INSUBCONTINENT EXCLUSIVE:
However, expenditures have left the Apollo stock and profits well below their peaks.Next to Suneeta Reddy's desk in the executive suite of
Apollo Hospitals Enterprise Ltd
hangs an icon of goddess Durga, who Reddy prays to each morning
The deity's presence seems fitting at a company run by four women engineering an aggressive expansion into new territory
About a decade ago, Reddy and her three sisters took over most executive functions at Apollo, the country's largest hospital chain, from
They embarked on a multi-year building spree in a bet that the economic growth would spread from its metropolises to second-tier cities,
where patients are getting richer
But Apollo's stock tumbled as the sisters' investments weighed on profits.Now, almost Rs 2,000 crore ($280 million) and four years of
construction later, there are signs that strategy is about to pay off
All those hospitals are built
Analysts are predicting that annual earnings are poised to climb for the first time since 2015
Apollo's shares have gained about 30 per cent after hitting a four-year low in June, and stock forecasters are more bullish than they have
been in a decade."The four of us recognized there was a demand and supply gap, and we needed to fill it," Reddy, 59, who holds the title of
co-managing director, said in an interview this month in Chennai
"The capacity to pay more will exist."The company's stock climbed as much as 2.5 per cent in Mumbai before trading 1.9 per cent higher at Rs
1,215.70 at 11:51 a.m in Mumbai, reversing three days of declines on a day when the broader market was down.Tackling HurdlesHealth-care is
becoming one of the largest businesses, with the size of the hospital industry projected to more than double to $133 billion over the next
four years, according to the government's India Brand Equity Foundation
Most patients pay health costs out of pocket, but incomes are rising and the insurance industry is developing
More citizens could be insured over the coming decades as Prime Minister Narendra Modi's government expands a new initiative to provide
health insurance for the poorer half of the country's population.(The Reddy sisters embarked on a multi-year building spree in a bet that
the economic growth would spread from its metropolises to second-tier cities.)Yet, even as Apollo's expansion has offered fresh
opportunities, it's also brought the sisters new challenges
Despite signs that investors are coming around, expenditures from the sisters' big build have left the stock and profits well below their
peaks, and debt has more than doubled over the past four years.There are other hurdles that have the potential to hamper growth if Apollo
doesn't get its formula right
Convincing an internationally trained surgeon to relocate to Mumbai is hard enough, never mind inland to a small city
Also, Apollo found that people in smaller cities aren't always willing to pay as much, a hurdle for a model of premium prices for premium
Competition is also growing with more hospitals jostling for a slice of the market.And Reddy doesn't expect an immediate effect from the
government's new insurance program
While Apollo plans to allocate beds for the programme, it won't turn a profit on those patients because those facilities are set up to cater
to the high end of the market, she said
The company is starting to conduct experiments in lower cost care in suburban Chennai such as paying doctors fixed salaries rather than for
individual services and substituting generic drugs for brands.(Apollo is digging deeper into the pool of domestically trained doctors,
detailed protocols to ensure smaller centers follow uniform practices
And it's become more "flexible" about pricing to establish itself in new communities, she said.She predicts occupancy at newer hospitals
will gradually increase to the 70 per cent level seen in established ones
The company also predicts that profit margins at the new hospitals will approach the 20 per cent level from around 6 per cent now."They seem
to be getting their calculations right in terms of their return expectations," Rakesh Nayudu, an equity analyst for Haitong Securities India
"They're targeting the right cities." Of the 23 analysts that cover the company, 21 recommend buying the stock.(Prathap Reddy remains
chairman of Apollo at age 86.)Reddy's father Prathap, a doctor, founded Apollo in 1983 after a patient of his died because a cutting-edge
treatment wasn't available in India
Apollo now has a market value of $2 billion, annual revenue of $1 billion, internationally-trained doctors, operating theatres with the
Patients can choose to recuperate in suites with a living room and two bathrooms
The family still owns 34 per cent of the company.Prathap Reddy remains chairman at age 86, with two of the sisters, Preetha Reddy and
Shobana Kamineni, acting as co-vice chairs
Suneeta and Sangita Reddy share the title of managing director, typically the equivalent of the CEO role in corporate India.There are also
the tricky questions around succession that will have to be managed
When their father relinquishes his role, the plan is for the eldest sister Preetha to succeed him, though strategy would still be decided by
a vote between the four sisters, Suneeta Reddy said.Having all four of them on the 10-person board means the company has four times as many
women as the average domestic board, and more on average than major companies in the US and the UK
Reddy says their cohesiveness comes down to a clear division of labour that plays to each one's strengths."It's because we're sisters that
we're able to weave it together," Reddy said
"I think if the chairman had four sons they probably would have created four companies to do it."
