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.