Apollo Hospitals Enterprise Limited Q4 FY24 Earnings Conference Call Insights

Key highlights from Apollo Hospitals Enterprise Limited (APOLLOHOSP) Q4 FY24 Earnings Concall

• Capital Raise
  • Apollo HealthCo to raise equity capital of INR 2,475 crores from Advent International.
  • Advent to hold 12.1% stake in the combined entity post-merger.
  • Growth capital to accelerate GMV and revenue growth, achieve digital business breakeven.
• Keimed Merger
  • Apollo HealthCo to integrate 100% of Keimed over 24-30 months.
  • Keimed valued at INR 8,003 crores (20% discount to peers).
  • Keimed shareholders to own up to 25.7% in combined entity.
  • Creates India’s leading integrated pharmacy distribution business.
  • Synergies from unified supply chain, enhanced private label sales.
  • Strengthens Apollo’s position as leading retail health company.
  • Currently sourcing 40% of sales from Keimed for Apollo Pharmacy.
  • Opportunity to increase sourcing up to 98% for pharmacy business.
  • Keimed to expand SKU range from 45,000 to service more Apollo outlets.
• Growth Plans
  • AHL to add 2,000 hospital beds with INR 3,000 crore investment.
  • Leverage Apollo 24/7 platform to reach more consumers, offer omnichannel care.
  • Deploy funds from AHL for AHEL’s business expansion.
• Financials
  • Combined entity enterprise value of INR 22,481 crores.
  • AHL valued at INR 14,478 crores (15% premium to peers).
  • Projected consolidated year 3 revenues of INR 25,000 crores, margins 7-8%.
  • Offline pharmacies account for bulk of current revenue.
  • Apollo 24/7 (digital) contributes 15-16% of revenue.
  • Commercials between entities for services like consultations, diagnostics to continue.
• Deal Approvals
  • Two key approvals required – CCI and shareholders.
  • CCI approval needed due to Advent’s entry as new entity.
  • Company confident of obtaining approvals within stated timelines.
• Margins
  • Target consolidated margins of 7-8% in 3 years on revenue of INR 25,000 cr.
  • Current margin at 1.5%, expecting gradual improvement across segments.
  • HealthCo backend at 7% now, target 9-10% with private label, scale benefits.
  • Digital business to break even in 6-8 quarters, then add to margins.
  • Keimed at 3.5% margins currently, expected to improve with scale.
• Deal Motivation
  • Timely capital raise for Apollo HealthCo’s growth.
  • Valued at 15% premium to listed peers based on current performance.
  • Create unified ecosystem with scale as largest pharmacy company.
  • Capture higher margins by integrating Keimed’s sourcing capabilities.
  • Unlock capital for AHEL’s own expansion plans.
• Growth/Revenue Projections
  • Target 25% revenue growth, a 22% CAGR for combined entity over 3 years.
  • Front-end stores growing at 25-26% driven by store additions, e-pharmacy.
  • Keimed grew 12% in 9M, opportunities to accelerate with integration benefits.
  • Overall 21-22% growth targeted, considered reasonable by management.
  • INR 25,000 crore revenue target for FY27 is for combined HealthCo entity.
  • Revenue trajectory expected to see gradual, progressive increase over next 3 years.
  • No hockey-stick jump anticipated in FY27 revenues.
• Private Label
  • Limited adoption of Apollo private labels in Keimed’s 65,000 outlets earlier.
  • Significant opportunity to push private labels across the expanded network.
  • Benefits from integrated logistics, supply chain synergies between the entities.
  • Learnings from Apollo’s 6,000 outlets to be replicated in Keimed’s network.
• Pharmacy Business Strategy
  • Build a unified consumer-centric healthcare ecosystem across verticals.
  • Organize unstructured pharmacy segment, create pan-India network.
  • Leverage HealthCo’s 19,000 pin-code reach as gateway to Apollo’s services.
  • Bring convenience to consumers through omni-channel presence.
• Capital Requirement and Deal Valuation
  • Capital raised, $300mn, sufficient for next 5 years’ growth and cash flows to fund future expansion.
  • Highlighting high capital efficiency with over 18% return on capital employed.
  • Going forward, working capital-related debt expected for growth.
  • No major external capital infusion required based on projected cash flows.
  • Valued at 15% premium to listed peers based on current performance.
  • Valuation at ~11x forward EBITDA seen as reasonable given timeliness of capital.
  • Only 1% lower than expected value, outweighed by timely capital infusion.
• Growth Capital Usage
  • INR 860 cr raised to be used as growth capital for Apollo HealthCo.
  • Funds for store expansions, working capital requirements to support growth.
  • Some portion may be utilized for inorganic opportunities like M&A.
  • Part of capital to go towards debt repayment as well.