Apollo Hospitals’ recent private equity giant Advent International deal has sent a surprising wave through the Indian healthcare industry. The news resulted in a rollercoaster ride for Apollo. Initially, there was a dip in the Apollo stock price, and later, analysts had mixed reactions. Let’s look at this deal in detail and understand its potential impact on the future of Apollo Hospitals’ shares.
Background of the Deal
Apollo HealthCo Limited, or Apollo 24|7, is the subsidiary of Apollo Hospitals Enterprise Limited (AHEL). Recently, the company entered into an agreement with Advent International (a global private equity investor). The deal aims to raise the equity capital of Rs 2,475 Crores from Advent.
Advent’s investment will be in the form of compulsorily convertible debentures. It will be divided into two tranches. The first close will be around Rs 1,732 crore (70%), and the second tranche (within 12 months) will be Rs 743 crore (30%). Additionally, Apollo 24|7 will integrate Keimed Private Limited, India’s leading wholesale pharma distributor, over the next 24-30 months.
Apollo Hospitals Enterprise witnessed an 8% decline in share price on 29th April after announcing a deal with Advent International. With that, Apollo Hospitals share price reached Rs. 5738. Many market analysts expressed concern about the valuation assigned to Apollo 24/7. According to them, the $1.7 billion valuation was significantly below the estimated $2.7 billion.
Looking Beyond the Initial Dip: Potential Upsides
Despite the initial drop, there are reasons to be cautiously optimistic about the future of Apollo Hospitals’ shares. Here is a breakdown of the potential benefits:
- Fueling Growth: Apollo HealthCo’s expansion plans will receive a boost from Advent’s capital infusion. They aim to establish new hospitals in major cities like Mumbai (500 beds) and Bengaluru (400-500 beds), expand their online platform, and potentially achieve profitability within 18 months.
- Synergy and Efficiency: The proposed merger with Keimed aims to create a streamlined healthcare ecosystem. Keimed’s distribution network can benefit Apollo 24/7’s pharmacy business significantly, leading to cost savings and improved margins.
- Increased Expertise: Partnering with Advent, a renowned private equity firm, brings valuable industry knowledge and a global network. This expertise is crucial for navigating the evolving healthcare landscape and securing future funding opportunities.
- Analyst Confidence: Leading brokerages recommend buying Apollo Hospitals’ shares.
Key Factors Influencing Apollo Hospitals Share in the Future
Several factors will determine the future trajectory of Apollo Hospitals, which would be seen as ups and downs in the Apollo Hospitals share chart:
- Apollo 24/7 Success: The profitability of the digital healthcare platform is crucial. Achieving break even within the projected time frame and exceeding expectations could significantly boost investor confidence.
- Merged Entity Performance: The merged entity’s ability to achieve the target revenue and EBITDA will be closely monitored. Delivering on these promises will validate the deal’s rationale and positively impact share prices.
- Overall Healthcare Sector Growth: India’s burgeoning healthcare sector holds immense potential. Apollo Hospitals’ ability to capitalize on this growth by leveraging its expanded network and digital platform will be a crucial driver.
- Macroeconomic Factors: Factors like interest rate fluctuations and overall market sentiment can influence Apollo Hospital’s stock price.
Conclusion
Apollo Hospitals is taking a strategic risk with the Advent deal. Although there might be some ups and downs in the short term, long-term growth has good potential. The key to success lies in how well Apollo can expand, work with Advent, and handle the competitive healthcare market in India. If you are an investor, keep an eye on updates and do your own research before deciding to invest.