Apollo Hospitals Mull Passing on New India Tax Cut to Investors

(Bloomberg) -- Apollo Hospitals Enterprise Ltd., India’s largest hospital chain, is considering passing on the proceeds of corporate tax cuts announced last week to its shareholders, according to people familiar with the matter.

Apollo may also use some of its tax savings to pay down debt and invest in the business, which operates 71 hospitals throughout India, said the people, who asked not to be named discussing internal matters. Prime Minister Narendra Modi’s government pared the corporate tax rate to 22% from 30%, as it tries to ignite an economy growing at the slowest pace in six years.

The people familiar with these plans didn’t elaborate on how Apollo will deliver the proceeds to investors, whether by paying dividends or through a buyback.

Apollo’s moves to return tax savings to shareholders would be a further boost after a surge in the stock price this year as the company pivots away from multi-year investments to build new hospitals to focusing on increasing profitability. The biggest beneficiaries would be Apollo’s founders and largest shareholders, the Reddy family, who have been selling assets to pay down their own debt and trying to lower the amount of shares pledged as collateral with lenders.

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An Apollo spokesman declined to comment on how the firm intends to use this unexpected windfall. Apollo’s effective tax rate last year was 46%, according to data compiled by Bloomberg.

Other companies are employing this tax saving in different ways.

Maruti Suzuki India Ltd, India’s biggest carmaker, said Sept. 25 that it’ll cut prices of some car models by 5,000 rupees ($71) to pass on the tax cut benefit. Bajaj Auto Ltd. said the extra money will defray costs and boost its ability to invest in technology, as the sector fights a sales slump that’s near two-decade low.

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Apollo Hospitals is led by its octogenarian founder Prathap C. Reddy, and his four daughters, who share the roles of chairman and managing director between them.

The company and the family sold off their stakes in a health insurance venture earlier this year. This month, the founding family sold Apollo shares amounting to 3.6% of the company, bringing their stake down to 30.8%.

With these transactions, the family’s pledged ratio of shares should decline to 20% by the end of October from 76% currently, Apollo told the exchanges in a Sept.12 filing.

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