Apollo Hospitals: Healthy Outlook

Apollo Hospitals Enterprise, the country’s first and largest corporate healthcare chain, saw its shares rise consistently on the Indian stock exchanges in the past fortnight. This is since the CEO of Malaysian healthcare giant IHH Healthcare Berhad confirmed an interest in taking up stake in the Indian hospital group.

Apollo Hospitals, boasting a market capitalisation of Rs 199,29.7 crore as on 24 December 2015, has otherwise seen the scrip moving up at least 30 per cent in during the year due to a positive outlook on the healthcare sector in general and the pioneer’s aggressive plans to maintain its premium position.

While the strategic expansion plans of the Hyderabad-based company is one trigger for increased investor interest, capacity addition across the country and abroad makes industry analysts rate the scrip’s long-term growth story as intact. “Our next level of growth will be largely contributed by tier-II and tier-III markets where we have key expansion plans driven by the vast demand for quality healthcare, as well as our overall growth strategy,” says executive vice-chairperson Preetha Reddy.

The Apollo hospital chain, which bought a majority stake in Guwahati-based Assam Hospitals in June to strengthen its presence in the Northeast, has also approved a rights issue to raise some Rs 750 crore for investing in additional capacities and newer hospitals. The healthcare group that has a presence in most of the key service segments including multi-speciality hospitals, single specialty clinics, pharmacy and medical education and consultancy including executive training and infrastructure projects, has kept growth going through both organic means as well as though acquisitions.

Although rapid expansion, especially after its key management restructuring placed the second generation at the helm of affairs, impacted profits as newly added beds raised fixed costs and occupancy took time to catch up, sector analysts estimate that the company’s net profit will grow at least 25 per cent in the next two years with planned expansion of 1,600 beds. The 900 beds added in the past two years will drive faster growth and provide momentum to earnings, say analysts.

Collaboration for Education
Apollo Hospitals had recently signed a joint initiative with Health Education England (HEE) to promote co-operation and interaction in healthcare education between India and England. This collaborative programme that will go a long way in bringing much needed improvement in India’s medical education, is aimed at delivering high quality care to patients within both countries and is expected to deepen and enhance the experience of global learning to the healthcare workforce in India and the western region. “It has always been our endeavour to partner with prestigious institutions globally, and this collaboration with HEE is a significant step in addressing the growing concern of shortage of quality medical talent that the world is facing,” says chairman Prathap C. Reddy. The healthcare group, which has embarked on an innovative healthcare executive training and management programme in collaboration with the IIM-Bangalore early December, is all set to launch a unique general management programme for healthcare executives in India to groom clinicians and healthcare professionals to deliver excellence in healthcare management and to enable them to move into leadership positions in the near future and drive the growth of the healthcare sector — yet another area in rich p which the country needs improvement. “There is a scarcity of well-trained quality healthcare management professionals in India,” says Sangita Reddy, joint MD of Apollo Hospitals.

The group’s pharmacy business, contributing 38 per cent of revenue in the financial year 2015, is also aiming for a rapid expansion. The Apollo Pharmacy chain, which operates some 1822 stores across the country, is currently positive in operating earnings and continues showing traction, according to sector analysts. “Apart from the value-unlocking opportunity, its pharmacy business revenues are set to grow at a minimum of 14.5 per cent compounded annual rate in the financial year 2016-17 on the back of higher sales and already expanded network,” says an equity research report by ICICI Securities.

Driving Growth
On the whole, according to research analysts from Barclays, Apollo’s ability to integrate its recent acquisitions — Hetero in Pharmacies and Novo in Hospitals among others and the expansions already undertaken will drive growth in earnings. Looking at the vast opportunity and the strides made by the private sector in the rapidly growing market has triggered a fresh investor interest in the Indian healthcare space of late. While the success of two IPOs, Dr Lal’s Pathlab and Narayana Hrudayalaya, have demonstrated this new wave, the entry of foreign players into the local market has also boosted the market outlook for healthcare firms.

IHH Healthcare recently bought a 74 per cent stake in Global Hospitals at Rs 1,284 crore. The world’s second largest healthcare chain IHH Healthcare already has a 10.85 per cent stake in Apollo Hospitals. While its domestic rivals Fortis Hospital, Manipal Hospitals, and Aster DM Healthcare too are getting aggressive in the market with large investment plans, the latest statement from IHH management about raising its stake further in Apollo Hospitals may be another push for the pioneer to consolidate its premium position.

unni@businessworld.in; @unni_ch

(This story was published in BW | Businessworld Issue Dated 11-01-2016)