Ladies and gentlemen, good day and welcome to the Max Healthcare Institute Limited Earnings Conference Call. As a reminder, all participants will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star one zero zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Max Healthcare's Q2 , H1 FY25 Earnings Conference Call. We have with us Mr. Abhay Soi, Chairman and Managing Director, Mr. Yogesh Sareen, Senior Director and Chief Financial Officer, and Mr. Keshav Gupta, Senior Director, Growth, M&A, and Business Planning of the company. We'll begin the call with opening remarks from the management, following which we have the forum open for an interactive question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Abhay to make his opening remarks.
A very good afternoon to everyone, and a warm welcome to Max Healthcare's Earnings Call for the Second Quarter and First Half of Financial Year 2025. The financial year was projected to be one of limited growth. Our brownfield capacity expansions were scheduled for completion at year-end, and our greenfield hospital in Dwarka would still be in its early stages of operation. However, the first half of the year has seen stellar growth fueled by recent acquisitions and the successful integration into our network. By expanding into new but proven geographies, we have supplemented our growth momentum. Max Lucknow and Max Nagpur have been fully integrated into the network and have significantly improved their performance. Combined revenue reached INR 130 crores for these two hospitals in Q2, representing a growth of 40% year-on-year and 32% quarter-on-quarter.
Compared to the previous year, the combined EBITDA nearly doubled to INR 33 crores in Q2, with a margin of 26%. The newly operational Max Dwarka Hospital reported a revenue of INR 33 crores and EBITDA loss of INR 18 crores, with occupancy of 41% and ARPOB, average revenue per occupied bed, of INR 80,000. This hospital has been performing very well, and we believe will break even much before the end of the year, and perhaps will be the fastest break-even in our history. We are excited about the recent acquisition of Jaypee Hospital in Noida. It is a marquee asset and will strengthen our presence in the National Capital Region. The enterprise value for this acquisition was INR 1,660 crores, and we expect to integrate the hospital into the network quicker than others.
In the near term, our plan is to increase the operational bed capacity from 376 beds currently to 430 beds by March and upwards of 480 beds by December 2025. We are simultaneously strengthening the medical programs in urology, medical oncology, gastroenterology, and neurosciences through a combination of external hires, infrastructure enhancement, and technology upgrades. Now, coming to Q2 performance highlights, this is our 16th consecutive quarter of year-on-year growth. Overall network revenue stood at INR 2,228 crores, registering a growth of 22% year-on-year and 10% quarter-on-quarter. Network operating EBITDA was INR 566 crores. More importantly, excluding the extraordinary items comprising of INR 18 crores of startup losses at Max Dwarka and INR 7 crores of transaction costs for the Jaypee deal, the operating EBITDA stood at INR 591 crores, reflecting a growth of 19% year-on-year and 17% quarter-on-quarter.
Profit after tax stood at INR 349 crores, compared to INR 338 crores in Q2 last year and INR 295 crores in previous quarter. Yet again, excluding the extraordinary items, as mentioned above, PAT stood at INR 383 crores, reflecting a growth of 13% year-on-year. From here on, I will mention all numbers and percentages, excluding the extraordinary items. Our average occupancy for the network increased to 81% from 77% in Q2 last year and 75% in the trailing quarter, while the occupied bed days grew by 18% year-on-year and 8% quarter-on-quarter. Average revenue per occupied bed for the quarter stood at INR 76,100, growing by 2% year-on-year and remaining flat quarter-on-quarter. Like for like, ARPOB grew by 7% for the existing beds for the existing hospitals. Network gross revenue was INR 2,194 crores, compared to INR 1,827 crores in Q2 last year and INR 2,028 crores in previous quarter.
This reflects an increase of 20% year-on-year and 8% versus the trailing quarter. International patient revenue stood at INR 178 crores. This reflected a growth of 12% both year-on-year and quarter-on-quarter, despite contraction in patient footfall from Bangladesh and Yemen due to political unrest. Network operating EBITDA stood at INR 591 crores, reflecting a growth of 19% year-on-year and 17% quarter-on-quarter. Operating EBITDA margin stood at 28.2% for the quarter. Annualized EBITDA per bed stood at INR 75.5 lakhs, remaining flat year-on-year and increasing by 6% versus the trailing quarter. Like for like, EBITDA per bed grew by 4% for the existing hospitals. Profit after tax was INR 383 crores versus INR 338 crores in Q2 last year and INR 295 crores in the previous quarter. Overall free cash flow from operations was INR 464 crores. Of this, INR 217 crores were deployed towards ongoing capacity expansion projects and upgradation of facilities at acquired hospitals.
Consequently, net cash position for the network stood at INR 313 crores at the end of September 2024, compared to INR 66 crores at the end of March 2024. Continuing our effort to support the local communities, we treated approximately 39,600 outpatients and 1,300 inpatients from economically weaker sections of society entirely free of charge. Both our strategic business units continued to report significant growth in their revenue and profitability. Max at Home reported a top line of INR 53 crores, reflecting a robust growth of 24% year-on-year. It offers 14 specialized service lines across 12 cities, with over 50% repeat transactions. Max Lab reported a gross revenue of INR 47 crores, reflecting a strong growth of 21% year-on-year. It provides services in 50 cities through its network of more than 1,100 collection centers and active partners.
Now, coming to the status of our expansion projects. For capacity augmentation at Max Lucknow, finishing work for additional 140 beds is in progress and will be completed by December 2024, as communicated earlier. Further, environmental clearance and consent to establish and fire NOCs, etc., have already been received for an additional 450-bed tower at Max Lucknow. We are completing the drawings for the same and will be appointing the contractors shortly. For 150 beds at Nagpur, 12 beds have been added in October 2024. For the balance beds on additional floors, applications for environmental clearance, etc., are in progress. For 268 beds at Nanavati in phase one , we've completed most of the structural work. The project continues to be on schedule, and we expect completion by the end of the financial year, as communicated previously. For 400 beds at Max Smart, this project is on track. We expect its completion within Q1 FY 2026.
For 155 beds at Mohali, again, most of the structural work is complete, and we expect its completion again by Q1 FY 2026. For 500 beds at Sector 56, Gurugram, again, the structural work is complete up till the plinth and above. We expect completion of the first phase of 300 beds by the end of Q3 FY 2026. All of these are on schedule, and we see over the next 12 - 15 months significant ramp-up in our capacity, most of which via Nanavati, Mohali, as well as Max Saket, should be coming through in the months of April, May, and June coming. For 367 beds at Patparganj, post-issuance of a no-objection certificate by fire departments and water departments, etc., we've already submitted our plans. We've got environmental clearance. We are doing the tendering and all of that, and they should be pretty much in schedule as well.
For 550 additional beds at Max Saket in the Saket complex, the environmental clearance and consent to establish, etc., has been already received. Barricading work is on. The forest approval over here is delayed due to Supreme Court proceedings in relation to tree felling involving DDA and the Lieutenant Governor of Delhi. So right now, for the past six months, they haven't permitted anybody to remove any trees, but I think this should get resolved fairly soon, and finally, moving on to an overview of the company performance in the first half of financial year 2025, network gross revenue stood at INR 4,222 crores, reflecting a growth of 19% year-on-year. Overall network operating EBITDA grew by 17% year-on-year to INR 1,089 crores, reflecting a margin of 27.2%, while EBITDA per bed stood at INR 72.8 lakhs per bed.
In the first half, we generated INR 722 crores of free cash flow from operations after interest tax, working capital changes, and routine CAPEX, of which INR 430 crores was deployed towards ongoing expansion projects. With this, we open the floor for any Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. First question is from the line of Amey from JM Financial. Please go ahead.
Yeah, thank you for taking my questions, and congrats to the management on a good set of numbers. The first question I have on Nagpur and Lucknow units. Both have done well during the quarter. I understand that Nagpur might be going through the seasonal peak, the occupancy might, but both the units are now delivering 20%+ margins. Is it possible for us to give some color of what would be the potential margins for optimally utilized units, both at the Nagpur and the Lucknow unit? Specifically, Lucknow, can it match the profitability of our existing units in Saket, etc.? Thank you.
I think, firstly, we don't give forward-looking statements, but intrinsically, margins and percentage margins, one part, they're still operating at lower ARPOBs compared to the rest of the network and also compared to the potential in the market over there. And in the coming quarters, you should see an improvement in that when you have improvement towards better quality programs.
That means higher-end surgical mix and so on, more robotics, more complicated surgeries as the new teams that we've hired come in, kick in. Some of them are very recent hires, etc. So you see all the benefit coming through. We also keep in mind Lucknow so far, we have a bunker over there, but oncology is not being a big play in Sahara. I think it's only a couple of 1 or 2 percentage, 2 p ercentage points. The oncology is somewhere close to 7%-8%. It's 7-8 percentage points of revenue as against 26%-27%, which is across the network, and that's the highest sort of the state, and as we get the bunker ready, the new machine, the Linac machine is coming in place, you will see this number move up. So you'll automatically see an increase in ARPOB.
Our preoccupation, as you're aware, is never with margins in percentage terms. It's EBITDA per bed. And I think there is a significant amount of juice over there with respect to EBITDA per bed.
Sure. Sure. The second question I have is on the Saket complex expansion, which is close to 1,000.
Also, I just want to sort of add, as you're going to get 140 more beds over there, it's almost 50% more capacity, right? So your operating leverage, because on the incremental beds, it's much more EBITDA per bed for incremental beds is significantly more. So you'll see margins expand because of that as well.
Sure. So you see the INR 70 lakhs per bed kind of EBITDA to be achieved in Lucknow?
But I will not give you a forward-looking sort of statement on that.
Sure. No problem. The second question I have is on the Saket complex. So here, we are adding almost 1,000 beds or maybe 800-900 beds for the next two to three years. So should we consider this as a brownfield expansion? Because considering this much amount of beds are getting added, I believe that everything like utility, doctors, everything should be added as well, right? So the delta in the margins will not be significant, right? Is my understanding correct, or do you think that this is like a plain brownfield expansion which is happening in this locale?
No, it works like a plain brownfield expansion. I think when you look at utilities, etc., you're looking at a quadruple cost. As far as the operating cost is concerned, there isn't a significant increase in operating cost.
If you look at the P&L, about 15% of your costs are related to doctors, and out of the 33% of indirect costs, 23% is non-medical personnel. Most of it is management. So you have about 25%-26% of the operating cost, or up to 30% of the operating cost may increase on an incremental basis, but you still have a significant amount of room. In each one of the brownfields that we do, the utilities, it's the same. You have to increase your utilities, both in terms of whether it's in terms of chillers, air conditioning, or STP, and so on and so forth. But it's in the same complex. Yet, you have these benefits of a brownfield. Also, keep in mind that it's not 8,900 beds over the next four to five years. You have to look at it three to four years.
You have to look at it slightly differently. You're going to have 400 beds, let's say in the month of April, May coming up, which is now, right? We expect very quick sort of ramp-up of those 400 beds, like we witnessed in our other brownfield expansion. The next set of 500 beds, okay, is going to come up after three and a half years. Basically, you had a run on these 400 beds you'll have for the next three and a half years, four years. My belief is that these beds are going to get occupied in very, very quick time. And you're going to run out of capacity way before, okay, your new beds, which is another 500 beds in Vikram, are going to come out.
Got it. Got it. The third question, if I can squeeze in, our profitability for the core business is still healthy at 20%+ margin, but it has dropped slightly year on year. If you have to call out anything there?
Again, the point I'd like to call out is you need to change your view of the margins. When you start doing high-end surgeries or high-end payer mix, your margins in percentage terms come down. In absolute terms, it goes up. I mean, you'd rather do, and I keep saying this, you'd rather do a INR 10 lakh surgery with a 20% margin than a INR 2 lakh surgery with a 50% margin. If you look at medical patients, medical patients give you more margin in percentage terms, but less in value terms.
Whereas a surgical patient, a liver transplant patient, a heart transplant patient gives you less in percentage terms and more in value terms. I mean, but that's the patient you'd want, right? You need to see it as in context of three aspects. You need to look at EBITDA per bed. That's one. Secondly, you have to compare it to same time last year rather than on a quarter-on-quarter basis. Q2 is always a medical quarter. Your ARPOBs are lower in Q2, but it's always also characterized by higher occupancy, which you've seen, and the third aspect is that if you are going to look at EBITDA per bed, you've got to take out at least the newer acquisitions that have been done, okay, because you know, be it Dwarka , which is being started right now, or Lucknow, which has been acquired, or Nagpur, they're still in the building stage, right? So they enjoy lesser EBITDA per bed.
Sure. Sure. I will join the queue.
Other than that, if you look at it, it's a fairly healthy.
Yeah, so Amey, the EBITDA per bed has grown by 6.1%, right? And this is despite the fact that we had an imaging business, which we mentioned last quarter also, which has dropped by 44%, right? And it was a very high-margin EBITDA business, high EBITDA margin business. And I would say that has some impact, but I think that will normalize from quarter four onwards because we had that drop from quarter one last year. So I think that normalize, you'll see that even EBITDA per bed growth would be much better than what you see today, which is 6 percentage points.
Got it. So going ahead for the existing business, the EBITDA per bed improvement would be largely inflationary, or you think there would be improvement in terms of the productivity as well?
So you know that the ARPOB is growing by 7%, right? And that's already adjusted for all the inflationary things, etc., it will be from 8%-9% growth in the ARPOB. And in the 8%-9%, 2% is because of price. That's all is asymmetry in terms of excess asymmetry or, I would say, pure mix and also the case mix, right? So that is what we call asymmetry, then that's what will continue. And I don't think we will see any big change in these numbers in terms of growth in ARPOB, etc., in the growth profile.
Sure. Sure. Thank you so much. I will join the queue.
Thank you. Next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Thanks so much for taking my question. On the Jaypee asset acquisition, I just wanted to get a sense on, do you think if I look at the numbers, EBITDA bed obviously can be better, but in terms of occupancy, ARPOB, it seems pretty decent. Obviously, it can be higher. But what do you think is required there from an either do we think we need more medical equipment, more doctor team? Does it need upgradation? How are you thinking about ramping up that Noida asset?
I think all of the above. It's been a company which has been in liquidation for a significant amount of time. I mean, as you would sort of appreciate, it's not as if the best management, the best kind of equipment would be end of life because administrators would be employing that equipment. So equipment is end of life, new equipment, handheld instruments, etc. I mean, all of that is very basic over there. As far as the clinical programs are concerned, again, I think it's been operating with gravity. There's a huge amount of upside over there. I think separately, it's been operating as a 380-odd-bed hospital. We believe very quickly you can move to a 500-bed hospital within the current structure without making any significant sort of changes, and this can be done in a matter of a few quarters itself.
So if you ramp up the capacity, you move up the clinical programs, you move up on the ARPOB, the payer mix, etc., I think we'll be able to get there. To me, given the location, given the access, and given the quality of infrastructure, it's a marquee asset. So when you have that kind of distinct, it becomes an easy sort of. I have no doubt that this will play out the same way as Lucknow, Nagpur, or better.
And are there any litigation, etc., that we need to be worried about, which needs resolving or which could be a liability in the future that we need to be mindful of?
None whatsoever. None.
Okay. Okay. That's helpful.
I mean, there are no pending litigations. See, that's the wonder of buying through an NCLT process. That if there are any creditors, if there are any claimants, etc., there is a time-bound manner in which they have to sort of raise their hand and put it. Be it any department, be it even a government-regulated department. The NCLT process allows you, okay, to basically step up and say, "Look, this is what my claim is," and after that time, okay, those claims are not sort of entertained. In this case, it's not as if all the claims that were entertained at the NCLT proceedings, all of them have been satisfied, and more importantly, even post that proceeding, there are no further claims which have been raised.
Okay. Okay.
When you get something through a high court order, NCLT is a high court. You get something via a high court order. I mean, how do you question that?
Yeah. Yeah. So it's a fairly clean from a litigation perspective. There's no big overhang that we need to be worried about then.
I mean, you can't have a cleaner sort of title than that, right? I mean, once you're getting it through the high court.
Fair enough.
And there are no creditors which are dissatisfied creditors either. So it's all been fulfilled. So I don't think there's any.
Understood. Understood. What about the two other, the Bulandshahr and the Anupshahr? Bulandshahr, I think, is commercial. So would that be meaningful enough? Should we be considering that when we are looking at the math?
No, they're not meaningful enough. And I think we do not even attribute any value to it. Really, the question is that whether we should focus and spend CSR time and money on this or just sort of . [crosstalk] We'll figure it out. But it's not as meaningless.
And last on Jaypee, we've acquired part stake, right? The rest of it, what is the process for that? By when do we see that full acquisition?
I think in the next few days, we should have that wrapped up.
Okay. Perfect. Okay.
So there are these tolerance options. So they have expedited books. So I think hopefully next week, we should be wrapping it up.
Okay. Got it. Thank you so much.
Thank you. Next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi. My question is on Dwarka. So in your opening remark, you mentioned Dwarka will still be in ramp-up phase for most of this FY 2025. So just want to understand on TPA and insurance impanelment, I believe discussion is underway. So when do you expect this 18% revenue share will likely move up to the network level, 30%, when you impanel the required number of channels?
The one thing presently, the TPA's empanelment is underway, right? So we're also waiting for the NABH certification, etc. You know that some of the TPAs have a requirement to have an NABH certification. So we do think that by the end of December, we should have all of them in place. And that's the time can be honored within we should be more than 30% revenue coming from TPAs.
Okay. So by December, most of the contracts will be signed and then built up from there.
Yes. Yes.
And the ARPOB, which you mentioned in your presentation, 80,000, that is because we understand most of the patients so far were the cash channel patients, right? And maybe ARPOB will settle down more at your network level for this hospital also?
Yes. So the two things, one is that we have very high OPDs, right? And we were not able to because we do not have TPA empanelment, etc. So some of the OPDs were happening, but I think it was happening in some other hospital, right? So these doctors did have some attachment in another hospital. So they were taking patients in the other hospital. For example, a neurosurgeon was having an attachment in [inaudible]. So we gave the patient to [inaudible]. So I think that's what was happening. So I think hopefully when we have everything in place, then the ARPOB will moderate a bit. But it won't be a very big change because it will be more near to the national average than the 80,000 patients.
Yeah. But you know it's a play between occupancy and ARPOB. I believe it is, like I said, this will probably be the fastest greenfield break even that we've ever witnessed. And very good traction is a matter of time you have the TPAs, etc., signed up. And we started end of July, so pretty much August. It does take three to six months to sort of sign all the contracts, etc., etc. And I mean, a lot of it is in play. I think like Yogesh mentioned, by January, we expect all of that to be done.
Sure. My next question is on your network level revenue contribution from TPA and corporate channels. So it's around, I guess, 38% in the first half. So looking ahead, I guess when we are adding a lot of capacities into the network, where I guess this payer mix, etc., will take some time to build up. So say in the next two to three years, what kind of contribution we can assume from this particular channel? So from 38%, can we assume it can comfortably go up to say 45% or so? Or how do you see this pie moving up?
So I'm not going to give you again any forward-looking guidance, but I can tell you what our experience has been. That when you open new brownfield capacity, you essentially start taking in also a larger amount of lower-end payer mix as well as lower-end clinical mix, which typically, so one of the characteristics of a brownfield is that you pretty much finished with distilling your payer mix.
You're doing very little or none of institutional business, right? Like in Saket, in the main cluster, in the main hospital, we stopped doing it. In Nanavati, we stopped doing it. The minute you put up a distilled brownfield, one of the things you're going to do is you're going to switch on the tab for institutional over there, which is a lower-end payer mix, right? But because of operating leverage, even with the lower-end payer mix, that means with lower ARPOB, the EBITDA per bed is high. That's what we witnessed in Shalimar Bagh when we opened the brownfield. If you actually see what has worked for us in Nagpur, it was operating at maybe 55% or 60% occupancy. And one first order of business after taking over operations was to sign up the institutional business, which is again lower ARPOB, but provides higher occupancy.
Now the result is ARPOB sort of kind of got muted. The occupancy went up to 90%+, but EBITDA moved up by more than twice, right? So I think that's what we see when you have occupy incremental beds, okay, which are the cost of which is only incremental cost, okay? And even with a lower sort of payer mix, that brings it down to the bottom line. The margin improved. What extent? That I will not guide you.
Sure. And my last question is in some of your near-term upcoming capacities, so Lucknow and then I guess Nanavati, those are coming in near term. So for these facilities, when do you start putting up a new set of doctors, medical team, etc.? Or it happens very near to the commencement of these units?
So there are three things. I mean, we have new capacity coming up firstly in Nanavati, in Max Saket, and Mohali, as well as Lucknow is coming sooner by December, but these three are coming up in the same time, in the month of March, April, May sort of thing, right? These are brownfields. In brownfields, unlike Dwarka, which was a greenfield, okay, where you're going to staff, you're going to get doctors, you're going to get nurses, etc., they'll be on your books for about two months before you commence operations. Even when you commence operations, it takes you time to sign up TPAs, sign up these things, etc. There's a ramp-up. So there are some limitations in ramping up, which are not limitations at the operational level, but they are limitations of enabling that occupancy over there. In a brownfield, you don't have that.
It is the same existing contracts, the same licenses, the same distinct, and all your doctors, pretty much all your doctors are the same. Because the more expensive ones are the chairmen of the programs, the head of the programs, etc. It's not the units of the junior consultants below. I mean, the resident doctors, the junior doctors are not, which is extremely sort of distinct. So it doesn't really show up in the first month itself. It kind of you get them and it absorbs it and so on. So I don't see a major impact because of it.
Okay, and any hiring? Yeah, so any hiring in these brownfields, as you said, maybe the department heads or the really senior position, but most of the team is already in place. That's why there won't be any meaningful delta in terms of cost. Okay. Understood.
That's right. Even on the management side, if you see, I mean, the same facility head is the same F&B head, it will be the same nursing head, it's the same engineering, medical superintendent, and so on and so forth. So it's not a significant amount, and particularly in Smart, we're expanding beds. So the team is there already in place.
Sure. Yeah, that's helpful. Thank you. I'll get back to the queue.
Thank you. Next question is from the line of Sumit Gupta from Centrum Broking. Please go ahead.
Hey, hi. Thank you for the opportunity. So let's start with three questions. First is, can you tell what is the international patients' bed share and what kind of trend that we can expect?
So, international bed share is generally 5.5%, right? And it constitutes around 9% on the revenue side. But 5.5%, as you know, the ARPOB is higher than the national average when it comes to international patients.
Right. So second is on the Jaypee Hospital. So can you explain the case and sort of payer mix of this hospital in Noida? The case and payer mix in Jaypee Noida? [crosstalk]
So Jaypee Hospital patient case mix, about 25% of revenue comes from institutional business and about 10%-14% of business month-to-month comes from international business.
Okay. And so just want to understand on the broader aspect, how is the competitive scenario in Noida? Just like so there are other hospitals which are also going to expand in this geography. So how do you see that panning out? Will there be any impact that you see on the volume side?
I think this hospital is there. Other hospitals are going to come up. We're going to come up in some time, but this is a AAA+ location. You can't get better than this in Noida. So anybody's sort of familiar with that area. This is an 18-acre complex. It's 950000 sq ft. I mean, honestly, I think none of us would ever build a hospital like that. We wouldn't want to.
I mean, the size and scale of it is something which is over specced. So from that standpoint, the benefit is that you get something with that size, that scale, that location, that kind of infrastructure, which nobody is going to operate. It's like you can make in Jaipur, you can make a new hotel, but there's one Rambagh Palace. This is the Rambagh Palace over there. So it's an easy sell, easy access, easy everything from that standpoint.
It already has a start, right? It's already even with a lot of limitations that it operated with, okay, that under liquidation for over 10 years, very little medical equipment, and so on and so forth. Yet you've seen decent sort of halfway decent results coming out of this hospital.
Okay. Understood.
The reason for that is just fundamental and structural. I mean, it's just, I mean, getting seven-stars treatment at maybe four-star, five-star prices or quality of service or whatever.
Okay. Okay. And so lastly on the Dwarka hospital, so just like in the presentation, so you mentioned that the hospital is expected to open nearly 200 beds by end of FY 2025. So just want to understand on this aspect. So you're going to add like 200 beds or what? 141 beds are going to be operational beds capacity to get to 200 beds?
So it's a 303-bedded hospital, right? So you know that in a greenfield situation, we don't open all the beds because when you open more beds, that means there's a cost attached to it, right? So we open beds as we are able to fill it up. So I think what we're saying is we have 141 beds open as of now, and we think we'll be by March, we'll be open 200 beds.
No, no. You see what happens? Yeah. What happens is that you have to get a license, right? Now, if I get in order to get a license, if I go and get a license for 300 beds, then I need to staff all the 300 beds. Then you have to prove it through the licensing authority that you've staffed all the 300 beds.
But if you have occupancy of about 150 beds, then you will just say, "Okay, give me a license for 150 beds because you staff accordingly then." There's no point carrying staff for 300 beds of nurses and resident doctors for 300 beds when your occupancy is only 120, 150 because you're waiting for all the TPAs and all that to happen.
Okay. Sure. Thank you.
Thank you. Next question is from the line of Prashant Nair from Ambit Capital. Please go ahead.
Good afternoon. Again, follow-up on the Jaypee asset. When you acquired it, you had mentioned that there is scope to raise capacity meaningfully here, bed capacity meaningfully here. I think you also mentioned alluded to that now. Do you have I mean, have you worked out over what period of time you will be looking to expand the bed capacity here?
And also second part, for the current hospital, how much do you think you would need to invest in order to upgrade medical equipment, clinical capabilities, etc., over the next couple of years?
I think on the first part of the question, I think we will look at expanding the capacity at the earliest. We will be limited by actual time it takes to construct. So we're looking at right now moving up to 480 odd beds from the current capacity. And thereafter, it should take us two, two and a half years to build another 450 beds, 500 beds, which we will embark on that right away because we see the current capacity being filled out in a matter of months and way before the new capacity that we are looking at. Because it takes time to construct, by then we are looking to set it up.
As far as the BME medical equipment right now and upgrade is concerned, Yogesh, what is the?
Yeah. So I think we already have some plans on that. There will be a 150-200+ spend that we're planning to expand with 40 beds. And then, as I mentioned, then after that, we'll start another project.
But this includes the medical equipment over 150 gross.
Yes. Yes.
Okay. Thank you. That's it.
This includes the, I mean, because you have to appreciate that almost all of the medical equipment is end of life. So it requires replacement.
Right. Fair enough. Yeah. Thanks a lot. Thank you.
Thank you. Next question is from the line of Nitin Agarwal from DAM Capital. Please proceed.
Thanks for taking the question. A bit on, we've had a pretty busy last few quarters in terms of these acquisitions that we've done. With a bunch of new assets coming on stream next year, as you mentioned, I mean, are we looking to take a pause on the inorganic growth part of plans or are there still we still continue with the inorganic growth activity for the next few quarters?
I mean, if we get we have a pipeline, we can keep getting opportunities to add marquee assets. We'll continue to do that. We certainly have the balance sheet and we certainly have the bandwidth.
Okay. That's good. Secondly, on Jaypee, so we've mentioned INR 1,600 crores. I remember as the EV for the business acquisition, this includes the entire payout for the entire equity and whatever debts you've taken on for the asset?
That's right. That's the enterprise value.
Beyond this, you mentioned there is going to be some registration and transfer charges. So how much of that will really account to?
The only paid, I think it's about INR 62 crores out of INR 760 crores, which is over and above. It's a DDA policy has a rule where even if there's a change in shareholding, then there's an amount we pay. So it's INR 62 crores that we pay.
That's already paid out. No further transfer charges.
So I mean, how should we think about the assets? So we paid about, what, INR 1,700+ crores , including the upgrades and all, about INR 1,800 odd crores for buying out an asset for about a 500-bed asset. So is that the way we should think about it? Apart from, obviously, it's a running asset that gives us immediate EBITDA versus a greenfield investment that we would have done.
But in your mind, how should you evaluate this versus assuming you were to make a same greenfield investment, assuming there's an opportunity like this in Noida, versus acquiring this asset for the price that you paid?
Look at it from a ROCE standpoint, right? I think essentially what you're doing is you're looking at a 500-bed asset, which is renovated with new equipment, etc., and capacity to add another 1,500-1,700 beds over there on the land there is, right? So I mean, very clearly, if you want to look at it over a four to five-year plan, you look at 500 beds plus another 450 beds that you would be able to add. You already got the land for it. And you look at what is the EBITDA and what sort of ROCE you're able to get.
If you're able to generate more than 25%, 20%, 25% return on capital employed over that period of time, it's a good acquisition. That's how we look at it. It so happens that this one is easier to sell, perhaps because of marquee asset with that location, with that listing and so on. But no matter how you cut it, no matter how you look at it, even if you look at it, standard any expansion, a 500-bed hospital, okay, in this location should give you about INR 250 crores, sorry, should give you about, sorry, INR 300 crores of EBITDA.
Let me just tell you how we look at it, right? Basically, also if you take we have a hospital in Vaishali, right? And that's a 360-bedded hospital, 360-bed actually. And this is going to be 480 beds, right?
Now, 480 beds with all the money that we're going to spend, etc., is going to be roughly around INR 99 crores. And this hospital in Vaishali does roughly around INR 380 crores of EBITDA every year, right? And that's a 360-bedded hospital. So this is going to be 480-bed hospital.
So this is actually a better location, better access, bigger, better infrastructure than Vaishali.
Yeah. More beds, 18 acres. I mean, that's going to help with the piece of land. So obviously, you can see the kind of numbers that we are going to expect from Jaypee, given that we have a benchmark in the same market already giving that number of EBITDA margins and EBITDA.
So our normal bed size average is about 1,100 sq ft per bed. This is 2,000 sq ft per bed, already constructed.
Oh, okay. Okay. I think when you are looking at, obviously, you're looking at continuously evaluating a pipeline of various sort of assets. So the kind of transaction that you've gotten on the Jaypee Hospital is more of a one-off transaction or are there similar such transactions which are there for the taking in the market?
If Jaypee is a one-off, then I guess Sahara was a two-off and then Nagpur is a three-off, right? So I think we keep doing these one-offs, which we like every once in a while.
Right. Lastly.
I mean, I think Sahara now is very similar. So was Nagpur.
No, I get it. I appreciate that. Yeah. Lastly, on Dwarka, you talked it's going to be our fastest probably breakeven for a greenfield. So what is the time horizon you're looking at for the breakeven here?
I mean, on the outside, we'll look at it before end of financial year.
Okay. Thank you so much.
Thank you. Next question is from the line of Andrey Purushottam from Cogito Advisors. Please go ahead.
Thanks for taking the question. First of all, thank you for putting in an exceptional performance, not just for the last quarter but for so many quarters that as a long-term investor, I want to express my appreciation of the performance. My question is really a follow-up from one of the earlier questions in terms of the levers that you have to increase EBITDA per bed. If you could just expand a little bit on that and also answer two specific questions. One is, has your proportion of your low-margin CGHS kind of business actually diminished over the last year or two?
And how do you intend scaling up your international business, per se, and also perhaps to compensate for the possible reduction in volumes from places like Bangladesh? And how important is Bangladesh to your total share of patients of the international business, per se?
This is lots of questions. I'll take the last one first. Bangladesh seems to be less than 1%-2% of our total business, so it really hasn't impacted us that much. And we've been able to sort of compensate that through other markets and other initiatives everywhere else. So Bangladesh is not affecting us. What did affect us in the past is Afghanistan, which was 12% of our international business. But we haven't had that for many, many quarters now. So you don't see the impact of that. Hopefully, as in when it comes through, there will be a positive impact because of it.
Having said that, levers for EBITDA per bed really start from the top with revenue levers to start with. And perhaps most of it are revenue levers. Okay, got to do with adding clinical team, adding occupancy, increasing occupancy, increasing more beds. So I mean, every revenue lever that you can sort of imagine will play into the bottom line and increase your EBITDA per bed. Because I think as far as costs are concerned, we're pretty much in line with where we want any benefits over there will be only incremental. So institutional business has diminished marginally over the last few quarters, but the ARPOB of the institutional business has almost doubled. So you'll actually see that within that category, the ARPOB has doubled. So the rates are becoming closer to our cash rates.
More importantly, we're not doing in a lot of our metro locations where we already have very high capacity, we've diluted away from that. So if you look at Mumbai, we don't do any institutional business, but once we start the new capacity, we'll start that. We just occupy the beds with it till such time that we have idle capacity. Once that kind of runs out, we start diluting it, go back to cash business. Saket is the same thing in the main, Jaypee, Vaishali, etc. We don't do institutional business. At some stage, once we come up with new capacity, Saket, yes, we'll start taking on more institutional patients, but again, over a period of time, we'll dilute it, but then third phase, three, four years later, when Vikram comes again, we'll start doing that, so you keep playing that game.
More importantly, as you start running out of capacity, you start distilling payers. And within those payer groups also, you start distilling the clinical mix.
Right. Going back to the international business, you said that you have a 5.5% bed share and a 9% revenue share. Now, if you're looking to increase this share, what is the approach that you're following? Is it largely walk-in business, or are you making a fair amount of proactive efforts in other geographies to attract talent here or to attract patients here?
We've set up offices in the last two, three years in about 22 geographies, right? So we've got our own offices and partner offices, etc. That is the reason that you've seen that, look, we have an outsized sort of growth in our international business.
It may be 9% or 10% of our revenue, but our revenue has also been growing significantly over the last four, five years. This business has been a 20% CAGR for us. Right. I mean, it's been growing at about 20%+ per year. So it kind of outstrips, and the reason is that some of the investment initiatives that we've been making in terms of setting up these offices and fly, etc., overseas.
Well, there are a lot of problems that people face with the NHS in England and similarly in places like Canada, etc. So given the fact that we can provide outstanding medical care at a fraction of the cost, do you see more traction coming from developed countries like the U.K. and Canada, etc., where they have a lot of bureaucratic problems about getting service in their own countries?
Yeah. It's a question of whether you want bad healthcare free or you want to pay for good healthcare and upfront healthcare and you want to come to India for it. So we are setting up some beachhead operations in the U.K. as we speak because of the same reasons that you mentioned. But I'm not expecting some floodgates too. I think it's more a long-term kind of thing that we need to have some sort of presence over there. We at least get people of Indian diaspora to India to be able to do this. I don't see people coming in those because there's a waiting time in NHS. There's a waiting time, but it's free.
Right. Okay. Thank you. Thank you very much and congratulations once again. Thank you.
Thank you. Next question is from the line of Madhav Marda from FIL. Please go ahead.
Hi, Abhay. Thank you so much for your time. I just had one question. On the Dwarka unit, it's quite encouraging that a greenfield asset can break even in a very short period of time. Could you just give some color in terms of what guides it? Because I guess a general understanding for everyone has been that greenfield assets take, let's say, two years, two and a half years to reach EBITDA breakeven. But since we can do it at a very good pace, just what are things that are working in our favor? Just for my understanding. Thank you.
I think it's not two to two and a half years. It takes about 18 months to break even. Typically, it should take about 18 months. That's par for the course. But having said that, I think this is, again, an excellent, excellent location.
The first thing is always a location. Second is the infrastructure. The third is how much underserved that market is. And fourthly, I tend to believe that our brand that is NCR-centric. We already have 14-odd facilities over there. Makes a big difference. There is a very strong brand recall. What my belief is that we would have already broken even if we had all the institutional tie-ups, the NABH, etc., etc., which typically you need six months of data to get NABH. Once you get NABH, you get higher rates from institutions. So a lot of it is process-related.
But otherwise, I mean, for us, again, once the location is good, once the infrastructure is good, access is good, then it shouldn't take time to ramp up. Also, team of doctors. Also, team of doctors. We've been able to access or get very, very good team of doctors. But that's the max advantage, particularly in NCR, that we are able to attract quality talent.
Wonderful. Thank you.
Thank you. Next question is from the line of Amit Devani, an individual investor. Please go ahead.
Thank you, Abhay. Thank you so much for taking my call. I particularly enjoyed the response to the question whether Jaypee was a one-off. But just a thought, I also enjoyed how we've broken up the business into existing and new units. So can you at 81% kind of capacity utilization, we are a little bit maybe constrained for volume growth in the existing units. So can you a little bit of a forward-looking statement? What would the growth that you estimate in the existing units in volume and ARPOB going forward? I mean, just a ballpark, even a range is fine. And even, I'm looking for more of a longer-term number rather than a short-term number.
Firstly, 81% is a seasonal number, right? And it's because of seasonal flu, etc. Normally, the second quarter has a higher occupancy. So you see, actually, in Q3, perhaps the occupancy is to get a little more muted than that. And that's traditionally been the case. Whatever is in Q2, Q3 is lower. Q1 is lower. And then Q4, again, you ramp up. So yes, the other characteristic of having a capacity constraint is that you have a higher move-up in your ARPOB. Simply because when you have a capacity constraint, the lower-end clinical mix and lower-end payer mix is perhaps not given the priority. And when you haven't given it the priority, you post those surgeries and procedures at a later date, they're likely to evaporate.
When you have capacity, all of that lower-end payer and clinical mix comes through. But like I said, it's also characterized by higher EBITDA per bed. So it works out better to have higher occupancy than a ramp-up in ARPOB. I mean, the fact of the matter is that we've been operating at these kind of capacity levels for the last couple of years with the 1%- 2% point here or there as far as occupancy is concerned. And that will always at the margin, there'll be some elasticity, but it's diminishing returns. And we need to be cognizant of the fact that we have capacity constraints. We are cognizant of the fact that we have capacity constraints. And therefore, we embarked on this massive journey of brownfield. Some people will ask me the question like you are asking me that, "Look, you're at full capacity.
Where do you go from here?" So the answer to that is, "That's what the brownfields are for." And some other people tend to ask that, "Look, there's so much capacity coming in the country. Why are you putting up more capacity?" Well, this is the reason we are putting it up. We've run out of capacity.
Correct. Correct. Correct. But any quantitative guidance? Would you want to venture in that?
No, I don't. I normally sort of stay away from forward-looking guidance.
Thank you. That's all. Thanks.
Thank you. Next question is from the line of Alankar Garude from Kotak Institutional Equities, please proceed.
Yeah. I thank you for the opportunity. Just one question for Yogesh Sir. With Dwarka coming online, what will be the annual lease payment at the network level?
I think the overall number for the year would be around INR 95 crores, right? I'm talking all the business trusts as that's one. So specifically, this number is around INR 28 crores-INR 29 crores.
And the number for Dwarka, when you say INR 95 crores, would be for nine months, right?
No. Last time, INR 28 crores is Dwarka. Total is INR 95 crores for the overall network.
INR 28 crores for the year?
Yeah, for the year. I'm talking all annual numbers, right?
Understood. Understood. So basically, I mean, for FY 2025, the number would be INR 7 crores -INR 8 crores lower. Got your point. That's it from my side. Thank you. Yeah.
Thank you. Ladies and gentlemen, to ask a question, you may press star and one. As there are no further questions, I would now like to hand the conference over to the management for the closing comments.
Thank you, everyone, for joining us on the second quarter results. We look forward to interacting with you again next quarter. We'll appreciate it. Thank you.
Thank you, sir. On behalf of Max Healthcare Institute Limited, that concludes this conference. Thank you all for joining us. And you may now disconnect your lines.