Promoter pledging in Apollo Hospitals may come down to 20-25%, says CFO

The promoter group shareholding in AHEL was around 30.80 per cent at the end of September, 2019, of which around 66.19 per cent is pledged, according to regulatory filing

The promoter entity’s pledged shares in Apollo Hospitals Enterprise (AHEL) will come down to a manageable level.

It rose above 70 per cent a couple of quarters before, raising concerns in the market. At end-September, the promoter group shareholding was 30.8 per cent, of which about 66 per cent was pledged, according to a regulatory filing “The Apollo Munich transaction (stake sale in it) is expected to fructify over the next one month — a final leg of regulatory clearances is awaited. Once that (happens), we hope to see the promoter pledge also come down to a manageable 20-25 per cent. That would be a comfortable number,” said A Krishnan, chief financial officer of AHEL. He was speaking after the announcement of the September quarter results.

Of the 51.2 per cent stake by Apollo Hospitals Group (and a few employees) in Apollo Munich Health Insurance to HDFC, for Rs 1,347 crore, the listed entity, AHEL, holds 9.96 per cent. The sale is expected to bring the listed entity Rs 261.5 crore in cash (subject to indemnity related and other contractually agreed deductions) and Rs 38.2 crore from Munich Health Holding AG as joint venture termination fee. The promoters recently sold five million shares through secondary placement to institutional investors, raising a little over Rs 700 crore to reduce the pledged shares. With this, the promoter shareholding fell from 34.4 per cent to 30.8 per cent. 

The firm is also awaiting final regulatory approval for the hiving-off of the front-end of its pharmacy business. It expects to make  that a separate entity by end-January.

Apollo Health and Lifestyle, its retail health care services business arm, achieved break-even on earnings before interest, tax, depreciation and amortisation during the quarter, as earlier expected.  

Krishnan said a higher occupancy of around 70 per cent in all their matured hospitals, and 17 per cent volume growth in new hospitals, had helped it to grow better in the quarter. There was growth of 39.3 per cent in profit before tax at Rs 133.6 crore from the same period a year before. Total income grew 17.8 per cent to Rs 2,844 crore.

"Overall, new hospitals are now run-rating at over Rs 100 crore a year in Ebitda. New hospitals are at an 8.4 per cent Ebitda margin, which we expect to reach high teens in the next couple of years. Mature hospitals are at 22.2 per cent Ebitda; over time, it will get to 23 per cent," he said.

On the outlook ahead, he said the momentum should continue into the next half-year. The company would continue to work on the maturity of its new hospitals and increasing the margins from these.

"This will also result in healthy cash flow as we move forward and there would be further debt reduction from the current level," he stated. Standalone net debt is a little over Rs 3,000 crore or 2.5 times the Ebitda; that is a comfortable level, he added.

AHEL is in the final phase of investment in capacity expansion and would see  routine capex of around Rs 200 crore (annually) after that. It would also look at acquisitions, attractive for shareholders.