A Krishnan , CFO, Apollo Hospitals in an interview with ET Now, speaks about the QIP worth RS 330 crore which ash been launched, and adding 2,400 beds in the next three years.Excerpts:-
Rs 330 crores is what you have launched a QIP for. Could you tell us firstly how you are planning to utilise the proceeds of the QIP?
We already have our expansion plans in place. We are planning to expand over the next three years. We are planning three hospitals in Bombay, one in Byculla, one in Vashi, one in Thane. We also have other hospitals that we have planned, three in Tamilnadu and one in Nasik. There is one hospital, which we have planned in Vizag as well, so these are going to be towards our expansion plans of 2,400 beds over the next three years. Of which, we require around Rs 1,100 crores, which is the capex plan that we have. Of the Rs 1,100 crores, we have already put in place Rs 277 crores, which is our invested capital, so the balance is what we had an approval from the board for. This is going to be helping in part financing that balance 900 crores.
You are also looking to raise money via debt. How soon would that be materialising and where would those funds be allocated?
Rs 900 crores was the overall QIP approval that we had and that we were planning to do a mix of both equity and debt but given that the debt interest rates at this point in time on the debt is a bit high, we decided that we would want to postpone our debt for a later point in time where we would go to the market and approach it when the interest rate regime is a bit more benign than where it is now, so we have time. Equity is something that we said we will complete now. We will wait for the next 12-15 months. Whenever an opportune time, we will probably do a bilateral loan or an NCD or whatever is best for the company.
Would you agree that Apollo has limited new bed additions, which should enable consolidation of operations and improvement in margins before it adds 2,000 beds over FY13 and FY14?
We are adding beds. Even in the current fiscal, we are adding approximately 500 beds. In the last 15 months, we have added approximately 700 beds, so if you look at between the last 15 months and the current fiscal, we will be having around 1,200 new beds, which will be helping us grow as well, so yes while are operations have always been focussing on margins, we have always been focussing on efficient capital allocations, that is always going to be the base on which we are going to be building our practice. It is clear that we would be having new beds, which will be helping us further our growth as well, so while it is going to be focussed on margins, it is going to be focussed on both growth and margin.
Overall for FY11, the occupancy for the owned hospital including the subsidiaries as well as joint ventures and associates was at about 75%, how much can we expect it alongside your expansion plans for FY12?
If you look at it even though the utilisation is approximately 75%, there are specific clusters where we still have a lot of opportunity to grow. Hyderabad is one cluster where we are doing well now. We had invested beds in the past, now it is doing well for us. Over the last 15 months, we had grown around 300-400 beds in that cluster. Now it is performing better than how the cluster had performed in the last fiscal, it is even doing well. Calcutta is continuing to do very well. Bangalore is continuing to do well. Chennai will do well because it is a mature cluster for us. Even if you look at 75%, we still have room there. We can take it to the 80-85% levels before calling it mature across. Again if you look at it, even within operations, we are looking at other operating parameters like seeing how we can shorten the average length of stay through non-invasive procedures and through ensuring that there is better clinical excellence, that is what we are focussing on now, which would clearly help us bring down the number of days a patient stays in the hospital, again which should be used towards increasing the utilisations wherever possible.
Apollo has been working on steadily expanding its ROC. How much can it improve from the current 15.5% given the current work in progress?
It can. Even if you look at the 15.5% that you are talking of, that is because there are some capital work in progress for our new hospitals. If you strip some of that and if you strip the standalone pharmacies, standalone pharmacies are EBITDA breakeven in the last three quarters, EBIT breakeven in Q4, now trending very well and we are directionally going into the 6% target that we have over the next few years, that's where the EBITDA of standalone pharmacies we feel can be the target EBITDA margins for but if you strip out some of that, you will realise that the ROCs on our mature businesses are approximately 20% on the hospital side, so we would be trending in that direction as we move along over the next few quarters to few years.
Talking about the Apollo Munich Health Insurance , would the operational losses there narrow down soon?
Yes, it has. Even last year, it has narrowed down. It is continuing to do well. The growth has been very good last year. We are in good trajectory there and again from our perspective as Apollo Hospitals, we have ring-fenced our investment in Apollo Munich, so Apollo Munich now is an 11% holding for us. We have ring-fenced our investment but that said, we are still continuing to do well in that business. That business should continue to do well and help in our overall cash flows as well.
Apollo Health Street's revenues have declined by 3% year on year FY11. What kind of growth outlook would you lay out for FY12?
What's the update on the pharmacy de-merger? Now that the drumbeats on multi-brand retail is getting louder, what can one expect there?
Pharmacy is doing very well for us now. The last three quarters if I looked at it, it is now EBITDA positive and de-merger is something that we would look at at some point in time at an opportune point in time later because the FDI is also at this point in time in multi-brand retail not available, so as some of those opportunities pan up, we will look at an opportune time to unlock value for our overall pharmacy business.