Apollo Hospitals to seek shareholders' nod for hiving off pharmacy biz

Front end of the business to go to a separate firm, which will focus on achieving Rs 10,000 cr revenue and 30% ROCE within 5 years

Apollo Hospitals Enterprise Ltd (AHEL) will convene a meeting of equity shareholders on October 21, based on the orders from National Company Law Tribunal (NCLT), for the approval of a scheme of arrangement to transfer the front end of its pharmacy business to a separate company called Apollo Pharmacies Ltd (APL).

APL is expected focus on the goal of achieving Rs 10,000 crore in revenues and 30 per cent combined Return On Capital Employed (ROCE) for the standalone pharmacy business in five years.

Currently, AHEL holds 100 per cent of the equity share capital of Apollo Medicals Private Limited (AMPL), which in turn holds all the equity shares in APL. Once the Scheme of Arrangement is implemented, AHEL’s shareholding in AMPL would be diluted to 25.5 per cent of the share capital of AMPL with while the rest of the stake would be with other Investors of AMPL. This include Jhelum Investment Fund I (19.9 per cent shareholding), Hemandra Kothari (9.9 per cent) and ENAM Securities Private Limited (44.7 per cent) of AMPL, which would in turn hold 100 per cent equity share capital of APL.

AHEL would be the exclusive supplier for APL under a long-term supply agreement and further would also enter into a Brand Licensing Agreement with APL to licence the “Apollo Pharmacy” brand to the front end stores and online pharmacy operations, to further augment and strengthen the brand, with these arrangements. APL will pay a lump sum of Rs 527.8 crore to AHEL in the form of cash through normal banking channels, once the Scheme comes into effect.

"Apollo Pharmacy today has grown from 170 outlets in FY05 to 3,428 outlets as of March 31, 2019, in 400 cities/towns spread over 20 states and 4 Union territories and is currently serving about 300,000 customers daily through dedicated employee strength of about 21,000 plus," said the company.

The proposed reorganisation would not have a material impact on the financials of AHEL as the backend business related to the stand alone pharmacies which represents around 85 per cent of the business economics will continue to be held by AHEL, it added.

The Scheme would help AHEL to utilise the proceeds of divestment towards growth and enhancement of other existing businesses, allow it to have dedicated management focus on each businesses among others.

It would help APL to acquire ready-to use assets, including business undertakings and reducing time to markets, enhancing private label business from the current over 6 per cent to over 12 per cent in next five years and enable foray into digital or online pharmacy, said the company.

Organised pharmacy retail accounts for less than 5 per cent of India’s $15 billion domestic pharmaceutical market which is estimated to grow 10-12 per cent compound annual growth rate over the next decade, driven predominantly by volume growth, driven by the domestic pharmaceutical industry include increasing disposable incomes, demand for quality products, higher incidence of chronic diseases, growing awareness of diagnostics and preventive care, and greater accessibility through generics. Organised pharmacy retail is expected to grow at a much faster rate within this, it added.