Follow
BLOGS/Health
Nilofer D'Souza
Storyteller of business in India

Why Apollo Hospitals sold its BPO biz to Sutherland

 

Apollo Health Street, the BPO arm of Apollo Health Enterprises Ltd., has been sold to Sutherland Global Services

Apollo Hospitals has, for some time now, consistently said it wants to exit its non-core businesses. So, the announcement yesterday to sell Apollo Health Street (AHS), its BPO arm, doesn’t really come as a surprise.

On the other hand, it is important to know that of the total Rs 31,475 million revenue that Apollo made in FY ’12, less than 2-3 percent comes from its extended businesses like Health Street, Apollo Clinics, Cradle, etc.

In fact, a large chunk of its overall revenues, approximately 75 percent, comes from its hospitals, and the remaining from Apollo Pharmacies. However, the sale of Apollo Health Street is significant purely because of its timing.

A recent news report in the Economic Times, signaled the importance of Obamacare for healthcare especially in Indian IT. The opportunity that exists is $22 billion. Sangita Reddy, MD, AHS, says, “Globally, the healthcare BPO opportunity is $60 billion.”

While the healthcare BPO space is definitely a profitable business to be in, here’s why it is not as important for Apollo:

One, Apollo is a company that has always been passionate about being an Indian brand. So, when it purchased US-based healthcare-focussed BPO, Zavata, for Rs 700 crore in 2007, which became a part of AHS, it did so in preparation for its expansion plans in India.

The thought was AHS could service Apollo Hospitals’ in any technological need – both front end as well as back end, but this did not work out. As an independent company, AHS had to look at the market opportunistically, and for the company, the business margins in the US market were far better than the Indian market. Sangita Reddy, MD, AHS, says, “The margins with the US market are 25 percent, whereas the Indian market is 10-15 percent.”

The result: AHS did not really focus on the India business.

Reddy says, “It grew opportunistically focusing on the US and has US centric systems, which are not immediately applicable to India. This does not help the India hospital business and it evolved as two separate companies.”

Two, Apollo needs funds to implement Dr Pratap C. Reddy’s ambitious plans to have 10,000 beds in the next three years. The plan is to invest Rs 2,000 crore through debt and internal accruals to reach this goal.

Three, Sangita Reddy’s management time has been freed up through this sale. She says, “In the initial days of health Street, it took most of my time. Now, I will use my time to focus on a new model for retail healthcare, not in pharmacy but other retail formats. Telemedicine led formats will be my major focuses as well as the education division.”

They plan to go deep in their India expansions and the path for execution is being cleared.

Post Your Comment
Name
Required
Email
Required, will not be published
Comment
All comments are moderated
 

Comment
First- selling AHS may be a good decision. But selling at huge loss has effected the shareholders of Apollo Hospital as evidenced from falling the share price from Rs 900 to 800 just in one day. Secondly- what would be the profitability of Apollo Hospital after expansion will start making money in view of longer gestation period hospital has, may be 5 years & also shareholder value in term of its stock price multiple. Thanks .
I want to get two things clear, 1) AHS was previously Zavata which was bought for 700 crores, and is now sold to Sutherland for 220 Crores? 2) Apollo Hosp will be using the money to stay on track with the expansion plans? Thank you for the informative article.
Hi Krishna Joshi, Thank you for your comment. Here are answers to the two queries: 1. Apollo Hospitals made a total investment of Rs 180 crore in Zavata. Rs 700 crore in 2007 and Rs 1,000 crore in 2012 are representative of the collective investors in the company. 2. Apollo Hospitals will use the money to stay on track in their expansions plans, which refers to their focus on core businesses like hospitals and pharmacies. This may be used to expand the Apollo Clinics brand.
There is a fundamental flaw in your argument 1. Zavata services clients with entirely different business models than that of Apollo Hospitals. Any one would have figured this out at the time of deal due diligence. So it is very unlikely that the group would have bought Zavata with a vision to relegated it to service their needs as is made out in your argument. In the entire article I don't see any efforts to back up your argument with some thing that the management acknowledges. On the whole this article left me wondering about the authors intention behind the article.
Hi Mallik, Thank you for your comment. Apollo Hospitals has certainly tried many different things in healthcare. They got into the primary care model, single specialty model, and also the BPO division. All these attempts were to try and diversify the business into different segments as well as generate new revenue streams. However, Apollo has had little success with new formats, and it's cash cow still remains its hospitals and pharmacies; not even Apollo Clinics. The differences between Zavata and Apollo, I believe through my reporting, cropped up after the acquisition. This is not the first time in business history an acquisition has been made and hasn't worked out for either side. On your second point, my intent behind the post; it is stated in the headline 'Why Apollo sold its BPO biz to Sutherland'. Most news reports focussed on Sutherland, and few went into any detail on Apollo's side. This blog was an attempt to help understand that.
 
 
Nilofer D'Souza
I was a Features writer at Forbes India, where I wrote primarily on healthcare and explore retail as a sector. The technologies that make both these industries tick interests me greatly. For story ideas or feedback you can reach me on Twitter @Niloferd
 
 
 
Most Popular
Nilofer D'Souza's Activity Feed
December 16, 2012 23:48 pm by CA jkpahuja
First- selling AHS may be a good decision. But selling at huge loss has effected the shareholders of Apollo Hospital as evidenced from falling the share price from Rs 900 to 800 just in one day. Secondly- what would be the profitability of Apollo Hospital after expansion will start making mo...
December 13, 2012 12:42 pm by Nilofer D'Souza
Hi Krishna Joshi, Thank you for your comment. Here are answers to the two queries: 1. Apollo Hospitals made a total investment of Rs 180 crore in Zavata. Rs 700 crore in 2007 and Rs 1,000 crore in 2012 are representative of the collective investors in the company. 2. Apollo Hospitals wil...
December 13, 2012 11:41 am by krishna joshi
I want to get two things clear, 1) AHS was previously Zavata which was bought for 700 crores, and is now sold to Sutherland for 220 Crores? 2) Apollo Hosp will be using the money to stay on track with the expansion plans? Thank you for the informative article.
Nilofer D'Souza
Nilofer D'Souza
December 13, 2012 07:28 am by Nilofer D'Souza
Hi Mallik, Thank you for your comment. Apollo Hospitals has certainly tried many different things in healthcare. They got into the primary care model, single specialty model, and also the BPO division. All these attempts were to try and diversify the business into different segments as well a...
December 12, 2012 21:02 pm by Mallik
There is a fundamental flaw in your argument 1. Zavata services clients with entirely different business models than that of Apollo Hospitals. Any one would have figured this out at the time of deal due diligence. So it is very unlikely that the group would have bought Zavata with a vision to relega...