Apollo Hospitals eyes better margins next year

Apollo Hospitals is planning to improve its margins to 23 per cent by 2018-19 through volume growth and cost control. The company’s margins had dipped to 20.1 per cent in the June quarter owing to caps on stent pricing and declining business in some of the company’s hospital clusters.

Apollo Hospitals’ earnings were stable during the September quarter (Q2) but it faced an incremental cost of ~35 crore. The goods and services tax (GST) had a ~5 crore impact due to higher taxes on services and select consumables. The loss from Apollo Hospitals’ recently launched Navi Mumbai facility during the quarter was ~10 crore. Increased guarantee money to doctors has also been exerting pressure on margins.

"Margins in existing hospitals have declined to 20.1 per cent in the first quarter. We are committed to taking this to 23 per cent in 2018-19 through a combination of volume growth and cost control," Suneeta Reddy, managing director of Apollo Hospitals, said during a recent earnings call.

The company has increased prices once related to stents and is planning another round of increases in the next two quarters. The overall cost to the patient is still 10-15 per cent. The plans are to recover the loss from stent prices through various other methods by 2018-19.

Commenting on reports that the government may control the cost of stent implants, Reddy said the company was not expecting the Centre to cap services prices.

"By pricing services, we are able to absorb any change in input cost, so we will increase margins," she said. The company is planning to expand its corporate customer base and retail business. Analysts said the firm’s margin improvement would materialise when it reduces capital expenditure. The company has said it will bring down capex to ~250 crore in the next financial year. "We expect return on invested assets to improve to 13.5 per cent by 2019-20 from 7 per cent at present. It all depends upon their ability to manage their capex," said Siddhant Khandekar, research analyst, ICICI Securities.