A credit rating agency said that the decision taken by the Apollo Hospitals Enterprise, to divest its front-end pharmacy business to Apollo Pharmacy Ltd (APL) will have a ‘neutral’ impact on its credit rating.

Last month, the Apollo Hospitals Enterprise decided to divest its front-end pharmacy business to Apollo Pharmacy Ltd (APL) for a cash consideration of ₹52.78 crore. The organisation stated that the move was part of a restructuring exercise.

Credit rating agency Ind-Ra said it does not expect the de-merger to have any major impact on AHELs revenue and the 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 528 crore from the slump sale.

With the transfer of around one-third of the rent reserve to APL, the total adjusted debt levels would decline.

However, as the terms of the definitive agreement for the proposed de-merger 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 company’s 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 10,000 crore in revenues.

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