Health empire run by four sisters makes a comeback
Apollo Hospitals’ bet on India’s economic growth is about to pay off
MUMBAI: Next to Suneeta Reddy’s desk in the executive suite of Apollo Hospitals Enterprise Ltd hangs an icon of Hinduism’s many-armed warrior goddess Durga, who Reddy prays to each morning. The deity’s presence seems fitting at a company run by four women engineering an aggressive expansion into new territory.
About a decade ago, Reddy and her three sisters took over most executive functions at Apollo, India’s largest hospital chain, from their father. They embarked on a multi-year building spree in a bet that India’s economic growth would spread from its metropolises to second-tier cities, where patients are getting richer. But Apollo’s stock tumbled as the sisters’ investments weighed on profits.
Now, almost 20 billion rupees (US$280mil) and four years of construction later, there are signs that strategy is about to pay off. All those hospitals are built. Analysts are predicting that annual earnings are poised to climb for the first time since 2015. Apollo’s shares have gained about 30% after hitting a four-year low in June, and stock forecasters are more bullish than they have been in a decade.
“The four of us recognised there was a demand and supply gap, and we needed to fill it,” Reddy, who holds the title of co-managing director, said in an interview this month in the South Indian city of Chennai. “The capac- ity to pay more will exist.”
The company’s stock climbed as much as 2.5% in Mumbai before trading 1.9% higher at 1,215.70 rupees at 11:51am in Mumbai yesterday, reversing three days of declines on a day when the broader Indian market was down.
Healthcare is becoming one of India’s largest businesses, with the size of the hospital industry projected to more than double to US$133bil over the next four years, according to the government’s India Brand Equity Foundation.
Most patients pay health costs out of pocket, but incomes are rising and the insurance industry is developing. More Indians could be insured over the coming decades as Prime Minister Narendra Modi’s government expands a new initiative to provide health insurance for the poorer half of the country’s population.
Yet, even as Apollo’s expansion has offered fresh opportunities, it’s also brought the sisters new challenges. Despite signs that investors are coming around, expenditures from the sisters’ big build have left the stock and profits well below their peaks, and debt has more than doubled over the past four years.
There are other hurdles that have the potential to hamper growth if Apollo doesn’t get its formula right. Convincing an internationally trained surgeon to relocate to Mumbai is hard enough, never mind inland to a small city.
Also, Apollo found that people in smaller cities aren’t always willing to pay as much, a hurdle for a model of premium prices for premium care. Competition is also growing with more hospitals jostling for a slice of the market.
And Reddy doesn’t expect an immediate effect from the Modi government’s new insurance programme. While Apollo planned to allocate beds for the programme, it wouldn’t turn a profit on those patients because those facilities are set up to cater to the high end of the market, she said.
The company is starting to conduct experiments in lower cost care in suburban Chennai such as paying doctors fixed salaries rather than for individual services and substituting generic drugs for brands. — Bloomberg
The four of us recognised there was a demand and supply gap, and we needed to fill it. Suneeta Reddy