M&A Critique

Apollo Hospitals spins off its Retail Pharmacy business

In order to streamline the group’s business and maximise shareholder value, the country’s largest private sector healthcare provider, Apollo Hospitals has spinned off its front-end retail pharmacy business into Apollo Pharmacies (APL), which in turn will be a wholly-owned subsidiary of Apollo Medicals Pvt Ltd (AMPL). Also, Apollo will enter brand licensing agreement with APL to licence the Apollo Pharmacy brand to the frontend stores and online pharmacy operations.

The reorganisation, according to the company, will not have a material impact on the financials of Apollo as the backend business related to the standalone pharmacies will continue to be held by Apollo. The reorganisation enables Apollo to be compliant with the norms of foreign direct investment (FDI) limits and further grow the pharmacy retail business. At present, retail pharmacy business comes under the category of multi-brand retail, where FDI is allowed up to 51%.

The organised pharmacy retail accounts for less than 5% of India’s $15 bn domestic pharmaceutical market which is estimated to grow 10-12% CAGR in the next five years, driven mainly by volume growth. Better growth in domestic sales will, however, depend on the ability of pharma companies to align their product portfolio towards chronic therapies for diseases such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers as these diseases are increasing in the country because of various lifestyle changes.

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Padam Singh