Apollo Hospitals' new growth prescription could pave the way for better revenues
Chennai-based Apollo Hospitals has the largest healthcare network in the country with a 2,500-bed owned capacity and another 1,000-bed managed capacity across the country. The company's scale of operations expanded after its merger with Deccan Hospitals, Indian Hospitals and Om Sindoori Hotels.
The mergers besides helping the company improve the capacity has resulted in higher economies of scale. Apollo Hospitals plans to sustain growth in the coming years through a management of hospitals, strategic expansion into clinics, consolidating in the tertiary care segment and third party administration (TPA).
Apollo Hospitals derives its income from a host of operations. Thirty four per cent of the revenues come from outpatient care, 30 per cent from cardiac, 11 per cent from room rentals and 25 per cent from project and operational management consultancy to other healthcare providers. They are networked through TPA and reach through Apollolife.com an online portal managed by Apollo Health Street, an Apollo Hospitals Group company.
The company is moving from ownership of hospitals to managing them. That's why it has decided to focus on managing and training of medical professionals.
The company earns a management fee of five per cent for its services and is likely to earn Rs 15 crore as management fee this year. The company also manages hospitals in Bangladesh and is evaluating options in Muscat.
Insurance foray
The Apollo Hospital group set up an independent company called Family Health Plan for its foray into the insurance sector through TPA. The plans suffered a setback thanks to the guidelines issued by the Insurance Regulatory Development Authority (IRDA) which the company feels limits the role that a TPA can do in marketing a health insurance policy.
The point of confusion, according to the healthcare industry, is the clause defining the scope of a TPA, that defines health services as ``services rendered by a TPA do not include soliciting or procuring of insurance business as an agent or as a broker or reinsurance broker.''
The company plans to seek a clarification from IRDA on whether TPAs will be allowed on the issue of marketing of value-added products by a TPA. The healthcare industry officials say that if the clause came into effect, it would reduce the TPAs to mere backroom officials for processing.
The hospital has already networked with 900 hospitals and 3,000 doctors across the country. The company was trying to set up an independent health insurance company through a joint venture few months ago, but that planhas been scrapped as Apollo doesn't see much commercial sense in investing in infrastructure.
Investments
The current projects that Apollo Group Hospitals are undertaking include Akshaya Apollo Hospitals Limited, a 300 bed super specialities Hospital in Ahmedabad at an investment of Rs 100 crore. The Lanka Hospitals Corporation Private Limited, Colombo, is a 350-bed super specialities Hospital with wide range of facilities covering investigative, preventive and therapeutic services.
Built at an estimated cost of about Rs110 crore, the hospital will be operational later this year. Apollo has a 51 per cent stake in both these hospitals. Says Preetha Reddy, managing director, Apollo Hospitals, "These hospitals will be merged with the group at a later date."
The group also plans to take over a 250-bed hospital building at Bilaspur on lease and fully equip it with medical equipment and operate it as a division of Apollo Hospitals.
Primary healthcare
There are also plans to have around 500 franchised clinics. Through the clinics, Apollo hopes to bridge the gap that exists between multi and super-specialty hospitals and primary healthcare. These clinics would serve as a referral centre for Apollo Group Hospitals. It plans to open similar healthcare centres across the country.
The group, through the Apollo Cliniqs, is now ready to extend its expertise in healthcare delivery through primary healthcare. The Apollo Cliniqs have been setup with the dual objective of providing basic medical services and consultations and promoting the concept of preventive healthcare across the country.
Financials
The company's earnings for the first three quarters of 2000-2001 were higher by 15 per cent at Rs 20.7 crore. The income increased from Rs 219 crore to Rs 188.5 crore during the same period. Interest costs were lower by 10 per cent at Rs 15.6 crore resulting in higher profits. The operating margins declined marginally from 26.89 per cent to 25.99 per cent while net profit margins were stagnant at 9.44 per cent.
Future plans
The company plans to increase its bed capacity from the present level of 3,500 beds to 6,000 beds in the next five years. Says Reddy, "The capacity expansion will be through own, managed and leased out hospitals."
The company has deferred its American Depository Receipts (ADR) plans citing bad market conditions but has not ruled out the possibility of going ahead with the issue at a later date. The group plans to leverage on its expertise by focusing on managing rather than owning hospitals.
Even as its insurance foray will depend on the guidelines issued by the IRDA, the company expects to turn in a good performance. Says M Padmanabhan, group president, Apollo Hospitals, "The revenues are likely to grow at the rate of 30 per cent." The stock currently trades at Rs 108 discounting its projected earnings 11.8 times.