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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.
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