Apollo will be stronger, more consumer-centric post Covid: Suneeta Reddy

In a Q&A, the MD of Apollo Hospitals on how her company is strengthening its chains in order to come closer to the consumer

Apollo Hospitals has said the pandemic solidified its belief that physical beds form the base of the pyramid for healthcare delivery and will have to be enhanced with multiple additional platforms to serve patients. Suneeta Reddy, managing director, Apollo Hospitals Group spoke to T E Narasimhan on how the chain is strengthening its formats in order to come closer to the consumer.  Excerpts:

How has the pandemic changed the healthcare system model and what impact has it had on Apollo? 

Post-Covid, we will emerge stronger with a business model that fully aligns with the future and with the aspirations of our customer. We will work on two facets simultaneously. The first is our physical infrastructure--brick-and-mortar, where we will seek to improve our asset utilisation and EBITDA margins.    

We have demonstrated this performance in FY20, where our new hospitals achieved 62 per cent occupancy and EBITDA margins improved from 6.3 per cent to 8.3 per cent. Our next goal is to improve occupancy in these hospitals to 70 per cent, and EBITDA margins to mid-to-high teens. Alongside, our strong focus on surgical mix and COE volumes will help us deliver higher EBITDA margins (23-24 per cent) in our mature hospitals.   

Our retail healthcare arm Apollo Health and Lifestyle (AHLL) takes high quality healthcare closer to the consumer through its various formats-–boutique birthing centres, short-stay surgical centres, primary care clinics, diagnostics and condition management programmes. AHLL had a good year in FY20, with over Rs 700 crore in topline and Rs 1.8 crore in EBITDA, an upswing of over Rs 70 crore from the prior year. 

We are confident that this segment will continue to grow revenue at 25 per cent, and will gain significant EBITDA as we move forward. Our Apollo Homecare team delivers the same Apollo quality healthcare at the patient's home. Apollo Homecare has delivered care to over 5,000 beneficiaries across 20 cities as part of the connected care model during the pandemic. 

We believe that the learnings from this connected care model will help us scale up and deliver care across the Country and this will contribute to significant revenues going forward.    

The second key facet is our digital presence. We launched Apollo 24/7, our digital health platform in March this year, and we have already seen the platform gain 3.27 million registered users in the past six months, making it the fastest growing Indian healthcare app, and faster than many global benchmarks. While we have strong plans for the platform as an independent vertical, we believe it will also serve as a robust customer acquisition funnel for diagnostics and procedures into our physical formats.   

Apollo overall has 39.6 million unique customers served over just the past five years (of which 2.3 million new customers were served since the onset of Covid). We believe the Apollo eco-system of care will be offered holistically to these customers, to create an enhanced lifetime value.   

How are you planning to strengthen the formats? 

We plan expand AHLL formats significantly over the next five years, from around 950 touchpoints currently, to more than 3,000 touchpoints. Revenue CAGR, which has been 30 per cent during the past five years, will continue.   

Our Pharmacy (SAP) vertical was a strong performer in FY20-–SAP revenue grew 24 per cent during the year. More importantly, SAP EBITDA grew 42 per cent, and margins were at six per cent. In Q1 of FY21, despite Covid, they have continued to report over 20 per cent growth in revenues, and have expanded margins to 6.3 per cent.   

The network is currently at around 3,800 stores. We plan to grow this to 5,000 stores, and achieve Rs 10,000 crore in revenue over the next 4-5 years. Private label sales within this vertical will grow from 9 per cent to 12 per cent in this time frame. Our new hospitals will also form the basis of our growth, with higher utilisation, higher ARPOB and healthy EBITDA margins.   

How these new touchpoints will help your bottom line? 

While Pharmacy EBITDA margin is 6.3 per cent currently, mature stores are showing an EBITDA of upwards of 8 per cent. We are confident that the margin profile of the entire portfolio will be between 8-9 per cent in the future. AHLL achieved positive EBITDA during the last two years and going forward, EBITDA margins in this business will be strong.   

It is early now to look at profitability for Apollo 24/7. We are currently focused on building a feature-rich, convenient platform and on ensuring adoption and fulfilment of services. But there is no doubt the platform is relevant on its own, and can deliver profits as we go along, and most importantly act as a funnel to all Apollo formats.   

How much capex are you looking at in the next two years across the businesses? 

For AHEL, we are looking at Rs 125 crore of maintenance capex. We do not have a specific number in mind for bolt-on acquisitions, but we do believe that the free cash flows we generate will help us pay for those, as they arise. AHLL will look to invest around Rs 100–300 crore over the next three years. This is a broad range only, and we will get more specific as our plans firm up.