India’s leading private healthcare provider, Apollo Hospitals Enterprise is under a debt of INR 3,427 crore (US$ 474 million). But after under-performing the markets for three years, the company’s profitability is slowly resurging.

When Shobhana Kameini, Executive Vice Chairman of Apollo Hospitals recently told Indian TV channel NDTV that the Indian economy is in a state of “high blood pressure”, she was also pointing to growing financial concerns about India’s leading corporate hospital chain.

Shobana Kamineni is the daughter of Apollo Hospitals chairman Dr Prathap C Reddy, the 84-year-old patriarch who started the Apollo hospital chain with a first 150-bed multi-specialty in Chennai (then Madras), in 1983, with an investment of Rs 30 crore. Today Apollo Hospitals Enterprise is among Asia’s largest healthcare providers with a market value of $2 billion and the group currently runs more than a dozen brands in healthcare, including clinics, pharmacies, hospitals and health insurance.

Shobana Kamineni and her three sisters have taken over most of the managerial responsibilities from their father and the family still owns 34 percent of the company.

Like other hospitals in India, the Apollo Hospital chain is faced with heavy strain on financial health due to various factors including intensifying competition in private healthcare sector, raising equipment costs, wages and rents and new government regulation about cost of medical devices.

One of the biggest factor was the cut in the price of stents and knee implants in 2017 by over 70%. After the government announced cap on the prices of knee implants the stock of Apollo Hospitals Enterprise slipped to Rs 1,069, its lowest level since October 23, 2014. As of March 31 2019, the Apollo Hospitals Enterprise is in a debt of INR 3427 crore (US$ 474 million). For the year ended 31 March 2018, it posted a revenue of INR 471 crore and a net loss of INR 165 crore, widening from a loss of INR 141 crore on revenue of INR 388 crore, according to its annual report.

The company is looking to sell assets or bring an outside investor into their holding company to pay debt. A series of steps are being taken to reduce debt and strengthen the balance sheet as the Apollo continues to battle a debt of INR 3,427 crore. The aim is also to bring down the Apollo shares pledged by the family members as collateral to lenders, to 20 per cent of their total holding in the company from about 78 per cent currently.

Prathap C Reddy and his family members are in talks with Japanese conglomerates Mitsui & Co. and Itochu Corp. as well as Abu Dhabi Investment Authority to buy part of their stake in the group holding company PCR Investments Ltd.

Shobhana Kameini, executive vice chairman of Apollo hospital confirmed in a recent TV interview with Indian TV station NDTV that they signed a deal with HDFC, India’s largest mortgage financier. HDFC will acquire Apollo Hospitals Group’s 50.8% stake in Apollo Munich Health Insurance for INR 1,336 crore. Besides the money from HDFC, Apollo group will also receive INR 294 crore from its German joint venture partner Munich Re, taking its total payout to INR 1,630 crore. “It was such a pain to sell that company [it was the right thing to do] but it has rewarded us”, Shobhana told NDTV. “Our market cap has gone to an all-time high.”

In a separate interview with The Economic Times, managing director of the Apollo Hospital Sunitha Reddy said, “We will get cash from Apollo Munich sale. We will get cash from the front-end pharmacy. The debt will reduce on the balance sheet.”

The good news for the Apollo is that the shares of the company have risen after under-performing for three years. The Apollo Hospitals stock has gained more than 10% this year mostly due to the shift in the company’s focus to asset and returns optimisation, by increasing utilisation at its hospitals.

There has been a good turnaround with Apollo Health and Lifestyles. Given the company’s pharma business has witnessed above 25% growth as well, the company is planning to set up about 5,000 pharmacies and substantially increasing their turnover. While the Munich sale deal is signed, the Apollo is expecting the money by the end of September or first week of October.