Apollo Hospitals Enterprise Ltd (AHEL) announced a strategic agreement on September 27, 2024, to sell a 16.9% stake in its material subsidiary, Apollo Healthco Ltd (AHL), to Rasmeli Ltd, an affiliate of global private equity firm Advent International. The deal is valued at Rs 2,475 crore.

The transaction between Apollo Hospitals and Rasmeli Ltd is set to occur in two tranches, resulting in a reduction of Apollo Hospitals’ stake in Apollo Healthco from 94.91% to 78.879%, on a fully converted basis. Here’s a breakdown of how the deal will be executed:

First Tranche: Rasmeli Ltd will acquire Class B fully and compulsorily convertible non-cumulative participating preference shares (Class B CCPS) valued at Rs 247.50 crore at a rate of Rs 25 per share. This initial tranche is the first step towards transferring the 16.9% stake.

Second Tranche: The remaining investment, worth Rs 742.50 crore, will be made to complete the acquisition of Class B CCPS, totalling Rs 990 crore. Additionally, Rasmeli Ltd will purchase Class A CCPS valued at Rs 1,485 crore.

In addition to the deal with Rasmeli Ltd, Apollo Healthco has taken another step by acquiring an 11.2% stake in Keimed from Shobana Kamineni, one of Apollo Hospitals’ promoters, for Rs 625.43 crore. This acquisition is further augmented by an additional investment of Rs 99.99 crore into Keimed.

The plan is to amalgamate Keimed with Apollo Healthco, which will integrate Keimed’s extensive pharmaceutical distribution network into Apollo Healthco’s operations. This move is expected to enhance efficiency, streamline supply chains, and improve Apollo Healthco’s market reach.

The transaction is scheduled to be completed in accordance with the terms outlined in the investment agreement, with the final tranche dependent upon the Apollo Healthco board’s call for the remaining investment.

The announcement of this agreement comes on the back of Apollo Hospitals’ stellar financial performance in the first quarter of the fiscal year 2025 (FY25). The healthcare giant posted an impressive 83% increase in its consolidated profit after tax (PAT), reaching Rs 305 crore, compared to Rs 166.6 crore in the same period last year.

Apollo Hospitals reported a revenue surge of over 15% to Rs 5,086 crore in Q1 FY25, up from Rs 4,417.8 crore in the same quarter of the previous fiscal year. The company’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) increased by more than 32% to Rs 675 crore. The EBITDA margin also improved by 180 basis points, reaching 13.3%.

The stock market reacted positively to this move by Apollo Hospitals. The shares of Apollo Hospitals Enterprise Ltd ended the trading day on September 27, 2024, at Rs 7,239, representing an increase of Rs 75.10 or 1.05% on the Bombay Stock Exchange (BSE). In the last one year, the stock has delivered returns of nearly 45%.

The investment by Rasmeli Ltd, an affiliate of Advent International, into Apollo Healthco, is an endorsement of the company’s growth potential in India’s healthcare sector. By reducing its stake in Apollo Healthco, Apollo Hospitals aims to unlock value, fund growth initiatives, and create an agile subsidiary capable of scaling its operations efficiently.