Promoter pledge to halve once money from Apollo Munich stake sale comes in: Suneeta Reddy, Apollo Hospitals

Post the Munich deal, we will be at around 35% to 40% of the pledge. We hope to bring that down to about 20%, says Suneeta Reddy, MD, Apollo Hospitals. Excerpts from an interview with ETNOW.

Post the stake sale in Apollo Munich Health Insurance, has the promoter pledge gone down?
While the deal is signed, the money will come to us by the end of September or first week of October. At that time, the pledge, which is at currently 75%, will come down by 50%.

What is the peak level of promoter debt that you are comfortable with? What is the debt right now and do you expect to reduce it further?
Post the Munich deal, we will be at around 35% to 40% of the pledge. We hope to bring that down to about 20% and we have certain options that we can consider at this time.

Now there is a newspaper report which seems to suggest that Apollo Hospitals is looking to sell assets or even induct an outside investor to reduce debt. Can you give us clarifications from your end?
Apollo Hospital is separate from the family. Apollo Hospital is not looking at an outside investor to reduce debt. We believe that current cash flows will enable us to reduce debt plus we do have one liquidity event. We will get cash from Apollo Munich sale. We will get cash from the front-end Pharmacy. The debt will reduce on the balance sheet. For the family, yes the Apollo Munich is a liquidity event and we do have other assets that we can look at.

The company has reported a strong consolidated margin improvement, nearly 150 bps in FY19. Would this margin improvement continue?
Yes, due to two reasons. The first is our new hospitals which we had started 30 months ago and which is now picking up traction. They were at about 6%. We look forward to seeing them at around 10%. This year, we are also looking at mature hospitals, which were at 21.7%. We expect to improve that by another 100 bps.

What will lead the margin expansion? Do you expect occupancy in hospitals to improve and a turnaround in Apollo Health and Lifestyle?
Certainly. You have got both the answers. One, higher occupancy, higher focus on centre of excellence which is really cardiac, orthopaedic, neurosciences, oncology, emergency ICUs which will result in better margins. We are also looking at cutting costs. We have started kitting out various clinical profiles. All these initiatives should help. On the consolidated Apollo balance sheet, there has been a very good turnaround with Apollo Health and Lifestyles and there should be EBITDA breakeven this quarter.

The Navi Mumbai hospital was opened in November 2016. How do you see that shaping up? What you are looking at in terms of investments and how are you seeing that pay off in the coming years?
In Navi Mumbai, we focus on high-end specialities and that is a clear differentiator. We have clinical differentiators, especially in oncology, transplant, cardiac. These are the things where we will gain significant market share which will enable us to price it in such a way that our margins will also reflect the superiority of the clinical offering.

The second thing is that we are also beginning to see a trend of international patients coming into that facility because of the quality of the facility and the quality of the clinical work. Clearly we are very optimistic about Apollo Navi Mumbai and in July it is doing really well. That is good for Apollo Hospitals.

What is the growth in the pharmacy business? Can wee see better growth in FY20?
They have grown above 25%, which is clearly strong growth. About 34% growth in EBITDA is very heartening. More importantly, their return on capital employed is around 20%. All strong indicators point to profitable growth. Going forward, they are looking at setting up about 5,000 pharmacies and substantially increasing their turnover.

Following Ayushman Bharat, do you think the volume boost will help the industry especially for tier II and III cities?
Volumes will definitely pick up. We have allocated 5% of our beds in tier II and tier III cities. We are looking at very high utilisation, especially in cities like Nellore, Kakinada, Karimnagar and Vizag. Clearly in each of the states, we have hospitals in tier II cities where utilisation is picking up and so far, the allocation for Ayushman Bharat is about Rs 6.400 crore. We are hopeful that the government will make higher allocation and so utilisation also will ramp up.