Proton Therapy project to begin by FY18: Apollo Hospital

Apollo Hospital will soon establish a Proton Therapy Center in Tamil Nadu that will augment cancer offering to patients and is likely to be commissioned by FY18, CFO Akhileshwaran Krishnan told CNBC-TV18.

“This project will take another three years to construct, because it is going to be built to our specifications in Belgium and is going to be commissioned in FY18. It is something we are starting up as a comprehensive cancer care center with 200 beds in the Old Mahabalipuram Road in Chennai,” adds Krishnan.

The health major is likely to fund this project via internal accruals and debts.

Speaking about the operations of the hospital, he said, by the end of FY14, it is looking to operationalise around 1,000 beds. Apollo Hospital currently has net cash of Rs 300 crore on books.

Below is the verbatim transcript of Akhileshwaran Krishnan’s interview on CNBC-TV18

Q: Can you give us some more details on this Proton Therapy Center that you are setting up in Chennai?

A: The Proton Therapy Center that we are setting up in the Old Mahabalipuram Road in Chennai is going to further augment our cancer offering. Today, we have a very strong cancer practice across India in Chennai, Hyderabad, Bangalore and Kolkata. Proton therapy is the leading radiation therapy available in the world and that is something we have recently announced. This project will take another three years to construct, because it is going to be built to our specifications in Belgium and is going to be commissioned in FY18. So, that is something we are starting up as a comprehensive cancer care center with 200 beds in the Old Mahabalipuram Road in Chennai. It is a bit away, but we would be doing it by FY18.

Q: What is your total investment with this center as well as the fact that you recently bought Lifeline Hospital? How will you fund it?

A: We have a planned expansion of almost around 3,000 beds now over the next three years and total capex including the Proton Therapy Center is approximately in the region of Rs 2,000-2,200 crore that includes the Proton Therapy as well as the Lifeline Hospital. The Lifeline Hospital is a long-term facility lease which is a 29 plus 29 year lease that we will be taking up. We would be refurbishing and putting our own hospital there and that should be operational by H2 of FY14.

We are adding around seven hospitals in the next 12 months, five multi-speciality hospitals, one in Chennai, one in Bangalore, three reach hospitals and two more speciality hospitals focused on women and child. By the end of this fiscal, if you look at FY14, we are looking at operationalising around 1,000 beds which should give us very good platform for growth over the next couple of years. This would almost be around Rs 700 crore of capex. Rs 2,200 crore over the next three years will be evenly spread, over the next three years around Rs 700 crore each year as the capex that we estimate.

According to the current debt-equity ratio, we are today at Rs 600 crore of debt, debt-equity is comfortable at 0.3 percent and we have a net cash of almost Rs 300-400 crore in our books. At the end of three years, our debt-equity should be still a comfortable 0.6-0.7 percent and all this expansion is going to be funded through a combination of internal accruals and debt.

Q: Will there be no funding from external sources, equity dilution or internal accruals and debt?

A: Over the next three to five years, we are not planning any equity dilution or any other external sources. At the right time, we would get a strategic investor in our pharmacy division which is doing very well at top-line of Rs 1,100 crore, 3 percent EBITDA, continuing to grow to 4-5 percent over the next 24 months. Also, we will get a strategic investor in the pharmacy division to unlock value and further help us in our growth in the hospital side.

Q: Are there any other acquisitions like Lifeline Hospitals on the cards?

A: We are constantly looking at acquisitions, especially bolt-on acquisitions in tier-II locations, state capitals. We want to have a Pan India presence. We are also focused on specific markets where we have a better franchise and could better leverage on the ability of Apollo Hospitals brand and clinical excellence focus. The key to us is clinical excellence and service excellence which is something we would never dilute. We are looking at some of the tier-II locations and if there are options and opportunities that are available which fit in our overall Internal rate of return (IRR) and return on capital (ROC) requirements we would go ahead and acquire some of them.

Q: What about your occupancies and revenue per bed? How are they going and which clusters are performing well?

A: This year we would have grown our top-line around 20 percent with a profit after tax (PAT) of almost 30 percent. PAT has been higher because of the section 35AD benefit that we got is the accelerated depreciation of 150 percent for 100 beds and above hospitals that we put up this year. The average revenue per occupied bed (ARPOB) across the system is around Rs 21,500 today and has grown almost 6.5 percent year-on-year, but specific clusters like Chennai has increased over 10 percent, Hyderabad has grown up by 7 percent.

We would continue to look at ARPOB growth in that region in our existing clusters of almost around 8 and 9 percent which is a combination of inflation of 6 percent and 3 percent of case mix. So, that is going to be our focus on ARPOB. Today, occupancy system-wide is around 5 percent. There are specific locations.

Hyderabad is a location that still has the substantial headroom for growth because the current occupancy is at 66 percent. We are focusing on our centers of excellence, hiring new doctors, trying to increase our outpatient footfalls, re-segmenting the whole hospital.  Those are certain things that we are working on over the next 12 month which should further give up a fillip to our occupancy in this particular region. Bhubaneswar is one place that has done very well.

It is now at 80 percent occupancy, 290 beds, just two years old. Bangalore is doing well. Kolkata is again doing well at 75 percent occupancy, 500 beds and so the system-wide occupancy is good. We still have the ability to increase at few locations like Bangalore, Hyderabad, Bhubaneswar and that is what we are working on this year apart from our focus on high-end surgeries which we are trying to work on in the current year.