Apollo to raise value of pharma business before entering partnership

Last Updated: Sun, Feb 10, 2013 21:00 hrs

Apollo Hospitals Enterprise Ltd (AHEL) is planning to increase the value of its pharmacy retail business, Apollo Pharmacy, over the next 12-18 months.

AHEL had earlier said it was looking for a strategic partner with international experience for its pharma business. Now, the company will increase the value of the pharma arm before finalising anything on strategic partnership.

“We have said that we would look at a strategic partner over next few quarters or the next couple of years. The most important thing is that today we are focusing on increasing the business, making it more profitable. Clearly, we realise that as a business, we really want to extract value out of this for our next phase of growth in the hospitals segment. So, we are going to look at it over the next 12-18 months. We are not in a hurry to do it,” said Krishnan Akhileswaran, chief financial officer of AHEL, in an analysts call.

Apollo Pharmacy has managed to make profit at a time when competitors have not, according to company officials. Currently, AHEL has around 1,445 pharmacy outlets. The pharmacy retail business has grown at around 31 per cent in the nine months ended December 2012.

"With regard to investments into the pharmacy, right now we believe that we still can show a better performance so that we attract a better valuation. It will take at least another six months before we firm up any strategy," said Suneeta Reddy, joint managing director of Apollo Hospitals Group.

Company officials added that while it is looking at a strategic partner with international experience in the pharmacy retail, it does not have full clarity on foreign direct investment (FDI) in retail.

Earlier, the top management of the hospital chain had said that it was waiting for the FDI policy in multibrand retail to be in place before finalising its strategy on pharmacy outlets. There were also plans to hive off the pharmacy retail business. Earlier reports also indicated that the company had initiated talks with global retail chains such as Walmart, US’ largest drug store Walgreen Drugs and others to expand its pharmacy business.

Revenue from the pharmacy business grew 29.3 per cent from Rs 224.6 crore during the third quarter ended December 2011 to Rs 290.5 crore for the quarter ended December 2012. For the nine months ended December 31, 2012, total revenue stood at Rs 815.8 crore, compared to Rs 622.8 crore, growth of 30.9 per cent.

The earnings before interest, taxes, depreciation, and amortisation (Ebitda) margins were also up by 68 basis points from two per cent to 2.7 per cent. The Ebitda increased from Rs 4.5 crore during the third quarter of FY12 to Rs 7.8 crore for the same period of FY13, according to the company documents.

The company attributed the growth of the pharma business to factors such as rationalisation of networks, through which the company closed down the stores which were unviable and the contribution of private labels, and the opening of new stores. Private label business, too, has increased from about 3 per cent to 5 per cent. This is one of the reasons for driving up the margin. Almost 850 stores opened prior to 2010 are now Ebitda positive, said company officials.

The company plans to add 200 stores every year and its target is to increase margin by 1 per cent margin every year. Meanwhile, as part of rationalisation, the company is also shutting down unviable stores. Over the last two years, 34 stores were closed down mostly in Mumbai and Delhi.

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