Apollo Hospitals hives off retail business into new firm, to hold 25% stake

Targets Rs 100 billion revenue in the next five years

Apollo Hospitals Enterprise Ltd (AHEL) has decided to hive off the front-end retail unit of its standalone pharmacy business into a separate entity by the name Apollo Pharmacies Ltd (APL). This new company will be a subsidiary of Apollo Medicals Pvt Ltd (AMPL).

New investors picked up 74.5 per cent stake for Rs 1.06 billion in AMPL, while Apollo has kept 24.5 per cent stake.

The new investors include Jhelum Investment Fund, investment banker and chair of DSP BlackRock Hemendra Kothari and Enam Securities. 

Each of the investors will have a board seat in the new company. In AMPL, Enam Securities holds 44.7 per cent, while Jhelum Investment Fund 1 has 19.9 per cent and veteran investor Hemendra Khotari 9.9 per cent share. The Apollo management said that the new entity, which is only the front-end unit of the standalone pharmacy business, is valued around Rs 5.27 billion. If the back-end part is added, the entire pharmacy business will be valued around Rs 50 billion. Executive vice-chairperson of AHEL Shobana Kamineni, who will continue to lead the pharmacy business, told Business Standard that a decision was taken to unlock potential of the pharmacy business and have a sharp focus. The company also decided to enter e-commerce as part of its omni-channel strategy to provide consumers with a choice between online and physical stores.

“In the future, we would be looking at strategic or new equity investors, while the IPO option also will be explored,” said Kamineni.

She ruled out any impact on AHEL’s books due to the hive off as Ebitda or bottom line contribution is very less. The management said Rs 400 million of Ebidta will move from AHEL but in the long run it will strengthen AHEL's books since 85 per cent of the top line and Ebitda are contributed by the back-end unit, which will continue to be with AHEL.

Kamineni is targeting to increase pharmacy outlets to around 5,000 from the current figure of around 3,167 over the next five years and is eyeing around Rs 100 billion revenue. Kamineni is targeting around 20 per cent of the revenue from the online segment. Revenue currently stands around Rs 43 billion. Apollo also set a target to enhance the private label business from six per cent now to over 12 per cent.