Apollo Hospitals to buy Hetero Med biz for Rs 146 cr

Hospital chain Apollo Hospitals Enterprises Ltd has signed a deal to acquire the drug retail chain of Hyderabad-based Hetero Med Solutions Ltd for Rs.146 crore. The deal will see Apollo taking over 320 outlets of Hetero Med in Telangana, Andhra Pradesh and Tamil Nadu.

Apollo will buy the business on a slump-sale basis. It does not include any equity stake, the company informed the stock exchanges on Wednesday.

Hetero’s stores are located in such a way that they can be easily linked with Apollo’s supply chain, making integration easier, said Shobana Kamineni, Executive Vice-Chairperson, Apollo Hospitals, who is at the helm of the company’s drug retail division. Apollo plans to have specialty pharmacies that focus on specific diseases such as diabetes, and Hyderabad will be the testing ground for the initiative. “We will have something in this line in the next 60 days,” she told Business Line.

Good price

“It came at a good price, and with this acquisition, we are ahead of the next player in this business by three years.”

Hetero Med belongs to the Rs.5,000-crore Hetero Group, which is selling its drug retailing arm to focus on the core business of manufacturing Active Pharmaceutical Ingredients and finished dosages.

The pharmacy division posted a revenue of Rs.160 crore and an operating loss of RS.3.9 crore in FY14, according to a statement from Apollo Hospitals. Krishnan Akhileswaran, Chief Financial Officer of Apollo, said Hetero had its stores at strategic locations in Hyderabad, but inadequate back-end infrastructure compressed its margins.

“The pharmacy business is getting tougher for the mom-and-pop stores because of the drug price control, high rental costs, and the second generation do not want to become shopkeepers. So there will be major consolidation in this space,” said Kamineni. She heads a vertical that showed a 24 per cent growth in revenue at Rs.1,364.8 crore last fiscal.

Drug retailing

This move by Apollo comes when there is talk of hiving off the drug retailing business by taking a strategic investor on board.

Being the largest player in the country with 1,600 pharma stores, the acquisition will substantially strengthen Apollo’s presence, especially in the southern States. It will also create an opportunity to increase the sales of Apollo private label products, the company said.

On Wednesday, the company’s stock gained 1.35 per cent on BSE to Rs.1,122.65, while the benchmark Sensex closed 0.52 higher at 26,631.29 points. Business LIne