Apollo Hospitals lines up Rs 3,000 crore investment post Advent deal

Advent and Apollo HealthCo have entered into a deal through which Advent will invest Rs 2,475 crore into Apollo HealthCo

Apollo Hospitals Enterprise (AHEL) will see investments of around Rs 3,000 crore in the next three years. The hospital chain operator will use Rs 890 crore from the deal with private equity firm Advent International (Advent) for organic and inorganic expansion, a top executive said on Friday, emphasising that the entry of Advent into Apollo HealthCo is likely to be a 'change agent' for the company. 

AHEL will add around 700 beds per year. Advent and Apollo HealthCo entered into a deal through which Advent will invest Rs 2,475 crore into Apollo HealthCo, a wholly-owned subsidiary of AHEL. Keimed, a wholesale distribution company owned by the promoters of the Apollo Group, will also get merged into Apollo HealthCo.

Of the total Rs 2,475 crore consideration, Rs 860 crore will be used for the expansion of Apollo HealthCo and Rs 890 crore will be paid to the parent company AHEL. Advent will invest in compulsory convertible instruments over two tranches to secure a 12.1 per cent stake in the merged pharmacy entity, which will have an enterprise value of Rs 22,481 crore.

"If you look at the fund of Rs 2,475 crore that is coming into the company, Rs 890 crore comes back to AHEL. Clearly, there is an opportunity for us to use some of this money for the growth of Apollo itself. It should be organic and inorganic growth in our core strategic markets," said Krishnan Akhileswaran, Chief Financial Officer of the company.

Apollo HealthCo has a presence in digital healthcare (Apollo 24/7) and pharma distribution business. The combined entity is expected to deliver Rs 25,000 crore of revenue in three years with 7-8 per cent Ebitda, up from around Rs 13,600 crore and 1.5 per cent now. This growth will be achieved through Apollo 24/7 breakeven in six to eight quarters, higher margin realisation through supply chain efficiencies, and accelerated growth in the private label business, said Akhileswaran.

"Keimed merger is a huge positive for the group. The merger will raise the number of pharmacies to 70,000. This will be a good value for accretion when it comes to Apollo shareholders. Now, 59.7 per cent of the company is held by Apollo Hospitals. Because of the merger, 25.7 per cent will be held by Keimed promoters," he added.

In Chennai, AHEL is planning to come up with a 500-bedded Med City in the Old Mahabalipuram Road area. This will see an investment of around Rs 950 crore. "We hope to start the construction soon and will take three years to launch it.  It will have some of the best clinical programmes in cardiac, oncology, neuroscience, and orthopedics. We are betting big on international tourism, as well," Akhileswaran added.

Pharmacies in India are growing at around 12 per cent and Apollo looks to expand its presence in the segment. "Large players like us would like to believe that with the combination of Apollo Pharmacy which itself is growing at a rapid pace, we would like to believe that we can easily grow this business at over 20-25 per cent for the long term," he said.