Chennai: Apollo Hospitals Enterprise Ltd (AHEL) recently called a press meet to discuss fiscal 2001-02 results and future plans. Chennai journalists were amused. Why? Normally the company just faxes its quarterly or annual results to the newspapers. And once it is done, key AHEL officials go into hiding and remain inaccessible to reporters for clarifications if any.
"You generally used to report the results based on our faxed release. This meeting is not just to discuss company results, but to reveal the new direction the company is going to take in the near future", Apollo Hospitals group chairman Dr Prathap C Reddy told the gaping journalists.
The meeting did have a solid intention. Fiscal 2001-02 saw the Rs 39.5-crore equity-based AHEL going down on several parameters. Despite the total income going up by Rs 54 crore to Rs 376 crore, the net profit took a beating sliding down by Rs 6 crore to Rs 24 crore as compared to the previous fiscal.
The interest cost increased to Rs 23 crore, taking up the debt-equity ratio to 0.74. Bad debts to the tune of Rs 5.5 crore and the Rs 52-crore deferred tax debited to the profit and loss account also dragged down the net profits. Consequently, key ratios like return on the capital employed and return on shareholders net worth slid down to 14.82 per cent and 10.03 per cent, respectively.
senior general manager (finance) and company secretary SK Venkataraman.
AHELs investments in group companies
|The Indraprastha Medical Corporation ||Rs 14 crore|
|The Lanka Hospital Corporation ||Rs 18 crore|
|Apollo Dubai ||Rs 10 crore|
|Apollo Aksaya Hospital ||Rs 22 crore|
|Apollo Health Street ||Rs 5 crore|
|Medvarisity ||Rs 5 crore|
|Family Health Plan ||Rs 49 lakh|
|Others ||Rs 8 crore|| |
|"Last year we created a capacity of 450 beds and the resultant increase in interest costs, depreciation and capital outlay had its impact on profits. The revenue on this investment will accrue in the coming years", says AHEL|
The beds he talks about are in Bilaspur Hospital (270 beds the land and building have been accrued on long lease, and the total investment is Rs 22 crore), two 40-bed facilities in Chennai and Arogonda, Andhra Pradesh, and 100 beds in Apollo Hospital, Hyderabad.
Venkataraman says AHEL's ratio of income from inpatients and outpatients is a healthy 70:30. The company is progressing towards a fiscal target of Rs 460 crore turnover and an after-tax-profit of Rs 45 crore. The first quarter performance is in line with the target as the occupancy in the new facilities are picking up.
Second opinion At a time when corporate hospitals are in sickbed and some even succumbing to various maladies (like Tamilnadu Hospitals), AHEL is the only listed corporate that is in black and paying dividends to its shareholders. The secret behind the success story? The group's knack in spotting opportunities first (pharmacy chains, managing hospitals).
AHEL today comprises a network of 22 hospitals (including owned, managed and joint ventures), 10 clinics and 91 pharmacies. However, the group is faulted for making AHEL invest in group ventures and also keeping the profitable business lines in private. This naturally made investors shy away from the scrip on the bourses. At the last count AHEL has invested Rs 82 crore in group companies with negligent returns.
Says Schroder Capital Partners (Asia) partner Sanjay K Sehgal: Huge investments by AHEL in group outfits bother us. The returns on the investments will be in the form of dividends alone, provided it is declared. With Schroders picking up a 19.6-per cent stake in AHEL, pressure has built on the Chennai group to consolidate operations and increase its shareholder value.
Listening to the second opinion in 1999, the healthcare group merged three outfits Deccan Hospitals, Indian Hospital Corporation and Om Sindhoori Hotels with AHEL. The demerger of Apollo Mumbai's (an unlisted company) clinic division into AHEL is under process.
Still pinpricks are galore, because the group is unwilling to take a full course of restructure antibiotic, probably allergic to the second opinion. For example, the group's plans for clinics and referral centres owned by the group outfit Apollo Health and Lifestyle in which AHEL has invested Rs 5 crore.
Venkataraman says Apollo Health has signed up 20 clinics on a franchisee model. The company will earn a one-time fee of Rs 20 lakh per clinic and 4 per cent on annual turnover as annual fee.
The future course Outlining the future course of action, Dr Reddy says: "We will not invest in building hospitals till 2004. We will leverage our hospital management skills inside and outside India."
Currently having 4,800 beds under its management, AHEL plans to increase the number to 9,000 beds in two years time. Last year, AHEL earned Rs 8 crore from managing hospitals and hopes to double the figure in a couple of years.
About the company's project management business, AHEL director (finance) Suneeta Reddy says: "We have the finest architectural division. If architecture is involved in designing a hospital and maintaining the same, then our fee is 7.5 per cent of the project cost. Without architecture design. the project fee is 5 per cent, and the operational fee is Rs 30 lakh as basic fee or 3 per cent on the first-year turnover. The second-year fee will be 3.5 to 4 per cent and from the third year onwards it will be 4 per cent of the turnover."
Dr Reddy says Abu Dhabi is planning to privatise its hospitals and AHEL hopes to get at least two hospitals to manage. "We have been rated among the top five in the globe. The other new area looked at by the group is medical business process outsourcing (by claims processing) for overseas insurers."
The no-investment policy also applies to AHEL's pharmacy chain. Last fiscal the combined revenue of the pharmacy and projects was around Rs 156 crore. The company has decided to embrace the franchisee model in full force.
Out of 91 Apollo pharmacy outlets, 25 are AHEL owned. The target is to have 100 franchisee outlets, says Venkataraman. Each outlet will have a revenue target of Rs 10,000 per day and AHEL will charge 5 per cent as royalty or franchisee fee.
AHEL, in the meantime, is going ahead in acquiring 50.26 per cent equity in Duncan Gleneagles Hospitals, Kolkata. AHEL will buy out Duncan Industries and its associates' stake in the hospital for Rs 3 crore with Gleneagles, Singapore, holding its share.
Dr Reddy says 80 per cent of the construction work is over at the Duncan Gleneagles hospital and the balance will be completed soon. Some more investments will be needed towards equipment, as the existing ones are nearly four years old.
The hospital has a debt of Rs 67 crore that has to be cleared. Gleneagles will bring $10 million as subordinated debt. "Our plan is to make it a 350-bed hospital", he adds. The hospital will be renamed Apollo Gleneagles.
While the Kolkata hospital will take some time, the AHEL-promoted joint-venture hospital in Colombo went on-stream recently. Built at a cost of Rs 135 crore, AHEL holds 31 per cent in the Lanka Hospital Corporations equity.
With competition increasing, foreign financial institutions are demanding more to enhance shareholders' wealth. They want AHEL to buy out the Delhi government's stakes in the 695-bed Indraprastha Medical Corporation, New Delhi, which owns the Indraprastha Apollo Hospitals, the world's fourth largest corporate hospital.
And this, in the current situation, is like finding a cure for AIDS. Is Dr Reddy ready to take the plunge? Wait and watch.