Apollo Hospitals bets on completion of capex to improve balance sheet

Growth from healthcare services should accelerate from 12% to 14-15%, says official

Apollo Hospitals Enterprise (AHEL) is expecting a lesser cash outflow in the form of new capex for setting up facilities once its projects in the pipeline are completed. The company expects this to improve its balance sheet. 

The company’s management said recently that beyond FY17, it is not planning for further (apart from the earmarked) capex for new facilities and capacity addition. With the completion of the hospital in Navi Mumbai, the company is expecting its balance sheet to be stronger and the debt level to come down over next four to five years.

“After we start in New Bombay (Navi Mumbai), from FY18 and FY19, you will see that we will not have a lot of cash outflow for new capex. All our existing capex will start contributing to the revenues and profits. This is more from the balance sheet management perspective, than from a P&L perspective," said Krishnan Akhileswaran, chief financial officer of AHEL. While the balance sheet is not stretched at present, company wants to see it better, he added.

At present, the debt for the company is around Rs 2,000 crore and with the ongoing expansion it is expected to be around Rs 2,500 crore next year, but it is making sure that the debt would not go beyond Rs 3,000 crore.

"We are not trying to stretch our balance sheet to the extent that we keep expanding without generating profits. Growth, of course, will be higher because growth will also come from the new hospitals," he said. The company is looking at raising around Rs 750 crore through rights issue for investments and also is in the process of raising funds through PE funds to support its retail healthcare business plans.

The growth from healthcare services should accelerate from the current 12% to 14-15%. The returns from capital employed should start showing in. Both for pharmacy and new hospitals that should enhance our ROCE from hospitals by FY19.

Currently the earnings before interest, taxes, depreciation and amortization (Ebitda) margins of healthcare is 22% and for its matured hospitals, it is around 24%. This is expected to be at around 24-25%, in a longer term.

"We expect more focus in improvement of important parameters such as average length of stay (ALOS) and average revenue per operating bed (AROPB), which were flat in the last few quarters on account of incremental bed additions," said a report by ICICI Direct after the announcement of the third quarter results.

According to the report, Apollo owns 65 hospitals with a total bed capacity of 9064 beds. Of these 65 hospitals, 40 are owned by the company (including JVs, subsidiaries and associates) while eight are managed by the company with 1434 beds and 16 are day care/ short surgical stay centres and cradle with 428 beds. This business has been categorised as healthcare business and comprises around 61% of standalone revenues.