Apollo Hospitals Enterprise Ltd
Overview
Apollo Hospitals (NSE:APOLLOHOSP) was established in 1983 by Dr. Prathap C Reddy, renowned as the architect of modern healthcare in India. As the nation’s first corporate hospital, Apollo Hospitals is acclaimed for pioneering the private healthcare revolution in the country.1
Apollo Hospitals has emerged as Asia’s foremost integrated healthcare services provider and has a robust presence across the healthcare ecosystem, including Hospitals, Pharmacies, Primary Care & Diagnostic Clinics and several retail health models. The Group also has Telemedicine facilities across several countries, Health Insurance Services, Global Projects Consultancy, Medical Colleges, Medvarsity for E-Learning, Colleges of Nursing and Hospital Management and a Research Foundation. In addition, ‘ASK Apollo’ - an online consultation portal and Apollo Home Health provide the care continuum.
The cornerstones of Apollo’s legacy are its unstinting focus on clinical excellence, affordable costs, modern technology and forward-looking research & academics. Apollo Hospitals was among the first few hospitals in the world to leverage technology to facilitate seamless healthcare delivery. The organization embraced the rapid advancement in medical equipments across the world, and pioneered the introduction of several cutting edge innovations in India. Recently, South East Asia’s first Proton Therapy Centre commenced operations at the Apollo Centre in Chennai.
Since its inception, Apollo Hospitals has been honoured by the trust of over 150 million individuals who came from 140 countries. At the core of Apollo’s patient-centric culture is TLC (Tender Loving Care), the magic that inspires hope amongst its patients.
As a responsible corporate citizen, Apollo Hospitals takes the spirit of leadership well beyond business and has embraced the responsibility of keeping India healthy. Recognizing that Non Communicable Diseases (NCDs) are the greatest threat to the nation, Apollo Hospitals is continuously educating people about preventive healthcare as the key to wellness. Likewise, envisioned by Dr. Prathap C Reddy, the “Billion Hearts Beating Foundation” endeavours to keep Indians heart-healthy.
Apollo presence encompasses over 10,000 beds across 70 hospitals, 2556 pharmacies, over 172 primary care & diagnostic clinics, 148 telemedicine units across 13 countries, health insurance services, global projects consultancy, 15 academic institutions and a Research Foundation with a focus on global clinical trials, epidemiological studies, stem-cell and genetic research.
Industry Structure & Developments
Today, the primary challenge for developing countries like India, is the improvement of healthcare access across sectors, in terms of both reach and affordability, and the pursuit of universal healthcare to ensure that healthcare needs of the vulnerable and under-privileged sections of the society are addressed. Additionally, coping with modern diseases, public health engineering, disease surveillance and rising healthcare costs present significant challenges for the healthcare industry.2
The recent COVID-19 pandemic has caused immense disruption, bringing to the fore, the importance of good health from an economic standpoint and the pressing need to devote resources for the prevention of future epidemics while managing such crises without excessive economic disruption. It is believed therefore, that once the crisis dissipates, there will be a perceptible paradigm shift worldwide towards providing sustainable and equitable pre-eminent healthcare for all. For this to be successful, it is imperative that all stakeholders including healthcare providers, Governments, investors and consumers come together to understand, analyze and implement required changes across the ecosystem
Globally, the healthcare industry is transforming rapidly. Several new health technologies such as wearable tech, telemedicine, genomics, virtual reality (VR), robotics and artificial intelligence (AI) although still nascent, are expected to change the very landscape of this industry. To meet the demands of the future, much of these technologies should be capable of adequate scale.
India’s Healthcare Services
The healthcare sector in India is one of the country’s largest economic sectors, with regard to both employment and revenue. The various demographic changes such as the increase in demand for modern healthcare facilities, rise in awareness about diseases, growing health consciousness among people, increase in per capita income, changing lifestyles, transition in disease profile, etc. have all contributed significantly to the growth of the healthcare service industry in India. With the Government rolling out the biggest publicly funded healthcare plan in the world, many more doors of opportunity in the sector are now open.
Today, India is able to offer best-in-class healthcare services at a fraction of the cost in other major countries around the globe. The availability and advancement of healthcare facilities have contributed to the betterment of the healthcare sector in India. Reduction in the cost of life-saving drugs and medical devices, versatile pharmaceutical services, world-class specialty hospitals in Tier 1 and Tier 2 cities and a large pool of well-trained medical professionals are additional factors that have supported this growth.
However, a substantial gap exists in the supply of healthcare services as compared to the demand. India’s limited healthcare infrastructure has historically been inadequate to meet the demands of a large and diverse population; public healthcare facilities are even now unable to adequately scale to effectively serve the needs of a growing population or reach the interiors of the country.
This unmet opportunity combined with strong fundamentals has largely led to the private sector taking center stage in India’s healthcare landscape. Private healthcare institutions provide world class facilities, employ highly skilled and globally recognized professionals, skillfully leverage advanced technology in treatments, and maintain high standards of quality.
Private sector players have been able to obtain a major share of nearly 80% of the country’s total healthcare market. They also account for almost 74% of the country’s total healthcare expenditure. Their share in hospitals alone is estimated at 74% while their share of hospital beds is estimated at 40%.
Market Size of Indian Healthcare Sector
The Indian healthcare sector is growing at a remarkable pace thanks to growing coverage, services and increasing expenditure by the public and private sectors. As per a report from the Ministry of Commerce and Industry, the Indian healthcare sector, which stood at a size of USD 110 billion in 2016, is expected to reach a size of over USD 372 billion by 2022, registering a CAGR of 22%. The hospital industry in India is expected to grow at a CAGR of 16-17% to reach a size of USD 132.84 billion by FY22 from USD 61.79 billion in FY17. The Country ranks 145 among 195 countries in terms of quality of healthcare and accessibility. India’s healthcare access and quality (HAQ) index increased from 24.7 in 1990 to 41.2 in 2016.
The healthcare sector in India is marked by superior skills, knowledge, and professionalism. It stands out on the global stage as an efficient and cost-effective healthcare delivery system with its network of expert doctors and specialists, well-equipped diagnostics, and nursing services. Within the country, there is immense scope for enhancing healthcare services penetration and ample opportunity for the development of the healthcare industry as a whole
Conducive policies for encouraging FDI, tax benefits, and favourable Government policies coupled with promising growth prospects are helping the industry attract private equity, venture capital and foreign players. Today, Indian companies are entering into alliances with domestic and foreign companies to drive growth and gain new markets. Going forward, fundamental factors such as rising income levels, ageing population, growing health awareness and changing attitude towards preventive healthcare, are expected to provide impetus and boost healthcare services demand.
The Healthcare sector in India broadly includes Hospitals, Pharmaceutical Companies & Standalone Pharmacies, Diagnostic Services, Medical Equipment and Supplies, Medical Insurance, Telemedicine Companies, Medical Tourism and Retail Healthcare.
Primary Healthcare
The primary sector which mainly operates at the grass-root level has minimal involvement of private players. This is the first point of contact between the populace and the healthcare service providers. This infrastructure offers basic medical and health prevention services through a network of Sub Centers and Primary Health Centers in rural areas; in urban areas it is provided through Urban Primary Health Centers, Health Posts, and Family Welfare Centers.
Secondary Healthcare
Secondary Healthcare refers to a second tier of healthcare systems, in which patients from primary health care are referred to specialists in bigger hospitals for treatment. In India, the health centers for secondary health care include District Hospitals and Community Health Centre at block level.
This infrastructure provides inpatient as well as outpatient medical services, including simple surgical procedures. The various medical specialties offered under secondary healthcare include internal medicine, Ob-gynaec, pediatrics and limited services in specialties like urology and cardiology, among others.
Tertiary Healthcare
Tertiary Healthcare refers to a third level of healthcare system, in which specialized consultative care is provided usually on referral from primary and secondary medical care. Specialized Intensive Care Units, advanced diagnostic support services and specialized medical personnel are the key features of tertiary health care. In addition to tertiary hospitals that offer services for single specialty, there are multi-specialty tertiary hospitals that offer a number of services in the same hospital. In India, under the public health system, tertiary care service is also provided by medical colleges and advanced medical research institutes.
Scope to Increase India’s Per Capita Healthcare Expenditure
The recent Covid-19 pandemic crisis has served as a stark reminder of the importance of investing in augmentation of healthcare infrastructure. The continued variance of healthcare spends between urban and rural areas has resulted in a sharp disparity in the availability of healthcare facilities across the country, although the Government of India is planning to increase public health spending to 2.5% of the Country’s GDP by 2025.
Over the last two decades, India has taken considerable steps to grow its medical education infrastructure. The number of medical colleges in the country has increased to 529 in FY19 from 381 in FY13. The number of doctors possessing recognized medical, qualifications (under I.M.C Act) registered with state medical councils/medical council of India increased to 1,154,686 in 2018 from 827,006 in 2010.
Even though the country is witnessing rapid expansion in the healthcare sector, the shortage of medical workforce remains a reality and a challenge. As per World Health Statistics primary data 2007-2018, the density of physicians per 10,000 population for India stands at 8 which is very low compared to the number for USA that stands at 26. As per the National Health Policy 2018, India has a density of 30.2 skilled health professionals (physicians/nurses/midwives) per 10,000 population while the Sustainable Development Goal (SDG) target is a density of 44.5 per 10,000 population. To achieve the ratio reported by the USA with respect to the density of physicians, India will require an additional 2.4 million physicians approximately
Additionally, hospital bed density in India is merely 12 per 10,000 persons-significantly lower than the WHO guideline of 30 beds per 10,000 population. These statistics indicate the alarming healthcare infrastructure gap in the country and the tremendous growth potential of the Indian healthcare sector to enable the country move towards the global mean.
India’s 1.3 billion population base offers a sizable market and pertinent growth opportunities for health care services in the country. Empowered with unique demographic advantages, India is racing to rank among the world’s most developed economies in the next decade.
While the population of India is considerably young, there is a parallel growing elderly population that is more than 60 years of age. In fact, the sheer number of elders in India exceeds the total population of several nations. The rise in the number of the elderly combined with rising life expectancy, is another proponent for quality healthcare.
India has witnessed tremendous economic growth over the last 3 decades. The country has been able to register robust GDP growth and has been consistently featured amongst the fastest growing economies in the world. Rising per capita income and the economic stability of the expanding middle class population, is bound to increase the demand for services. Improved affordability is a gateway for superior healthcare facilities.
However, even as India continues to develop, income inequality in the country is widening. Low per capita income, low expenditure on healthcare, and a low number of doctors coupled with poor insurance penetration in rural areas are reasons for the disparity in healthcare offerings between urban and rural areas. This inequality is evident even within the same urban city. People in the various income slab categories fall into unique baskets typified by varying healthcare needs. Each of these presents a market in terms of the addressable value proposition.
India’s healthcare space is under-served chiefly because of the absence of credible infrastructure, a situation spawned by decades of under investment in the health sector. In addition, the domestic healthcare delivery infrastructure of the country is largely skewed towards the organized private sector, and primarily is confined to state capitals or tier-1 cities.
The country continues to remain far behind the global curve in providing good quality healthcare access across its population. Making healthcare affordable and accessible to all citizens of the country continues to be one of the Government’s key focus areas. Even in terms of metrics, be it the per capita number of beds or doctors, India lags developed as well as developing peers. In terms of infrastructure, India has 12 hospital beds as compared to the USA which has 29 beds to serve per 10,000 population. India requires an additional 2 million beds to be at par with the global median. While India’s healthcare service infrastructure is under served, low affordability has also resulted in these services being under-consumed.
India has witnessed an extensive change in the overall disease profile of its population. The share of communicable, maternal, neonatal, and nutritional diseases for death decreased to 27.5% in 2016 from 53.6% in 1990 and that of non-communicable diseases increased to 61.8% in 2016 from 37.9% in 1990. This shift in the disease profile has led to an additional need for healthcare services in the country. Non-communicable diseases tend to be of long duration, increasing the need for sustained healthcare services.
Due to increased urbanization, the incidence of lifestyle diseases is anticipated to increase faster than any other segment. Within the lifestyle space, cancer is one of the fastest growing ailments. The prevalence of cancer in India is projected to increase from an estimated 3.9 million cases in 2015 to an estimated 7.1 million cases by 2020, according to an Ernst & Young report.
Retail Pharmacies
The Indian Retail Pharmacy sector has been witnessing healthy growth over the past few years due to an increasing consumer base and rising healthcare expenditure. Industry experts believe that the Indian pharmacy market will be a bright spot for the Healthcare sector over the next decade. The Pharmacy Retail market in India is expected to grow at a rate of 10- 12% CAGR in this period. Worth ~ USD 18 bn currently, it is expected to reach a value of ` 50 bn by 2025. In the entire healthcare value chain, Retail Pharmacy is one of the most fragmented sub-segments. The Indian Retail Pharmacy market has been registering healthy growth largely because of rising demand for OTC drugs and private label products. There is an estimated total of 850,000 retail pharmacies (chemists) in India out of which 845,000 fall under the unorganized category. The number of branded organized pharmacy stores is less than 6,000 and constitute
Organized Retail Pharmacy refers to trading activities undertaken by licensed retailers, which include corporatebacked hypermarkets, retail chains and privately owned large retail businesses. Key players in this sector are also venturing into the market with either wholly owned pharmacies or through franchising and are scaling up by setting up several service touch points in cities across India. They are changing the face of the pharmacy sector by bridging the service gap. The Organized Retail Pharmacy market size has been growing at an average of 22-25%. Industry reports expect it to grow between 20-22% over the coming decade. Analysts expect investments in excess of USD 1 bn over the next few years in this sector.
The online pharmacy market in India is at a very nascent stage as compared to other developed economies. With consumers using technology to bridge the service quality gap, digital pharmacies are gaining popularity in Tier I and Tier II cities, as they are banking on scale and better distribution networks. Eventually, the online mechanism is bound to spread to Tier III and Tier IV cities, which will help generate higher revenues for the sector. Additionally, these online pharmacies are also slowly gaining attention in the e-commerce industry space, with its impressive growth rate.
Retail Healthcare
‘Retail’ in healthcare means creating opportunities for a clinical encounter in a spaceother than in a hospital setting. The philosophy of ‘Retail Healthcare’ is to meet the consumers’ healthcare needs right where they are. Today, consumers are looking for convenience while selecting a healthcare provider. Increasingly, consumers are choosing proximity over distance, opting for reduced waiting time, same-day scheduling and extended opening hours (including weekends). Therefore, locating services in a retail setting within a neighbourhood has become very popular. Additionally, today there is growing interest among a large section of the population in maintaining good health and being medically fit. This scenario is leading to a higher demand for a seamless healthcare delivery format to treat minor illnesses within a relaxed environment rather than in a hospital.
These changing consumer preferences and the increased use of technology have successfully influenced the transition to retail healthcare. Retail healthcare begins with a focus on preventive health and extends to the treatment of low complexity cases. The key aim of retail healthcare is to provide several quality services at lower costs in convenient settings.
In order to satisfy consumers’ demand for convenience and flexibility, healthcare providers are designing locally relevant spaces that are tailored to specific needs. These spaces focus on vaccination, patient education, information sharing, specimen collection and reports, wound dressing and aftercare, injections and in-person and teleconsultations. The Retail Healthcare business includes Primary Care Clinics, specialized birthing centers, single specialty clinics, primary health centers and diagnostic chains, apart from Dental, Daycare and Home Healthcare formats.
Globally, Retail healthcare has grown substantially over the last decade. All the verticals under the Retail Healthcare umbrella are emerging as significant opportunities in the healthcare landscape and providing sizable untapped avenues, which will further drive penetration of Indian healthcare service providers into local communities and neighbourhoods.
Single specialty healthcare centers operating under the Retail Healthcare delivery format have already experienced growing popularity over the past few years in India. The segment now includes multiple treatment categories in areas such as fertility, maternity, ophthalmology, dental health, dialysis and diabetic care.
Financial Highlights
Revenues
The total operating revenue grew 16.94% from Rs 96,174 million in FY19 to Rs 112,468 million in FY20, with healthcare revenues growing by 11.42% from Rs 51,426 million to Rs 57,297 million as a result of 6% growth in volumes at existing facilities as well as contribution from new facilities. Revenues at existing hospitals were also supported by case mix improvements and pricing. The standalone pharmacy business witnessed 24.05% revenue growth from Rs 38,860 million to Rs 48,206 million in FY20. The number of stores within the network of Standalone Pharmacies was 3,766 in 2020 as compared to 3,428 stores as at March 31, 2019.
Salaries and Benefits
The salaries and benefits expense of Rs 15,982 million during 2019 increased by 15.94% to Rs 18,529 million in 2020. This increase was a result of annual compensation increases for the employees, plus the impact of an increasing number of employed physicians within the hospitals and pharmacies for the SAPs .
Operative Expenses
During 2020, the material cost of Rs 54,989 million increased by 17.98%, as compared to a figure of Rs 46,609 million in 2019. The increase in material cost was in line with the growth in operating revenues
Financial Expenses
The financial expenses increased to Rs 5,328 million during 2020, compared to Rs 3,270 million during 2019. The increase is largely due to interest on funds deployed in commissioning of new hospital projects as well as for construction in progress at other facilities.
Net Profit
Net profit increased to Rs 4,543 million during 2020, compared to Rs 2,068 million during 2019.
Key Financial Ratios
Return on Networth ratio increased from 7.80% to 11.79% for the financial year ended 31st March 2020, calculated on a standalone basis, on account of exceptional income from the divestment of equity stake in Apollo Munich.
Recent developments
7 Oct 2020; HDFC Bank, Apollo Hospitals join hands for quality healthcare3
In a first-of-its-kind initiative in the country, HDFC Bank and Apollo Hospitals have joined hands to launch The HealthyLife Programme, a holistic healthcare solution which makes healthy living accessible and affordable on Apollo’s digital platform, Apollo 24|7. The programme is created exclusively for HDFC customers who will get round the clock access to emergency Apollo Doctor at No Cost on Apollo 24|7 along with a plethora of benefits such as choice of payment options and ease of finance for treatments at all Apollo Hospitals.
The initiative was launched digitally by Mr. Aditya Puri, Managing Director, HDFC Bank and Dr.Prathap C. Reddy, Founder Chairman, Apollo Hospitals in the presence of Ms. Shobana Kamineni, Executive Vice-Chairperson, Apollo Hospitals and Mr Sashidhar Jagdishan, the MD Designate of HDFC Bank.
The two biggest challenges in a medical emergency or keeping healthy are access to trusted, quality healthcare and easy finance at scale. The coming together of these two leading players aims to address precisely this through the combined reach of the two organisations. About 40 per cent of India is only about 30 minutes away from an Apollo pharmacy while 95 per cent of the districts in the country are served by an HDFC Bank branch. The two organisations have the potential to initially serve 65 million existing HDFC customer along with the new ones who will be onboarded along the journey of this partnership.
“There is nothing more precious than life and health. A healthy India is the first step towards a really wealthy India. To me it is like a mini health mission that will revolutionise access to quality healthcare for millions of its countrymen. They can get medical services at a place and time of their choice. Apollo Hospitals is inspired by the prime minister’s clarion call on Independence Day to provide healthcare services for all through the National Digital Health Mission. I am extremely happy and proud to launch this,” said Mr. Aditya Puri, MD, HDFC Bank.
