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Apollo: Healthcare drives growth - Views on News from Equitymaster
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  • Sep 22, 2000

    Apollo: Healthcare drives growth

    Apollo Hospitals has suffered a dent in image post accusations of an improper diagnosis of power minister late Mr. Kumaramangalam’s illness. The company’s chairman Mr. Prathap C. Reddy, at a shareholder’s meeting vowed to refurbish the healthcare chain’s image.

    The stock has also come off more than 50% from its highs of Rs 515 (in January 2000) and is currently quoting at Rs 228. We initiate coverage on the company.

    The Apollo group is a pioneer of the corporate hospital concept. It started the first super speciality multi–disciplinary hospital in India (the 467–bed Apollo Hospital) in Chennai in 1985. Over the last decade and a half it has emerged as largest player in the corporate hospital market with hospitals in Hyderabad, Vizag, Madurai, Aragonda (in Andhra Pradesh) apart from Chennai itself. Meanwhile the number of beds have also increased to 2,100 beds.

    Apart from running super speciality hospitals, the group also runs a 24–hour retail pharmacy network through 40 retail outlets across the country. This is expected to provide further referrals to the hospitals in the future.

    Last year the group merged three entities Indian Hospital Corporation, Om Sindoori Hotels and Deccan Hospital Corporation with Apollo Hospitals. This bought the lucrative retail pharmacy business also into its fold and led to a 74% jump in revenues to Rs 2,789 m in FY2000. (The present stock price implies an earnings multiple of 35 times.)

    As for the future, the company plans to increase the number of beds to 6,000 and the number of pharmacies to over 1,000 over the next five years. This would be done via franchising the ‘Apollo’ brand. Besides, the company also has plans to use the Internet to provide the services of their specialists through telemedicine (where network capable x–ray printers, scanners transmit the results of the patients examination to specialists who give their advice online). The project was launched in April 2000 and has links with Apollo Hospitals in Chennai, Aragonda and Hyderabad.

    The demand for healthcare in India is mind boggling. On an average there is one bed for 1,300 people while the ratio is 1:250 in the west and 1:90 in Japan. A growing population, increasing awareness of the healthcare facilities and the opening up of health insurance is likely to lead to a steady demand for quality healthcare which Apollo is well poised to tap.



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