Apollo targets $2.3 bn in sales with new firm
Company will look at acquisitions after monetising a small stake
The country’s largest listed health care company, Apollo Hospitals Enterprise (AHEL), is restructuring its operations by setting up a separate company to house its pharmacy and online digital assets.
The reorganisation will enable the company to focus on digital health care services and unlock value, given the investor demand for such health care platforms.
AHEL will transfer related assets (pharmacy retail and back-end, diagnostics, online brands) and companies to the new outfit called Apollo Healthco (AHL) and will get ~1,200 crore for the slump sale of these assets.
The consideration will be paid once AHL raises money from new investors in exchange for a small stake in the entity.
Hospital-based pharmacies will not be a part of AHL.
Highlighting the potential of the new business (AHL), Shobana Kamineni, executive vice-chairperson, AHEL, indicated that the restructured entity could scale up its revenue to $2.3 billion (over ~17,000 crore) in the next five years. This would be on the back of organic growth, acquisitions, partnerships (such as the one with Airtel) in each of three segments of pharmacy, diagnostics, and online consultancies.
The pharmacy segment will be a key part of growth, with the company targeting a ~10,000-crore revenue base in three years, from a current run rate of ~5,600 crore (with annual revenue growth in the 18-20 per cent range).
The company, which is eyeing a tenfold increase in its user base (Apollo 24/7) from 10 million now to 100 million by 2024-25, expects to break even at the operating profit level in the next four years. While the cash-burn initially will be low, the stake sale in AHL and potential acquisition could push up the spending in the omnichannel health care platform. In addition to generating revenue on the new platform, AHL will also act as a feeder for the parent organisation — AHEL.
In the core hospital business, operational performance improved in the March quarter. Led by higher number of elective surgeries and increased walk-ins, the average revenue per operating bed increased by 11 per cent, even as occupancies remained the same as the year-ago levels.
Covid-related beds accounted for just 5 per cent of the operational beds in the quarter, aiding the overall mix and profitability.
Angel Broking said the reported numbers were better than expected, led by the hospital business, even as the pharmacy business was flat for the quarter adjusted for the sale of the front-end business.
Even though occupancies had hit the 71-per cent mark in May, the company highlighted that realisations would come down in the June quarter, given the higher number of Covid-related admissions in the quarter. The company indicated it has administered 2 million vaccines so far, which adds to the revenue and is margin-accretive.
On the ~1,200-crore to be received from AHL, the management indicated that the same would be used as growth capital to acquire new hospitals rather than debt reduction, given the debt to operating profit is currently comfortable at under 2x and most greenfield expansions are behind it.
While the company is optimistic about growth, the stock was down 1.3 per cent in trade, which indicates investors are in a cautious mode.
The scaling-up of digital assets will be a key trigger for the stock, as there is a valuation premium for online pharmacies. Investors can consider the stock, which has gained 33 per cent in the last six months, on dips.