Reddys eye 4-fold returns on Apollo Munich shares

Chennai: Taking a recent insurance deal as the benchmark, the promoters of Apollo Hospitals are seeking Rs 1,300 crore–Rs 1,400 crore for their stake in Apollo Munich Health Insurance. This will mean four-fold returns for them on the investment of around Rs 300 crore made in the joint venture with the German reinsurance major.

The Apollo promoters are in talks with a few general insurance companies to divest their 40 per cent stake in the venture. A deal will help them clear more than 70 per cent of the Rs 1,750 crore they had raised by pledging shares.

In all, Apollo promoters, Prathap C. Reddy and his family, have in invested roughly Rs 300 crore in Apollo Munich Insurance. This includes the initial investment and the money pumped into the company to fund its losses between 2013 and 2017.

“In the last deal happened in the standalone health insurance space, the company was valued 1.6 times its gross premium. Going by this benchmark, Apollo Munich can demand a valuation of 1.7 times its gross premium. This can fetch around Rs 1,300 crore for the 40 per cent stake. This will help the promoters bring down their debt by more than 70 per cent,” said a source privy to the development.

At the rate the company has been growing, Apollo Munich is supposed to clock Rs 2,200 crore gross written premium (GWP) in the current financial year. The company’s GWP stood at Rs 1,717 crore in FY18.

A few months back, Star Health and Allied Insurance promoter and investors had sold their 89 per cent stake, for close to Rs 6,500 crore, to SafeCorp Holdings, a consortium of WestBridge AIF, Rakesh Jhunjhunwala and Madison Capital. Star Health had clocked a GWP of Rs 4,161 crore in FY18.

"Star has a portion of its GWP coming from government insurance schemes. Focused on the more profitable retail health segment, Apollo Munich is a stronger brand and the customers it targets are in the higher end of the economic spectrum. So the company should fetch a better valuation," said an investment banker.

The Reddys want to bring down their debt of Rs 1,750 crore, raised partially to fund their flagship company Apollo Hospitals Enterprise (AHEL). Of this debt, around Rs 900 crore was used as equity capital in AHEL and close to Rs 250 crore was pumped into Apollo Munich.

The shares of Apollo Hospitals had recently tanked when the Reddys increased the quantum of pledged shares. According to sources, the promoters are talking to a few general insurance companies for the stake sale. Among them, HDFC Ergo had evinced an interest in Apollo Munich even earlier. AHEL’s stake of 10 per cent in the insurance joint venture will remain with the joint venture.