Global private equity giant Apax Partners, which has 11.5% stake in Apollo Hospitals Enterprises Ltd, may be keen on consolidating its interest into a substantial holding in the pharmacy and clinical businesses of India's largest healthcare group. Apax was more bullish on Apollo's national network of pharmacies and clinics where it could seek a bigger play, multiple sources familiar with the developments told VCCircle.

Apax is believed to have signaled its interest in the pharmacy and clinic operations in recent times even as the Apollo Hospital Enterprises (AHE) promoter, the Prathap C Reddy family, has suggested the possibility of hiving off the pharmacy business with outside investor participation.

These developments are likely to gather momentum in the event of Malaysia's sovereign fund Khazanah taking a more active role in Apollo's core hospital business. Khazanah now holds just over 13% stake in AHE. The Malaysian fund is battling India's Fortis Healthcare to take over Singapore's Parkway Holdings, with Apollo lending support to its investor ally in a bid to checkmate an arch domestic rival. This, in turn, could see Khazanah and Apollo deepening their ties in the hospital business.

"In recent past, Apax has indicated its bullishness on the pharmacies and clinics to the promoter-led management. There could be developments on this front if Khazanah becomes a more active investor in Apollo Hospitals. But a lot will depend on Apax’ ties with the promoter family and what the latter has in mind for its subsidiary businesses," said one source, who did not wish to be identified. In 2007, Apax had invested $104 million for its current holding in AHE.

Apollo Pharmacies and Apollo Clinics, which is part of Apollo Health & Lifestyle Ltd, are separate operations housed under the parent AHE currently. While the promoters have signaled their intent to hive off pharmacies in a value unlocking move, it is not clear whether their chain of clinics would be included in this. If Apax’ plans in this regard do not materialise, the British PE giant could explore exiting the investment as the possibility of a sovereign fund, which claims strategic role in Asia's healthcare, bolstering its ties with the parent is very much on the cards.

India co-head of Apax Partners, Sandeep Naik, declined to comment stating it was not the policy of his firm to comment on individual portfolio companies. Apollo Hospitals did not respond to an emailed query regarding the developments at the time of posting this report.

An active investor in healthcare sector globally, Apax, like some of its private equity peers, has been particularly interested in the organized network of clinics, pharmacies, disease screening centres and laboratories compared to the asset heavy hospital complexes. Its previous investments from US-based Spectrum Holdings and Vedici in France - from where it made successful exits - are instances in this context. Recent media reports also speculated that Apax was in the race to buy a stake in Mumbai-based diagnostic lab chain Metropolis Healthcare.

Apollo Pharmacy, with an estimated turnover in excess of Rs 600 crore, operates a network of 1,200 stores nationwide. Last month, Business Standrad quoted Apollo Hospitals Group Executive Director Shobana Kamineni saying the retail pharmacy business had turned cash positive, and the parent was looking to spin off the operations divesting around 50% stake in the standalone operations. The pharmacy operations could be valued at Rs 2,000 crore, she had told the newspaper.

Sources said, Apax Partners’ interest in pharmacies and clinics was not surprising but would be done with active support of Apollo's promoter family. "Profitability of the clinical chain and pharmacies depend on cross references and discounts within the Apollo Group. And, this will be critical going forward as well," they explained, adding that the margin game in domestic healthcare service chains still remain a tough game given the low penetration of medical insurance.

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