Reddy has begun negotiations with at least two global healthcare majors, one from Australia and the other from the US, for offering equity to the tune of Rs 600 crore. The group will undergo a restructuring to make the induction of the new partner possible, Reddy told The Financial Express.

The move is intended to finance an ambitious Rs 2,000 crore expansion plan which should see the group emerge as perhaps one of the largest healthcare conglomerates in the world with a combined capacity of over 6,000 beds by the turn of the century.

"I am willing to compromise and give a majority stake to the foreign partner in the new entity", he said, adding that fresh equity was essential if the hospital chain had to increaseits presence in the sector. Initially, Reddy had thought of making a preference issue to raise the funds but he found that roping in a strategic partner with equity participation was more suitable for his plans.

While there is a strong possibility all group units--Apollo Hospitals, Chennai, Deccan Hospitals Corporation, Hyderabad, and others--would be merged into the flagship company, Indian Hospitals Corporation (IHC), the option of forming a group holding company was also being explored, he said.

Forming a joint venture holding company which would exercise control over all the other units is the simplest option, but the merger route may be preferable as it would give better price-earnings ratios, Reddy felt. The flagship IHC, the largest hospital consultancy company outside of the US, operates 10 medical centres and a chain of over 60 pharmacies in the country and has 18 ongoing projects currently.

Venture capital major Schroders Capital holds a substantial 49 per cent equity in the company which,in turn, holds a 26 per cent stake in the Apollo Indraprastha. The ownership of this stake in Apollo Indraprastha is likely to pass over to the new entity. Stating that finance was not the only consideration in opting for a strategic partner, Reddy said it had to be a marriage for the long-term. "We want to join hands with somebody who has grown faster than us", he said, indicating the new entity would also foucs on taking up turnkey hospital projects apart from managing the existing substantial network.

"We are in a unique position to give turnkey solutions for hospital infrastructure and the foreign markets provide huge potential for growth in this area", Reddy felt.

Therefore, the new partner has to be large enough and reputed enough internationally, matching the credentials of Apollo to make this possible. The process of tying up with an equtiy partner would be completed within a few months from now in time to benefit from the expected clearance to the Insurance Bill and the proposed bill to conferinfrastructure status on the healthcare industry, he said. The entire expansion plan will be executed within the next 30 months which should see Apollo in a new and enlarged frame, Reddy said.

Insight

Decision must be lauded

Apollo Hospitals is one of the few healthcare corporates that has, by and large, reported consistent profits over the years. While it is true that the group owes a significant portion of its profitability to its pharmacies and the promoter has often been dubbed as "too aggressive", its decision to raise resources by offering a majority stake to a strategic ally deserves to be applauded. The group has aggressive expansion plans both within India and abroad for which it needs funds. By agreeing to offer a majority stake , it has demonstrated that the issue of retaining control, that most Indian promoters consider paramount, will not come in the way of its business plans. Besides the capital, the partner would be expected to bring in valuable expertise both in setting upand in running healthcare and related businesses. One can, therefore, expect an improvement in the quality of healthcare services in the country as a result of this development.

--Sarad Saraf