Apollo Hospitals to ramp up occupancy
India’s largest hospital chain Apollo Hospitals Enterprise Ltd plans to ramp up occupancies and work towards improving operational efficiency over the next three years, a strategy that is likely to help the company tide over its persisting problem of constrained operating margins.
The company has made significant investments in setting up of new hospitals and adding beds at old hospitals in the past few years, which had taken a toll on margins even as revenue increased.
While the company’s consolidated revenue grew to Rs7,254.91 crore in financial year 2016-17 from Rs3,768,71 crore in 2012-13, operating margin declined to 10.3% in FY17 from 17.1% in FY13.
“Most of the capex (capital expenditure) is behind us. So for next three years, our focus is going to be on consolidation and ensuring that we grow our occupancy from the current 64%, operationalise some of the new beds in our existing hospitals and see how can we become much more profitable than we are at present,” Krishnan Akhileshwaran, chief financial officer of Apollo Hospitals told Mint in an interview.
Over the last three years, the company has added 2,400 beds, taking the total capacity to 10,084 beds in 2016-17. But the added capacity is not yet fully occupied and hence there is headroom for growth, Akhileshwaran said.
Apollo Hospitals has no major capital expenditure plans for the next three years barring Rs300-400 crore balance capex for its upcoming International Cancer Centre that will provide proton beam therapy treatment, he said.
The company has also received board approval for a rights issues of Rs750 crore, which is yet to get government nod.
In the last fiscal, the company’s financial performance was impacted by certain one-offs such as demonetisation, coronary stent price cut, and losses incurred in the newly commissioned hospital at Navi Mumbai.
Akhileshwaran said the company will book some losses from the Navi Mumbai hospital in the first three quarters of the current year as well but the hospital is likely to break-even by end of March 2018 or the first quarter of FY19.
“We expect the recent capacity additions will drive 15% revenue growth. We expect losses to reduce from its newer hospitals given the company is at the end of its aggressive expansion plan. Further margins in mature hospitals should also improve with better case mix and augmented medical teams which will drive higher occupancy,” brokerage firm Elara Capital said in its 2 June report.
Capacity utilization at Navi Mumbai hospital and enhanced offerings in key segments like cardiology, oncology and organ transplant is seen boosting Apollo Hospitals earnings going forward, Akhileshwaran said.
Cardiology accounts for about 25% of hospital segment revenue, while oncology contributes 8-10%. “We are looking at how 8-10% can become 12-15% in next few years. We plan to expand oncology offerings in hospitals in Mumbai, Bhubhneshwar, and Visakhapatnam,” he said.
Apollo Hospitals has three key segments—hospitals (contributes nearly 60% to sales), pharmacy and health insurance. The company has in all 70 hospitals across the country and 2,556 pharmacy stores.
Under its wholly-owned subsidiary Apollo Health & Lifestyle Ltd, the company operates a retail health business, which includes birthing centres, daycare and short surgery centres, diagnostic centres, dialysis centres, dental care centres and Apollo Clinics for management of diseases like diabetes, strokes, liver ailments and joint pain.
“Our hospital services have grown at 10%, we definitely think, it should grow at much higher levels than that, especially with new hospitals also getting commissioned. Our focus is to take it to 12-15% growth. Standalone pharmacy should grow at north of 20%,” Akhileshwaran said.
At 9:55am, shares of Apollo Hospitals were down 0.7% at Rs1,316 on the BSE, while the benchmark Sensex index was almost flat at 31,167.41 points.
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