (This is exclusive of Rupee
payment made by Non-Resident Indians and Foreign Nationals)

Foreign Exchange Outgo : Rs.863.52 million which includes a sum of
Rs.808.97 million towards purchase of medical equipment and capital
expenditure.

Management Discussion and Analysis:

We recommend that you read this discussion together with our financial
statements and related notes included elsewhere in this report. Unless
otherwise indicated, all relevant financial and statistical information
included herein relates to our continuing operations.

We make forward looking statements in this report; In addition, our senior
management makes forward-looking statements orally to analysts, investors,
the, media and others. Do not unduly rely on forwards looking statements,
which give our expectations about the future and are not guarantees. We do
not undertake any obligation to update our forward looking statements to
reflect events or circumstances after the date of this document or to
reflect the occurrence of unanticipated events.

Global Perspective:

World Economy:

The global economy has been improving since the second quarter of 2009.
International trade and global industrial production have recovered
noticeably, with an increasing number of countries registering positive
quarterly growth of gross domestic product (GDP). The economic revival has
been driven in no small part by the effects of the massive policy stimuli
injected worldwide since late 2008.

However, the recovery is uneven and conditions for sustained growth remain
fragile. Credit conditions ire still tight in major developed economies,
where many major financial institutions need to continue the process of de-
leveraging and cleansing their balance sheets.

Going forward, global economic recovery is expected to remain sluggish,
unemployment rates will stay high and inflation will remain low. Developing
countries, especially those in Asia, are expected to show the strongest
recovery in 2010. Nonetheless, growth in the developing world is expected
to remain sluggish and it would be difficult to achieve the pre-crisis
levels of performance in the short-term.

Indian Economy:

GDP growth in 2008-09 was lower at 6.7% as it was impacted by the after
effects of the financial crisis which originated in September, 2008 and the
effects of the crisis were carried forward in FY09-10. However, the
elections in May, 2009 were an inflection point for the Indian economy as a
favourable result for the ruling party dispelled the overhang of political
instability. This was a catalyst for the Indian economy to shake off the
effects of the last one year and to resume its normal cycle of growth led
by domestic demand.

As a result, there was a recovery in GDP growth in 2009-2010. While the GDP
estimates for 2009-10 projected a growth rate of at 7.2% in 2009-10, the
reported GDP growth was ahead of expectations at 7.4%. This was buoyed by
strong GDP growth of 8.7% in the fourth quarter.

There has been an improvement in almost all 'Sub-sectors of the economy
with core sectors of manufacturing, mining, power generation, automobiles,
telecom & IT reporting robust growth rates. Positive factors such as of
improved liquidity, moderate interest rates, buoyant capital markets and
resumption of international trade have brought the Indian economy within
touching distance of pre-crisis growth rates.

Given the momentum, the Finance Ministry is projecting a growth rate of
8.5% in GDP for FY2010-11. However, there are conflicting reports which
state that constraints like manpower shortage, inadequate infrastructure
and the growing crisis in Europe may be impediments limiting further
increases in the GDP growth rate.

Industry Structure & Developments:

Global Healthcare:

The people today are healthier, wealthier with a longer life span today
than 30 years ago. There have also been significant improvements in access
to water, sanitation and antenatal care. This shows that progress is
possible and can be accelerated.

There have never been more resources available for health than now. The
global health economy is growing faster than gross domestic product (GDP),
having increased its share from 8% to 8.6% of the world's GDP between 2000
and 2005. In absolute terms, adjusted for inflation, this represents a 35%
growth in the world's expenditure on health over a five-year period.

While the events over the last two financial years have severely impacted
all industries worldwide, the Global Healthcare sector has historically
been fairly resilient to recessions, though it is not 'recession proof. The
long-term prospects for the sector are good, due to strong growth in
emerging markets, coupled with ageing population, and growing levels of
lifestyle-related chronic diseases in the developed world drive demand.
However, the industry dynamics are fundamentally changing. The application
of newer technologies and marketing strategies are transforming healthcare
delivery systems worldwide.

The developed nations have well established systems in place and have
reached maturity in their domestic healthcare industries. However, there
are critics who argue that healthcare is extremely expensive in these
countries and is out of reach for the poorest families. It is believed that
the intermediaries in the system are causing greater inefficiencies and not
achieving their objective of increasing penetration of healthcare coverage.
The healthcare reforms in the U.S. aim to address some of these concerns
and attempt to make healthcare available to all. These reforms aims to
cover 95% of all Americans and to make the systems more competitive and
accountable.

Further, healthcare delivery in developed countries is facing increasing
competition from developing countries, especially India, Thailand and
Singapore which are able to provide comparable quality of healthcare at a
fraction of the cost.

The most significant catalyst for change in the Global Healthcare industry
will not be new regulations but the increasing use of technology.
Technology is giving rise to new clinical therapies which in turn are
addressing more and more medical ailments and aiding in earlier diagnosis
and prevention of diseases. Another emerging trend is the paperless
hospital or digitized patient information that can be accessed from
numerous locations. Thus reports do not have to be processed and printed
and can be made available instantly and at multiple locations to facilitate
consultation between the doctor and the patient even when they are not at
the same location.

All these trends lead to an increase in healthcare productivity this means
more patients can be put through the healthcare system by using better,
faster diagnostic equipment, which leads to early ailment diagnosis and
treatment. When the paperless hospital becomes a reality, productivity is
further enhanced because of instant patient test results and records
access. Such initiatives will be imperative for healthcare providers in the
developed world if they are to compete with emerging competition from
developing countries.

Healthcare in India:

The healthcare industry in India, which comprises hospital and allied
sectors, is projected to grow 23% every year and touch a figure US$ 77
billion by 2012 according to a Yes Bank and ASSOCHAM report.

The sector has registered a growth of 9.3 per cent between 2000-2009,
comparable to the sectoral growth rate of other emerging economies such as
China, Brazil and Mexico. According to the report, the growth in the sector
would be driven by healthcare facilities - both private and public, medical
diagnostic and pathlabs as well as the medical insurance sector.

These projections are reinforced in a separate report by KPMG which states
that the Indian healthcare industry is estimated to double in value by 2012
and more than quadruple by 2017.

Such a robust pace of growth is being driven by several factors, viz. a
large and growing population, increasing per capita income leading to a
desire for a better quality of life which includes superior healthcare
facilities and historical under-investment in healthcare infrastructure.

Although over half of India's population is under the age of 30, suggesting
below average demand for healthcare, there is an increasing prevalence of
lifestyle diseases. India is already home to the largest population of
persons affected by diabetes and heart disease and is projected to become
the cancer capital of the world.

Consumer expectations for improved healthcare are increasing in the country
and affordability of premium quality healthcare is on the rise due to the
increase in per-capita income, exposure to global trends and standards,
increasing prevalence of corporate healthcare plans in line with growth of
the domestic workforce and increasing penetration of health insurance.

India is also emerging as a favoured destination for medical tourism.
India's private hospitals have gained international recognition for their
state-of-the-art facilities and diagnostic centres besides comparable skill
sets. Their technology and procedures are on par with hospitals in
developed nations. Thus the ability to provide quality medical care at a
fraction of the cost has established India as a preferred destination for
medical tourism contributing to the burgeoning demand for healthcare in
India. A McKinsey survey forecasts the arrival of foreign patients to
expand at over 40% annually and this segment alone is expected to record
revenues of USD 2 billion by 2012.

The Indian healthcare sector has been plagued by under investment over the
years. India lags behind in terms of availability of hospital beds as there
are only 0.7 beds per 1,000 population in our country against a world
average of 4 beds per 1,000 population. This is attributable to a mix of
factors including restricted availability of capital, lack of regulatory
intent, etc. among others. Over the last decade India's economic position
has improved significantly with a steadily improving GDP, increasing
foreign exchange reserves and higher capital inflows. Further, factors such
as substantial increase in domestic savings, growth of capital markets and
easier access to overseas borrowings have contributed to a significant
improvement in the supply of capital to invest in healthcare infrastructure
and facilities.

Lastly, there is an increase in regulatory focus and intent towards the
healthcare sector. The Government has mandated a 4 fold increase in
allocation to the Ministry of Health 6t Family Welfare in its five year
plans - from Rs. 36,079 crore in the 10th Plan to Rs. 140,135 crore in the
11th Plan. This focus is being implemented through flagship schemes such as
the National Rural Health Mission and the Pradhan Mantri Swasthya Suraksha
Yojana (PMSSY) among others.

The Central Government also proposes to initiate an urban health mission
similar to the National Rural Health Mission owing to large migration from
rural to urban areas and the rising expectations of a steadily increasing
urban population going forward. There are also expectations that there will
be reforms in the healthcare infrastructure development process, such as
use of the public private partnership (PPP) model on a larger scale as well
as allowing foreign investment in the sector. All of these factors bode
well for the healthcare industry in India.

Pharmacies:

India has an estimated 600,000 pharmacies across the country. However, the
structure of the pharmacy retailing industry is largely unorganized with a
large proportion of such pharmacies being standalone or self owned stores.
These are then represented by regional associations or unions formed to
protect the interests of their members. The pan-India Pharmacy Chains
section is dominated by 12-15 big players though they form a miniscule
proportion of this industry.

Despite the seemingly large number of stores in operation the opportunity
for this business remains very attractive. Earlier this year, BMI revised
upwards its forecast for medicine sales in India. Combined sales of
prescription drugs and over-the.-counter (OTC) medicines are expect to
increase* from INR771bn (US$17.12bn) in 2009 to INR889bn (US$21.29bn) in
2010.

Significant market growth is expected to be sustained over the medium term.
By 2014 and 2019, overall pharmaceutical sales will reach INR 1, 488bn
(US$38.86bn) and INR 2,486bn (US$66.29bn) respectively. Key drivers of
medicine demand are the country's booming economy and greater state
involvement in the healthcare sector.

India is the most improved Asia Pacific market in BMI's CY10
Pharmaceuticals & Healthcare Business Environment Ratings. However, it is
expected that the Indian per-capita spending on medicine is, and will
remain, relatively low (US$15 in 2009, US$31 in 2014E and US$50 in 2019E).

Further the potential of India's non-urban areas is immense. There is large
scale under-penetration in these areas. There is now greater scope to
address these areas owing to increasing per-capita incomes as well as
greater demand for facilities comparable to urban areas. A network of
pharmacies of reasonable scale established in rural areas can also be
leveraged as a distribution centre for non pharmaceutical products.

Health Insurance:

According to estimates, the health insurance market is the fastest growing
and second largest non-life insurance segment in the country. The IRDA
annual report stated that health insurance premium collections touched US$
1.31 billion in 2008-09 compared to US$ 1.3 billion in the previous year.
Furthermore, health insurance premium collections are expected to grow at a
CAGR of over 25% for the period spanning from 2009-10 to 2013-14.

Currently, the market consists of largely general insurance companies who
also offer health insurance as a part of their overall offering. There are
very few pure play health insurers. Apollo Munich believes there is a
significant opportunity in the health insurance space in India. Despite a
fairly large amount of players, the market consists largely of corporate
health plans. The penetration of health insurance at the retail stage is
still nascent and there continue to be significant opportunities in that
space.

Healthcare BPO:

Apollo Health Street specializes in revenue cycle management for the
healthcare industry. This includes a range of services beginning from the
admission to post-discharge of a patient including medical coding, billing,
medical transcription, claims generation and patient follow-up.

The prospects for this industry are fairly strong as more than half of the
US hospitals are directly or indirectly offshoring various components of
healthcare services. The share of work from hospitals is estimated to be
nearly a quarter of the total medical billing and coding work offshored to
Indian vendors. Although the market is still nascent, the potential
revenues is are expected to multiply manifold.

Offshoring of healthcare revenue cycle management services is set to gain
traction with the healthcare reforms in the US. Emphasis on increased
coverage and intensifying regulations are expected to place pressure on
suppliers and providers across the health insurance space to identify
avenues for cost savings and the outsourcing industry is well placed to
capitalize on these opportunities.

Opportunities & Threats:

Opportunities:

India - favourable demand supply equation:

India has historically been plagued with a situation of under penetration
and under investment in healthcare. There is a significant demand for
quality healthcare services owing to the growth in population, increase in
purchasing power and greater prevalence of lifestyle diseases. The demand
supply equation is currently in favour of healthcare service providers as
there are large pockets within the country that are inadequately addressed.
Such a scenario is proving to be a significant tailwind, especially for
larger players in the Industry who are able to obtain the capital required
and absorb the losses arising during the start up phase of new hospitals.

Healthcare spending forecast to grow:

The nature of health problems is changing in ways that were only partially
anticipated, and at a rate that was wholly unexpected. Ageing and the
effects of ill-managed urbanization and globalization accelerate worldwide
transmission of communicable diseases, and increase the burden of chronic
and noncommunicable disorders. India has the largest population of diabetes
patients as well as patients with cardiac disorders and is slated to become
the cancer capital of the world. These factors are expected to
significantly contribute to a steady increase in the demand for quality
healthcare.

Per capita health care expenditure:

As the Indian economy continues on its high growth path there will be a
steady improvement in the per capita income. This is likely to drive an
improvement in the need for a better quality of life resulting in a quantum
leap in demand for quality healthcare. As the purchasing power of its
citizens increase, there is bound to be greater demand along with the
ability to pay for quality healthcare. Further the growth in the workforce
backed by corporate health plans and the increasing penetration of retail
health insurance will help to drive up the per capita expenditure on
healthcare.

Public Health Infrastructure:

In developed countries, the public health infrastructure is comparable to
private healthcare facilities. Therefore citizens of these countries are
divided in selecting between private and public healthcare facilities.
Except for a few public healthcare institutions in India, the overall
public health infrastructure is below par. Thus, given a choice, patients
with the requisite purchasing power would opt for treatment at reputed
private healthcare facilities. An increase in footprint with a larger
number of established facilities across the country would be the focus
point for private healthcare providers since they would be able to attract
patients currently served by public healthcare facilities.

Medical Tourism:

Medical tourism has emerged as the fastest growing segment of the tourism
industry in India despite the global economic downturn. High cost of
treatments in the developed countries, particularly the USA and UK, has
been forcing patients from such regions to look for alternative and cost-
effective destinations for healthcare services. Further, India's private
hospitals have gained international recognition for their state-of-the-art
facilities. With aggressive marketing strategies, India can further
increase its attractiveness as a destination for medical tourism and claim
a greater market share of the Global Medical Tourism industry.

Investments in Healthcare:

While India has faced a situation of historical under-investment in
healthcare infrastructure and facilities, significant improvement is
underway. The ever improving economic situation, impressive GDP growth,
high savings rate channelised through bank credit, efficient capital
markets as well as strong inflows provide adequate funds for expansion.
Further government incentives for estapilishing new healthcare facilities
contribute to heightened attractiveness of investments in the space. All of
these factors provide a conducive environment for expansion and further
growth.

Threats:

Shortage of trained staff:

There is a shortage of trained and skilled medical staff throughout the
World. While developed countries are able to address this issue by
attracting staff from other countries, developing countries are unable to
compete with better pay, higher professional development and the career
opportunities offered elsewhere.

In India, staff shortages occur at every level of the health-care system.
For example, in India 2.4 million nurses will be needed by 2012 to provide
a nurse-patient ratio of one nurse per 500 patients. This is essential as
the states with the worst health-care human resource shortages are also the
ones with the worst health indicators and highest infant and child
mortality. The main reasons for the shortage of medical staff are lack of
quality training and high attrition.

Apollo is overcoming these challenges by establishing itself as an
attractive destination for junior doctors and an ideal platform through
which NRI doctors can return to India. It is addressing shortage in nursing
staff through its training centres which are able to churn out
approximately 750 nurses per year.

Capital Intensive Nature of business:

While the investment environment has improved, the fact remains that the
healthcare business requires significant domain expertise as well as large
amounts of capital. While the Company has achieved a significant amount of
scale, it will still need to invest considerable amount of capital to set
up new facilities. The Company also seeks to generate a reasonable return
on such new investments. Thus, the company will have to adopt a measured
approach while expanding its business.

Intensifying Competition:

As there are several factors favouring the healthcare industry, it has
emerged as an attractive investment destination. While the market currently
offers adequate growth to all players there are pockets of oversupply
especially in the metros. The intensifying competition in select areas has
the potential to impact returns on hospitals set up in those locations by
reducing occupancy levels for all. The Apollo brand currently enjoys a
premium positioning and is a trusted brand across the country. This is
helping it to compete well in the areas with competition.

Inflation & Rising costs:

There has been a significant increase in inflation in India. While food
inflation has been grabbing headlines due to its impact on a larger
proportion of the population, there have been increases in operating costs
for the Company ranging from salaries, medical supplies, to general and
administrative costs.. Further, the cost of land in suitable areas and cost
of construction and equipping hospitals have increased manifold. The cost
burden is set to increase due to limited resources, this will add to the
higher costs of healthcare delivery which has to be borne by the consumer.

Obsolence of Medical Equipment:

The medical equipment and healthcare industries are characterized by rapid
technological change. The development by others of new or improved
products, processes, or technologies may make our existing equipment and
treatments obsolete or less competitive. Accordingly, we plan to devote
continued resources, to the extent available, to further develop and
enhance existing products and to monitor market developments to ensure that
we are abreast of latest technologies and treatments in the sector.

Company Overview:

Apollo Hospitals started in 1983 with 150 beds in Chennai. Apollo Hospitals
today is not only one of the country's premier healthcare providers but has
also played a pioneering role in helping India become a center-of-
excellence in global healthcare. The Apollo Hospitals group today includes
over 8,000 beds across 47 hospitals in India, neighbourhood diagnostic
clinics, an extensive chain of Apollo Pharmacies, medical BPO and health
insurance services and clinical research divisions that are working on the
cutting edge of medical science. The largest achievement of the Apollo
Group has been to take quality healthcare to across the length and breadth
of India.

In addition, the group's service offerings include healthcare at the
patient's doorstep, clinical & diagnostic services, medical business
process outsourcing, third party administration services and health
insurance. To enhance performance and service to customers, the company
also makes available services to support the business of healthcare such as
telemedicine services, education and training programmes & research
services and a host of not-for-profit projects.

Hospitals:

We have over 8,000 beds across 47 hospitals in India. We reported Rs.9,235
million, Rs. 11,238 million and Rs. 13,415 million in revenues from the
hospitals segment during the years 2008, 2009 and 2010 respectively. This
includes revenues from our hospitals business along with revenues from our
Global projects and consulting as well as revenues from Hospital Based
Pharmacies (HBP) which, as the name suggests, are pharmacies located within
the premises of our hospitals.

We launched a new hospital at Secunderabad on 2nd April, 2010. It is a 150-
bed tertiary care hospital. During FY2009-10, we launched one international
hospital and four hospitals in our domestic business, viz.

* The first standalone advanced care pediatric hospital in order to provide
comprehensive pediatric care was inaugurated by Oscar Award Winner A R
Rahman. The hospital facilitates complex cardiac surgeries, procedure rooms
and has dedicated clinics for chronic ailments, development disorder and
counseling services also.

* Apollo Hospitals, Bhubaneshwar launched on March 5th, 2010 by Shri Naveen
Patnaik, Chief Minister of Orissa. Apollo Hospitals, Bhubaneswar, is a 350-
bedded tertiary care hospital with state-of-the-art technology, spread over
a campus area of about 7.5 acres.

* The Apollo Gleneagles Cancer Hospital, Kolkata was inaugurated on March
23rd, 2010. Apollo Gleneagles is Eastern India's first super speciality
Cancer Hospital and will have 100 beds. It is equipped with state-of-the-
art equipment such as the Novalis Tx system with BrainLAB facility, Chemo-
therapy Unit, Onco-Surgical Unit and Bone Marrow Transplant Unit with
specialized wards.

* Apollo Hospital, Lavasa was inaugurated by v. Shri Ashok Chavan, Chief
Minister of Maharashtra on January 15, 2010. The 100 bed facility at Dasve,
Lavasa, is a one-of-its kind healthcare and wellness destination in the
world that will encompass rejuvenation, world-class medical care, health
education, research and others. The hospital is equipped to provide
services in the departments of orthopaedics, paediatrics, rehabilitation,
obstetrics and gynaecology, cardiology, emergency medicine,
gastroenterology while other departments like Oncology, IVF, neurology and
other specialities shall be introduced in a phased manner.

International Operations:

* Apollo Bramwell Hospitals, Mauritius was inaugurated by Hon'ble Shri.
Navinchandra Ramgoolam, Prime Minister, Republic of Mauritius on 19th
August, 2009. Apollo Bramwell Hospital is a state-of-the-art 220 bed multi-
specialty hospital located in Moka - Mauritius. It is a Joint Venture with
British American Investment Co. (Mauritius) Ltd.

* Apollo Group launched a Spine Clinic and Apollo Information Center in
Oman.

* Apollo Group launch a first of its kind liver clinic in Oman.

Projects and Consulting:

Apollo Global Projects is amongst the largest hospital consultants in the
world. It is the planning, implementation and operations management arm of
the Apollo Hospitals Group. It is the trusted advisor of investors,
Governments and other entities who wish to establish world-class healthcare
facilities or improve the clinical quality and operating efficiencies of
existing healthcare facilities. AHEL provides project management and
operations consulting services to other hospitals. It deploys staff and
shares hospital management expertise with clients and derives revenues
either as a flat fee or as a percentage of the overall value of the
project.

Apollo Global Projects reported Rs. 220 million, Rs. 266 million and Rs.205
million in revenues for the years 2008, 2009 and 2010 respectively.

Apollo Reach Hospitals:

A commitment by the Apollo Group to increase availability of healthcare to
all led to the birth of Apollo Reach - a first of its kind endeavour to
make advanced technology and experienced medical professionals accessible
to the masses.

Setting up hospitals in rural or semi-urban areas is a rigorous, time-
consuming procedure. Apollo leverages on its 25 years of rich experience in
setting up hospitals across the country and the world, to accurately
identify cities and towns that are in urgent need of healthcare facilities.

Apollo Hospitals has some of the best medical professionals across various
specialities on board, and they can now be accessed by individuals in semi-
urban regions through the telemedicine platform which will be available in
Apollo Reach hospitals.

The set of offerings apart from regular medical facilities from pharmacies
to insurance services, will now be available to those in semi-urban regions
as a result of this initiative.

The Apollo Group is in the process of setting up hospitals in Karaikudi,
Nellore, Ayanambakkam (Chennai), Chittoor and Nashik and has in place plans
of establishing more facilities across the country. The Group has
identified tier II cities across the country for its expansion plan and
will undertake expansion in a phased manner.

Pharmacies:

The Standalone Pharmacies segment continues to progress well. The company
segregates the performance of the mature stores, i.e. stores set up prior
to March, 2007 and stores set up after that date. The mature stores
indicate the potential of the business after the stabilization phase. There
has been a steady increase in EBITDA margins within this category of stores
and there are plans underway to further improve the financial performance.

During the year, the retail pharmacy segment crossed the milestone of 1,000
stores during the year and consisted of 1,049 stores as of March 31, 2010.
Profitability continues to improve as the EBITDA margin from mature stores
improved to 3.50% in FY10 from 0.47% in FY09. In Q4FY10, the overall SAP
business consisting of mature stores as well as new stores reached a
breakeven at the EBITDA level.

Further, the company is present in the pharmacy retailing space as it
strongly believes it can add value to this business. Rather than selling
drugs at a marginal discount to generate sales volume, Apollo Pharmacies
would like to be a trusted partner to its customers. It assures its
customers of the quality of its products, offers a guarantee about the
genuineness of the medicines it stocks, offers value added services like
home delivery, a nurse station within the premises and a reminder service
to customers who require regular supply of prescription medicine.

The Company prides itself on maintaining an 1 uniform standard
across all its stores with correct temperature setting to ensure
preservation of medicines on shelves, an integrated supply chain to drive
efficiencies as well as significant investments in best-in-class retailing
software which provides data analysis to support business decisions.

Strategies for increasing profitability in this business include organic
improvements in profitability due to a progressive improvement in the ratio
of mature stores to new stores, the introduction of generic and self
branded products which provide a higher margin and increasing bulk
distribution of medical supplies and disposable equipment to hospitals and
other healthcare providers.

Medical Insurance - Apollo Munich Health Insurance:

The Indian health insurance market has emerged as a new and lucrative
growth avenue for both the existing players as well as the new entrants.
According to research, the health insurance market represents one the
fastest growing and second largest non-life insurance segment in the
country. The Indian health insurance market has posted record growth in the
last two fiscals (2008-09 and 2009-10). Moreover, health insurance premiums
collection are expected to grow at a CAGR of over 25% for the period
spanning from 2009-10 to 2013-14.

To address opportunities in the Indian health insurance market, Apollo
Hospitals entered into a JV with Munich Health, a subsidiary of Munich Re.
Munich Re is a world leader in the field of health insurance with over
5,000 employees and caters to clients in more than 40 countries.

During the FY2010, the company achieved a gross written premium of Rs.
1,140 Million against a full year premium of Rs. 481 Million in FY 2009.
There has been an overall positive trend in the top line with improvements
in operating parameters. The company surpassed its target of Rs. 1 billion
in Gross Written Premium in FY 2009-10 .

Apollo Health Street:

Apollo Health Street is a leading Business Processing Outsourcing company
specializing in solutions catering to the Healthcare Industry. AHS's
offerings include a range of outsourcing services catering to Hospitals,
Physicians and Payers as well as Information Technology solutions.

Apollo Health Street continues to demonstrate good traction during the year
as it has added new clients, new centres and new service offerings.

In May, 2010; Apollo Health Street named Ms. Karen Ferrell as President and
CEO and to serve as a member of the Board of Directors. Karen has over 25
years of experience in the healthcare industry and has previously served as
the Senior Vice President of provider contracting and medical management
for CIGNA Healthcare, Executive Director at Scripps Health, Vice President
of provider contracting at Prudential HealthCare, and president of Aetna
Health Plans of Florida.

New clients during the year included a contract to provide Accounts
Receivable Management for Hazel Hawkins Memorial Hospital of Hollister,
California and a contract to provide Accounts Receivable Management for St.
Mary's Health System of Evansville, Indiana.

New facilities included the first self owned office in Siruseri near
Chennai. The facility will have a capacity of 3,000-seats and will be set
up at an investment of $20 million including funds from three private
equity companies to part finance the project. Apollo Health Street also
opened a new office to service healthcare providers in Boston,
Massachusetts. The Boston office will offer its full range of revenue cycle
solutions to healthcare providers.

Telemedicine:

Telemedicine is a provision of healthcare services that uses
telecommunication technology and multimedia equipment to provide healthcare
solutions over a geographic distance. It includes Teleradiology,
Teleconsulting, Telemonitoring, and Telesurgery. Teleradiology, the
electronic transmission of radiographic images (from radiologists sitting
at a distant location) from one location to another for interpretation and
consultation, has the largest share among all the segments of Telemedicine.

The application of telemedicine is expanding virtually across all the
medical areas. The global market for Telemedicine is valued at $9 billion
in 2008, and it is expected to grow at double digit rates in the next five
years.

Healthcare organizations are adopting Telemedicine technologies to cater to
the demand for healthcare services. Among other factors, shortage of health
professionals, high number of aged patients and penetration of broadband
internet access are encouraging the adoption of Telemedicine.

Corporate Highlights:

* Dr. Prathap C Reddy Chairman of Apollo Hospitals group has been conferred
with the PADMA VIBHUSHAN AWARD by the Government of India in recognition of
his contribution towards the healthcare industry in the country.

* Shri. N. Vaghul, a director on the board of our Company, was awarded
PADMA BHUSHAN AWARD by the Government of India.

* A Special postage stamp in recognition of the contribution of Apollo
Hospitals towards Indian Healthcare sector was released on the 2nd of
November 2009.

* His Excellency Thiru Surjit Singh Barnala, Governor of Tamil Nadu
presented the Degree of Doctor of Science (Honoris Causa) to Smt. Preetha
Reddy, Managing Director, at the Nineteenth Convocation of Tamil Nadu Dr.
M.G.R. Medical University on 10th November 2009 for her contributions to
the healthcare industry.

* CRISIL has assigned to the company a grade of 4/5, indicating a superior
rating with strong fundamentals.

Deep Strengths:

History:

Established in 1983, Apollo is the pioneering professional healthcare group
in India. It has over 25 years of experience in the Indian healthcare
industry and is a pioneer in several initiatives in healthcare in India.
Through its rich experience and legacy, the Group is well positioned to
work on and execute new initiatives in the dynamic healthcare industry in
India. Further, the group is well positioned in its related avenues of
REACH hospitals, consulting, pharmacies, health insurance and BPO
operations.

Management Depth:

The Group was founded by Dr. Prathap C Reddy and he is ably supported by
Smt. Preetha Reddy, MD, Smt. Suneeta Reddy, ED - Finance, Smt. Shobana
Kamineni, ED - Speical Initiatives and Smt. Sangita Reddy, ED - Operations.
All above directors have thorough technical expertise and professional
knowledge, and have made significant contribution to the growth of the
Company for the past two decades.

In addition to the Management Team Members mentioned above, the Group is
professionally managed with a large number of qualified professionals at
various levels of management. Further the company has several Independent
Directors on its Board of Directors all of whom are specialists in various
aspects of business and industry.

Domain Expertise:

The founder of the group - Dr. Prathap C Reddy is a qualified technocrat.
The Group has several doctors associated with it of which many are leaders
in their area of operations. In addition to that the group has rich
experience in the industry and has a history of successful expansion and
positive outcomes on several initiatives. The healthcare business requires
a significant amount of expertise compared to most other businesses and
Apollo is well served by the domain expertise of its large population of
well qualified and experienced professionals.

Addressing multiple segments:

Apollo addresses several areas of the healthcare industry through its
hospitals in India and overseas, neighbourhood diagnostic clinics, an
extensive chain of Apollo Pharmacies, medical BPO and health insurance
services and clinical research divisions that are working on the cutting
edge of medical science.

All of these areas are synergistic in nature and Apollo benefits from
economies of scale. Apollo is able to cover a greater number of customers
through its various businesses and this provides it with opportunities to
cross-sell its offerings. Further, there are opportunities to generate
revenues between various organizations within the group.

JCI Accreditation:

Indraprastha Apollo, Delhi; Apollo Main, Chennai; Apollo Hospitals,
Hyderabad; Satguru Pratap Singh Apollo Hospital, Ludhiana; Apollo Hospital,
Dhaka, Apollo Hospitals, Bangalore and Apollo Gleneagles, Kolkata have been
accredited by Joint Commission

International, USA. The International division of Joint Commission
Resources, Joint Commission International (JCI) has been working with
health care organizations, ministries of health, and global organizations
in over 80 countries since 1994.

Through JCI accreditation and certification, health care organizations have
access to a variety of resources and services that connect them with the
international community it is an international quality measurement system
for benchmarking; risk reduction strategies and best practices. This helps
us to be on par with other healthcare institutions across the globe and is
a key factor in attracting international patients to our facilities.

Clinical Outcomes - Smart Metrics:

Apollo Hospitals is focused on Clinical Outcomes. Clinical Excellence is a
bedrock for Apollo Hospitals as attaining benchmarks on account of clinical
outcomes are paramount to the quality of operations.

Monitoring Clinical Outcomes is a continuous and regular process at Apollo.
The Company uses a wide array of parameters used in the benchmarking
process and benchmarks itself against the best in the world. Apollo
Hospitals has always believed in investing in the right technology that
will help in improving clinical outcomes and enhancing the service delivery
to patients.

Fee for service model:

Apollo Hospitals works on a fee-for-service model with its doctors. This is
an important component of the doctor-hospital relationship and has helped
in the process of retention of doctors and specialists. Further it helps
the Group to increase the variable component of costs in its business
model.

Weakness:

We have added 6 Hospitals and 166 Stand-alone pharmacies during the year.
Since these new hospitals and pharmacies are in the stabilization phase
they will have an impact on margins as they progress towards maturity.

The relatively high attrition rates among the nursing staff due to higher
emoluments being offered by competitors and in overseas countries
necessitates continuing investments in training to ensure that the clinical
staff is equipped with the right skills, competencies and expertise needed
to provide quality healthcare.

There is an increase in competition in the Indian Healthcare space. As the
number of providers increase there is bound to be an increase in
competitive intensity. At present, the market opportunity remains large
with abundant opportunity for all. However, in some of the metros there is
already indication of competition with in the various healthcare providers.
Apollo enjoys a rich history and is one of the earliest entrants in this
space and is confident of continuing its growth through a focus on clinical
excellence.

Awards:

The week-IMRB exclusively survey 2009 on India's top hospitals has rated
Apollo Hospitals Chennai as the best hospital among the private sector
hospitals in the country; Apollo Hospitals Hyderabad and Kolkata have also
been ranked the best Hospital in tneir respective cities while Apollo
Hospitals Delhi and Apollo Hospitals Bangalore were rated the second best
in their respective cities.

Apollo Hospitals Hyderabad and Indraprastha Apollo Hospitals Delhi won the
FICCI Healthcare awards for Excellence in Patient Care and Excellence in
Healthcare Delivery. Apollo Hospitals Hyderabad also bagged the FICCI
Healthcare award for Excellence in HR Practices.

Apollo Specialty Hospital, Madurai was awarded the NABH accreditation.

Apollo Specialty Hospital, Chennai was awarded the NABH accreditation.

Risk Management and Internal Controls:

The management of the Company focuses immensely on risk management and
internal controls, as these factors are co-related with the business
operations. The Compare has in place a detailed Risk Management system
covering legal, treasury, regulatory and financial reporting to name a few.
Authority and responsibility have been clearly defined at all stages of the
hierarchy to mitigate risks. Issues raised by the Internal and Statutory
Auditors are addressed with utmost importance, so as to identify loopholes
and eliminating bottlenecks to established processes.

Risk Management Model:

Various risk-related initiatives and activities form part of the Risk
Management Model at Apollo Hospitals:

* Risk Identification: Committed monitoring and identification of risks is
carried out at regular intervals towards improving the processes and
procedures. This assessment is based on risk perception survey, business
environment scanning and inputs from stakeholders.

* Risk measurement and Treatment: Post identification of risks, measurement
and treatment is a crucial step in operation of the business. Risk
mitigation and solutions are defined, so as to align the risk exposure
levels to the risk appetite.

* Risk reporting: Risk reporting brings risk management back to the core
business. The reporting process at AHEL is aimed to be knowledge based and
consistent with the organization's outlook of rules, regulations and
accounting conventions. Besides risk reporting, there is an established
Risk Council which deals with the reported risks. In addition, a quarterly
report is presented to the Risk Management Committee, which reviews the ERM
program, the status and trends available on the material risks highlighted.

Internal control systems and their adequacy:

AHEL has an established internal control system in place for the Company
and its subsidiaries. The company deploys a robust system of internal
controls to allow optimal use and protection of assets, facilitate accurate
and timely compilation of financial statements and management reports, and
ensure compliance with statutory laws, regulations and company policies.
The company has also put in place an extensive budgetary control review
mechanisms whereby the management regularly reviews actual performance with
reference to the budgets and forecasts.

Discussion on Financial Performance and Results of operations:

The following table summaries results of operations for the years ended
31st March:

(Rs. in million)
2010 2009 2008
Amount % of Amount % of Amount % of
(Rs.) Revenues (Rs.) Revenues (Rs.) Revenues

Revenues 18587 100% 14804 100% 11516 100%

Salaries and
benefits 2864 15.4% 2211 14.9% 1685 14.6%

Material costs 9504 51.1% 7686 51.9% 5817 50.5%

Other operating &
administrative
expenses 3074 16.5% 2517 17.0% 1988 17.2%

Depreciation and
amortization 546 2.9% 445 3.0% 376 3.2%

Interest expense 377 2.0% 223 1.5% 199 1.7%

Profit before
Income Tax 2222 12.8% 1723 11.6% 1451 12.6%

Provision for
Income Taxes 702 3.8% 542 3.7% 433 3.8%

Profit after Tax 1520 8.2% 1181 8.0% 1018 8.8%

Revenues

The 26% change in our revenues for 2010 compared to 2009 was primarily the
result of an increase in occupancy and revenue per bed day (RPBD) for
hospitals as well as a higher number of SAPs. RPBD increased from Rs. 9,667
to Rs. 10,750. The increase in RPBD is largely a result of changes in the
acuity of patients as well as better price realizations.

AHEL rolled out SAPs rapidly from last year 873 stores as at March 2009 to
1,049 stores as at March 2010. These rollouts together with maturity of
existing stores led to 45% yoy revenue growth in the pharmacy segment.

The following table shows the key drivers of our revenues for the periods
presented:

Years ended 31st March
Increase % Increase
2010 2009 (Decrease) (Decrease)

Admissions 144,038 131,558 12,480 9.5%
Revenues per patient Rs. 41,634 35,165 6,469 18.4%
Average length of stay (days) 5.25 5.15 0.10 -
Out-patients 1,239,957 1,059,916 180,041 17.0%
Revenue per bed day (Rs) 10,756 9,667 1,083 11.2%

Expenses

Salaries and Benefits:

Our salaries (excluding managerial remuneration) and benefits expense of
Rs. 2671 million during 2010 increased by Rs. 610 million from Rs. 2061
million in 2009. This increase was a result of annual compensation
increases for our employees, plus the impact of an increasing number of
employed physicians within our hospitals and pharmacists for the SAPs.

Year Ended 31st March:

(Rupees in million)
2010 % of 2009 % of Rs. Increase % Increase
Revenues Rs. Revenues (Decrease) (Decrease)
Salaries, wages 2671 14.6% 2061 13.9% 610 29.5%
and benefits
(excluding
Managerial
Remuneration)

No. of
employees 21080 19088 1992 10.4%

Average salary
per employee
per month (Rs) 10559 8998 1561 17.3%

Employee to
bed ratio 4.46 4.52 0.06

Material costs:

During 2010, our supplies expense of Rs. 9504 million increased 24%, as
compared to Rs. 7686 million in 2009. The increase in supplies cost was in
line with the revenues.

Other Operating Expenses:

Pie following table summarizes our administrative expenses for the periods
presented

Year Ended 31st March:
(Rupees in million)
2010 % of 2009 % of Rs. Increase/ % Increase/
(Rs.) Revenues (Rs.) Revenues (Decrease) (Decrease)
Repairs and
maintenance 451 2.4% 367 2.5% 84 22.9%

Rents and
leases 703 3.8% 571 4.0% 132 23.1%

Outsourced
expenses 306 1.6% 182 1.2% 124 68.1%

Marketing and
advertising 168 0.9% 188 1.3% (20) 10.6%

Legal and
professional
fees 149 0.8% 113 0.8% 36 31.9%

Rates & taxes 50 0.3% 45 0.3% 5 11.1%

Provision for
doubtful debts 90 0.5% 35 0.2% 55 157.1%

Other admini-
strative
expenses 717 3.9% 565 3.8% 152 26.9%

2,634 2,066 568 27.5%

Depreciation and Amortization:

Depreciation and amortization expense increased to Rs. 546 million during
2010, as compared to Rs. 445 million during 2009. The increase in our
depreciation and amortization expense is largely due to projects completed
during 2010 and normal replacement costs of facilities and equipment.

Financial Expenses:

Financial expenses increased to Rs. 377 million during 2010, as compared to
Rs. 223 million during 2009. The increase is largely due to additional
borrowings for financing the projects completed during 2010 and normal
replacement costs of facilities and equipment.

Provision for income taxes:

The provision for taxes during the year ended 31st March 2010 is Rs. 702
million as compared to Rs. 542 million in the previous year ended 31st
March 2009.

Liquidity and Capital Resources Liquidity:

Our primary sources of liquidity are cash flows provided by our operations
and our debt borrowings. We believe that our internally generated cash
flows, amounts available under our debt agreements and the further debt
that is proposed to be raised will be adequate to service existing debt,
finance internal growth, expend funds on capital expenditures and fund
certain small to mid-size hospital acquisitions, based on our Board
approved plans.

Capital Expenditures:

We continue to increase bed capacity and roll-out new hospitals, capital
expenditures continue to be high. We have made significant, targeted
investments at our hospitals to add new technologies, modernize facilities
and expand our services. These investments should assist in our efforts to
attract and retain physicians and to make our hospitals more desirable to
our patients.

The following table reflects our capital expenditures for the years
indicated.

(Rupees in million)
2010 2009 2008

Capital Work In Progress 361 1,665 260

Capital Expenditure including 3,148 1,814 1,608
technical upgradation

3,509 3,479 1,868
ROCE 12.80% 11.33% 13.5%

Human Resources:

We at Apollo believe that employees are our most valued assets who live the
values of the enterprise in delivering excellence in patient care at every
touch point 24/7 symbolizing a ray of hope for millions, looking for a
cure. All our employees embrace the philosophy of 'Tender Loving Care'
(TLC) as a way of life and the entire Apollo family is committed towards
touching a billion lives.

Our human resources team strives to align the HR policies with the business
goals and help in creating a performance driven culture. Various
initiatives such as performance linked to rewards, transparent and
consultative review process, building a high performance work system have
facilitated businesses growth. The total employee strength as on 31st March
2010 is 21,080 as against 19,088 for the year ended March 2009.

We believe that 'employee opinion matters' and hence carry out climate
surveys on a regular basis. The Organization Climate Survey 2009 covered
responses from employees on various themes such as Sense of belonging,
Organization, Work environment, Role of HOD / Superior, Role Clarity,
Employees Initiatives, Communication, Decision Making process, Training,
Team Building, Interdepartmental Coordination, Compensation, Staff Welfare
& Customer satisfaction and based on the feedback development action plans
are evolved.

Highly structured Performance Management System (Apollo Performance
Management System) across the Group covering all Management cadre employees
was institutionalized focusing on alignment, measurement and reward and
recognition including Personal Development Plan.

In our endeavour to improve the efficiency and effectiveness of our
processes, we embarked on the journey of Lean Six Sigma (LSS) with the
objective to become the pioneer in Indian Healthcare adopting LSS for 'next
practices' in establishing world class reliability standards for excellence
in patient care service.

To integrate Six Sigma with every part of our organization we have launched
'Mission 2012' with a unique Apollo Logo - To have certified 50 Black
belts, 500 Green belts & 5000 Yellow belts across the group. Today we have
400 Trained Green Belts in our group and 12 Black Belts. Black Belt and
Green Belt certification will be based on projects focusing on cost saving,
process improvement which helps in improving customer satisfaction followed
by an examination by the Indian Statistical Institute.

The HR team has prioritized Excellence in Patient Care through TLC as a way
of life as the theme for the year with focus on Personal productivity and
Team work, improving young talent ratios and developing the next generation
leadership for the Group.

Cautionary Statement:

Statements in this Management Discussion and Analysis describing the
company's objectives, projections, estimates and expectations may be
'forward looking statements' within the meaning of applicable laws and
regulations. Actual results may differ substantially or materially from
those expressed or implied. Important developments that could alter your
company's performance include increase in material costs, technology
developments, and significant changes in political and economic
environment, tax laws and labour relations.

Clinical Governance:

Clinical governance is given paramount importance at Apollo Hospitals.
Appropriate systems and processes are in place to monitor clinical practice
and safeguard high quality of care.

Apollo Clinical Excellence - ACE @ 25 is a model developed to enable
objective and quantitative measurement of all parameters that could have a
bearing on the quality of services. 25 hospitals have completed one year of
reporting of clinical parameters under ACE @ 25.

ACAT (Apollo Clinical Audit Team) of 15 auditors from 12 locations was
constituted to carry out the audit across 25 Group hospitals and review the
data, methodology and definitions used by each of the participating
hospitals.

DMS Handbook was created to define the role of the DMS and the activities
to be pursued by the various medical heads in the Apollo Group to enable
uniformity in clinical governance.

Apollo Data Point - a single point of reference for information on hospital
data, volumes, specialties, doctors - created to help analyze the results
and forecast projections for the group hospitals.

To stimulate academic and research activities across the Group, policies on
Academics and Research have been implemented. This includes details of
grants, citations and awards.

Seven hospitals in the group - Delhi, Chennai, Hyderabad, Bangalore, Dhaka,
Kolkata and Ludhiana were accredited by JCI. Apollo Specialty Hospitals,
Madurai and Apollo Specialty Cancer Hospital, Chennai accredited by NABH.

Regular internal mock surveys are carried out to review compliance 24x7x365
to JCI norms.

Pain management policy, infection control policies, blood transfusion
policy, radiation policy and antimicrobial guidelines policy have been
standardized and shared with group locations.

With a view to learn from best practices at each location, 25 best
practices projects were undertaken and shared with all locations.

For the first time, 25 group locations conducted annual departmental
reviews to focus on Clinical, Academic and Research excellence along with
financial performance.

Uniform appraisal for all the medical heads is designed based on the
conviction that the best medical institutions of the world thrive upon the
pillars of Clinical, Academic and Research excellence. Objective scoring
based on education, research, consultant relation, innovation, ACE@25,
finance and local KRAs is built into the appraisal process.

Infection control is a area of major focus at Apollo Hospitals. To build
and maintain awareness about its importance, a special event titled 'zero
tolerance to infection' was successfully conducted.

To combat the HINI epidemic, exclusive units set up at Chennai, Delhi,
Hyderabad, Kolkata and Pune. Several patients including serious cases
requiring mechanical ventilation were treated successfully.

A unique concept 'The Apollo Way' with the support of the McKinsey Group
was initiated to continuously maintain operational and clinical excellence.
This has helped significantly to increase the operational efficiencies and
reducing the delays at various stages, adding comfort and convenience
leading to patient delight.

Apollo Health Check department was awarded by Director General of Civil
Aviation for excellence in clinical and managerial services.