Focus on managed hospital business will help Apollo Hospitals double its capacity
The Rs 367 crore Chennai-based Apollo Hospitals has emerged as one of the largest healthcare conglomerates in south Asia. With its interest spread across the spectrum of healthcare services such as hospitals, managed healthcare, clinics, pharmacy and other allied services, Apollo is well positioned to exploit the emerging opportunities in the sector.
The healthcare services industry is believed to be at a point of inflection, especially since the privatisation of the insurance sector. Also, the presence of corporates has led to a significant change in the structure of the healthcare industry.
Consequently, analysts and industry experts feel these changes will lead to a robust growth in managed healthcare and allied services such as pharmacy and clinics. That's not surprising at all as only 4 per cent of the one billion population in India is covered under any kind of government or private medical insurance schemes.
Also, Apollo is not only banking on the vast potential in India, it is scouting to tap opportunities overseas. To begin with, it has formed a joint venture in Sri Lanka which will act as a healthcare hub for countries such as Maldives, Seychelles, Mauritius and Indonesia.
It is also vying for the seven Dubai-based hospitals that are likely to be privatised by the UAE. Besides, the group has plans to establish operations in Bangladesh, Tanzania, Ghana and Oman in the near future.
Managing growth: To expand its network in India and abroad, Apollo's management has decided to focus on managed hospital business than committing huge amounts in building infrastructure right from the scratch. This is a model followed by most leading healthcare service majors across the world and will enable Apollo to achieve its target of doubling the existing capacity from 5,000 beds to 10,000 beds by 2004.
Currently, owned hospitals contribute to around 60 per cent of the total capacity. The management aims to tilt it in the favour of aged hospitals business which would contribute to around 80 per cent of the total capacity by 2004.
This apart, the management has identified medical business process outsourcing (MBPO) as a key growth driver. It has recently entered into an agreement with two large hospital services groups from the US and UK to meet their requirements for trained hospital management personnel and para-medical staff. The services being offered also include claims processing for insurance companies abroad.
Financials: Despite the robust revenue growth of 18.7 per cent to Rs 367.6 crore, Apollo's bottomline plummeted by 19.5 per cent to Rs 24.7 crore in the fiscal ended March 2002. The commissioning of new facilities in Kolkata and a research and development centre drastically hit operating margins, declining by 360 basis points to 21.34 per cent in fiscal 2002. Besides, higher interest outgo and depreciation charges dented the bottomline.
The company, however, has had a much better first quarter this year. On the back of a 25.3 per cent growth in revenues, net profit moved up by 6.2 per cent to Rs 6.9 crore. With focus on a not so capital intensive businesses of managed care, MBPO and pharmacy, the management expects margins and other operational matrix to improve significantly in this fiscal. It has projected a topline of Rs 450 crore and a bottomline of Rs 45 crore in the current fiscal.
Valuations: Although the scrip looks fairly priced at a trailing price-earning ratio of 16.4 times its fiscal 2002 earnings, analysts believe that considering its growth prospects in the near future, there could be scope for a decent appreciation for long-term investors with investment horizon of over one year.
