Apollo Hospitals to restructure retail business

The new business unit already has a PE investor with 36% stake, says company officials

IApollo Hospitals Group is restructuring its retail business by launching a business unit under wholly owned subsidiary Apollo Health and Lifestyle (AHLL), for secondary-level health care.

It also plans to raise funds from investors, including private equity (PE) entities, who will invest into AHLL to back the latter's Rs 200-300 crore capital expenditure in the next three years, say senior officials from the Group.

AHLL has been managing two distinct segments. One is primary care, the clinics. And, secondary care, which includes the speciality hospitals. There is Cradle, the birthing hospitals, and Apollo Spectra Hospitals, the short-stay surgery business which it developed by acquiring Nova Speciality Hospitals.

Under the new structure, the secondary care segment of Cradle, Apollo Spectra Hospitals and Apollo Sugar, the diabetes care centres under Apollo Speciality Hospitals,  go into a downstream company below AHLL. The dental care clinics under Apollo Hospitals Enterprise Ltd (AHEL) will also be transferred to the new entity.



AHLL is also in the process of foraying into the diagnostics centre market, with Apollo Diagnostics, in which it has no presence so far. The Group is working on the business plan.  The shift to the new structure would be complete in a couple of months. The initial plan is to expand Cradle, diagnostics and clinics, while the short-stay surgery centres can wait for a while for expansion, said officials.

“The secondary care segment has been separated out as a business unit into a downstream company below AHLL, with AHLL holding 49 per cent, AHEL promoters 15 per cent and the balance 36 per cent being held by another financial investor who will allow AHLL to reach an impact scale. The partnership will continue to add value to AHLL,” Suneeta Reddy, managing director of AHEL, told analysts.

Adding: “The shareholders are people who understand health care. They will create value in the initial years of ramp-up, which is challenging. Post that, AHLL will have the right to consolidate,” she said about the financial investor in Apollo Speciality Hospitals. Officials said it was a PE investor. The capital required would be Rs 200-300 crore over the next five years, including for identifying locations and setting up new Cradles, and short-stay centres.

There currently are 11 short-stay surgery centres and five Cradles. It is also planning to offer fertility services. The additional investment for this has been factored in future plans, she said.

“There is a separate PE consultation at the AHLL level,” said Krishnan Akhileswaran, chief financial officer, AHEL.

“The team is working around that and it will take a couple of quarters before we get an understanding on how much we are going to raise, based on the requirements. We are still putting the plan of how many hospitals and Cradles to open, among other things.”

It is expected to take another six months to finalise the plans and at least two to three years to see good traction in the whole activity, he said.

People are more willing to go to the primary health care centres for minor ailments and this would also support the company's tertiary care business. The Apollo brand would bring trust for people to come to short-stay surgery, also requiring skilled personnel, said Reddy.

The company already has a separate business segment for retail health and the board of Apollo Hospitals suggested the retail business have their own chart and raise own money without solely depending on the parent company, said the CFO on the need for restructuring and funding from an investor.