With new hospitals coming up, profit growth will be subdued, says Apollo CFO

Start-up expenditure on new hospitals and high interest and depreciation costs will keep profit growth subdued in the coming months for Apollo Hospitals, Akhileshwaran Krishnan, Chief Financial Officer, told shareholders at the company’s 33rd annual general meeting.

Though Apollo’s revenue during FY14 grew 16 per cent, profit after tax was up only 8 per cent. Subsidiary Apollo Health and Lifestyle, which added two high-end birthing hospitals, posted losses during the year.

“We are in the investment phase. Over the next two-three years, our subsidiaries will begin to show profits,” he said. The shareholders pitched for a bonus issue at a time the company’s scrip on the BSE had increased 28 per cent on a year-on-year perspective. They drew references to the company’s mounting reserves – ₹2,895 crore as of March 2014 – against the share capital of around ₹695 crore to drive home the charge that small shareholders were not taken along in the growth path.

“A shareholder who had invested ₹1,000 some 15 years ago will now get ₹2 lakh in return,” said Krishnan, who added a massive expansion plan is diminishing chances for a bonus issue for small shareholders.

The company plans to set up 1,700 beds in 12 hospitals across the country as part of a three-year expansion plan.

The annual report says competition is rising, creating over-capacity in metros and making acquisitions a part of the business model.

Managing Director Suneeta Reddy said Apollo would look at buying hospitals to raise bed count. Geographic presence, demand for healthcare and an internal rate of return of 20 per cent are some of the criteria for acquiring a hospital, she said.

Apollo is interested in Kolkata-based West Bank Hospitals, but “nothing has been finalised yet”. Any multi-specialty hospital takes at least four years to break even, says Avinash Lodha, Associate Director at India Ratings & Research, a Fitch company. “For a large chain such as Apollo, building a patient base becomes difficult with competition,” he said.

Chairman Prathap C Reddy, who is heading a family council to draft succession plans, said the third generation in the family is being evaluated for their interests and probable roles.

By the end of this year, the family council will evolve roles for the 10 grandchildren. Sindoori Reddy and Upasana Kamineni are already developing into wellness and child healthcare concepts.

Any multi-specialty hospital takes at least four years to break even, says Avinash Lodha, Associate Director at India Ratings & Research, a Fitch company.

“For a large chain such as Apollo, building a patient base becomes difficult with competition,” he said.