Apollo Hospitals still considering rights issue, says CFO

Apollo Hospitals Enterprise Ltd (AHEL) has said that the company has not cancelled its plans for rights issue to raise around Rs 750 crore, which it announced in May 2015, and is pending for government approval. The company, which is experiencing pressure on profit after tax due to higher investment, would see the profitability margins improving in two to three years, said senior management of the company.

At the company's Annual General Meeting held in Chennai today, answering specific queries of the shareholders related to the rights issue pending over a year now, Akhileswaran Krishnan, group chief financial officer of AHEL said, "We have to take a specific approval from the FIPB, which is pending and we are trying to approach to see what we can do in the best interest of the shareholders to ensure the rights issue goes through."

"They have been asking certain queries, they wanted some restructuring to be done in the pharmacy among others. The Board is carefully examining all of these," he added

The company, in May, 2015, announced its plans to raise around Rs 750 crore through rights issue to back its expansion plan and to bring down its debt level. Company sources earlier said that the FIPB could have refused approval based on some of its apprehension related to foreign investments into the company which also has pharmacy operations. Around 35 per cent of the company's revenue comes from standalone pharmacies and 65 per cent from hospitals.

The company has also moved a resolution in the AGM to raise Rs 500 crore through redeemable non-convertible debentures on a private placement basis.

Addressing the shareholders' concerns on the margin pressures, he said that over the last three years the company has added 11 new hospitals across the country and the total cost that the company has incurred as part of the P&L expenses on account of these new hospitals is around Rs 400 crore. "It is only after three years the new hospitals achieve break even and start generating profit enough for our EBITDA and PAT, while the company start incurring depreciation and interest cost from day one of operations. The profitability margins will go up in the next two to three years," he said.

The company has plans to add almost 1,000 beds in the next three years and it would foray into Navi Mumbai foray in the coming year. The plans for these 1,000 beds require a capex of Rs 1,500 crore, of which almost around Rs 600 crore has already been incurred. The balance Rs 900 crore has to be invested and for the next three years, the profitability can be under a bit of pressure but it doesnt mean that the long term returns of the shareholders are to be diluted at all, said the official.

Prathap C Reddy, chairman of Apollo Hospitals Group, told the shareholders that the company will cross the figure of 10,000 beds this year.

Overall forex earnings from international patients is around Rs 260 crore, which is higher than the forex reported by the company, since many of these foreign nationals exchange foreign currency outside the hospital and approach the hospital with Indian Rupee. "As a group, we have Rs 500 crore of revenues coming from international patients," said Krishnan.

The shareholders' wealth of AHEL has increased by 20 times in the last 15 years, which is a CAGR of 23 per cent. In 10 years, it has gone up by 5x, which is 18 per cent CAGR.