Apollo Hospitals Enterprise's restructuring to spin off its pharmacy and digital health businesses represents a purely strategic decision driven by the board to enhance shareholder value, Managing Director Suneeta Reddy has clarified. Speaking exclusively to ET, Reddy dismissed suggestions of family differences or changes in promoter dynamics behind the major corporate reorganization.

Strategic Rationale Behind Restructuring

"Let's not think about it from a family lens. Every decision is taken on what is right for the business and shareholders," stated Reddy, who leads the country's largest pan-India hospital chain by revenue. The managing director emphasized the collaborative relationship with her sister Shobana Kamineni, executive chairperson of the spun-off entity, noting their regular communication and close working relationship.

The restructuring addresses fundamental differences between the hospital and pharmacy-digital businesses:

Growth Projections and Listing Timeline

Apollo HealthCo, the holding company for pharmacy distribution and digital health businesses, is positioned for robust expansion. The entity targets listing by FY27 and is projected to achieve 20% growth, while the hospitals business expects 18% growth over the next three years.

"A lot of Apollo 24/7 business is retail... it is a different business, the ROCE is different, it is measured differently, and the workforce is different," Reddy explained. The spin-off strategy aims to create focused value for shareholders by allowing each business to operate with tailored strategies and metrics.

Healthcare Transformation and Prevention Focus

The company is pivoting toward preventive healthcare as non-communicable diseases account for over 60% of India's total disease burden. Key health challenges driving this strategic shift include:

• Genetic predisposition to cardiac problems
• Cancer incidences rising by 18% annually
• India hosting the world's largest diabetic population

"Our transformation is into preventive healthcare," Reddy emphasized, highlighting the company's response to evolving healthcare needs.

Expansion Strategy and Market Opportunities

Despite selective bed additions in recent years, Apollo maintains ambitious expansion plans across multiple market segments:

The company remains open to asset-light models and acquisitions, recognizing India's healthcare infrastructure gap with fewer than 70,000 private beds nationwide amid increasing disease burden.

Technology Integration and Future Vision

Post-COVID realizations have reinforced the need for expanded healthcare infrastructure, with Apollo focusing on integration across its three verticals: healthcare services, retail healthcare & diagnostics, and digital pharmacy businesses. The company continues investing in telemedicine and AI-powered clinical intelligence to scale high-quality clinical offerings to larger populations.

Looking ahead, Apollo is preparing to serve diverse demographic cohorts, from the growing geriatric population to millennials and Gen Z, each requiring tailored healthcare approaches encompassing preventive health, lifestyle interventions, and nutraceuticals.

Source: https://economictimes.indiatimes.com/markets/expert-view/apollo-hospitals-demerger-is-a-biz-call-taken-for-shareholders-says-suneeta-reddy-rules-out-family-rift/articleshow/126494885.cms

Apollo Hospitals Enterprise Limited, India's largest hospital chain, continues to face scrutiny over its margin performance despite its leadership position and nationwide presence. The company's consolidated margins remain significantly lower than peers, raising questions about profitability in an integrated healthcare model.

Financial Performance Overview

The company delivered steady growth in Q2 FY26 with revenue rising to ₹6,304.00 crores compared to ₹5,589.00 crores in Q2 FY25, representing 12.80% year-on-year growth. Quarter-on-quarter performance showed improvement from ₹5,842.00 crores in Q1 FY26, reflecting 7.90% sequential growth.

Over the past five years, Apollo has demonstrated strong growth trajectory with revenue CAGR of 14.00%, profit CAGR of 34.00%, and price CAGR of 24.00%. The company maintains ROE of 18.40% and ROCE of 16.60% with debt-to-equity ratio at 0.88.

Margin Comparison with Industry Peers

Despite its scale and market leadership, Apollo's margin performance lags behind focused hospital operators. The company reported EBITDA margin of 15.00% in Q2 FY26, significantly lower than competitors.

Standalone vs Consolidated Performance Analysis

The margin gap becomes clear when examining standalone versus consolidated performance. Apollo's standalone hospital operations demonstrate competitive margins with EBITDA margin of 25.00% and net profit margin of 17.50%, broadly aligned with industry leaders. This indicates core hospital business operates efficiently and profitably.

Impact of Diversified Business Segments

The margin dilution occurs at consolidated level due to Apollo's presence across multiple healthcare segments beyond hospitals. Two key segments significantly impact overall profitability:

The pharmacy distribution business, while generating substantial revenue as the second-largest contributor, operates on thin margins inherent to the distribution model. The diagnostics segment currently reports losses, further pressuring consolidated margins.

Strategic Demerger Initiative

To address margin concerns and unlock value, Apollo Hospitals is demerging its pharmacy and digital health businesses into Apollo Healthtech Ltd (AHTL). The demerger will consolidate Apollo Health Enterprise, Apollo Healthco, Keimed, and 74.50% stake in Apollo Medicals under one platform. This strategic move aims to provide clearer business focus and potentially improve consolidated margins while allowing shareholders direct participation in India's largest digital health and pharmacy business.

Shareholding Structure

As of Q3 FY26, the company maintains strong institutional investor presence with foreign institutional investors holding the largest stake at 43.54%. Promoters maintain 28.02% equity stake, while domestic institutional investors hold 21.51%. Government of Singapore holds 2.34% with minimal direct government stake at 0.23% and public shareholding at 6.71%.

Apollo Hospitals' lower consolidated margins reflect its diversified healthcare ecosystem approach rather than operational inefficiencies in core hospital business. While competitors focus primarily on hospital-only models achieving higher margins, Apollo's integrated strategy prioritizes scale, reach, and long-term ecosystem building, often at the expense of near-term consolidated profitability.