Apollo Hospitals, a $2 bn health empire run by 4 sisters makes a comeback

Next to Suneeta Reddy’s desk in the executive suite of Apollo Hospitals Enterprise Ltd. hangs an icon of Hinduism’s many-armed warrior goddess Durga, who Reddy prays to each morning. The deity’s presence seems fitting at a company run by four women engineering an aggressive expansion into new territory.
About a decade ago, Reddy and her three sisters took over most executive functions at Apollo, India’s largest hospital chain, from their father. They embarked on a multi-year building spree in a bet that India’s economic growth would spread from its metropolises to second-tier cities, where patients are getting richer. But Apollo’s stock tumbled as the sisters’ investments weighed on profits.
Now, almost 20 billion rupees ($280 million) and four years of construction later, there are signs that strategy is about to pay off. All those hospitals are built. Analysts are predicting that annual earnings are poised to climb for the first time since 2015. Apollo’s shares have gained about 30 percent after hitting a four-year low in June, and stock forecasters are more bullish than they have been in a decade.
“The four of us recognized there was a demand and supply gap, and we needed to fill it,” Reddy, 59, who holds the title of co-managing director, said in an interview this month in the South Indian city of Chennai. “The capacity to pay more will exist.”
The company’s stock climbed as much as 2.5 percent in Mumbai before trading 1.9 percent higher at 1,215.70 rupees at 11:51 a.m in Mumbai, reversing three days of declines on a day when the broader Indian market was down.
Tackling Hurdles
Health-care is becoming one of India’s largest businesses, with the size of the hospital industry projected to more than double to $133 billion over the next four years, according to the government’s India Brand Equity Foundation. Most patients pay health costs out of pocket, but incomes are rising and the insurance industry is developing. More Indians could be insured over the coming decades as Prime Minister Narendra Modi’s government expands a new initiative to provide health insurance for the poorer half of the country’s population.
Yet, even as Apollo’s expansion has offered fresh opportunities, it’s also brought the sisters new challenges. Despite signs that investors are coming around, expenditures from the sisters’ big build have left the stock and profits well below their peaks, and debt has more than doubled over the past four years.
There are other hurdles that have the potential to hamper growth if Apollo doesn’t get its formula right. Convincing an internationally trained surgeon to relocate to Mumbai is hard enough, never mind inland to a small city. Also, Apollo found that people in smaller cities aren’t always willing to pay as much, a hurdle for a model of premium prices for premium care. Competition is also growing with more hospitals jostling for a slice of the market.
And Reddy doesn’t expect an immediate effect from the Modi government’s new insurance program. While Apollo plans to allocate beds for the program, it won’t turn a profit on those patients because those facilities are set up to cater to the high end of the market, she said. The company is starting to conduct experiments in lower cost care in suburban Chennai such as paying doctors fixed salaries rather than for individual services and substituting generic drugs for brands.
Reddy said Apollo is digging deeper into India’s pool of domestically trained doctors, and developing detailed protocols to ensure smaller centers follow uniform practices. And it’s become more “flexible” about pricing to establish itself in new communities, she said.
She predicts occupancy at newer hospitals will gradually increase to the 70 percent level seen in established ones. The company also predicts that profit margins at the new hospitals will approach the 20 percent level from around 6 percent now.
“They seem to be getting their calculations right in terms of their return expectations,” Rakesh Nayudu, an equity analyst for Haitong Securities India. “They’re targeting the right cities.” Of the 23 analysts that cover the company, 21 recommend buying the stock.
Reddy’s father Prathap, a doctor, founded Apollo in 1983 after a patient of his died because a cutting-edge treatment wasn’t available in India. Apollo now has a market value of $2 billion, annual revenue of $1 billion, internationally-trained doctors, operating theatres with the latest equipment. Patients can choose to recuperate in suites with a living room and two bathrooms. The family still owns 34 percent of the company.
Prathap Reddy remains chairman at age 86, with two of the sisters, Preetha Reddy and Shobana Kamineni, acting as co-vice chairs. Suneeta and Sangita Reddy share the title of managing director, typically the equivalent of the CEO role in corporate India.
There are also the tricky questions around succession that will have to be managed. When their father relinquishes his role, the plan is for the eldest sister Preetha to succeed him, though strategy would still be decided by a vote between the four sisters, Suneeta Reddy said.
Having all four of them on the 10-person board means the company has four times as many women as the average Indian board, and more on average than major companies in the U.S. and U.K. Reddy says their cohesiveness comes down to a clear division of labor that plays to each one’s strengths.
“It’s because we’re sisters that we’re able to weave it together,” Reddy said. “I think if the chairman had four sons they probably would have created four companies to do it.”
Apollo Hospitals, a $2 bn health empire run by 4 sisters makes a comeback

Will not contest Lok Sabha elections in 2019, says Sushma Swaraj

External Affairs Minister and Bharatiya Janata Party’s (BJP) senior leader Sushma Swaraj on Tuesday announced that she will not contest next year’s Lok Sabha elections.
Speaking at a BJP press conference on Tuesday, Swaraj said that while it is the party that decides on such things, she, on her part, has made up her mind not to contest the 2019 general elections.
ALSO READ: Ahead of 2019 polls, Mamata govt to disburse Rs 70-bn farm loans at 2% rate
Swaraj, who has been a Member of Parliament for several years, has, in the past, also held the position of Delhi’s Chief Minister from October 13 to December 3, 1998. In fact, she was Delhi’s first woman chief minister.
ALSO READ: Where to invest ahead of Lok Sabha polls? Here’s some advice on strategy
She has also been Informational and Broadcasting Minister in the Centre, spokesperson of the BJP and Leader of Opposition in the Lok Sabha. During the last two Lok Sabha polls in 2009 and 2014, Swaraj had contested and won from Vidisha in Madhya Pradesh.
Will not contest Lok Sabha elections in 2019, says Sushma Swaraj

IHH Healthcare makes open offer for Fortis Malar at Rs 60 per share

The new owners of Fortis Healthcare Ltd (FHL) have launched an open offer for 26 per cent of Fortis Malar Hospitals Ltd’s shares, a step-down subsidiary of FHL, at Rs 60.1 per share.
Northern TK Venture Pvt Ltd (NTKV) together with IHH Healthcare Berhad and Parkway Pantai Ltd have made an open offer to public shareholders of Fortis Malar to acquire up to 4,894,308 fully paid-up equity shares with face value of Rs 10 each.
This represents 26 per cent of the voting share capital of the target company, Fortis Malar said in a statement to the BSE on Wednesday.
Fortis Malar stock ended the day’s trade at Rs 57.75 per share, up 1.3 per cent on the BSE.
This open offer is a mandatory indirect open offer made by NTKV, IHH and Parkway Pantai. At the time the deal between IHH and Fortis was announced, the former had said a mandatory open offer for public shareholders of Fortis Malar Hospitals would be made at a price determined under Regulation 8 of the Substantial Acquisition of Shares & Takeovers (SAST) Regulations.
Earlier in March, Manipal Health Enterprises had launched an open offer for 26 per cent of Fortis Malar at Rs 64.45 per share that was triggered following an announcement by Fortis Healthcare to demerge its hospital business and merge it with Manipal in a Rs 39 billion deal.
The deal fell through and after multiple rounds of bidding, Malaysia’s IHH won the race to acquire Fortis in July.
In June, FHL had withdrawn the scheme of arrangement and amalgamation between its step-down subsidiary Fortis Malar Hospitals, a listed entity, and its diagnostics arm SRL Ltd, citing delay in completion of the process and strong headwinds in the sector. The plan was proposed around August 2016, and ideally should have taken six to eight months to complete.
According to the original plan, FHL was to hive off its diganostic arm SRL to Fortis Malar Hospitals. SRL and Fortis Malar was to become one entity and be called SRL. In turn, Fortis Malar was to sell its Chennai to FHL by way of a slump sale for Rs 430 million. The promoter and promoter group held 62.71 per cent in Fortis Malar.
HSBC Securities and Capital Markets (India) Private Limited, HDFC Bank Limited, Citigroup Global Markets India Private Limited and Deutsche Equities India Private Limited are the joint managers to the open offer.
IHH Healthcare makes open offer for Fortis Malar at Rs 60 per share

A few high-growth Indian firms have lion’s share in output: World Bank

A few high-growth firms (HGFs) continue to have a disproportionately high share in India’s output and sales growth, a report by the World Bank has shown.
Globally, too, the trend is not dissimilar. HGFs account for 8-22 per cent of the total number of firms in developing countries considered for the report.
These include Côte d’Ivoire, Ethiopia, Hungary, Indonesia, and Turkey.
The HGFs contribute between 49 and 83 per cent of the total change in output.
According to the Organisation for Economic Co-operation and Development, HGFs are firms that employ more than 10 workers (including owners but excluding unpaid workers) and whose employment grows at an average annual rate of 20 per cent or more over a period of three consecutive years.
The report found that in India 14.3 per cent of all firms were “high-growth”, with their contribution to gross sales increase standing at more than 49 per cent.
Worryingly, in many cases the report found HGFs are the only positive contributors to growth in output, with the rest of the firms in the economy experiencing a decline in sales. This shows that growth has not been broadbased.
The report also points out that engaging in exports may amplify the chances of a firm experiencing high sales growth. While both services and manufacturing firms may benefit, the latter have a 10 per cent higher chance of boosting sales, it says.
The report also mentions that potentially productive firms in Indian manufacturing are unable to obtain financing because of misallocation in land markets, which is the principal form of collateral in business loans.
However, India scores over other nations in that the age of the firm does not determine its growth possibilities.
HGFs also account for more than 50 per cent of job creation in France, nearly 65 per cent in the Netherlands and close to 90 per cent in Spain. Lack of employment data in India meant that job creation figures are absent.
A few high-growth Indian firms have lion’s share in output: World Bank

Reveal details of all properties in India, abroad by Dec 3: SC to Amrapali

“Writing is very clear on the wall”, the Supreme Court warned the embattled real estate firm Amrapali Group on Tuesday over its repeated non-compliance and “hood-winking” of the court’s order.
The top court asked the realty firm to reveal by December 3 the details of all its properties in the name of directors, their family members, relatives, Chief Financial Officers and statutory auditors in India and abroad.
It gave one last opportunity to Amrapali Group and its directors and promoters to comply with each and every direction passed by the court since May last year.
A Bench of Justices Arun Mishra and U U Lalit said that Amrapali Group will have to disclose each and every detail and activity, including financial transactions by which home-buyers’ money was transferred.
“We make it very clear that Amrapali Group should disclose each and every activity in clear terms it took since 2008 onwards related to the construction of residential, commercial, personal, official and financial where the money was transferred. If all the disclosures are not made by Amrapali Group and its directors then the writing is very clear on the wall,” the Bench said.
It said the company has to disclose details of assets of all the directors since 2008, assets created in the name of their family members, relatives, Chief Financial Officer and statutory auditors.
The company is responsible for the diversion of home-buyers’ money, it said.
ALSO READ: SC attaches Amrapali Group’s Noida hospital, accounts, office, Goa villa
The court asked the embattled group to furnish details of all the land which has been sub-leased, structures raised on it and the financial benefits to the company.
It directed the banks, Noida and Greater Noida authorities and other bodies concerned to cooperate with the forensic auditors saying that they have been acting on the direction of the court and any non-compliance will be treated as contempt of the court.
It directed the registry of the court to accept Rs 10 million demand draft given by Amrapali’s CFO Chander Wadhwa and asked the group to depute four persons for assisting the forensic auditors in their investigation of company’s affair.
The Bench posted the matter for further hearing on December 5 and asked the company to file its reply by December 3.
On November 13, in a massive crackdown on Amrapali Group for “wilful disobedience” of its orders, the apex court had attached the company’s 100-bed multi-speciality hospital, bank accounts, the building which houses its office, certain firms and a “benami” Villa in Goa.
It had asked the CFO to deposit Rs 116.9 million with its registry within three weeks. It also asked a statutory auditor Anil Mittal to pay Rs 4.7 million.
ALSO READ: Forensic auditors find 200-250 firms where Amrapali likely diverted funds
It restrained the realty firm from alienating its companies through which it had transactions and ordered attachment of such firms.
The top court has also restrained Amrapali Group from creating any third party rights for 86 luxury cars and SUVs purchased from the company’s funds.
It had sought the presence of CMD Anil Sharma and two directors Shiv Priya and Ajay Kumar on November 19 and said that Amrapali Group had deliberately not complied with its earlier order and committed a “serious fraud” by diverting home-buyers’ money from one company to other.
It has ordered the attachment of the group’s state-of-the-art, multi-speciality, 100-bed hospital situated at Greater Noida for which funds from sister company Ultra Home Construction Pvt Ltd were utilised.
The court has also attached the bank accounts of GauriSuta Infrastructures Pvt Ltd, its director Sunil Kumar and its assets after forensic auditors disclosed that Amrapali transferred home-buyers’ money from one firm to sister companies using it as conduit.
ALSO READ: Amrapali CFO, who paid Rs 20 mn income tax, gets only Rs 50,000 salary!
Besides, it has ordered attachment of towers which housed the company’s office and ‘Aqua Fortis’ villa in Goa for no one came forward to claim ownership.
On October 31, the apex court had directed the Amrapali Group to disclose the names of all the companies with which it had any kind of transactions after forensic auditors pointed out that there may be a web of more than 200-250 such firms where home-buyers’ money was transferred.
The two forensic auditors, appointed by the court to look into the affairs of Amrapali Group had said besides 47 sister companies, they stumbled upon 31 companies whose names were never disclosed by the embattled real estate firm.
It had also initiated contempt proceedings against Sharma and its directors for prima facie violating court’s order and thwarting the course of justice. The matter is listed on November 20.
The court is seized of a batch of petitions filed by home buyers who are seeking possession of around 42,000 flats booked in projects of the Amrapali Group.
Reveal details of all properties in India, abroad by Dec 3: SC to Amrapali

Why the govt’s initiative to disburse subsidies via DBT could fall flat

At a time when the government is keen on disbursing agricultural subsidies through direct benefit transfer (DBT), many people have said it could be counter-productive unless various factors are taken into account.
Those skeptical about the move said issues related to tenant farmers, regional- and village-level use of fertilisers and other agriculture inputs need to be addressed for the move to be successful.
Infact, NITI Aayog, tasked to provide a road map for DBT in farm subsidies, has flagged several challenges in going ahead with the proposal, including transferring the benefit to part-time and temporary farmers, who could avail the benefit, showing their land records.
According to rough estimates, Rs 15,431 could be transferred against each hectare in lieu of doing away with six major subsidies — on fertilizers, power, credit subsidy (mainly interest subvention on short-term crop loans), insurance, seed and subsidy given for machinery and irrigation equipment.
The government will have to spend about Rs 2.16 trillion for abolishing the six major farm-related subsidies.
The proposal was mooted a few months back by the Prime Minister’s Office (PMO) as a step towards rationalisation of agriculture subsidies and directly transferring the benefit to the farmers instead of passing it through intermediaries.
The proposal would have also given direct cash to farmers against the six major subsidies and could help lower the distress seen in the farm sector.
However, senior officials said given the complexities of the proposal and difficulties in implementing it nationally, it remains to be seen how far it is carried forward.
In fact, even in NITI Aayog, which was tasked with the work of preparing a blue print on DBT in agriculture, a lot of objections and queries have been raised on the proposal. “The NITI Aayog’s paper on the subject also does not overtly favour DBT in fertilizer and says the current practice adopted a few years ago should not be tinkered with,” officials said.
Unless the challenges highlighted by NITI Aayog in its proposal and the analysis of DBT in agriculture subsidies are carefully considered, the entire concept could fall flat, they added.
Why the govt’s initiative to disburse subsidies via DBT could fall flat

Almost a million payroll additions in Sept, highest in 13 months: EPFO data

The number of people effectively subscribing to Employees’ Provident Fund Organisation (EPFO), or for PF services, peaked in September 2018 with 973,774 net additions to the payroll count in the formal sector.
This is the highest figure since inception of the data in September 2017.
The previous peak was achieved in July (at 932,498). Total payroll additions in 13 months add up to 7.9 million as of now.
However, the EPFO data is subject to revisions in successive months due to irregularities.
The net payroll addition in September 2017 stood at 529,432, as reported in May 2018.
In July, it was lowered to 499,677, further to be revised to 482,442 in September. In the latest release of November, it has further dropped to 411,027.
On the contrary, successive revisions of April 2018 data – the first month of the financial year – have been upward. It got revised from 580,165 in July to 727,662 in September to 743,125 in November.
The reason, EPFO officials said, is that many companies either stop paying contributions much after an employee leaves the company, or that companies delay EPFO returns.
Almost a million payroll additions in September highest in 13 months The September 2018 peak could be achieved precisely since the month saw the least “exits” in 13 months for which unique data is available.
From a peak of more than a million subscribers leaving the EPFO in March, September witnessed only about 250,000 exits.
The EPFO started publishing monthly payroll data from September 2017.
Initially, net payroll addition was defined as the difference between new subscribers and subscribers that exited.
Since July 2018, the social security provider changed the definition of net payroll addition to bring in re-joiners to the fold.
Payroll count for previous months, which was getting revised downward in successive data releases, got revised upward after this change. However, it started getting revised downward again.
For example, the September report showed net payroll addition in July 2018 was 951,423. In the November report (latest), it has been revised to 932,498. The revision for June is from 857,934 to 831,872.
Some experts, such as group chief economist at SBI Soumya Kanti Ghosh, have maintained that more than half of the payroll count are new jobs.
But several experts, including chief statistician of India Pravin Srivastava, have pointed out that EPFO data conveys formalisation of jobs and not employment generation.
Almost a million payroll additions in Sept, highest in 13 months: EPFO data