Prathap Reddy and a plan to secure his legacy

But his day begins early morning, with prayer, one that stretches for two hours. “I pray for my family. My family includes the Apollo family. And I pray for my patients,” Reddy, a devotee of Lord Balaji, said.

His biological family is the hospital chain’s spine— promoters own 29.3% of the company. And he is probably praying that his four daughters and his 10 grandchildren continue his legacy and bolster the fortunes of the company he established four decades ago, in 1983. What started as a hospitals business eventually spawned at least 21 sub-brands, including Apollo 24/7 (digital healthcare platform), Apollo Pharmacy (pharmacy chain), Apollo Diagnostics (diagnostic centre and pathology lab) and Apollo Cradle (maternity services).

Reddy has been slowly ceding key responsibilities to his four daughters—Preetha Reddy, Suneeta Reddy, Shobana Kamineni, and Sangita Reddy. The four sisters oversee crucial segments of the business. But the patriarch also has plans for the third generation.

In May, Reddy wrote to his 10 grandchildren to seek out their interests and strengths. Based on their feedback, a second letter would go out with their key responsibility areas or KRAs, Reddy told Mint. “I have a huge plan for them. It is ongoing,” he added.

Out of the 10 grandchildren, nine are associated with Apollo already—most of them informally.

Apollo’s next generation strategy is intertwined with how Reddy has been thinking about the future of healthcare services. Indeed, the pace of change has been rapid. Technology is disrupting healthcare; newer segments such as home healthcare have gained currency ever since the pandemic; online pharmacies are disrupting brick and mortar outlets; there is more competition now than even two decades ago. Manipal Health Enterprises (Manipal Hospitals), for instance, is breathing down Apollo’s neck when it comes to the number of hospital beds while Max Healthcare Institute has higher profitability at the moment. Investments in technology and newer areas of the business are pressurizing Apollo’s profitability.

Reddy is hoping his grandchildren’s fluency in technology could help the group transition to a “full stack” health services provider. Under a ‘One Apollo’ strategy, the group is aiming to treat patients across the entire healthcare value chain, from preventive health services to telemedicine.

“I think they are the ones who understand technology well. If you give me a phone, I can dial a number. But they are the ones who will make one and one 11, and not 2,” Reddy said.

There are many pieces to the ‘One Apollo’ puzzle and there is a sense among some analysts that the group is trying too many things, spreading themselves thin.

“They don’t have a choice but to spread themselves in different businesses because the services aspect goes hand-in-hand across the value chain,” Tushar Manudhane, research analyst (pharma), Motilal Oswal Financial Services, reasoned.

Can the Reddys pull this off?

Just how big?

First, let’s understand the pecking order today. Apollo Hospitals beats everyone hands down in sheer revenue. Well, its revenue is more than double the top line generated by Max Healthcare Institute.

Apollo also trumps others in terms of market capitalization— it leads at ₹71 287 crore. Max is behind at ₹51,640 crore, as on 2 June. The privately held Manipal Hospitals was last valued at ₹42,000 crore.

Apollo had 70 hospitals with 9,957 operating beds across the network. Of this, 14 hospitals are new with 2,384 operating beds, Apollo said in its earnings release last week. The company reported a consolidated revenue of ₹16,613 crore in 2022-23, a growth of 13% over the previous year. But it only generated ₹819 crore in profit, compared to ₹1,056 crore in 2021-22.

If one compares hospitals on profitability, Max was better placed in 2022-23—it reported a profit of ₹1,328 crore compared to ₹837 crore in 2021-22.

When it comes to the number of beds, the Ranjan Pai-led Manipal Hospitals is well poised to challenge Apollo’s dominance. In the last two years, Manipal acquired Columbia Asia Hospitals and Emami Group’s AMRI Hospitals. Should Manipal acquire the Kerala Institute of Medical Sciences—as Mint reported in April, citing sources— it is poised to cross 10,000 beds. These beds would be spread across operational, management and teaching hospitals.

The Reddys disapprove of the ‘number of beds’ benchmark. “You could count the number of beds, which we also did for a while. Or you could say the number of lives touched—that’s also a benchmark,” said Preetha Reddy, the executive vice chairperson of Apollo and Prathap Reddy’s eldest daughter. “You could also talk about how integrated we are. We are looking at a larger play in the healthcare space, which makes us much bigger,” she added. On hospitals, Apollo’s strategy has been to focus on the top six metros and deepen its presence in these cities. It plans to add 2,000 beds over the next four years, which would require ₹3,000 crore in capital. The group plans to fund this through internal accruals.

Family planning

How are responsibilities within the family divided today?

The four daughters—Preetha, Suneeta, Shobana and Sangita—have earmarked roles and even draw the same salary, according to the company’s annual report. Nonetheless, at 66, Preetha (her father calls her Preethu) is largely seen as the first among equals.

Suneeta Reddy, 65, is the managing director and heads the group’s finance and strategy functions. Shobana is 62 and is also the company’s executive vice chairperson. She heads Apollo’s pharmacy business and its 24/7 venture. The youngest of the sisters is Sangita who is 60. She is the joint managing director and oversees the group’s requirements around technology, data and innovation.

While Prathap Reddy would probably like all his grandchildren to forward the business he has built, and has plans for them, not all may end up joining the group in a formal capacity.

As of today, only three of Prathap Reddy’s grandchildren are formally on Apollo’s rolls. Sindoori Reddy, Suneeta Reddy’s daughter, is the chief operating officer of southern region, while Preetha’s son, Harshad, is the director of operations, Group Oncology and International Business. Shobana Kamineni’s daughter, Upasana Kamineni Konidela, is officially the vice chairperson of Corporate Social Responsibility.

The other grandchildren are informally involved in the group’s operations. From June, Apollo will start tracking the time that the Reddy grandchildren spend at Apollo and assess if they need to be formally inducted, Preetha informed. “They definitely have been more engaged in the past three-four months,” she added, saying that the involvement of the next generation was evolving. A full-time role would be entirely their choice, she clarified.

Some of them are entrepreneurs and run unrelated businesses. For instance, Anindith Reddy, Sangita’s son, is the managing director at Wadi Surgicals, a medical glove maker. He is also the founder of a healthcare digital platform, Happ Tech Pvt Ltd.

“Healthcare services are moving fast. We don’t know who (among the grandchildren) will pick up what. They will be in the broad healthcare space, but the terms of engagement and the alignment—what they do and don’t—is all up to them,” Preetha stressed.

Bets of the future

Let’s look at some of Apollo’s newer bets—businesses that could probably benefit from the involvement of the third generation.

Around 2018-2019, Apollo began planning its 24/7 platform—the digital platform for buying medicines online, lab tests and doctor consultation. This platform got a leg-up during the pandemic. “Without that (24/7), we would have been floundering,” Preetha said.

“No hospital has touched the lives of 200 million people as we have done. We didn’t touch their lives in the hospital. We touched their lives using telemedicine and through Apollo 24/7. This is going to change the way medicine is practiced, and the way people have access to healthcare,” Prathap Reddy said.

Apollo is also ramping up focus on preventive healthcare and wellness— a large opportunity for the future. Here, it can harness the data the 24/7 platform generates. Also, a ‘clinical intelligence engine’, which uses machine learning techniques, has 1,300 health conditions and 800 symptoms fed into it. Apollo believes this can help doctors improve the accuracy of diagnosis.

Focus on prevention and wellness acts as a funnel for other hospital services. Similarly, its Proton Cancer Centre, a cancer therapy unit, which required an investment of ₹1,300 crore, is useful because it allows the group to retain treatment of a patient within its ecosystem.

In fact, this retention of the patient is at the heart of its ‘One Apollo’ strategy. Plug all gaps in the health services food chain so that she or he stays with the group.

“If we maximize on what we have created, which is a work-in-progress, it puts us above the rest,” Preetha said, talking of the competition. “Our bets on preventive healthcare, through checkups, brings in a large patient pool into our database and our consistent focus on tech has been a game changer,” she added.

Technology can improve patient outcomes. Minimally invasive surgeries have caught on; they use advanced surgical apparatus that leave smaller incisions on the body. They are usually associated with reduced post-operative infections and shorter hospital stays. While nearly every hospital of repute now has teams to execute such surgeries, Apollo can perhaps do it at scale—the group said it did over 10,000 robotics-assisted surgeries till date. This, in turn, will improve its operating bed efficiencies.

Meanwhile, the group feels it is in a strong place when it comes to cardiology and oncology. Now, it wants to strengthen its focus on neurology and gastro-sciences. Yet another bet of the future could be in area of anti-aging treatment.

“We have the latest in genomics, regenerative genomics—all these esoteric areas of medicine are impacting the way we do things. Maybe two-three years later, I may say that we are taking huge bets on anti-aging. From a business perspective, that’s a huge market,” Preetha said.

The margin challenge

Nonetheless, the group has some challenges to overcome. Newer businesses can be cash guzzling.

Apollo Healthco Ltd, the company that houses 24/7 and pharmacy distribution division, reported a loss of ₹303.6 crore in 2022-23. While the division reported total revenues of ₹6,704.5 crore, operating cost in 24/7 alone accounted for ₹657.4 crore. This cost has been weighing down the group’s margins as well.

The problem is that selling medicines online is similar to any other e-tailing business.

“One of the challenges is that the online business is capital intensive, which includes high customer acquisition costs, marketing and branding costs,” said Tushar Manudhane of Motilal Oswal Financial Services. “Currently, the existing positive Ebitda (earnings before interest tax, depreciation and amortization) from the offline pharmacy business is utilized for online or Apollo 24/7, which has an operational loss. At a Healthco (company) level, the company aims to be Ebitda neutral by the fourth quarter of 2023-24,” he added.

Apollo, therefore, has its task cut out. It has to cut inefficiencies to shore up profitability. At the same time, the group needs to expand and improve what they offer online to attract customers. With both Max and Manipal Hospitals upping the ante in their core hospitals business, both Prathap Reddy’s One Apollo strategy and his successors will be tested.

Updated: 04 Jun 2023, 11:27 PM IST