Well funded Apollo Hosp says growth will go up organically

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Well funded Apollo Hosp says growth will go up organically

Integrated (Mauritius) Healthcare Holdings, an arm of Malaysian sovereign fund Khazanah Nasional Bhd has converted GDRs worth Rs 213 crore into equity shares in Apollo Hospitals.

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Integrated (Mauritius) Healthcare Holdings, an arm of Malaysian sovereign fund Khazanah Nasional Bhd has converted global depositary receipts (GDRs) worth Rs 213 crore into equity shares in private hospital operator Apollo Hospitals .

Khazanah's stake in the hospital now stands at 11.2%. The shares converted from GDRs now, accounts to around 3.04% of the total share capital of Apollo Hospitals.

In an interview to CNBC-TV18, Suneeta Reddy, joint managing director of Chennai-based Apollo Hospitals says there is no single large foreign institutional investor that owns a significant portion of their GDRs. "We don't have any fundraising in terms of equity because we are adequately funded for our expansion," she adds.

Below is an edited transcript. Watch the accompanying video for more.

Q: Has the GDR conversion taken place? In terms of stake, how much does Khanaznah now stand to hold in Apollo Hospitals?

A: It was an intersay transfer between two of their companies. Their ultimate stake in Apollo is 11.2%

Q: Do you have any more GDR spending? In terms of fundraising do you have anything more that's lined up in the next fiscal?

A: In terms of GDR we still have an ownership of about 6% with various FII's. There is no single large FII that owns a significant portion of our GDRs. We don't have any fundraising in terms of equity. Right now we have nothing in mind because we are adequately funded for our expansion.

Q: In terms of the overall business, what kind of outlook do you have for the next fiscal? What kind of run-rate you think you can maintain both in your revenue front and in terms of profit growth as well?

A: We have been maintaining a run-rate in excess of 20%. This has actually managed to flow through our bottomline, though our profitability has not been impacted in spite of the fact that we are opening new beds consistently. Even in the pharmacy retail space we are adding pharmacies, in fact we added 90 this year. So, our profitability has not been impacted and we are growing at 20%.

Q: What kind of debt addition do you have slated for the calendar year 2012? Some of your peers have chosen to expand via acquisitions in order to enhance their total debt strength. Would you be looking to do that as well?

A: We are continuously looking at acquisitions but it has to make sense for us. We are there in almost every region in India except Mumbai where we are putting up 900 beds totally. Unless we do not have a position in that market we will look at an acquisition. Second it has to be accretive and third it has to make sense in the overall scheme of things, buildings etc. We should be able to have a JCI accredited facility.

So these are issues we look at when we make acquisitions and of course the price is the most important thing. Right now we do have our own greenfield plans but besides the greenfield plans. I believe growth will come from organic growth, will come from within our own hospital beds which we have. We have about 500 beds that's we have added which would provide revenue growth in this year. Currently our occupancy is at 72%.

There is potential for growth within the company as it stands today. We are adding 700 beds next year. We have added 800 beds in the last 18 months out of which another 400 will become operational. There is organic growth and there is inorganic growth that is happening within the company. Mature hospitals are actually showing better revenue realisation because of better case mix. All these initiatives will result in a better topline and bottomline.

Q: You have indicated in the past that you all may be looking at either financial or strategic investors for your pharmacy business. How might that move going into next year in terms of whether you have valued that particular business and how soon would you want to move in terms of inducting any particular investor?

A: We have said that last year and from the time we have said it to now the valuation only seems to get better mostly because we have learned to deeply understand the pharmacy retail space. From last year to this year we have become EBITDA positive. We have a 2% EBITDA margin and that is improving.

This has happened because of a little bit of consolidation within our own pharmacies where they are breaking even much master. The second is the contribution of our own name brand products of which the margins are far higher. So it's just the right mix of products which give us greater margins and understanding which pharmacies, which layouts actually contribute breakeven much faster.

Q: One worry that analysts have had is that despite additional beds being added in the year gone by, your margin performances has improved only from 16% to 16.5%. There is no major scale up in margins. For the second half of the fiscal and for FY13 what plans do you have to scale up margins?

A: The margin scale up will come from better utilization of our existing beds which are the new beds that we opened last year which I am sure will result in better margins. The second is that because we are opening pharmacies so quickly, now we are seeing a turnaround in EBTDA margins in pharmacies that will impact our EBITDA margins. The third of course is the name brand that it's currently only 2-3% of our total sales. This is moving to 4% so that is the third factor which should improve our margins this year and should contribute to a better margin improvement.