Apollo, which has been consistently expanding its capacities to drive growth, saw new bed additions take a toll on its profitability. Newly added facilities usually take time to break even and, therefore, pulled down the company’s overall performance. However, with capacity additions to be complete by FY19, the overall operating performance is expected to improve.
The company’s health care services revenue grew 13 per cent to Rs 10.08 billion, while segmental operating profit was up 18.9 per cent y-o-y at Rs 1.20 billion.
Also, the losses at its new Mumbai hospital were reducing; Q3 losses were at Rs 100 million against Q1 losses of Rs 145 million. The company hopes to achieve operating profit break even by the beginning of the next financial year.
Overall, in the first nine months of FY18, new hospitals, excluding the one in Mumbai reported an operating profit of Rs 430 million compared to Rs 236 million in the year-ago period, a profit margin of 1.7 per cent. Margins for older hospitals are about 20-21 per cent. Analysts expect the performance of new hospitals to improve with a major margin recovery by FY20.
Apollo’s older hospitals reported a return on capital employed (RoCE) of 19.3 per cent, while the margins of the company’s standalone pharmacy business stood at 16 per cent as on December 31.
With investments of Rs 18 billion in 11 hospitals yet to contribute to their RoCE, the overall RoCE stood at 10.8 per cent. Analysts expect the RoCE to improve gradually through FY20.
Analysts at Edelweiss said Apollo was well positioned for RoCE improvement, as its capex cycle had come to an end and it would be able to sweat assets.
The company’s pharmacy business was also growing well. Its segment revenues were up 12.6 per cent y-o-y at Rs 8.88 billion, while profit grew 6.4 per cent.