Apollo Hospitals moved up again on Monday, after rallying 12% on Union Budget day, vindicated by budgetary sops to the healthcare segment.

The scrip of the hospitals group edged up 1% to Rs 113.70 on BSE in morning trades. It had touched a high of Rs 116.55, earlier. Around 117,000 Apollo Hospitals Enterprises shares were traded in around one-and-a-half hours of trading.

The scrip soared 12.6% on Friday after the budget afforded some significant incentives to corporate hospitals. The rally on the counter came on high volumes of 840,000 shares.

The stock is supposedly a favourite with local brokerage Motilal Oswal Securities. In the last few trading sessions, the stock witnessed weakness, falling to the Rs 97.95-level on 14 February 2003 from Rs 113.95 on 8 January 2003.

The Union Budget 2003-2004 has increased the rate of depreciation on life-saving medical equipment from 25% to 40%. While this is intended to accelerate the R & D in medical equipment, it will also benefit large corporate hospitals like Apollo Hospitals.

The customs duty on specified life-saving equipment has been reduced from 25% to 5%. Likewise, countervailing duty (in lieu of excise duty for domestic manufacturers) has also been exempt for such live-saving equipment. In respect of life-saving equipment already exempt from CVD, the budget proposes to exempt them from excise duty as well. This will benefit and encourage domestic manufacturers of life-saving equipment.

Further, the Union Budget 2003-04 has proposed the extension of benefit U/s 10 (23 G) of the Income Tax Act to financial institutions providing long-term capital to private hospitals with 100 beds or more.

The above provision will enable greater flow of low cost funds to the private sector hospital industry. Currently, many private sector hospitals are making losses and their borrowings are featuring as NPAs in the books of financial institutions and banks.

With the need for healthcare growing at a fast pace, profitability of private sector hospitals is set to improve. However, this will happen only if the interest charged to hospitals is lowered. The budget proposals enable the reduction in interest cost of hospitals by providing exemption to the funding institutions.

AHEL reported a 24% rise in sales to Rs 110.50 crore. With 50 basis points improvement in margins, the operating profit rose 27%. However, a sharp rise in interest costs by 61%, accentuated by the 37% rise in depreciation resulted in a modest 12% increase in PAT to Rs 5.80 crore.

AHEL operates 39 hospitals across India.

In December 2002, AHEL had entered into a hospital management agreement with the Belhoul Hospitals LLC, Dubai (Belhoul), for providing hospital management and consultancy services to its 60-bed speciality hospital. The validity of the agreement is five years from 29 October 2001, with an option to renew for a further period on mutually agreed terms and conditions.

As per the said agreement, Belhoul is permitted to use the name ‘Apollo' as a prefix or suffix to the name of the hospital during the validity of the agreement. Belhoul will pay only management / consultation fee of 5% of the annual turnover generated by Belhoul after commencing its operations at Dubai. The company had clarified that this is not a joint venture agreement but only a pact for management of the hospital set up by Belhoul.

AHEL's promoters raised stake in the company from 32.82% in March 2002 to 34.33% in December 2002.