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DRAFT RED HERRING PROSPECTUS Dated March 18, 2008
Please read section 60B of the Companies Act, 1956 (The Draft
Red Herring Prospectus will be updated upon filing with the
RoC)
100% Book Building Issue
APOLLO HEALTH STREET LIMITED
(Our Company was originally incorporated on October 8, 1999 as
Apollo Health Street Limited in Tamil Nadu with its registered
office at No. 19, Bishop Gardens, Raja Annamalaipuram, Chennai 600
028, Tamil Nadu, India and received its certificate of commencement
of business on December 13, 1999. Pursuant to a special resolution
of the members passed at an EGM held on April 21, 2005 and the
consequent approval from the Central Government dated May 26, 2005,
the Company was converted to a private limited company with effect
from May 26, 2005 pursuant to Section 31 of the Companies Act and
consequently the name of the Company was changed to Apollo Health
Street Private Limited. Further, pursuant to a special resolution
of the members passed at an EGM held on January 13, 2007 and the
consequent approval from the Central Government dated January 25,
2007, the Company was converted to a public limited company with
effect from January 25, 2007 pursuant to Section 44 of the
Companies Act and consequently the name of the Company was changed
to Apollo Health Street Limited.)
Registered Office: No. 19, Bishop Gardens, Raja Annamalaipuram,
Chennai 600 028, Tamil Nadu, India; Tel: (91 44) 2493 7720; Fax:
(91 44) 2829 2104. Corporate Office: Life Sciences Building, Apollo
Hospitals Complex, Jubilee Hills, Hyderabad 500 033, Andhra
Pradesh, India; Tel: (9140) 4000 3892, Fax: (9140) 2355 4353
Company Secretary and Compliance Officer: Mr. Y. Uday Chandra,
Life Sciences Building, Apollo Hospitals Complex, Jubilee Hills,
Hyderabad 500 033, Andhra Pradesh, India Tel: (9140) 4000 3892,
Fax: (9140) 2355 4353, E-mail: [email protected];
Website: www.apollohealthstreet.com
PUBLIC ISSUE OF 6,500,000 EQUITY SHARES OF RS. 10 EACH FOR CASH
AT A PRICE OF RS [] PER EQUITY SHARE INCLUDING A SHARE PREMIUM OF
RS. [] PER EQUITY SHARE (THE ISSUE) BY APOLLO HEALTH STREET LIMITED
(THE COMPANY OR THE ISSUER), AGGREGATING RS. [] MILLION. THE ISSUE
COMPRISES A NET ISSUE OF 6,300,000 EQUITY SHARES OF RS. 10 EACH
(THE NET ISSUE) AND A RESERVATION OF UP TO 200,000 EQUITY SHARES OF
RS. 10 EACH FOR OUR ELIGIBLE EMPLOYEES (THE EMPLOYEE RESERVATION
PORTION). THE ISSUE LESS THE EMPLOYEE RESERVATION PORTION IS
REFERRED TO AS THE NET ISSUE. THE ISSUE WOULD CONSTITUTE 20.63% OF
THE FULLY DILUTED POST ISSUE PAID-UP CAPITAL OF THE COMPANY. THE
NET ISSUE WILL CONSTITUTE 19.99% OF THE FULLY DILUTED POST ISSUE
PAID-UP CAPITAL OF THE COMPANY. * The Company is considering a
Pre-IPO placement with certain investors (Pre-IPO Placement). The
Pre-IPO Placement is at the discretion of the Company. The Company
will
complete the issuance, if any, of such Equity Shares prior to
the filing of the Red Herring Prospectus with the RoC. If the
Pre-IPO Placement is completed, the Issue size offered to the
public will be reduced to the extent of such Pre-IPO Placement,
subject to a minimum Issue size of 10% of the post Issue capital
being offered to the public.
PRICE BAND: RS. [y] TO RS. [y] PER EQUITY SHARE OF FACE VALUE OF
RS. 10. THE FACE VALUE OF THE EQUITY SHARES IS RS. 10 AND THE FLOOR
PRICE IS [] TIMES OF THE FACE VALUE AND THE CAP
PRICE IS [] TIMES OF THE FACE VALUE In case of revision in the
Price Band, the Bidding Period/Issue Period shall be extended for
three additional days after such revision, subject to the
Bidding/Issue Period not exceeding ten working days. Any revision
in the Price Band, and the revised Bidding Period/ Issue Period, if
applicable, shall be widely disseminated by notification to the
Bombay Stock Exchange Limited (BSE) and the National Stock Exchange
of India Limited (NSE), by issuing a press release and by
indicating the change on the web sites of the Book Running Lead
Managers and the terminals of the Syndicate. In terms of Rule
19(2)(b) of the Securities Contract Regulation Rules, 1957 (SCRR),
this being an Issue for less than 25% of the postIssue capital, the
Issue is being made through the 100% Book Building Process wherein
at least 60% of the Net Issue will be allocated on a proportionate
basis to Qualified Institutional Buyers (QIBs), out of which 5%
shall be available for allocation on a proportionate basis to
Mutual Funds only. The remainder shall be available for allocation
on a proportionate basis to all QIBs including Mutual Funds,
subject to valid bids being received from them at or above the
Issue Price. If at least 60% of the Net Issue cannot be allocated
to QIBs, then the entire application money will be refunded
forthwith. Further, not less than 10% of the Net Issue will be
available for allocation on a proportionate basis to
Non-Institutional Bidders and not less than 30% of the Net Issue
will be available for allocation on a proportionate basis to Retail
Individual Bidders, subject to valid bids being received at or
above the Issue Price. Further, up to 200,000 Equity Shares shall
be available for allocation on a proportionate basis to Eligible
Employees, subject to valid Bids being received at or above the
Issue Price.
RISK IN RELATION TO THE FIRST ISSUE This being the first public
issue of Equity Shares of the Company, there has been no formal
market for the Equity Shares of the Company. The face value of the
Equity Shares is Rs. 10 per Equity Share and the Issue Price is []
times of the face value. The Issue Price (as determined by the
Company, in consultation with the Book Running Lead Managers, on
the basis of assessment of market demand for the Equity Shares
offered by way of book building) should not be taken to be
indicative of the market price of the Equity Shares after the
Equity Shares are listed. No assurance can be given regarding an
active and/or sustained trading in the Equity Shares of the Company
or regarding the price at which the Equity Shares will be traded
after listing.
GENERAL RISKS Investment in equity and equity related securities
involves a degree of risk and investors should not invest any funds
in this Issue unless they can afford to take the risk of losing
their investment. Investors are advised to read the risk factors
carefully before taking an investment decision in this Issue. For
taking an investment decision, investors must rely on their own
examination of the Issuer and the Issue, including the risks
involved. The Equity Shares have not been recommended or approved
by the Securities and Exchange Board of India (SEBI) nor does SEBI
guarantee the accuracy or adequacy of this Draft Red Herring
Prospectus. Specific attention of investors is invited to the
section titled Risk Factors beginning on page X.
IPO GRADING The Issue has been rated [] by [](pronounced [])
indicating [].For details see the section titled General
Information beginning on page 14.
ISSUERS ABSOLUTE RESPONSIBILITY The Issuer having made all
reasonable inquiries, accepts responsibility for and confirms that
this Draft Red Herring Prospectus contains all information with
regard to the Issuer and the Issue, which is material in the
context of the Issue, that the information contained in the Draft
Red Herring Prospectus is true and correct in all material aspects
and is not misleading in any material respect, that the opinions
and intentions expressed herein are honestly held and that there
are no other facts, the omission of which make this Draft Red
Herring Prospectus as a whole or any of such information or the
expression of any such opinions or intentions misleading in any
material respect.
LISTING The Equity Shares are proposed to be listed on the BSE
and the NSE and the Company has received in-principle approvals
from these Stock Exchanges for the listing of its Equity Shares
pursuant to letters dated [] and [] respectively. For purposes of
this Issue, the Designated Stock Exchange is [].
BOOK RUNNING LEAD MANAGERS REGISTRAR TO THE ISSUE
ICICI Securities Limited ICICI Centre, HT Parekh Marg Churchgate
Mumbai 400 020 India Tel: (91 22) 2288 2460 Fax: (91 22) 2282 6580
Email: [email protected] Investor Grievance Email:
[email protected] Website: www.icicisecurities.com Contact
Person: Mr. Sumanth Rao SEBI Registration No.: INM000011179
Edelweiss Capital Limited 14th floor, Express Towers Nariman
Point Mumbai 400 021, India Tel: (91 22) 4086 3535 Fax: (91 22)
2288 2119 E-mail: [email protected] Investor Grievance Email:
[email protected] Website: www.edelcap.com Contact
Person: Mr. Jibi Jacob SEBI Registration No.: INM000010650
Karvy Computershare Private Limited Karvy House, 46 Avenue 4,
Street No. 1, Banjara Hills, Hyderabad 500 034, India Tel: (91 40)
2342 0832 Fax: (91 40) 2342 0833 E-mail: [email protected]
Website: www.karvy.com Contact Person: Mr. S. Ganapathy
Subramanian
BID ISSUE PROGRAM BID/ISSUE OPENS ON [], 2008 BID/ISSUE CLOSES
ON [], 2008
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TABLE OF CONTENTS
SECTION I GENERAL
....................................................................................................................................................................................
I DEFINITIONS AND
ABBREVIATIONS.................................................................................................................................................................
I CERTAIN CONVENTIONS; USE OF MARKET
DATA......................................................................................................................................VII
FORWARD-LOOKING
STATEMENTS................................................................................................................................................................IX
SECTION II RISK
FACTORS........................................................................................................................................................................X
SECTION III
INTRODUCTION.....................................................................................................................................................................1
SUMMARY OF OUR BUSINESS, STRENGTHS AND STRATEGY
......................................................................................................................1
SUMMARY FINANCIAL
INFORMATION.............................................................................................................................................................7
THE
ISSUE............................................................................................................................................................................................................13
GENERAL INFORMATION
.................................................................................................................................................................................14
CAPITAL
STRUCTURE........................................................................................................................................................................................23
OBJECTS OF THE
ISSUE....................................................................................................................................................................................45
BASIS FOR ISSUE
PRICE....................................................................................................................................................................................50
STATEMENT OF POSSIBLE TAX BENEFITS AVAILABLE TO THE COMPANY AND ITS
SHAREHOLDERS.............................................52 SECTION
IV ABOUT
US...............................................................................................................................................................................60
INDUSTRY
............................................................................................................................................................................................................60
OUR
BUSINESS....................................................................................................................................................................................................63
REGULATIONS AND
POLICIES.........................................................................................................................................................................81
HISTORY AND CORPORATE STRUCTURE
......................................................................................................................................................85
OUR
MANAGEMENT.........................................................................................................................................................................................101
OUR PROMOTERS
............................................................................................................................................................................................115
RELATED PARTY
TRANSACTIONS..................................................................................................................................................................184
DIVIDEND POLICY
...........................................................................................................................................................................................185
SECTION V FINANCIAL INFORMATION
.............................................................................................................................................186
FINANCIAL STATEMENTS
...............................................................................................................................................................................186
SELECTED HISTORICAL FINANCIAL DATA OF ZAVATA,
INC...................................................................................................................338
OUR SELECTED HISTORICAL FINANCIAL DATA
........................................................................................................................................341
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...............................346 SECTION VI
LEGAL AND REGULATORY INFORMATION
............................................................................................................365
OUTSTANDING LITIGATION AND DEFAULTS
.............................................................................................................................................365
GOVERNMENT LICENSES AND APPROVALS
...............................................................................................................................................420
OTHER REGULATORY AND STATUTORY
INFORMATION..........................................................................................................................425
SECTION VII ISSUE RELATED
INFORMATION.................................................................................................................................435
TERMS OF THE
ISSUE......................................................................................................................................................................................435
ISSUE
STRUCTURE...........................................................................................................................................................................................438
ISSUE
PROCEDURE..........................................................................................................................................................................................441
RESTRICTIONS ON FOREIGN OWNERSHIP OF INDIAN
SECURITIES......................................................................................................466
SECTION VIII - MAIN PROVISIONS OF THE ARTICLES OF
ASSOCIATION................................................................................467
SECTION IX OTHER
INFORMATION....................................................................................................................................................511
MATERIAL CONTRACTS AND DOCUMENTS FOR
INSPECTION................................................................................................................511
DECLARATION
................................................................................................................................................................................................513
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SECTION I GENERAL
DEFINITIONS AND ABBREVIATIONS
Term Description the Company or our Company or AHSL or the
Issuer
Unless the context otherwise requires, refers to Apollo Health
Street Limited, a companyincorporated under the Companies Act and
having its registered office at No. 19, BishopGardens, Raja
Annamalaipuram, Chennai 600 028, Tamil Nadu, India
we or us or our Unless the context otherwise requires, refers to
the Company and its Subsidiaries
Company related terms
Term Description ABMCL AB Medical Centres Limited, a company
incorporated under the Companies Act and
having its registered office at No. 154, Poonamallee High Road,
Kilpauk, Chennai 600 010
AFSI Armanti Financial Services, Inc., a company incorporated
under the laws of Delaware, United States and having its registered
office at 2711, Centerville road, Suite 400,Wilmington, County of
New Castle, State of Delaware, 19808
AGHL Apollo Gleneagles Hospital Limited, a company incorporated
under the Companies Act and having its registered office at 58,
Canal Circular Road, Kolkata 700 054, West Bengal, India
AGPPL Apollo Gleneagles PET-CT Private Limited, a company
incorporated under the Companies Act and having its registered
office at No. 19, Bishop Gardens, Raja Annamalaipuram, Chennai 600
028, Tamil Nadu, India
AHEL Apollo Hospitals Enterprise Limited, a company incorporated
under the Companies Actand having its registered office at No. 19,
Bishop Gardens, Raja Annamalaipuram, Chennai 600 028, Tamil Nadu,
India
AHIL Apollo Hospitals International Limited, a company
incorporated under the Companies Actand having its registered
office at No. 19, Bishop Gardens, Raja Annamalaipuram, Chennai 600
028, Tamil Nadu, India
AHSI Apollo Health Street, Inc., a company incorporated under
the laws of Delaware, UnitedStates and having its registered office
at 15, East North Street, Dover, Kent, Delaware19901
Apollo Group Unless the context otherwise requires, refers to
the Company, its Subsidiaries and the entities forming part of the
Promoter Group
Apollo Hospital Apollo Hospital, a corporate hospital under the
administration of AHEL and located at 21,Greams Lane, Off Greams
road, Chennai 600 006, Tamil Nadu, India
Apollo Mumbai Apollo Mumbai Hospital Limited, a company
incorporated under the Companies Act andhaving its registered
office at No. 19, Bishop Gardens, Raja Annamalaipuram, Chennai 600
028, Tamil Nadu, India
Apollo Sindoori Hotels Apollo Sindoori Hotels Limited, a company
incorporated under the Companies Act and having its registered
office at 19-B, Anugraha Apartments, 41, Uthamar Gandhi Salai,
Nungambakkam, Chennai 600 034, Tamil Nadu, India
Apollo Speciality Hospital Apollo Speciality Hospital, a
corporate hospital under the administration of AHEL and located at
320, Anna Salai Nandanam, Chennai 600 035, Tamil Nadu, India
Armanti Financial Armanti Financial Services, LLC., a company
incorporated under the laws of Delaware,United States and having
its registered office at 2 Broad Street, Bloomfield, New Jersey
07003
Articles/ Articles of Association Articles of Association of
AHSL, as amended from time to time ASCIL Apollo Sindhoori Capital
Investments Limited, a company incorporated under the
Companies Act and having its registered office at 55, Ali
Towers, Greams Road, Chennai 600 006
Board of Directors/ Board The Board of Directors of AHSL or a
committee thereof CCPS The 2,661,242 convertible cumulative
redeemable preference shares of Rs. 60 each that
were issued to Maxwell and Eliza Holdings and other investors
pursuant to the subscription and shareholders agreement dated April
14, 2005 (as amended from time to time), asdetailed in the section
titled History and Corporate Structure - Shareholders and Joint
Venture Agreements - Restated Shareholders agreement dated January
8, 2007 betweenMaxwell, Eliza Holdings, the Company and AHEL on
page 90
Class A Shares The 14,535,800 shares of the Company being a
separate class of redeemable and convertible preference shares of
the Company having a face value of Rs. 10 each that wereissued to
Maxwell and Eliza Holdings and other investors pursuant to the
subscription and shareholders agreement dated April 14, 2005 (as
amended from time to time), as detailedin the section titled
History and Corporate Structure - Shareholders and Joint
Venture
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Term Description Agreements - Restated Shareholders agreement
dated January 8, 2007 between Maxwell,Eliza Holdings, the Company
and AHEL on page 90
Compensation and Remuneration Committee
The committee of our Board comprising of Mr. NJ Yasaswy
(Chairman), Mr. Nasser Munjee and Mr. R. Ramaraj that was
constituted by our Directors to administer our ESOPs
Directors The directors of AHSL, as they may change from time to
time Eliza Holdings Eliza Holdings, a company incorporated under
the laws of Mauritius and having its
registered office at International Management (Mauritius)
Limited, 4th floor, Les Cascades building, Edith Cavell street,
Port Louis, Republic of Mauritius
Emedlife Emedlife Insurance Broking Services Limited, a company
incorporated under the Companies Act and having its registered
office No.610/611, Asoka State Building, Bharakamba Road, Conn
Place, New Delhi 110 001, India
Equity Shares Equity shares of the Company of face value of Rs.
10 each, unless otherwise specified in the context thereof
ESOP 1 The employee stock option scheme of the Company titled
Apollo ESOP 2005 underwhich the Company has issued 414,000
options
ESOP 2 The employee stock option scheme of the Company titled
Apollo ESOP 2006 under which the Company has issued 1,100,850
options
ESOP 3 The employee stock option scheme of the Company titled
Apollo ESOP 2006-II under which the Company has issued 97,350
options
ESOP 4 The employee stock option scheme of the Company titled
Apollo Employees Accelerated Stock Option Plan under which the
Company has issued 325,000 options
ESOP 5 The employee stock option scheme of the Company titled
Apollo ESOP 2007 under which the Company has issued 297,000
options
ESOPs Collectively ESOP 1, ESOP 2, ESOP 3, ESOP 4 and ESOP 5
FHPL Family Health Plan Limited, a company incorporated under the
Companies Act and having
its registered office at 1st Floor, Ali Towers, 55, Greams Road,
Chennai 600 006, TamilNadu, India
Financial year/fiscal/FY The twelve months ended March 31 of a
particular year GDPL Gleneagles Development Pte. Limited, a company
incorporated under the laws of
Singapore and having its registered office at No.1, Grange Road,
#11-01 Orchard Building, Singapore 239 693
Heritage Websolutions Heritage Websolutions Private Limited, a
company incorporated under the Companies Actand having its
registered office at DITP-5B, 5th Floor, Delhi IT Park, Shastri
Park, New Delhi 110 053, India
IHRCL Imperial Hospital and Research Centre Limited, a company
incorporated under theCompanies Act and having its registered
office at 154/11, Opposite IIMB, BannergattaRoad, Bangalore 560
076, Karnataka, India
IMCL Indraprastha Medical Corporation Limited, a company
incorporated under the Companies Act and having its registered
office at Hospital Complex, Sarita Vihar, Delhi-Mathura Road, New
Delhi 110 076, New Delhi, India
Indraprastha Apollo Hospital Indraprastha Apollo Hospital, a
corporate hospital under the administration of IMCL and located at
Sarita Vihar, Delhi Mathura road, New Delhi 110 044, India
Maxwell Maxwell (Mauritius) Pte Limited, a company incorporated
under the laws of Mauritius andhaving its registered office at 3rd
floor, TM Building, Pope Hennessy Street, Port Louis, Republic of
Mauritius
Medvarsity Medvarsity Online Limited, a company incorporated
under the Companies Act and havingits registered office at Life
Sciences Building, Apollo Hospitals Complex, Jubilee
Hills,Hyderabad 500 033, Andhra Pradesh, India
Memorandum/ Memorandum of Association
The Memorandum of Association of AHSL, as amended from time to
time
PCR Investments PCR Investments Limited, a company incorporated
under the Companies Act and havingits registered office at 19,
Temple Trees, Bishop Gardens, Raja Annamalaipuram, Chennai
600028
Samudra Healthcare Samudra Healthcare Enterprise Limited, a
company incorporated under the Companies Actand having its
registered office at Apollo Hospitals Complex, Jubilee Hills,
Hyderabad 500 033, Andhra Pradesh, India
Series B Preference Shares The 1,766,963 compulsorily
convertible, cumulative Series B Preference Shares of Rs.
158allotted to Eliza Holdings and other investors pursuant to the
subscription and shareholders agreement dated April 14, 2005 (as
amended from time to time), as detailed in the sectiontitled
History and Corporate Structure - Shareholders and Joint Venture
Agreements -Restated Shareholders agreement dated January 8, 2007
between Maxwell, Eliza Holdings, the Company and AHEL on page
90
Statutory Auditors Statutory auditors of the Company, being M/s
S.R. Batliboi & Associates, Hyderabad, Chartered
Accountants
Subsidiaries (i) Accordis, Inc.; (ii) Accordis Holding
Corporation; (iii) AFSI; (iv) AHSI; (v) Armanti
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Term Description Financial; (vi) Health Receivables Management,
Inc.; (vii) Heritage Websolutions; (viii) HPS Paradigm, Inc.; (ix)
Global STI Mauritius Limited; (x) STI Processmind, Inc.; (xi)
Symphony Data Corporation; (xii) Zavata, Inc.; (xiii) Zavata
Acquisition Corporation; and (xiv) Zavata India Private Limited
UHHL Unique Home Healthcare Limited, a company incorporated
under the Companies Act andhaving its registered office at 19,
Bishop Gardens, Raja Annamalaipuram, Chennai 600 028, Tamil Nadu,
India
Zavata, Inc. Zavata, Inc., a company incorporated under the laws
of Delaware, United States andhaving its principal office at 400
Perimeter Center Terrace, Suite 249, Atlanta, Georgia30346
Zavata Merger Agreement The Agreement and Plan of Merger dated
August 29, 2007 between AHSI, AFSI, ZavataAcquisition Corporation,
Mr. Satish Sanan and Zavata, Inc. in relation to the acquisition of
Zavata, Inc. For further details, please refer to the section
titled History and Corporate Structure- Shareholders and Joint
Venture Agreements - Agreement and Plan of Merger dated August 29,
2007 between AHSI, AFSI, Zavata Acquisition Corporation, Mr.
SatishSanan and Zavata, Inc. on page 88
Issue Related Terms
Term Description Allotment Unless the context otherwise
requires, the issue or transfer of Equity Shares, pursuant to
the Issue to the successful Bidders Allottee The successful
Bidder to whom the Equity Shares are/ have been issued or
transferred Allocation Amount The amount payable by a Bidder on or
prior to the Pay-in Date after deducting any Bid
Amounts that may already have been paid by such Bidder Banker(s)
to the Issue [] Bid An indication to make an offer during the
Bidding Period by a prospective investor to
subscribe to the Equity Shares of the Company at a price within
the Price Band, includingall revisions and modifications
thereto
Bid Amount The highest value of the optional Bids indicated in
the Bid cum Application Form and payable by the Bidder on
submission of the Bid in the Issue
Bid/Issue Closing Date The date after which the Syndicate will
not accept any Bids for the Issue, which shall benotified in two
widely circulated newspapers (one each in English and Hindi) and a
Tamilnewspaper
Bid/Issue Opening Date The date on which the Syndicate shall
start accepting Bids for the Issue, which shall be thedate notified
in two widely circulated newspapers (one each in English and Hindi)
and aTamil newspaper
Bid cum Application Form The form in terms of which the Bidder
shall make an offer to purchase Equity Shares ofour Company in
terms of the Red Herring Prospectus
Bid Price In respect of each successful Bidder, the Issue Price
multiplied by the number of EquityShares allocated to a successful
Bidder
Bidder Any prospective investor who makes a Bid pursuant to the
terms of the Red HerringProspectus and the Bid cum Application
Form
Bidding Period/ Issue Period The period between the Bid/Issue
Opening Date and the Bid/Issue Closing Date (inclusive of both
days) and during which prospective Bidders can submit their
Bids
Book Building Process/ Method Book building process as provided
in Chapter XI of the SEBI Guidelines, in terms ofwhich this Issue
is being made
BRLMs Book Running Lead Manager to the Issue, in this case being
ICICI Securities and Edelweiss
CAN/ Confirmation of Allocation Note
Means the note or advice or intimation of allocation of Equity
Shares sent to the Bidderswho have been allocated Equity Shares
after discovery of the Issue Price in accordance with the Book
Building Process
Cap Price The higher end of the Price Band, above which the
Issue Price will not be finalized andabove which no Bids will be
accepted
Companies Act / Act The Companies Act, 1956, as amended from
time to time Cut-off Price The Issue Price finalised by the Company
in consultation with the BRLMs. Only Retail
Individual Bidders are entitled to bid at the Cut-off Price, for
a Bid Amount not exceeding Rs. 100,000. QIBs and Non-Institutional
Bidders are not entitled to bid at the Cut-off Price
Depositories Act The Depositories Act, 1996, as amended from
time to time Depository A depository registered with SEBI under the
SEBI (Depositories and Participant)
Regulations, 1996, as amended from time to time Depository
Participant A depository participant as defined under the
Depositories Act Designated Date The date on which funds are
transferred from the Escrow Account to the Public Issue
Account after the Prospectus is filed with the RoC, following
which the Board of Directors
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- IV -
Term Description shall allot Equity Shares to the successful
Bidders
Designated Stock Exchange [] Draft Red Herring
Prospectus/DRHP
The Draft Red Herring Prospectus issued in accordance with
Section 60B of theCompanies Act, which does not have complete
particulars on the price at which the EquityShares are offered and
size of the Issue
Edelweiss Edelweiss Capital Limited, a company incorporated
under the Companies Act and havingits registered office at 14th
Floor, Express Towers, Nariman Point, Mumbai 400 021, India
Edelweiss Securities Edelweiss Securities Limited, a company
incorporated under the Companies Act andhaving its registered
office at 14th floor, Express Towers, Nariman Point, Mumbai 400
021, India
Eligible Employees Permanent employees of the Company and the
Subsidiaries including the directors thereofwho are Indian
nationals based in India and are present in India on the date of
submissionof the Bid cum Application Form. However, the Directors
who are the Promoters of the Company shall not be considered to be
Eligible Employees
Eligible NRI An NRI from such jurisdiction outside India where
it is not unlawful to make an offer orinvitation under the Issue
and in relation to whom the Red Herring Prospectus constitutes an
invitation to subscribe or purchase the Equity Shares offered
thereby
Employee Reservation Portion The portion of the Issue being up
to 200,000 Equity Shares available for allocation toEligible
Employees
Escrow Agreement Agreement entered into by the Company, the
Registrar, the BRLMs, the SyndicateMember and the Escrow Collection
Bank(s) for collection of the Bid Amounts and whereapplicable
refunds of the amounts collected to the Bidders
Escrow Collection Account Account opened with the Escrow
Collection Bank(s) for the Issue and in whose favour the Bidder
will issue cheques or drafts in respect of the Bid Amount when
submitting a Bidand the Allocation Amount paid thereafter
Escrow Collection Bank(s) The banks, which are clearing members
and registered with SEBI as Bankers to the Issue with whom the
Escrow Collection Account will be opened
First Bidder The Bidder whose name appears first in the Bid cum
Application Form or Revision Form Floor Price The lower end of the
Price Band, below which the Issue Price will not be finalized
and
below which no Bids will be accepted ICICI Securities ICICI
Securities Limited, a company incorporated under the Companies Act
and having its
registered office at ICICI Centre, HT Parekh Marg, Churchgate,
Mumbai 400 020, India IPO Initial Public Offering Issue Public
issue of 6,500,000 Equity Shares by the Company at the Issue Price
Issue Price The final price at which Equity Shares will be allotted
in terms of the Prospectus, as
determined by the Company in consultation with the BRLMs on the
Pricing Date Margin Amount The amount paid by a Bidder at the time
of submission of the Bid, which may range
between 10% to 100% of the Bid Amount Mutual Funds Mutual funds
registered with SEBI under the SEBI (Mutual Funds) Regulations,
1996, as
amended from time to time Mutual Fund Portion 5% of the QIB
Portion or 189,000 Equity Shares available for allocation to Mutual
Funds
only, out of the QIB Portion Net Issue The Issue less the
Employee Reservation Portion being 6,300,000 Equity Shares
Non-Institutional Bidders All Bidders that are not QIBs or Retail
Individual Bidders and who have Bid for Equity
Shares for an amount more than Rs. 100,000 Non-Institutional
Portion The portion of the Net Issue being up to 630,000 Equity
Shares available for allocation to
Non Institutional Bidders Pay-in-Date Bid Closing Date or the
last date specified in the CAN sent to Bidders, as applicable
Pay-in-Period (i) With respect to Bidders whose Margin Amount is
100% of the Bid Amount, the period
commencing on the Bid Opening Date and extending until the Bid
Closing Date, and (ii)with respect to Bidders whose Margin Amount
is less than 100% of the Bid Amount, theperiod commencing on the
Bid Opening Date and extending up to the closure of Pay-in Date
Price Band The price band with a minimum price (Floor Price) of
Rs. [] and the maximum price (Cap Price) of Rs. [], including any
revisions thereof
Pricing Date The date on which the Company in consultation with
the BRLMs finalizes the Issue Price Promoter Group Unless the
context otherwise requires, refers to those individuals and those
entities
mentioned in the section titled Our Promoter - Promoter Group on
page 120 Promoters Our promoters, being AHEL, Dr. Prathap C. Reddy
and Mrs. Sangita Reddy Prospectus The Prospectus, to be filed with
the RoC containing, inter alia, the Issue Price that is
determined at the end of the Book Building Process, the size of
the Issue and certain otherinformation
Public Issue Account Account opened with the Banker(s) to the
Issue to receive monies from the Escrow
-
- V -
Term Description Accounts for the Issue on the Designated
Date
QIB Margin Amount An amount representing at least 10% of the Bid
Amount QIB Portion The portion of the Net Issue to public being not
less than 3,780,000 Equity Shares at the
Issue Price, available for allocation to QIBs on a proportionate
basis Qualified Institutional Buyers or QIBs
Public financial institutions as defined in Section 4A of the
Companies Act, FIIs,scheduled commercial banks, mutual funds
registered with SEBI, venture capital fundsregistered with SEBI,
multilateral and bilateral development financial institutions,
foreign venture capital investors registered with SEBI, State
industrial development corporations,insurance companies registered
with the Insurance Regulatory and Development Authority,provident
funds with a minimum corpus of Rs. 250 million, pension funds with
a minimumcorpus of Rs. 250 million, and multilateral and bilateral
development financial institutions
Refund Account The account opened with the Escrow Collection
Bank(s), from which refunds, if any, of thewhole or part of the Bid
Amount shall be made
Refund Banker [] Registrar /Registrar to the Issue Registrar to
the Issue, in this case being Karvy Computershare Private Limited,
a company
incorporated under the Companies Act and having its registered
office as indicated on thecover page.
Retail Individual Bidders Individual Bidders (including HUFs)
who have Bid for Equity Shares for an amount less than or equal to
Rs. 100,000, in any of the bidding options in the Issue
Retail Portion The portion of the Net Issue to the public being
up to 1,890,000 Equity Shares available forallocation to Retail
Individual Bidder(s) on a proportionate basis
Revision Form The form used by the Bidders to modify the
quantity of Equity Shares or the Bid Price inany of their Bid cum
Application Form s or any previous Revision Form(s)
RHP or Red Herring Prospectus Means the document issued in
accordance with the SEBI Guidelines, which does not have complete
particulars on the price at which the Equity Shares are offered and
the size of theIssue. The Red Herring Prospectus will be filed with
the RoC in terms of section 60B ofthe Companies Act, at least 3
days before the Bid Opening Date and will become a Prospectus after
filing with the RoC after pricing and allocation
RoC The Registrar of Companies, Tamil Nadu at Chennai Stock
Exchanges NSE and BSE Syndicate The BRLMs and the Syndicate Member
Syndicate Agreement The agreement to be entered into among the
Company and the Syndicate in relation to the
collection of Bids in this Issue Syndicate Member Edelweiss
Securities TRS or Transaction Registration Slip
The slip or document issued by the Syndicate Member to a Bidder
as proof of registration of the Bid
Underwriters The BRLMs and the Syndicate Member Underwriting
Agreement The agreement among the Underwriters and the Company to
be entered into on or after the
Pricing Date Venture Capital Funds Venture capital funds as
defined and registered with SEBI under the Securities and
Exchange Board of India (Venture Capital Fund) Regulations,
1996, as amended from timeto time
Company/ Industry related terms
Term Description AAPC American Academy of Professional Coding
BPO Business Process Outsourcing FBO Full Business Office FDCPA The
United States Fair Debt Collection Practices Act Government/GoI
Government of India HIPAA United States Health Insurance
Portability and Accountability Act of 1996 IT Information
Technology ITES Information Technology Enabled Services PPO
Preferred Provider Organisation RCM Revenue Cycle Management STPI
Software Technology Parks of India Conventional/ General Terms/
Abbreviations
Term Description AGM Annual General Meeting AS Accounting
Standards as issued by the Institute of Chartered Accountants of
India
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- VI -
Term Description BSE Bombay Stock Exchange Limited CDSL Central
Depository Services (India) Limited ECS Electronic Clearing Service
EGM Extraordinary General Meeting of shareholders Electronic
Transfer of Funds Refunds through ECS, Direct Credit or RTGS, as
applicable EPS Earnings per share FDI Foreign direct investment
FEMA Foreign Exchange Management Act, 1999, as amended from time to
time, and the
regulations framed there under FII Foreign Institutional
Investor (as defined under Foreign Exchange Management
(Transfer
or Issue of Security by a Person Resident outside India)
Regulations, 2000) registered with SEBI under applicable laws in
India
FIPB Foreign Investment Promotion Board, Government of India
FVCI Foreign Venture Capital Investor registered under the
Securities and Exchange Board of
India (Foreign Venture Capital Investor) Regulations, 2000 HUF
Hindu Undivided Family I.T. Act/ IT Act The Income Tax Act, 1961,
as amended from time to time Indian GAAP Generally accepted
accounting principles of India IPC Indian Penal Code, 1860 LIBOR
London Interbank Offered Rate N.A/NA Not applicable NAV Net asset
value NEFT National Electronic Fund Transfer Non Residents/ NR Non
Resident is a Person resident outside India, as defined under FEMA
and includes a
Non Resident Indian NRE Account Non Resident External Account
NRI/Non Resident Indian Non Resident Indian is a Person resident
outside India, who is a citizen of India or a
Person of Indian origin and shall have the same meaning as
ascribed to such term in the Foreign Exchange Management (Deposit)
Regulations, 2000
NSDL National Securities Depository Limited NSE National Stock
Exchange of India Limited OCB/ Overseas Corporate Body A company,
partnership, society or other corporate body owned directly or
indirectly to
the extent of at least 60% by NRIs, including overseas trusts in
which not less than 60% of beneficial interest is irrevocably held
by NRIs directly or indirectly as defined under Foreign Exchange
Management (Deposit) Regulations, 2000. OCBs are not allowed to
invest in this Issue
p.a. / P.A. Per annum P/E Ratio Price/Earnings Ratio PAN
Permanent Account Number Person/Persons Any individual, sole
proprietorship, unincorporated association, unincorporated
organization, body corporate, corporation, company, partnership,
limited liability company, joint venture, or trust or any other
entity or organization validly constituted and/or incorporated in
the jurisdiction in which it exists and operates, as the context
requires
PIO/ Person of Indian Origin Shall have the same meaning as is
ascribed to such term in the Foreign Exchange Management (Deposit)
Regulations, 2000
RBI The Reserve Bank of India Re. One Indian Rupee RoNW Return
on Net Worth Rs. Indian Rupees RTGS Real Time Gross Settlement
Process SCRR Securities Contract Regulation Rules, 1957, as amended
SEBI The Securities and Exchange Board of India constituted under
the SEBI Act, 1992 SEBI ESOP Guidelines Securities and Exchange
Board of India (Employees Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 SEBI Guidelines SEBI
(Disclosure and Investor Protection) Guidelines, 2000 issued by
SEBI on January
27, 2000, as amended, including instructions and clarifications
issued by SEBI from time to time
SEBI Takeover Regulations Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers) Regulations,
1997, as amended from time to time
SICA Sick Industrial Companies (Special Provisions) Act, 1995
SPV Special Purpose Vehicle United States or U.S. or USA United
States of America U.S. GAAP Generally accepted accounting
principles of the United States of America
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- VII -
CERTAIN CONVENTIONS; USE OF MARKET DATA Unless stated otherwise,
the financial data in this Draft Red Herring Prospectus is derived
from our unconsolidated and our consolidated financial statements
prepared in accordance with Indian GAAP and restated in accordance
with the SEBI Guidelines, beginning on page 186. Our fiscal year
commences on April 1 and ends on March 31. In this Draft Red
Herring Prospectus, any discrepancies in any table between the
total and the sums of the amounts listed are due to rounding off.
There are significant differences between Indian GAAP and U.S.
GAAP; accordingly, the degree to which the Indian GAAP financial
statements included in this Draft Red Herring Prospectus will
provide meaningful information is entirely dependent on the readers
level of familiarity with Indian accounting practices. Any reliance
by Persons not familiar with Indian accounting practices on the
financial disclosures presented in this Draft Red Herring
Prospectus should accordingly be limited and we urge you to consult
your own advisors regarding such differences and their impact on
our financial data. All references to Rupees or Rs. are to Indian
Rupees, the official currency of the Republic of India. All
references to US$ or US Dollars or USD are to United States
Dollars, the official currency of the United States of America. For
additional definitions, please refer to the section titled
Definitions and Abbreviations beginning on page I. Market and
industry data used throughout this Draft Red Herring Prospectus has
been obtained from publications available in the public domain.
These publications generally state that the information contained
therein has been obtained from sources believed to be reliable but
that their accuracy and completeness are not guaranteed and their
reliability cannot be assured. Although we believe that the
industry data used in this Draft Red Herring Prospectus is
reliable, it has not been independently verified. This Draft Red
Herring Prospectus contains translations of some Rupee amounts into
US Dollars which should not be construed as a representation that
those Rupee or US Dollar amounts could have been, or could be,
converted into US Dollars or Indian Rupees, as the case may be, at
any particular rate, the rates stated below, or at all. The
following table sets forth, for each period indicated, information
concerning the number of Rupees for which one US Dollar could be
exchanged at the noon buying rate given by the Federal Reserve Bank
of New York. The rows titled average, low and high in the table
below represent the average, the low and the high of the daily noon
buying rate during the fiscal indicated or any part period thereof.
Except as otherwise stated in this Draft Red Herring Prospectus, US
Dollar amounts have been translated into Rupees for each period,
and presented solely to comply with the requirements of the Clause
6.9.7.1 of the SEBI Guidelines. Investors are cautioned not to rely
on such translated amounts.
Fiscal 2007 Fiscal 2006 Fiscal 2005 Period End 43.10 44.48
43.62
Average 45.12 44.17 44.86 Low 42.78 43.05 43.27 High 46.83 46.26
46.45
On March 14, 2008, the noon-buying rate was Rs. 40.40 per one US
Dollar.
We acquired Zavata, Inc in August 2007. The consolidated
financial statements of Zavata, Inc. have been prepared and
presented in accordance with US GAAP in USD with a convenience
translation into Indian Rupees using the Reserve Bank of India
exchange rate as of March, 2007. Our financial statements are
prepared in conformity with Indian GAAP, which differs in certain
significant respects from US GAAP; accordingly, the degree to which
the US GAAP financial statements of Zavata, Inc. included in this
Draft Red Herring Prospectus will provide meaningful information is
entirely dependent on the readers level of familiarity with US
GAAP. Any reliance by persons not familiar with US GAAP on the
financial disclosures regarding Zavata, Inc. presented in this
Draft Red Herring Prospectus should accordingly be limited. The
Company has not attempted to quantify those differences or their
impact on the financial data included herein, and you should
consult your own advisors regarding such differences and their
impact on our financial data.
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- VIII -
All amounts disclosed in this Draft Red Herring Prospectus are
in millions, except as disclosed in the section titled Main
Provisions of the Articles of Association on page 467. For the sake
of clarity, one million is equivalent to ten lakhs and ten million
is equivalent to one crore.
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- IX -
FORWARD-LOOKING STATEMENTS
This Draft Red Herring Prospectus contains certain
forward-looking statements. These forward looking statements can
generally be identified by words or phrases such as aim,
anticipate, believe, expect, estimate, intend, may, objective,
plan, project, shall, will, will continue, will pursue or other
words or phrases of similar import. Similarly, statements that
describe our objectives, plans or goals are also forward-looking
statements. All forward-looking statements are subject to risks,
uncertainties and assumptions that could cause actual results to
differ materially from those contemplated by the relevant
forward-looking statement. Important factors that could cause
actual results to differ materially from our expectations include,
among others:
Inability to manage our growth effectively which could have an
adverse effect on our business, results of
operations or financial condition. An adverse change in our
relationship or in the performance or financial position of a few
of our clients on
whom we rely for a significant portion of our income. Decrease
in demand for RCM services, IT services or enterprise solution
services in the healthcare industry
could reduce our income and adversely affect our business. Loss
of our management team and other key personnel who are critical to
our continued success. Withdrawal or reduction of tax exemptions or
benefits and other incentives currently provided by the GoI to
companies within our industry. Inability to keep pace with
changing technology, evolving industry standards and new
product
introductions. Any changes in United States laws governing the
healthcare or BPO industries which may have an adverse
effect on our results of operations. Failure to realize the
anticipated benefits from our acquisitions could effect our results
of operations
adversely. Long selling cycle for our outsourcing services that
requires significant funds and management resources
and a long implementation cycle that requires significant
resource commitments. Failure to estimate the resources and time
required for our contracts may negatively affect our profitability.
For a further discussion of factors that could cause our actual
results to differ, please refer to the section titled Risk Factors
beginning on page X. By their nature, certain market risk
disclosures are only estimates and could be materially different
from what actually occurs in the future. As a result, actual future
gains or losses could materially differ from those that have been
estimated. Neither we, our Directors, any member of the Syndicate
nor any of their respective affiliates have any obligation to
update or otherwise revise any statements reflecting circumstances
arising after the date hereof or to reflect the occurrence of
underlying events, even if the underlying assumptions do not come
to fruition. In accordance with SEBI requirements, the BRLMs and
the Company will ensure that investors in India are informed of
material developments until such time as the grant of listing and
trading permission by the Stock Exchanges.
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- X -
SECTION II RISK FACTORS An investment in our Equity Shares
involves a high degree of risk. You should carefully consider all
information in this Draft Red Herring Prospectus, including the
risks and uncertainties described below, before making any
investment in the Equity Shares. If any of the following risks or
any of the other risks and uncertainties discussed in this Draft
Red Herring Prospectus occur, our business, results of operations
and financial condition could suffer, the trading price of our
Equity Shares could decline, and you may lose all or part of your
investment. This Draft Red Herring Prospectus also contains
forward-looking statements that involve risks and uncertainties.
Our results could differ materially from those anticipated in these
forward looking statements as a result of certain factors,
including the considerations described below, under Forward-looking
Statements beginning on page IX and elsewhere in this Draft Red
Herring Prospectus. Risks Associated with Our Business 1. There are
a number of legal proceedings by and against us, our Directors,
Promoters and Promoter
Group companies. We, our Directors, Promoters and certain of our
Promoter Group companies are involved in a number of legal
proceedings and claims in relation to certain civil and criminal
matters. These legal proceedings are pending at different levels of
adjudication before various courts and tribunals. Any adverse
decision in one or more of these proceedings may have a significant
effect on our business and results of operations. The following are
the details of such litigation: The Company has filed 17 cases and
one notice has been issued to it; Our Subsidiaries are involved in
six cases and eight notices have been issued to or by them that
may
lead to potential litigation; Our Promoters are involved in 180
cases. Our Promoter Group is involved in 179 cases. For further
details, please see Outstanding Litigation and Material
Developments beginning on page 365. 2. We may be unable to manage
our growth effectively which could have an adverse effect on
our
business, results of operations or financial condition. We have
grown our business through a combination of organic and inorganic
route, including the recent acquisition of Zavata, Inc. in the
United States. We also acquired Armanti Financial in the United
States and Heritage Websolutions in India in 2006. We are currently
in the process of expanding our delivery location in Hyderabad and
we are establishing a new delivery location in Chennai. In order to
manage our growth effectively, we must implement and improve our
operational systems and procedures and internal controls on a
timely basis. If we fail to do so, we may not be able to service
our clients needs, pursue new business opportunities, complete
future acquisitions or operate our business effectively. Failure to
effectively transfer new client business to our service delivery
locations, accurately estimate transfer and operational costs
associated with new contracts, hire and retain new employees or
other factors, could result in delays in executing client
contracts, trigger service level penalties, give the client the
right to terminate the contract for breach, or cause our profit
margins not to meet our expectations or our historical profit
margins. Our inability to execute our growth strategy to ensure the
continued adequacy of our current systems or to manage our
expansion effectively could have an adverse effect on our business,
prospects, results of operations and financial condition. 3. We
rely on a limited number of clients for a significant portion of
our income. An adverse change in
a client relationship or in a clients performance or financial
position could adversely affect our business and financial
condition.
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- XI -
We currently derive a significant portion of our income from a
limited number of clients. For the six months ended September 30,
2007, we had one client who contributed to over 10.0% of our income
from operations. This client accounted for 14.5% of our income from
operations for the six months ended September 30, 2007. Our top
five clients in the hospital and physician services, payer services
and IT and enterprise solution services contributed 32%, 12% and
11%, respectively of our income from operations for the six months
ended September 30, 2007. Our top five clients in the hospital and
physician services, payer services and IT and enterprise solution
services contributed 38%, 22% and 9%, respectively of our income
from operations for the fiscal year ended March 31, 2007. We expect
that a significant portion of our income will continue to be
attributable to a limited number of clients in the near future. In
addition, most of our clients have not committed to provide us with
a minimum volume of work or to exclusively use us for their
outsourcing needs. Some of these clients could stop outsourcing
work to us by terminating our contract with little or no notice, or
by electing not to renew the contract after expiration of its
initial term. Our clients have in the past and may in the future
demand price reductions, develop and implement newer technologies,
automate some or all of their processes or change their outsourcing
strategy by moving more work in-house or to other service
providers, which could reduce our profitability. Our business could
be adversely affected in case our clients terminate their
relationships with us due to a change in vendor preference or any
other reason. If we were to lose one or more of our major clients
or if any one of our large clients significantly reduces its
business with us or became financially troubled, our business,
prospects, financial condition and results of operations would be
adversely affected. 4. Our business is dependent upon the
healthcare industry and any decrease in demand for revenue
cycle management services, IT services or enterprise solution
services in the healthcare industry could reduce our income and
adversely affect our business.
Our business and growth largely depend on the continued demand
for our services from clients in the healthcare industry, as well
as on trends in the healthcare industry to outsource business
processes and IT, especially in the United States. For the year
ended March 31, 2007 and the six months ended September 30, 2007,
98.15% and 99.97%, respectively, of our income from operations was
derived from outside India. Hence, any slow down in the United
States economy, change in the United States healthcare industry, a
slowdown or reversal of the trend to outsource business processes
and IT or the introduction of regulation which restricts or
discourages companies from outsourcing could result in a decrease
in the demand for our services and adversely affect our results of
operations and financial condition. Certain other developments may
also lead to a decline in the demand for our services. For example,
consolidation in the healthcare industry or acquisitions,
particularly involving our clients, may decrease the potential
number of buyers of our services. Any significant reduction in or
the elimination of the use of the services we provide within the
healthcare industry would result in reduced income and may
adversely affect our business. Our clients may also experience
rapid changes in their prospects, price competition and pressure on
their profitability. Although such pressures may encourage clients
to increase outsourcing of services, they may also require us to
lower our prices, which could adversely affect our business,
prospects, results of operations and financial condition. 5. We may
fail to attract and retain trained employees to support our
operations, as competition for
highly skilled personnel is intense and we experience
significant employee attrition. Our operations are labour intensive
and our success depends to a significant extent on our ability to
attract, hire, train and retain employees with skills to operate
our business. In the past, our industry, including our company, has
experienced high employee attrition. For the nine months ended
December 31, 2007 and the fiscal year 2007, our overall attrition
rate for all employees was approximately 18.4% and 30.5%,
respectively. Our attrition rate is based on employees working with
us for more than six months. We believe that the attrition rate is
much higher in the first six to twelve months of joining and
progressively reduces thereafter. We face a shortage of skilled
resources in our market and our ability to cross-utilize our
existing resources among different revenue streams is limited due
to the specialized nature of our work. There is intense competition
for skilled professionals in India and the United States to perform
the services we offer to our clients. Increased competition for
these professionals could increase our employee attrition rate and
have an adverse effect on our operations. A significant increase in
the attrition rate among our employees, particularly among the
highly skilled workforce needed to provide RCM services, IT
services and enterprise solution services, could also increase our
recruiting and training costs and decrease our operating
efficiency, productivity and profit margins.
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- XII -
A shortage of sufficiently qualified personnel could also
inhibit our ability to establish operations in new markets and our
efforts to expand geographically. In addition, high attrition rates
among our key employees could also result in a loss of domain and
process knowledge, which could result in poor service quality. Our
failure to attract, train and retain skilled personnel with the
qualifications necessary to fulfill the needs of our existing and
future clients could have an adverse effect on our business,
prospects, results of operations and financial condition. 6. Our
management team and other key personnel are critical to our
continued success and the loss of
any such personnel could harm our business. Our future success
substantially depends on the continued service and performance of
the members of our management team and other key personnel. These
personnel possess technical and business capabilities that are
difficult to replace. If we lose the services of any of these or
other key personnel, we may be unable to replace them in a timely
manner or at all, which may affect our ability to continue to
manage and expand our business. Members of our management team are
employed pursuant to customary employment agreements, which may not
provide adequate incentive for them to remain with us or adequately
protect us in the event of their departure or otherwise. In
addition, certain of those agreements contain non-compete and other
provisions that may not be enforceable. Furthermore, we do not
maintain any key man insurance for our key personnel. The loss of
key members of our management team or other key personnel could
have an adverse effect on our business, prospects, results of
operations and financial condition. 7. Salary increases in India
may prevent us from sustaining our competitive advantage and may
reduce
our profit margins. Salaries and related benefits of our staff
and other employees constitute a significant portion of our
expenses. Salary costs in India have historically been
significantly lower than salary costs in the United States and
Europe for comparably skilled professionals, which has been one of
our key competitive advantages. However, because of rapid economic
growth in India and increased competition for skilled employees in
India, salaries for comparably skilled employees in India is
increasing at a rate faster than in the United States, which is
reducing this competitive advantage. We also face increased
competition and cost pressures from BPO companies in developing
countries. Salary increases may reduce our profit margins and could
have an adverse effect on our business, prospects, results of
operations and financial condition. 8. Our failure to estimate the
resources and time required for our contracts may negatively affect
our
profitability. Our periodic fee escalations are based upon
United States consumer price index, which is not indicative of our
cost increases and this may adversely affect our profit
margins.
In many of our contracts, we commit to long-term pricing with
our clients and therefore we may not be able to pass cost overruns,
completion delays and salary inflation. If we fail to accurately
estimate the costs, resources and time required for a contract,
future salary inflation rates or currency exchange rates, or if we
fail to complete our contractual obligations within the contracted
timeframe, our income, margins and profitability may be negatively
affected. Some of our contracts have periodic fee escalation
clauses that are linked to the United States consumer price index.
Since most of our costs are incurred in India, our cost increases
could be higher than the United States consumer price index
increases and this may cause our profit margins not to meet our
expectations or our historical profit margins. 9. Some of our
clients may terminate contracts without cause and with little or no
notice or penalty
before completion or may choose not to renew contracts, which
could reduce our income and adversely affect our business.
Our client contracts range from three to five years, while
certain others are rolling one-year short-term contracts.
Typically, our contracts can be terminated by our clients without
cause by giving little or no notice and without any termination
related penalties. The length of notice required to terminate
without cause varies between six months or immediate termination
upon giving notice. These clients could stop outsourcing work to us
by terminating or not renewing their contract. In addition, most of
our clients have not committed to provide us with a minimum volume
of work or to exclusively use us for their outsourcing needs. There
are a number of factors that are outside our control, which might
result in the termination of a contract or the loss of a client,
including financial difficulties, bankruptcy, mergers and
acquisitions, change of management and change in outsourcing
strategy. A contract termination or significant reduction in work
assigned to us by a key client or a number of smaller clients could
cause us to experience a higher than expected number of unassigned
employees
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- XIII -
and unutilized infrastructure dedicated to those clients, which
would increase our expenditure as a percentage of income until we
are able to reduce or reallocate our resources and could have an
adverse affect on our business, prospects, results of operations
and financial condition. 10. If we fail to meet the standards set
forth in our contracts, our clients may have claims for damages
against us. We are also exposed to uncapped liabilities and
consequential and indirect damages in certain cases.
Most of our contracts with clients contain service level or
performance requirements. Failure to consistently meet service
requirements of a client or errors made by our personnel in the
course of providing services to our clients could disrupt the
clients business and result in a reduction of income or a claim for
damages against us. In addition, a failure or inability to meet
contractual requirements could adversely affect our goodwill and
our ability to attract new clients. Our liability for breach of our
obligations under client contracts is typically limited to actual
damages incurred by the client is capped at a portion of the fees
paid or payable under the relevant contract. However, to the extent
that our contracts contain limitations of liability, such
limitations may be unenforceable or otherwise may not protect us
from liability for damages. In addition, typically there is no
limitation of liability in relation to certain liabilities, such
as, indemnification obligations for third party claims or breaches
of confidentiality obligations. Further, some of our contracts do
not have limitation of liability provisions, which exposes us to
unlimited liabilities and to consequential and indirect damages.
The assertion of one or more large claims against us could have an
adverse effect on our goodwill, business, prospects, results of
operations and financial condition. 11. Our pricing for certain
collections-linked services is based on a contingency fee model. An
adverse
change in our success rate for collections may have a negative
affect on our business. Most of our provider work for
collections-linked services is based on a contingency fee model.
The success rate on actual collections of the receivables depends
upon several factors, some of which are not under our control, such
as the type of client, the duration of time for which the
receivables have been due and outstanding and our level of
involvement. Although this fee structure is consistent with the
industry norm, an adverse change in our success rate for
collections may require us to pay fines or penalties, purchase
underlying receivables or trigger a termination of the contract.
Any such action could adversely affect our business. For instance,
in fiscal 2007, we were unable to meet the milestone for receivable
collections under a client contract and consequently, we had to
purchase the underlying receivables for approximately US$ 6.0
million, which is recoverable on realization of client receivables
by us. In addition, Zavata, Inc. did not achieve the milestones set
out in a client contract and was required to pay a penalty of
approximately US$ 5,000. 12. We are liable to our clients for
damages caused by unauthorized disclosure of sensitive and
confidential information, whether through a breach of our
systems, through employees or otherwise. We are required to manage,
utilize and store sensitive or confidential client data in
connection with the services we provide and to protect our clients
intellectual property rights. Under the terms of our client
contracts, we are required to keep such information strictly
confidential. The collection, use and processing of personal data
is heavily regulated in the United States and the United Kingdom
and the transfer of personal data to an outsourcing company in a
jurisdiction with a less robust data protection regime could be an
issue that may cause concern for clients. Consequently, our
contracts with clients typically contain provisions relating to
confidentiality and data protection. Our client contracts generally
do not include a limitation on our liability to them with respect
to breaches of our obligation to maintain the confidentiality of
the information and some of our client contracts can be terminated
immediately in the event of a breach of the data protection or
confidentiality provisions. We seek to implement measures to
protect sensitive and confidential client data and to protect our
clients intellectual property, but notwithstanding these measures,
if any person, including any of our employees, penetrates our
network security or otherwise mismanages or misappropriates
sensitive or confidential client data or clients intellectual
property rights, we could be subject to liability and lawsuits from
regulatory authorities, our clients or their customers for
breaching contractual confidentiality or data protection provisions
or privacy laws. The occurrence of such events could have an
adverse effect on our goodwill, business, prospects, results of
operations and financial condition. 13. We have a long selling
cycle for our outsourcing services that requires significant funds
and
management resources and a long implementation cycle that
requires significant resource commitments.
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We have a long selling cycle for our outsourcing services, which
requires significant investment of capital, resources and time.
Before committing to use our services, potential clients generally
require us to expend substantial time and resources presenting to
them the value of our services and assessing the feasibility of
integrating our systems and processes with theirs. From time to
time, we also provide services, free of cost, or at subsidized
prices, to enable our prospective clients to test our service
quality and business capability. Our clients typically evaluate our
services before deciding whether to use them. Therefore, our
selling cycle is subject to many risks and delays over which we
have little or no control, including our clients decision to choose
alternatives to our services, such as, other providers or in-house
resources, and the timing of our clients budget cycles and approval
processes. In addition, we may not be able to successfully conclude
a contract after the selling cycle is complete. Implementing our
services also involves a significant commitment of resources over
an extended period of time from our clients and us. Our clients may
also experience delays in obtaining internal approvals or delays
associated with technology or system implementations, thereby
further delaying our implementation process. Our clients may not be
willing or able to invest the time and resources necessary to
implement our services, and we may fail to close sales with clients
to which we have devoted significant time and resources, which
could have an adverse effect on our business, prospects, results of
operations and financial condition. 14. We face competition from
onshore and offshore revenue cycle management solutions providers.
Our
clients may also choose to run their business processes
themselves or through captive units located offshore.
The market for outsourcing services is extremely competitive and
we expect competition to intensify and increase in the future. We
face competition from a number of onshore and offshore revenue
cycle management solutions providers as well as from our clients
own in-house groups, including, in some cases, in-house departments
operating offshore, or captive units. See Our Business -
Competition beginning on page 75 for a description of our primary
competitors. Clients who currently outsource a significant
proportion of their revenue cycle services to service providers in
India may, for various reasons, including in order to diversify
geographic risk, seek to reduce their dependence on Indian service
providers. In addition, the trend towards offshore outsourcing,
international expansion by foreign and domestic competitors and
continuing technological changes may result in new competitors
entering our markets. A number of our international competitors are
setting up operations in India. Further, many of our other
international competitors with existing operations in India are
expanding their operations. Some of the existing competitors have
greater financial, human and other resources, longer operating
histories and more established relationships in the healthcare
industry as compared to us. In addition, some of our competitors
may enter into strategic or commercial relationships among
themselves or with larger, more established companies, in order to
increase their ability to address client needs or enter into
similar arrangements with potential clients. In addition to our
direct competitors, we also face competition from certain companies
that choose to perform some or all of their revenue cycle services
internally. Increased competition, our inability to compete
successfully against competitors, pricing pressures or loss of
market share could result in reduced operating margins and could
adversely affect our business, prospects, results of operations and
financial condition. 15. Our historical financial results may not
be accurate indicators of our future performance due to
recent acquisitions and disposition as well as our operating
results differing from period to period. Our consolidated financial
statements included in this Draft Red Herring Prospectus include
the financial results of Heritage Websolutions Private Limited
since September 1, 2006, Armanti Financial since August 1, 2006,
and Zavata, Inc. since August 29, 2007, the respective dates of
their acquisitions by us. Our consolidated financial statements
included in this Draft Red Herring Prospectus, also include the
financial results of Medvarsity Online Limited, which we sold on
January 1, 2007 to an affiliate. As a result of these acquisitions
and disposition, our historical financial results may not be an
accurate indicator of our future performance. In addition, our
operating results may differ significantly from period to period
due to factors such as client losses, variations in the volume of
business from clients resulting from changes in our clients
operations, the business decisions of our clients regarding the use
of our services, delays or difficulties in expanding our
operational facilities and infrastructure, changes to our pricing
structure or that of our competitors, inaccurate estimates of
resources and time required to complete ongoing contracts and
currency fluctuations. In addition, the long sales cycle for our
services and the internal budget and approval processes of our
prospective clients
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makes it difficult to predict the timing of new client
engagements. Due to the above factors, our historical financial
results may not be accurate indicators of our future performance.
16. If we fail to realize the anticipated benefits from our
acquisitions, our results of operations may be
adversely affected. The success of our acquisitions will depend,
in part, on our ability to realize the anticipated synergies from
our acquired businesses. The integration of our business operations
is a challenging task that may result in unforeseen operating
difficulties, absorb significant senior management attention or
require additional financial resources. In particular, the
challenges involved include:
recruiting, training and retaining sufficient skilled
management, employees and marketing personnel; obtaining any
consents or authorizations that may be required in respect of our
integrated operations; adhering to quality and process execution
standards that meet customer expectations; developing and
preserving a uniform culture, values and work environment in our
operations; and developing and improving our internal
administrative infrastructure, including our financial,
operational, communications and other internal systems. If we
fail to realize the anticipated benefits from our acquisition, our
results of operations may be adversely affected. 17. We have
incurred losses in the prior periods. We incurred losses in the
fiscal years 2005, 2003 and in the six months ended September 2007.
We expect our expenditures to continue to increase in future
periods and as such, if our income does not grow at a rate faster
than these expected increases in our expenses, or if our operating
expenses are higher than we anticipate, we may not be profitable in
the future and we may incur additional losses. In addition, we have
a limited operating history and may not be able to secure
additional business or retain current business or add or maintain a
sufficient level of new clients in the future. 18. The allocation
of Equity Shares pursuant to our ESOP may result in a charge to our
income
statement and may adversely impact our net income. We have
adopted certain ESOPs for our employees and for further details,
see Note 21 to the section titled Capital Structure Notes to
Capital Structure on page 38. Under these ESOPs, we are permitted
to grant options at an exercise price that may be lower than the
fair market value of the options on the date of the grant. Under
Indian GAAP, the grant of these stock options will result in a
charge to our profit and loss account based on the difference
between the exercise price determined at the date of the grant of
options and the fair market value of the options. This expense will
be amortised over the vesting period of the options. As a purchaser
of Equity Shares in this Issue, you may experience dilution of your
shareholding to the extent that we issue Equity Shares pursuant to
any stock options issued under ESOP. 19. Certain of our Promoter
Group companies have incurred losses in recent fiscal periods.
Certain of our Promoter Group companies have incurred losses in
recent fiscal periods, as set forth in the table below:
Name of Promoter Group Entity Loss for fiscal year (Rs. in
Millions)
2007 2006 2005
Apollo DKV Insurance Company Limited (2.47) - -
AGHL (14.41) (88.11) (160.49)
AGPPL (12.86) (11.83) -
Apollo Sindoori Hotels - - (10.97)
AHIL (119.09) (103.10) (55.32)
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Name of Promoter Group Entity Loss for fiscal year (Rs. in
Millions)
2007 2006 2005
Apollo Health and Lifestyle Limited - - (0.66)
Apollo Health Resources Limited (9.48) - -
Apollo Mumbai - (0.29) (0.35) Apollo Sindhoori Commodities
Trading Limited (10.93) - -
Samudra Healthcare (6.20) (25.07) (39.14)
UHHL (12.69) - -
Medvarsity - - (5.17)
Citadel Research and Solutions Limited (1.66) - - Stephan
Medizintechnik (India) Limited (0.06) - - Sindya Infrastructure
Development Company Private Limited
(16.87) - -
Kalpatharu Infrastructure Development Company Private
Limited
(0.06) (0.05) (0.08)
Preetha Investments Private Limited - - (12.47)
Altosys Software Technologies Limited - - (6.12)
PPN Holdings Private Limited (28.62) (13.33) (11.37)
Apollo Infrastructure Projects Finance Company Private
Limited
- - (27.92)
Aurama Solutions Private Limited (1.92) (1.66) (0.75)
Kiddy Concepts Private Limited (0.21) (0.13) (0.20)
Prime Time Recreations Private Limited (0.31) (0.36) (0.21)
Kamineni Builders Private Limited (0.01) (0.01) (0.01)
KEI Rajamahendri Resorts Private Limited (6.74) (1.53)
(0.08)
Sindya Aqua Minerale Private Limited (3.83) (8.79) -
Pinakini Hospitals Limited (9.20) (0.04) (0.18) Lifetime
Wellness Rx International Limited (6.83) (0.07) (0.24) Apollo
Telemedicine Networking Foundation (A non-profit company under
Section 25 of the Companies Act) (0.05) (0.81) (0.02)
Apex Agencies (Hyderabad) (0.39) (0.38) (0.44)
M/S Vaishnavi Constructions (0.02) (0.02) - 20. We are expanding
our capacity without client agreements in place to utilize this
capacity. We are in the process of expanding our Hyderabad facility
to increase our capacity without having signed any contracts to
provide new services and will continue to expand capacity in the
future in preparation for anticipated business growth. We may have
excess capacity available upon completion of the Hyderabad facility
expansion and other expansions, if any, and if we are unsuccessful
in increasing the demand for our services to match our increased
capacity in a timely manner, we may not be able to fully recover
the costs of our investment in the expansions, which may adversely
affect our business, prospects, results of operations and financial
condition. 21. Failure to adhere to regulations that govern our
clients businesses could result in breaches of
contract with our clients and expose us to liability. Our
clients business operations are subject to certain rules and
regulations in various jurisdictions, such as the United States
Health Insurance Portability and Accountability Act of 1996, as
amended (HIPAA). Our clients
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require that we perform our services in a manner that would
enable them to comply with such rules and regulations and any
failure to perform services in such a manner could result in
breaches of contract with our clients and, in some circumstances,
fines and criminal penalties against us. In addition, we are
required under various Indian and United States laws to obtain and
maintain regulatory approvals, registrations, permits and licenses
for the conduct of our business. Some of our approvals,
registrations, permits or licenses may have expired. See Government
Licenses and Approvals on page 420.We have applied for, or from
time to time apply for, the renewal of such approvals,
registrations, permits and licenses, however, we cannot assure you
that we will receive the renewals on a timely basis or at all. We
may also become subject to new regulatory regimes with our planned
expansion into new geographies. If we do not maintain our
approvals, registrations, permits or licenses, we may not be able
to provide services to existing clients or be able to attract new
clients, which would have an adverse effect on our business,
prospects, results of operations and financial condition. 22. Most
of our income is generated from operations in the United States. We
must comply with
applicable laws in the United States healthcare industry, which
is highly regulated. Any changes in United States laws governing
the healthcare or BPO industries may have an adverse effect on our
results of operations.
For the year ended March 31, 2007 and six months ended September
30, 2007, 98.15% and 99.97%, respectively, of our total income was
derived from outside India, especially in the United States. The
United States healthcare industry is highly regulated. Under the
HIPAA, certain rules have been published regarding standards for
electronic transactions as well as standards for privacy and
security of individually identifiable health information. The HIPAA
rules set high standards for the healthcare industry in handling
healthcare transactions and information, with penalties for non
compliance. We have incurred, and will continue to incur, costs to
comply with these rules, including training our employees to
process electronic medical claims in a HIPAA-compliant format.
Although we believe that future compliance costs will not have an
adverse affect on our results of operations, compliance with these
rules may prove to be more costly than anticipated. This may
adversely affect our profit margins if we are unable to pass on
such additional costs to our clients. We expect the United States
federal and state governments to continue to pass new laws and
regulations addressing healthcare issues. We cannot predict whether
these laws would be enacted by the government, or, if enacted, to
what extent they will affect our business. Healthcare industry
participants may respond by reducing their investments or
postponing investment decisions, including investments in our
services, which may have an adverse effect on our income and
financial condition. Our failure to comply with HIPAA or any other
applicable laws and regulations could result in restrictions on our
ability to provide services and may also result in imposition of
fines or penalties, which could have an adverse affect on our
business, results of operations and financial condition. 23. We
could lose rights to use the brand name Apollo, which may adversely
affect our ability to
market, our services.
The Apollo brand name is owned by our Promoter and shareholder,
AHEL and until such time that AHEL continues to hold at least 15%
of our share capital, on a fully diluted basis, we have a license
to use the brand in connection with our business and operations. As
a license holder, we do not enjoy the statutory protections
accorded to a registered trademark and are subject to the risk of
non-performance of obligation to maintain the trademark
registration by the brand owner. Further, we have applied for the
registration of our logo, as a trademark on December 16, 2005 under
the Trademarks Act, 1999 in respect of healthcare related IT and IT
enabled services. The application is pending. Until such
registration is granted, we may not be able to prohibit other
persons from using the logo. 24. We have in the past entered into
related party transactions and may continue to do so in the
future.
Some of these transactions could be subject to transfer pricing
regulations and if the applicable income tax authorities determine
that the transfer price we applied was not appropriate, we may
incur increased tax liability, including accrued interest and
penalties.
We have entered into transactions with our Promoters and with
certain Subsidiaries and their respective affiliates. See Related
Party Transactions beginning on page 184. For example, in fiscal
year 2007 and for six months ended September 30, 2007 we made trade
advances of Rs. 1.81 million and Rs. 0.33 million,
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respectively to our shareholder, AHEL, and rented our offices in
Hyderabad from them for Rs. 18,928,794 per annum for the fiscal
year 2007 and Rs. 10,065,499 for the six months ended September 30,
2007. In addition, we sold our ownership interest in Medvarsity on
January 1, 2007 to an affiliate, Citadel Research and Solutions
Limited, for a cash consideration of Rs. 36.55 million. We have
also entered into a transfer pricing agreement dated April 1, 2005
with our subsidiary, AHSI, to provide healthcare outsourcing
services to its clients in the United States. Our total income from
AHSI in fiscal year 2007 and for six months ended September 30,
2007 pursuant to this services agreement was Rs. 65.08 million and
Rs. 27.84 million, respectively. While we believe that all such
transactions have been conducted on an arms length basis, there can
be no assurance that we could not have achieved more favourable
terms had such transactions not been entered into with