Why did the promoters of Apollo Hospitals pledge as high as 78 per cent of their shares? For what purpose have the funds been borrowed? Analysts are raising such questions, and Krishnan Akhileswaran, group CFO, Apollo Hospitals seems to have ready answers. Speaking to Business Today, he says, "the underlying loan is not very high because if you look at the loan-to-value (of the pledged shares) ratio, the loan component, including the accrued interest, comes out to be Rs 1750 crore, while the value of the shares (78 per cent of the holding) is around Rs 4000 crore". The loan, invested into the company's core businesses, had to be taken apparently because the credit situation in the country was getting tighter.
Sharing details, Akhileswaran says, the loan was raised to invest in Apollo Hospitals, Apollo Munich (the insurance business) and a bit into medical education. Giving the breakup, he says, between 2008 and 2012, the family invested around Rs 500 crore in Apollo Hospitals, Rs 350 crore in Apollo Munich and about Rs 150 crore to Rs 200 crore was invested in medical education. This amounts to around Rs 950 crore of principal amount with the accumulated interest of Rs 1750 crore. He further underlines the fact that all the three investments have delivered significantly and their value has moved up by almost three times. For instance, the Rs 350-crore invested in the insurance business, we are told, have grown three to four times in value i.e. if they sell their stake in Apollo Munich, which is being touted as one of the options available to the promoters, their 41 per cent holding in Apollo Munich, will be valued at around Rs 1400 crore. Even Apollo Hospitals stock price has risen by three times to Rs 1200 between 2008 and 2012.
Therefore, he sees the issue of pledged shares as a short-term phenomenon. He says the family has already committed that in six months they will reduce the number of pledged shares by half. They will explore various options, including selling their stakes in Apollo Munich. So, why do market investors feel Apollo shares are undervalued and what is being done to address this challenge? Akhileswaran says they performed better than their peers in the last two quarters. "We have already committed to the market that we continue to grow on the trajectory that we saw in the last couple of quarters and it should automatically reflect in the share price."
On asking the message for the investors, he says, Apollo is focus on topline growth and bottomline profitability. "We have told our investors that bulk of our capex is behind us and for the next three years, the company will be focused on getting value out of the assets that have been put into place by generating revenues and profits with focus on good cash flow generation within the core business - hospitals -- where we continue to see a healthy double digit growth. We also continue to see pharmacy grow at a high double digit (20 per cent kind of growth). Plus, Apollo Health and Lifestyle, which was a bit of a drain on EBITDA will become EBITDA positive by Q2 FY20."