Apollo Hospitals Enterprises Ltd (AHEL) is well placed to take advantage of the opening up of the insurance sector. In 99-00, Apollo merged three entities of Apollo group viz, Deccan Hospital, Indian Hospitals and Omsindori Hospitals under its banner. Consequent to the merger, Apollo Hospitals now has a capacity of 2600 beds, the largest private sector healthcare infrastructure in South Asia.
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AHEL has presence across the entire spectrum of healthcare services. Currently, more than 60% of the company’s revenues are from owned hospitals, which provide state of the art facility. Secondly, sales from pharmacy (owned) account for another 30% of the revenues. This is a high volume low margin business. Pharmacy network accounts for the balance. AHEL has chain of over 40 pharmacies in the country. It has recently tied-up with Indian Oil Corporation (IOC) to set-up pharmacies at around 500 select petrol pumps over the next 3 years. Instead of incurring huge capex on building hospitals, Apollo is targeting revenue streams from managing hospitals owned and operated by a third party. This move should see the company improve its RoNW from the present 17%-18%.
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.
At the current market price of Rs 112, the stock is trading at 19x FY01 earnings. 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. 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. The group is also planning a major entry in health insurance sector. However, as the size of the projects, which the group is eyeing are relatively ambitious, any slippage in terms of financial management could spell disaster for the company.
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