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The Other Businesses

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Though hospital operations form the mainstay of the Apollo Group, Prathap C. Reddy started expanding in allied healthcare areas a few years ago. So far, though, none of the new forays has started generating significant profits. In 2009-10, Apollo's core businesses (including hospitals, hospital-based pharmacies and hospital-based consulting) accounted for 66 per cent of its overall revenues of Rs 2,600 crore. Its allied businesses include standalone pharmacies, Apollo clinics, hospital consultancy, health insurance, healthcare BPO, education, research and telemedicine. 

At least six of its nine arms made losses in 2009-10. This includes the Imperial Hospital and Research Centre (IHRCL), a 51-per cent subsidiary that owns a 240-bed multi-specialty hospital in Bangalore. It had revenues of Rs 70.4 crore and a net loss of Rs 6.7 crore. Apollo's standalone pharmacy business reported a net loss of Rs 4.3 crore on a turnover of Rs 661 crore in 2010-11, against a revenue of Rs 485 crore and a net loss of Rs 15.7 crore in the previous fiscal. Analysts feel Apollo can turn around the pharmacy business due to factors including existing outlets becoming mature, closure of non-performing outlets and reduced lease rentals.

The group has steadily focused on the cost rationalisation aspect of the pharmacy vertical and has been able to reduce losses in the vertical over a period of time. The average number of employees per store dropped from 7.2 in the second quarter of 2008-09 to 5.8 in the third quarter of 2010-11, helping reduce employee expenses, note analysts with Centrum Broking.
Apollo also plans to unlock value of its pharmacy chain, the largest network in India. "We may hive off the pharmacy division as a separate subsidiary and will look at options such as private equity investment or a public share sale or roping in a partner," says Shobana Kamineni, executive director (new initiatives) at Apollo. The target is to expand the drug-selling business to a chain of over 3,000 pharmacies and double the business with higher profit margins by 2013-14. 

Apollo's insurance business, Apollo Munich Health Insurance, is also growing fast — a 200 per cent growth over the previous year. But the business had an operational loss of Rs 20.4 crore in Q3 2010-11. During 2009-10, the firm achieved a gross written premium of Rs 114 crore against a full year premium of Rs 48.1 crore in 2008-09. Apollo Hospitals had entered a joint venture with Munich Health, a subsidiary of Germany's Munich Re. Now into the third year of operation, Apollo Munich's business is worth about Rs 280 crore. Currently, it is the second-largest exclusive health insurance provider in India after Star Health. Apollo targets a turnover of Rs 1,000 crore from the business in two years, says Shobana. Apollo Health Street, in which Apollo Hospitals Enterprise (AHEL) owns 38.69 per cent stake, is also not doing well. Its revenues fell 7 per cent year-on-year to Rs 100 crore for the third quarter of 2010-11 and Ebitda margins declined by 300 basis points to 16 per cent, say analysts. Its losses for the quarter were at Rs 3.5 crore. 

Medical education is another priority. One major reason that limits Apollo's growth here is lack of quality manpower, says Reddy. Currently, Apollo trains 400-500 super specialist doctors, 7,000-8,000 nurses and 3,000-4,000 health technologists every year. Apollo has already set up one of Asia's largest integrated health cities in Hyderabad and now plans a Global Health City, which will have more medical and nursing colleges. Two more medical colleges and six more nursing colleges (now 15) are in the pipeline, with plans of investing more than Rs 1,000 crore. 

p(dot)jayakumar(at)abp(dot)in

(This story was published in Businessworld Issue Dated 13-06-2011)