Haven't given up on rights issue, says Apollo CFO

The proposal to raise around Rs 750 cr, announced in May 2015, awaits FIPB approval

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Apollo Hospitals Enterprise (AHEL) has said it has not shelved plans to raise around Rs 750 crore, for a rights issue, which it announced in May 2015. It said the proposal was pending with the government. The company, experiencing pressure on profit after tax because of higher investment, would see an improvement in margins in two to three years, its senior management said.

In the annual general meeting held here on Friday, Akhileswaran Krishnan, group chief financial officer said, “We have to seek the approval of the Foreign Investment Promotion Board (FIPB), which is pending, and are trying to see what we can do in the best interest of shareholders to ensure the rights issue goes through.”

“FIPB has asked certain queries, they wanted some restructuring to be done in pharmacy. The board is examining all of these,” he added.

The company had announced the plan to back expansion and bring down debt. Sources said FIPB could have refused approval based on apprehension related to foreign investments in the company, which also has pharmacy operations. Around 35 per cent of the company’s revenue comes from standalone pharmacies and 65 per cent from hospitals.

The company moved a resolution in the AGM to raise Rs 500 crore through redeemable non-convertible debentures on a private placement basis.

Addressing concerns on margin pressures, Krishnan said over the past three years the company has added 11 new hospitals across the country and the total cost incurred on account of these was around Rs 400 crore. He said new hospitals break even only after three years and start generating profits, but the company incurs depreciation and interest costs from the first day of operations. The company has plans to add around 1,000 beds in the next three years and it would foray into Navi Mumbai in the coming year, he said. This will require a capex of Rs 1,500 crore, of which Rs 600 crore has been incurred. The rest has to be invested and for the next three years, profitability could be under pressure. However, this does not mean long-term returns of shareholders will be diluted, an official said.

Prathap C Reddy, group chairman, told shareholders that the company would cross 10,000 beds this year.

Overall forex earnings from international patients was around Rs 260 crore, higher than the forex reported by the company, as many foreign nationals exchange foreign currency outside the hospital and approach the hospital with Indian rupees. “As a group, we have Rs 500 crore of revenues coming from international patients,” said Krishnan.

Shareholders’ wealth of AHEL has increased 20 times in the past 15 years, a compound annual growth rate (CAGR) of 23 per cent. In 10 years, it has gone up 5x, CAGR of 18 per cent. Market capitalisation of the company 15 years ago was around Rs 900 crore.

Now it is Rs 18,500 crore, he added.