Apollo Hospitals will be looking at different avenues to fund its growth: Shobana Kamineni

We will use the majority of the proceeds of stake sale in insurance JV to reduce promoter pledges. This is something that we have assured the institutions and we will make good on that in the next 30 days, says Shobana Kamineni, Executive Vice-Chairperson, Apollo Hospitals. Excerpts from an interview with ETNOW.

Congratulation on the stake sale of Apollo Munich Insurance. Can you tell us a little bit more about the total transaction value and the total debt of the company? Would you be using these proceeds to reduce debt from the books of the company?
Yes, the timing was good and we realised quite a large profit from the sale. We exited with Rs 1,600 crore and some of this will be family share and some of it will go to Apollo Hospitals. Apollo Hospital today has a debt of Rs 3,000 plus crore and to a small extent it will help there. But we also have to recognise that Apollo is not in a debt crunch situation. In fact, it has been growing quite positively, especially in the last four quarters it has done exceedingly well. I do not think that we are under any stress whatsoever but it would be nice to build up a kitty. This is a sector that is hungry for investment. In the near future, you will probably see Apollo looking at other avenues also to fund its growth.

Tell us about the total deal transaction from the point of view of the promoters. What is the total promoter shareholding that is currently pledged? How much will the promoters repay and post the repayment, what percentage of the promoter shareholding is going to be pledged and how do you intend to release the pledge on the remaining shares?
In the next 30 days, our pledges will come down to 20-25%. It is a safe promoter holding. We owned 41% of Apollo Munich Insurance. We will use the majority of the proceeds to reduce promoter pledges. This is something that we have assured the institutions and we will make good on that in the next 30 days.

The company has no significant capacity addition over the next three years. Do you think this will lead to an improvement in operating metrics that will drive strong cash flow generation over the next couple of years?
That has always been our intent. The investment cycle has slowed down because till two years ago, for about five years we had carried out a huge capacity addition. Fortunately we are seeing some good growth in our recent investments -- be it the investment we made in a hospital in Guwahati or Lucknow. The Mumbai Hospital is turning around; Proton is actually doing more than what we projected and it is helping our entire cancer vertical.

Apollo is very focussed on using the assets that we have built, using them intelligently, using them well and we do have the capacity to serve many more. But on the other hand, we are continuing to add 400 new pharmacies a year and we are doing that with clinics and other diagnostic centres. We are calibrating what we are growing and also using our internal capacity which we had built up at the right time.

Markets are hopeful of a strong revival of the flagship Chennai cluster. How is this segment performing and how is the Navi Mumbai Hospital how is that doing currently?
Chennai has always been our stronghold. We have built a great deal of capacity there and it is being used more effectively. We have got quite a few new doctors on board; our outpatient volumes have grown; we have moved into specialised segments of treatment and overall the case mix has been intelligent. All this has led to the growth.

Some of those learnings were also used in the Navi Mumbai hospital. There we are in the segment where catchment has a huge potential. We are seeing some promising trends and strategically it is a good future bet as the new airport is coming up there. Once the bridge comes, it will be 15 minutes to the mainland. So, Navi Mumbai is a very good asset.

How is it that you see yourself continue to gain market share in this increasingly competitive Indian healthcare services market over the next two years?
I am actually worried that this country would not have capacity because most of the acquisitions have been in brownfield or in mergers by private equity coming in and not much new capacity is being added. India continues to demand good quality healthcare. Apollo will continue to differentiate itself. It is important that we continue to build new assets and change our model to be able to serve many more people.

What was the performance of the pharmacy business? Do you expect better growth there?
Last year, we achieved 100% of our target in terms of the top line and bottom line. We continue to grow that business at 20% and that last year the pharmaceutical market in terms of NPPA pricing declined by 5%.

If you add that to our growth, it would be a bit higher. We would have actually grown at 22% plus and this will continue to be there.

Retail will continue to be a strong business and with high growth and high ROCE, we have actually been able to crack the model. GST has been helpful in helping us expand and move our distribution very quickly. You would have heard that the company has actually been hived off with NCLT clearance and is poised for another round of high growth.

Will you be able to sustain your margins as rapid expansion of hospitals and rising competitive pressure could lead to cost escalation especially in staff costs?
I will give you an example with oncology. We were worried when the cost of the medicines were drastically cut but when we went back and did the review, we saw that with pricing cut, out top line did not decrease. We actually grew much more. There was a huge, latent demand. So, hospitals like Apollo that have been around and understand the market will be able to move around in a slightly more agile fashion and it will allow us to keep certain margins.