Apollo Hospitals to step up pharmacy, retail biz, eyes Rs 10,000 cr revenue

Apollo Hospitals
The stock of India’s largest hospital chain Apollo Hospitals Enterprises gained over 12 per cent after the company reported better-than-expected December quarter results. In addition to recovery in its core operations, the company also outlined its strategy to strengthen its retail healthcare business and pharmacy verticals. 

The hospital chain is targeting around Rs 10,000 crore revenue from its pharmacy business (from the current Rs 6,000 crore), while its diagnostics vertical is expected to clock around Rs 1,000 crore in the next three years, a four-fold increase from the current levels. Anubhav Aggarwal and Sayantan Maji of Credit Suisse say the company’s strong expansion plans for diagnostics and preventive health (Apollo Healthcare and Lifestyle or AHLL), together could place Apollo in the same scale as listed diagnostic peers.

The company restructured its pharmacy operations and will focus on the back-end operations. The demerger of the front-end of the pharmacy business came into effect from September 1, 2020. Analysts at ICICI Direct Research expect the pharmacy business which is into procurement and distribution of pharma, FMCG and private label products to grow at 12 per cent annually over the FY20-23 period. 

Apollo's management said that around 75 per cent of the focus and expansion in AHLL will be on the diagnostics segment.  The company has launched Apollo ProHealth, a predictive, proactive & personalised health management program, powered by artificial intelligence that is built on experience from 22 million health checks. The initial focus will be in South, before expanding in North and East.
Its core business of hospitals too is back on the growth track led by recovery in occupancies and footfalls. Says Suneeta Reddy, MD at Apollo Hospitals, "2021 started with a positive note with vaccination, economy and healthcare moving back towards normalcy.” 

While the December quarter numbers cannot be compared with the year ago as well as September quarter levels given the pharmacy restructuring, its performance excluding the impact of the pharma reorganisation were better on a sequential basis. 

While 83 per cent of the company’s 8,816 beds are operational, occupancy levels have increased to 63 per cent as compared to 56 per cent in the September quarter. Patient footfalls have increased with outpatients at 65-70 per cent of pre-Covid levels, though the slowdown in air and rail travel has been a dampener.

Covid-related patients accounted for a quarter of the occupied beds and 17 per cent of revenues. However given the steadily declining allocated beds to Covid, this could come down further unless there is a further spike in infections. A positive trend is the higher revenues at newer hospitals as compared to the mature hospitals led by higher occupancies and better mix. The ramp up in new hospitals should add to revenues and margins going ahead for the hospitals segment. Sales of Apollo Health and Lifestyle (diagnostics, preventive healthcare) too saw a 6.4 per cent gain led by higher Covid-related testing. 

While reported operating profit grew 30 per cent, margins expanded 14.1 per cent (from 10.9 per cent in Q2) due to pharmacy restructuring-led fall in employee costs. The like-for-like growth in the pharmacy business, which accounts for 40 per cent of revenues, came in at 17 per cent. With recent fund raising, the company will also be able to reduce its debt which stands at Rs 2,704 crore and fund other projects. Further with major capex behind it and a stronger recovery in operating metrics for key segments expected in CY21, the company could post healthy return ratios going ahead.

 


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