Apollo to separate out its pharmacy business, seeks shareholders nod

New Delhi: Based on the directions of National Company Law Tribunal (NCLT), Apollo Hospitals Enterprise Ltd (AHEL) has proposed to hive off its pharmacy business. Apollo Hospitals has convened a shareholders meeting in this regard on October 21 2019, to deliberate and approve the Scheme of the arrangement between Apollo Hospitals and Apollo Pharmacies Ltd.(APL) and their respective shareholders.

The separate entity is anticipated to focus on building a multi-year growth platform for the stand-alone pharmacies business to get to a medium-term target of over 5,000 pharmacy outlets over 5 years with a goal of Rs 10,000 crore in revenues and 30% combined ROCE for the Stand-alone pharmacy business in the next 5 years.

Once the scheme comes into effect, APL will pay a lump sum amount of Rs. 527.8 crore to Apollo Hospitals in cash.

Presently, Apollo hospitals hold 100% equity share capital of Apollo Medicals Private Limited ('AMPL') which in turn holds 100% of equity share capital in APL, with Shobana Kamineni the common director for both the entities.

However, after the implementation of the scheme, Apollo Hospital would be the exclusive supplier for APL under a long term supply agreement and further would also enter into a brand licensing agreement with Apollo Pharmacies to licence the "Apollo Pharmacy" brand to the front end stores and online pharmacy operations, to further augment and strengthen the brand, with these arrangements.

"The proposed reorganisation would not have a material impact on the financials of AHEL as the backend business related to the stand-alone pharmacies which represent around 85% of the business economics will continue to be held by AHEL," Apollo Hospitals said.

Apollo Hospitals will utilize the proceeds of divestment towards growth and enhancement of other existing businesses and enhance strategic flexibility to build a viable platform solely focusing on each of the businesses.

Apollo Pharmacy today has grown from 170 outlets in FY05 to 3,428 outlets as of March 31, 2019, in 400 cities/ towns spread over 20 states and 4 Union territories and is currently serving about 300,000 customers daily through dedicated employee strength of about 21,000 plus.

Organised pharmacy retail accounts for less than 5% of India's USD 15 billion domestic pharmaceutical market which is estimated to grow 10-12% CAGR over the next decade, driven predominantly by volume growth.

"The key growth drivers for the domestic pharmaceutical industry include increasing disposable incomes, demand for quality products, higher incidence of chronic diseases, growing awareness of diagnostics and preventive care, and greater accessibility through generics. Organised pharmacy retail is expected to grow at a much faster rate within this," Apollo Hospitals added.

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