Apollo Pharmacy aims to expand its private label business in next 3 years

Apollo Pharmacy, a standalone business of Apollo Hospitals Group, aims to expand its private label business from the current 7 per cent of revenue to 10 per cent over the next two to three years.

The proposal being considered is to restructure the pharmacy business by segregating the front-end into a separate company, Apollo Pharmacies (APL). The necessary approvals are expected by November, with the changes to take effect from the coming April.

The focus on private labels it has now, including fast-moving consumer goods and over-the-counter products, will help grow this segment to 10 per cent of the top line and improve the return on capital employed (ROCE) of the stand-alone pharmacy business to grow 30-35 per cent, said A Krishnan, chief executive officer of Apollo Hospitals Enterprise (AHEL). He said so at an earnings conference call with analysts. 

Company officials said the private label business was 6.5 per cent of revenue last year and expected to be 7 per cent this year. It is working on additional Stock Keeping Units and improving the packaging of current projects.

The standalone pharmacies during the quarter ended June 30, reported growth of 18.5 per cent in revenue at Rs 1,057 crore from the same period last year. Earnings before interest, tax, depreciation and amortisation was Rs 58.7 crore, with a 5.6 per cent margin. The ROCE of the business was 23.8 per cent, said the company. 

Profit before tax and interest for the pharmacy business grew 49 per cent to Rs 45.6 crore in the quarter. The number of pharmacies at the end of the quarter was 3,496, with addition of 68 stores on a net basis during the three months.

The Apollo Hospitals board approved the restructuring in November 2018. APL will be a wholly-owned subsidiary of Apollo Medicals. Apollo Hospitals will own 25.5 per cent of APL and the remaining stake will be held by three private investors. It will have external investors , it had said earlier.

After this transaction, the back-end business related to the standalone pharmacies and 85 per cent of business economics will continue to be with Apollo Hospitals. The latter will be the exclusive supplier for APL under a long-term agreement and will also enter into a brand licensing agreement with APL to license the Apollo Pharmacy brand to front-end stores and online pharmacy operations.

The money from this transaction is expected to help AHEL reduce debt, said its officials earlier. The pharmacy business has presence in 400 cities and towns, across 20 states and four Union Territories. It employs around 22,000 people, according to the 2018-19 annual report.