Company Update : Apollo Hospitals Ltd By Motilal Oswal Financial Services Ltd
Demerger to unlock value
* Apollo Hospital Enterprise (AHEL) proposes a demerger of its omnichannel pharmacy distribution (OCP), Apollo 24|7 digital health platform, and remote telehealth division into a newly created listed entity (NewCo), followed by the merger of Apollo HealthCo Ltd (AHL) and Keimed Pvt Ltd into NewCo to form a unified digital health and pharmacy platform.
* As part of the scheme, AHEL shareholders will receive 195.2 shares of NewCo for every 100 shares held in AHEL, ensuring direct ownership in the highgrowth combined entity. Following the completion of the scheme, the total outstanding shares in NewCo, including a 3% ESOP pool, will stand at approximately 667m shares (FV INR2 each).
* The listing of NewCo on the stock exchanges is expected to take place within the next 18-21 months, subject to necessary regulatory and statutory approvals.
* It allows for a sharper strategic focus, with AHEL concentrating on core healthcare services, while NewCo drives growth in digital health and pharmacy distribution under dedicated leadership.
Strategic rationale for proposed structure
* The structure ensures efficient capital allocation and governance, with clear growth plans for both AHEL and NewCo as independent yet strategically aligned entities.
* AHEL retains a 15-17.5% stake in NewCo and board representation, ensuring continuity and synergies through arm’s-length commercial arrangements.
* The demerger unlocks hidden value by separating high-growth businesses and allowing them to be valued independently, which typically leads to better price discovery and shareholder returns.
Profitable offline pharmacy with telehealth in growth phase
* The proforma revenue of NewCo of INR163b in FY25 demonstrates strong revenue consolidation across digital and offline channels. Further, EBITDA of INR5.8b and PAT of INR2.2b reflect the scale-up in its digital segment and the rationalization of the cost structure for the telehealth segment.
* While the offline pharmacy segment remains profitable and stable, the digital and telehealth verticals are still in their growth and investment phase, with margin expansion contingent on effective post-merger execution, operational integration, and scaling efficiencies.
* AHEL has guided for the demerged entity (NewCo) to achieve INR250b in revenue by FY27, with a targeted EBITDA margin of 7%, driven by a scale-up in digital health and deeper pharmacy penetration.
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