Bet on execution of larger plans to expand margins: Apollo

Sunita Reddy, joint MD, Apollo Hospitals explains on CNBC-TV18, after the announcement of results, that the hospital services business grew by 15 percent in Q3 while the pharmacy business rose by 29 percent. Clocking a year-on-year net of Rs 80.6 crore, Reddy expect EBITDA margins to grow at current levels, going forward. She adds that larger plans include increasing the total bed count to 9,100 by end of FY14.

Below is an edited transcript of the interview on CNBC-TV18

Q: Could breakup the pharmacy business explain how the various segments performed this quarter?

A: Hospital-services revenue grew by 15 percent, total revenue grew by 20 percent and overall, pharmacy grew by 29 percent. So, the growth in revenue has been very strong. Topline growth in revenue has been very robust. EBITDA grew by 22 percent and profits have risen by 36 percent.

Q: How much more do you think the margin-performance could improve beyond the level of 17-percent for the calendar year?

A: For the calendar year, we will maintain the margin at this level if not improve it slightly because the pharmacy arm is showing an improvement in margin expansion. EBITDA margins grew by 2.3 percent in the pharmacy business and it grew by about 28bps on the whole. So, I do believe that margin expansion can be maintained to achieve at least a 1 percent increase.

Q: How soon would you be able to effect this expansion in margins by 1 percent? And over FY14 how much further would you be able to expand margins?

A: The factors that are essential to drive margin expansion are a better case-mix, increased ARPOB (average revenue per occupied bed) and reduction in ALOS (average length of stay). While every effort is being made to boost these factors, we do have other larger expansion plans that are being executed according to schedule such as the plan to add about 500 beds over the next eight months.

So, the topline and the EBITDA will continue to grow because some of our hospitals have become 365-bed strong in the last two quarters and will start contributing to EBITDA. So, I believe that our calibrated approach will ensure that the rise in growth, EBITDA and EBITDA margins is maintained.

Q: By the end of FY14, where do you see your total hospital and bed count at?

A: By the end of FY14, we will add 1,140 beds to the 8,000 beds that we already have. So there will be about 9,100 beds by the end of FY14.

Q: Since interest cost has been bit of a problem for Apollo Hospitals, now that you have maintained continued expansion could you tell us where level of debt currently stands and by how much more would debt rise by the end of FY14 once all these 1,000-plus beds come in?

A: We have a debt-equity ratio of 0.37. The cost of debt is around 10 percent. The expansion that we have planned is requires Rs 2, 361 crore out of which Rs 507 crore has already been raised. The rest will be a mix of debt and internal accruals over a three-year period. So, I don't think we will ever cross the debt-equity threshold of 0.6 and the cost of debt will never be more than 10 percent.