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The Financial Chronicle highlights Apollo Hospitals as the Greek God in Indian Healthcare

Date: 10 Jan 2011

The Financial Chronicle highlights Apollo Hospitals as the Greek God in Indian Healthcare and tells about Apollo Hospitals trials and tribulations, and the dreams and aspirations of our Chairman, who returned home from the US to pioneer an entire corporate healthcare business and culture in India. But the importance of being Apollo lies not just in its status as a pioneer, but in its continued leadership and quest for focused growth.

Article featured in the Financial Chronicle :

In the early 1980s, much before India undertook economic reforms, one hospital came up in the south of the country and started off the corporatisation of healthcare. But the importance of Apollo Hospitals Enterprise is not just being pioneers in healthcare. Each step it took for its own growth transformed the sector itself.

Way back in 1979, when Apollo Hospitals was incorporated, the healthcare industry was a fragmented mass of hospitals. There were government hospitals, missionary hospitals and those run by not-for-profit trusts.

In the tertiary care, some renowned hospitals like Bombay Hospital and Breach Candy in Mumbai and Sir Ganga Ram Hospital in New Delhi had made a mark, having come into existence in the 1950s. As Rama V Baru, professor at the Centre of Social Health and Community Medicine, Jawaharlal Nehru University, puts it, ""Healthcare was a confused mass. Though there were several renowned hospitals which were keen to improve their own clinical excellence, none thought of spreading out to different geographies and replicating the model as Apollo did"".

The biggest obstacle for Apollo was getting started. The US-returned NRI doctor Prathap C Reddy, who had no business background, introduced the concept of corporate hospital when 'profit-making' was a taboo in healthcare. Having seen the insurance crisis in the US during the 1970s, he had a ""corporate model for India"" (See accompanying Q&A with Reddy).

Reddy did three or four years of groundwork before the first Apollo hospital in Chennai could be opened in 1983. The seed money of Rs 1.3 crore came partly from the promoter family and partly from doctors both in India and abroad. ""Dr Reddy used to travel from one city in the US to another, meeting groups of Indian doctors and explaining his vision,"" remembers Suneeta Reddy, executive director, finance, Apollo Hospitals.

Banks were not willing to fund hospitals. Apollo approached the Centre and found a patient listener in the then prime minister Indira Gandhi. Healthcare sector gained industry status and access to financial markets.

Apollo Hospitals, Chennai, was the first hospital to go public in 1983, offering 12.96 lakh shares. It raised Rs 1.7 crore. For expansion, it went for a rights issue in 1984 and mopped Rs 1.50 crore.

Securing land was a problem. It took years for Reddy to find a piece of land for the first hospital and get necessary approvals. Securing licences to import 370-odd medical equipment for the hospital itself took two years.

The second hospital in Hyderabad came up in 1986 but faced difficulties in taking off due to its location at Jubilee Hills which was on the outskirts of the city. The hospital incurred losses for five years, recalls Suneeta Reddy.

The Hyderabad hospital, which was registered as Deccan Hospitals Corporation, went public in 1987 and raised Rs 5.4 crore.

By this time, Apollo had started searching land for its New Delhi hospital. With the intervention of the then Prime Minister Sri.Rajiv Gandhi, land was allocated for the Indraprastha Medical Corporation (IMCL) and thus the first-ever joint venture between a state government body and a hospital was formed.

Schroder Capital Partners' investment in IMCL was the first foreign institutional investment in healthcare. Later Apollo sold 40 per cent stake in Indian Hospital Corporation to Sch-roder. Indian Hospital Corporation was a closely held company of the promoter family formed to take care of the hospital-based pharmacy business.

In 1997, IMCL went public. The Delhi Development Authority had 26 per cent stake in the hospital, Apollo 25 per cent, Schroder held 22 per cent and the rest was with the public. The exit of Schroder from the company with handsome returns helped Apollo gain confidence among financial institutions.

In 2000, Apollo Hospitals, Chennai, Deccan Hospitals Corporation and Sindhoori Hotel which was opened along with the Chennai hospital were merged.

Following Apollo's footsteps a few other corporate hospitals such as Malar Hospital and Devaki Hospital had come up in Chennai. But they could not successfully expand as Apollo did. As K Padmanabhan, president, Apollo Hospitals, puts it, ""Hospitals in early stages had longer gestation periods and many of them underestimated the capital needs of providing high-tech healthcare.""

VJ Chacko, a director and former managing director of group hospitals, notes that there was an efficient management system in place from the very beginning. ""Even from the initial stages, Dr Reddy clearly segregated the different functions of a corporate hospital - medical services, paramedical services and support services - and structured the organisation accordingly"".

""We had a solid management team which took care of the company while the doctors were given freedom to focus on their work. We carefully leveraged debt to equity and were strict on our payments to shareholders and investors,"" says Suneeta Reddy.

Meanwhile, lowering of import duty on life-saving medical equipment also helped private healthcare during the pre-reform era. The duties came down from 100 per cent to 5-6 per cent over the years. The emphasis on the use of advanced technology has kept Apollo's services at a premium of 10 to 15 per cent above other private hospitals. The technological edge also lured foreign patients.

""Apollo had the first mover advantage. It was all alone in a large field for over 15 years. That helped it grow its brand equity,"" said Ratan Jalan, foun-der of Medium Healthcare Consulting. Apollo also took advantage of the reforms that were launched in 1991. In 1994, the promoter family started Om Sindhoori Capital to finance medical technology products and Apollo Sindhoori Capital for stock broking. Later both were merged and in 2009 taken over by Aditya Birla Financial Services group.

Around 1995, Apollo launched standalone pharmacies and started offering management services to client hospitals. It manages 10 hospitals at present. Apollo also bought the stake of Duncan's to form a JV with Parkway group of Singapore for Apollo Gleneagles in Kolkata.

After the insurance sector was opened up for private companies in 1999, Apollo entered health insurance by forming a joint venture with German company Munich Re in 2007. Apollo also launched its TPA (third-party administrator) service under an associate company named Family Health Plan. Today, Apollo is into healthcare BPO services and telemedicine under Apollo Health Street and Apollo Telemedicine Networking Foundation.

By 2000, the group had accelerated its growth and also started concentrating on a hub-and-spoke model, rather than singularly focussing on tertiary care. With it, the group launched Apollo clinics and secondary care centres in tier two cities.

In 2000, the group also forayed into foreign markets with the launch of a joint venture with the Sri Lankan government that was listed on the Colombo Stock Exchange. From 1,500 beds in 2000, the group grew to over 8,000 beds, 3,000 physicians, 1,100 pharmacies, 65 clinics and 12 nursing schools and colleges.

The group turnover grew from Rs 424 crore in 2002 to around Rs 3,100 crore in 2010. During this period, the promoters also upped their holding in the company from 5.5 per cent in 1995 to 35 per cent in 2010.

Apollo has had worthy followers which are now its close competitors. Fortis, Wockhardt and Max Healthcare, which started around 2000, have taken forward the corporatisation of healthcare. Apollo has started concentrating on being a pure-play healthcare delivery company. ""When appropriate time comes, we will get value out of other businesses. Our focus will be on health-care delivery,"" said Padmanabhan.

Apollo is looking at hiving off its pharmacy business and getting a strategic partner. Similarly, the BPO business too could seek strategic partners. Apollo Health Street has been preparing for an IPO, but the plans were shelved and a few private equity players were brought in after the markets fell last year.

The company will also keep minimum stake in businesses such as insurance and overseas joint ventures. Apollo is in the process of lowering its stake from 20 per cent to 15 per cent in both Apollo Munich Health Insurance Company and British American Hospitals as the company does not intend to fund them further.

The group is also looking for strategic partners for its nursing institutes.

The core business of healthcare delivery will be further strengthened by opening standalone centres for different specialties. It will also look at promoting an integrated system of medicine which includes yoga, naturopathy and ayurveda. Apollo is looking at buying out franchisee-operated clinics, reaching out to rural and semi-urban areas in the country through Reach Hospitals and also associating itself with state governments under public-private partnership.

 
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