Why Apollo Hospitals sold its BPO biz to Sutherland

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.

The thoughts and opinions shared here are of the author.