Apollo Hospitals pharmacy biz hive-off will have neutral impact on AHEL

Apollo Hospitals Enterprise' decision to divest its front-end pharmacy business to Apollo Pharmacy Ltd (APL) for cash consideration of Rs 5.27 bn will have 'neutral' impact on its credit rating, a rating agency has said.

Apollo Hospitals Enterprise Ltd (AHEL) had said last month that the move was part of a restructuring exercise.

Credit rating agency Ind-Ra said it does not expect the demerger to have any major impact on AHELs revenue and EBITDA (Earnings before interest, tax, depreciation and amortization) generation.

"According to the management, around 85 per cent of the revenue and EBIDTA from the standalone pharmacy division would be accounted in AHEL with no disruption in the respective businesses," the note said.

However, it said the proposed restructuring would cause AHELs adjusted debt to decline significantly. Net debt will also benefit from cash proceeds of Rs 5.28 bn from the slump sale.

With the transfer of around one-third of the rent reserve to APL, total adjusted debt levels would decline. However, as the terms of the definitive agreement for the proposed demerger are yet to be finalised, it would not be prudent to comment on any potential improvement in the credit profile at present, the Fitch group company said.

At end-1HFY19, the companys adjusted debt stood at Rs 5,720 crore of which lease rental capitalisation accounted for about 36 per cent.

APL will be a wholly-owned subsidiary of Apollo Medicals Pvt Ltd (AMPL) in which Apollo Hospitals Enterprise Ltd will have a 25.5 per cent stake. The other three investors in AMPL are Jhelum Investment Fund 1 with 19.9 per cent stake, Hemendra Kothari (9.9 per cent) and ENAM Securities Pvt Ltd (44.7 per cent).

APL will target of over 5,000 pharmacy outlets over five years with a goal of over Rs 100 bn in revenues.

Apollo Hospitals