Apollo Hospitals to hive off retail pharmacy business into a new company
Published Date | 2018 November 15
Apollo Hospitals distinct pharmacy business into a separate entity. The proposed move helps Apollo to become compliant with the prescribed foreign direct investment (FDI) limits and further grow the pharmacy retail business.India: Apollo Hospitals India's largest private healthcare provider plans to spin off its front-end retail pharmacy business into a separate entity called Apollo Pharmacies (APL), which in turn will be a wholly-owned subsidiary of Apollo Medicals (AMPL). The board of directors of the company at its meeting decided "to segregate the front-end retail pharmacy business carried out in the standalone pharmacy segment into a separate company Apollo Pharmacies Ltd (APL)," Apollo Hospitals said in a statement. The scheme of arrangement has to be approved by stock exchanges, shareholders, National Company Law Tribunal and all other required regulatory authorities. Apollo expects the new structure to be effective from April 2019. Apollo will hold 25.5% stake in AMPL, while the balance will be held by investors such as Jhelum Investment Fund 1 (19.9%), Hemendra Kothari (9.9%) and ENAM Securities (44.75). Apollo Hospitals will reserve the right to acquire the shares of AMPL from the investors, in addition to becoming the exclusive supplier for APL under a long-term supplier agreement. Apollo will enter brand licensing agreement with APL to license the "Apollo Pharmacy" brand to the frontend stores and online pharmacy operations. The proposed reorganization would not have a material impact on the financials of Apollo as the backend business related to the standalone pharmacies which represent 85 percent of the business economics will continue to be held by Apollo. According to BlueWeave Consulting, the proposed move helps Apollo become compliant with the prescribed foreign direct investment (FDI) limits and further grow the pharmacy retail business. Retail pharmacy businesses come under the category of multi-brand retail, where FDI is allowed to 51%. Foreign investors hold up to 55% in Apollo. The proposed spin-off will allow the company to maximize shareholder value and set the platform for "Value Discovery" of the retail pharmacy business. The Board recognized that the company's standalone pharmacy business has been growing at a rapid pace and that the business has matured and is today at an inflection point requiring greater focus and attention, independent of the hospital business, given the growth opportunity that India's domestic Pharma market has over the medium term. Apollo Pharmacy had 3,167 outlets in 400 cities and towns spread over 20 states and 4 Union territories and are currently serving about 300,000 customers daily with employee strength of about 21,000. Organized pharmacy retail accounts for less than 5% of India's USD 15 billion domestic pharmaceutical markets which is estimated to grow 10-12% CAGR over the next decade, driven predominantly by volume growth. The proposed move helps Apollo to become compliant with the prescribed foreign direct investment (FDI) limits and further grow the pharmacy retail business. According to the upcoming report by BlueWeave Consulting on “ Global Pharmaceutical Retail Market, By Type, By Region- Industry Analysis, Size, Share, Growth, Trends & forecast by 2018-2025”, the global Pharmaceutical Retail Market is anticipated to grow at a significant rate due to rising chronic diseases worldwide along with intense competition among the market players. Moreover, changing disease profiles, innovative marketing strategies, an introduction of new business models and upsurge in the hospital-based pharmacies and wellness stores has been anticipated to propel thrust in the sales of Pharmaceutical Retails in the future.