In order to capitalise on the huge growth opportunity and to give greater focus, Apollo Hospitals Enterprise Limited (AHEL) on Wednesday announced the restructuring of its pharmacy business. The board, which met to announce the audited results, has approved the segregation of the front-end retail pharmacy business carried out in the standalone pharmacy segment into a separate company called Apollo Pharmacies Limited (APL).
Front-end pharmacy business means standalone stores, people and dispensing of products. As a back-end player, Apollo Hospitals will be the exclusive supplier for APL under a long-term supplier agreement and it will enter into a Brand Licencing Agreement with APL to licence the ‘Apollo Pharmacy’ brand to the front-end stores and online pharmacy operations, to further augment and strengthen the brand with these arrangements being entered into in compliance with applicable law.
The proposed reorganisation would not have a material impact on the financials of Apollo Hospitals as the backend business related to the standalone pharmacies which represents 85% of the business economics will continue to be held by AHEL.
When contacted, A Krishnan, CFO, Apollo Hospitals, told FE, “The move is aimed at making the pharmacy business regulatory compliant and to unlock its potential to the shareholders. Of the `4,000 crore pharmacy business now, Apollo Hospitals continue to have 85% of pharmacy business Ebitda and 90% of the cash flows of pharmacy business.”
He further explained that as and when the union government allows FDI into multi-brand business, making the pharmacy business regulatory compliant will help it to secure funds. This apart, it will also enable us to look at demerging this pharmacy business in future. “We see a huge opportunity for pharmacy business in India and we expect this business will achieve Rs 10,000 crore turnover as against Rs 4,000 crore with 5,000 stores in place across the country over next 5 years,” Krishnan said further. These over 3,000 pharmacies are spread over 400 cities/towns across 20 states and 4 union territories and is currently serving about 300,000 customers daily through a dedicated employee strength of about 21,000 plus.
In H1FY19, Apollo Hospitals added 182 stores and closed 36 stores for a net addition of 146 stores. The total store network as of September 30, 2018 stands at 3,167. Revenues grew 20% to Rs 1,855.80 crore in H1FY19 from Rs 1,544.70 crore in H1FY18. Ebitda grew 37% from Rs 67.70 crore in H1FY18 to Rs 92.50 crore in H1FY19. The Ebitda margin was at 4.98% in H1FY19 as compared to 4.38% in H1FY18. Private label sales are now at 6.7%. Revenue per store grew 6% (10% adjusted for GST) for the pre-2012 batch of stores with Ebitda margins at 7.4%.
As part of the restructuring, APL will be a wholly-owned subsidiary of Apollo Medicals Private Ltd (AMPL). Entire shareholding of AMPL will be held by AHEL and certain identified investors such as Jhelum Investment Fund 1, Hemendra Kothari and ENAM Securities (collectively, referred to as Investors). AHEL would hold 25.5% of the total share capital of AMPL with other Investors collectively holding the remaining share capital of AMPL. Specifically, Jhelum Investment Fund 1 would hold 19.9 %, Hemendra Kothari would hold 9.9% and ENAM Securities would hold 44.7% of the total share capital of AMPL. The parties are entering into definitive agreements. AHEL shall have the right to acquire the shares of AMPL from the investors in compliance with the regulatory framework as may be applicable at the time of said acquisition. The structure as stated above will take AHEL one step closer to a potential unlocking of value in the standalone pharmacy segment.
For the purposes of effectuating the restructuring, Apollo Hospitals will transfer the business of the front-end retail pharmacy business carried out in the standalone pharmacy segment to APL by way of slump sale under a scheme of arrangement to be duly approved by stock exchanges, shareholders,
National Company Law Tribunal and all other requisite regulatory authorities, with such transfer being effective April 1, 2019. The slump sale consideration would be Rs 527.8 crore. The funding plan at APL for the reorganisation will enable sufficient funds to be retained for new business expansion apart from discharging the slump sale consideration.
Meanwhile, the company’s profit after tax for the quarter ended September grew 11% to Rs 78.90 crore as compared to Rs 70.90 crore and the revenue grew 15% to Rs 2,090.10 crore as against Rs 1,813.10 crore in Q2 of last fiscal.