Apollo Hospitals to raise pvt label products in pharmacies

Nachiket Kelkar
moneycontrol.com

Apollo Hospitals Enterprise is increasing the number of private label (own brand) products at its pharmacies and expects these will account for over 10% of its total pharmacy sales in the next 2-3 years from 4% now. The share of private labels was less than 1% a year ago, its Chief Financial Officer Krishnan Akhileswaran told moneycontrol.com in an interview. "The Apollo branded private labels is something that we have been focusing on. We have that now on the FMCG side,  on the nutritional supplement side,  also some OTC (over-the-counter) drugs etc...We are focused on taking it to 10% and even higher over the next 2-3 years," he said. The company currently has over 200 private label products in its portfolio and it plans to increase the number of products offering vitamins and nutritional supplements. Private labels offer better margins compared with similar branded products and so many retailers and super market operators have focussed on increasing their share in recent years. Apollo Hospitals reported a net profit of Rs 70 crore in the first quarter, up 36% from a year ago, while revenue rose 21% to Rs 777 crore. Its revenue from retail pharmacies was up 31% to Rs 248 crore, while hospital revenue increased 17% to Rs 530 crore. "We believe Apollo’s growth is driven by strong brand equity in the healthcare industry and improving performance in the pharmacy business. The Q1 results have strengthened our confidence in Apollo’s growth prospects," Mohit Modi and Ravi Dodhia of Crisil Independent Equity Research said in a report. The company doesn't give specific guidance, but hopes to maintain a similar growth rate going ahead. "We are targetting to continue on the growth that we have done. For the past several quarters, we have been able to grow at around 20%. At this point in time we are focused on  trying to grow in the same range as earlier," Akhileswaran said. DOMESTIC EXPANSION Apollo Hospitals plans to open 15 new hospitals, which will add 3,140 beds to its existing network, in the next three years. The company has pegged a capital expenditure of Rs 2,000 crore for the expansion, of which its own contribution will be around Rs 1,800 crore, while the rest will come from a partner, since one of the planned hospitals is a joint venture project. Apollo has already invested around 300 crore for the expansion and the rest Rs 1,500 crore will come via internal accruals and debt, Akhileswaran said. It currently has a debt of Rs 600 crore and cash of Rs 230 crore, with a debt-equity ratio of 0.24:1. The company is also expanding its retail pharmacy network. It currently has 1,350 outlets and plans to add around 250 stores this year, even as it continues to close loss-making stores.  It will need a capex of around Rs 30 crore for opening the 250 new pharmacies, which will all be company owned. AFRICA, MIDDLE EAST ON RADAR Apart from the expansion in India, Apollo Hospitals is also looking at opportunities in overseas markets like Africa and West Asia.  However, the company wants to work on an asset light model and so instead of opening own hospitals, it will seek operations management contracts. "We are evaluating some of those (plans). For example, Tanzania is a place where we are trying to get there in an operations management arrangement, Middle East is one area where we are taking with the government to see whether we can have some presence. But we are still looking at an asset light model...Investment from a capital perspective is not something that we are still actively considering," he said. Its plan is to have some point of presence in these markets with partners like government and the referal base can come back to India. APOLLO MUNICH BREAKEVEN NEXT YEAR In the first quarter, the company's health insurance arm, Apollo Munich, reported 60% rise in revenue, while gross written premium increased to Rs 101 crore, up 42% from a year ago. Akhileswaran said Apollo Munich is close to break-even point now, compared with an EBITDA loss of Rs 7 crore in the first quarter last year. It has target to break-even some time in the next fiscal year. Apollo Munich is a joint venture between Apollo Hospitals and Germany's Munich Health. APOLLO HEALTH STREET Meanwhile, Apollo Hospitals continues its talks with US based companies to sell a stake in its New Jersey headquartered healthcare business process outsourcing arm Apollo Health Street. Akhileswaran said the talks are preliminary and that more then an equity stake, the company is interested in bringing in a strategic player from the same field who will add value to the operations. The overall business at Apollo Health Street has picked up following US President Barack Obama's thrust on healthcare reforms, he said. Apollo Hospitals shares were trading little changed from previous close at Rs 614 on NSE in morning trade on Tuesday. nachiket.kelkar@network18online.com