Good day, and welcome to the Max Healthcare Institute Limited Earnings Conference Call. As a reminder, all participants' lines 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, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Suraj Digawalekar from CDR India. Thank you, and over to you, sir.
Thank you, Aman. Good morning, everyone, and thank you for joining us on Max Healthcare's Q2 and H1 FY 2024 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 of Growth, M&A, and Business Planning. We will begin the call with opening remarks from the management, following which we will have the forum open for an interactive Q&A session. Before we start, I would like to point out that some statements made in this call may be forward-looking in nature, and a disclaimer to this effect has been included in the upcoming presentation shared with you earlier. I would now like to invite Abhay to make his opening remarks.
A very good morning to everyone. We are pleased to welcome you to Max Healthcare's earnings call for the Q2 and first half of fiscal year 2024. Let me start by stating that our performance in the first half of this fiscal year has set a commendable precedent for us to follow in the latter half. We recorded a year-on-year increase of 17% in network revenue and 20% in EBITDA in H1, while Q2 turned out to be the 12th consecutive quarter of year-on-year growth. Our Q2 performance this year largely mirrored our quarter-on-quarter performance last year, alluding to the steady state of our operations as well as secular demand for quality healthcare services.
Further, our granular focus on execution and capital allocation, as is evident from our pre-tax ROC of 38.3% in quarter two, we are well poised for the next leg of growth that is set to come from planned capacity expansion as well as inorganic opportunities. On that note, we're happy to share that the developer of our upcoming hospital in Dwarka has applied for the occupancy certificate, which is a significant milestone, and actually the final milestone, and we expect to commission the same in the Q4 of the current year. Moreover, our most recent brownfield expansion, Max Shalimar Bagh, has reported an overall average occupancy of 78% on a year-on-year revenue, and EBITDA growth of 41% and 48% respectively in the Q2 .
On the clinical front, we have signed Memorandum of Understanding with Intuitive Surgical, the U.S.-based pioneer of robotic surgical systems, to establish Southeast Asia's first Total Program Observation Center located at our Max Saket facility. The center is expected to have positive impact on both India and Southeast Asia's surgical healthcare ecosystem by enabling healthcare professionals to drive advancements in patient care using robotic-assisted surgery and elevate surgical healthcare standards in the region. Now moving on to the highlights of our Q2 performance. Occupied bed days grew by 3% year-on-year and 5% quarter-on-quarter, reflecting an average occupancy of 77% for the quarter. 93% of the year-on-year and 118% of the quarter-on-quarter increase in occupied bed days was driven by preferred cash channels, preferred channels, which is cash, insurance, and TP and international.
With increase in occupied bed days and marginal drop in ALOS, the inpatient discharges were up by 7% year-on-year. Even OP volumes exhibited a strong growth of 14% year-on-year and 4% quarter-on-quarter. Institutional bed share rose to 27.3%, compared to 27.9% last year and 29.7% in quarter one this year. However, after excluding Max Shalimar Bagh, the most recent expansion, the overall institutional bed share stood at 25.4% during the Q2 . Average revenue per occupied bed for the quarter stood at INR 74,600, growing by 13% year-on-year and remaining flat quarter-on-quarter due to seasonality. Year-on-year improvement was witnessed across all specialties, oncology being the key driver.
Network gross revenue was INR 1,827 crores, compared to INR 1,567 crores in the Q2 last year, and INR 1,719 crores in the previous quarter. This reflects an increase of 17% year-on-year, led by growth in ARPOB and occupied bed days. Quarter-on-quarter growth of 6% is mainly driven by increase in OBDs, occupied bed days. Revenue from international business again grew significantly by 25% year-on-year and 11% quarter-on-quarter, accounting for now around 9% of the total revenue from our hospitals. During the quarter, we have operationalized company-owned patient assistance centers in Nepal, while all formalities for the Bangladesh center have been completed. We expect to operationalize this center shortly. This is in spite of the Afghanistan business, which was 12% of our total international business, is now to zero.
Direct costs were lower quarter-on-quarter due to increase in medical patients attributable to seasonal vector-borne diseases. On the indirect cost side, while the overall percentage was lower, there was an increase in absolute costs, primarily due to marketing costs for international channels and seasonal increase in power consumption. Network operating EBITDA stood at INR 497 crore, just below the magic mark of 500, reflecting growth of 21% year-on-year and 14% quarter-on-quarter. Accordingly, the operating margin increased to 28.7% versus 27.7% in Q2 last year and 26.8% in the previous quarter. Most importantly, annualized EBITDA per bed rose to INR 75 lakh, yet again, our highest ever, locking a growth of 70% year-on-year and 7% quarter-on-quarter.
Profit after tax was INR 338 crore versus INR 267 crore in Q2 last year, and INR 291 crore in the previous quarter on a like-to-like basis. The year-on-year improvement of 26% was primarily attributable to flow-through of improved EBITDA and lower finance costs. Free cash flow from operations was significantly higher this quarter at INR 456 crore, of which INR 90 crore was deployed towards ongoing capacity expansion projects. Net, net cash position improved to INR 1,303 crore at the end of September 2023, compared to net cash of INR 42 crore same time last year. Continuing efforts to support the local communities, we treated approximately 39,000 patients in OPD and 1,300 patients in IPD from economically weaker sections free of charge. Both our strategic business units continued to tread strongly on their growth trajectory.
Max@Home reported a top line of INR 42 crores, reflecting a growth of 23% year-on-year and 8% quarter-on-quarter. We continue to receive good feedback for our services, and the same is reflected in the SBU's revenue growth. Max Lab, the non-captive pathology vertical, offers its services in 36 cities and now has an operational network of over 1,000 collection centers and active partners. This SBU reported a gross revenue of INR 39 crores, reflecting a like-to-like growth of 52% year-on-year and 15% quarter-on-quarter. Now, coming to the status on our upcoming expansion projects. As most of you know, 122 beds at Shalimar Bagh have been operationalized at the start of this financial year. As mentioned earlier, the hospital reported an average occupancy of 78% for the quarter.
For 300 beds at Dwarka, application for OC, which is occupancy certificate, has been submitted in October end. Majority of the interior works have been completed, and some of it is just being finished as we speak. We expect to commission the hospital in later half of Q4, subject to receipt of occupation certificate by the developer. For 329 beds at Nanavati, excavation and raft work are complete. Steel fabrication up to the ground level and slab work have also been completed. Ground level structure is expected to be completed in the current quarter, and the project continues to be on schedule. For 300 beds at Sector 56, Gurugram, in phase one, the diaphragm wall has been completed and the site excavation is almost done. The EPC contractor is already on board, and design and development is under process.
PDR approval for additional 0.5 FAR has been received, and the project is on schedule. For 190 beds at Mohali, the diaphragm wall is completed and excavation work is underway. All statutory approvals to start the construction have been received, and the project is largely on time, well, almost entirely on time. The EPC contractor has been mobilized, and the design development is in progress. The 350 beds at Max Smart in Saket, which had seen some delays initially, we have now initiated the process of transplanting the trees that permissions have taken some time to come, which are now. This has been on the critical path, but now, the project is back on schedule, and work should start by December, currently.
For 300 beds at Vikrant, at Saket complex, environmental clearance has been received, and the submission of drawings to the Municipal Corporation of Delhi is in process. For 250 beds at Patparganj, drawings have been submitted to the Municipal Corporation of Delhi, and the application for environmental clearance has been submitted. All the other projects are on schedule. There is no delays as such. Finally, coming to the overview of the company performance in the first half of this financial year, network gross revenue stood at INR 3,546 crores, reflecting a growth of 17% year-on-year. Network operating EBITDA grew by 20% year-on-year to INR 933 crores.
Increased ARPOBs, improved case mix and augmentation of network bed capacity by 150 beds resulted in margin expansion to 27.8%, while EBITDA per bed grew by 15% to INR 72.8 lakhs per bed. In the first half, we generated INR 697 crores of free cash flow from operations after interest, tax, working capital changes, and routine CapEx, of which INR 128 crores was deployed towards ongoing expansion projects. With this, we open the floor for 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 touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two.
... Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Anyone who wish to ask the question, may press star and one at this time. The first question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi, good morning, and thank you for the opportunity. My question is, you continue to see progress in reducing bed share to institutional patients. So, few quarters back, you had given an indication that you would like to bring it down to the industry level. But with Shalimar Bagh, I guess, you have taken on more institutional bed to ramp up occupancy, et cetera. So do you still target to bring it down to, say, industry average, and when it will likely happen?
So I mean, there is no industry level, so to say. You know, there's no classified industry level. I think it's highly sort of changes between metros and not met- non-metros. You have more PSUs, headquarters, et cetera, out of places like Delhi, NCR. So you have a larger sort of volumes of that, larger amount of businesses coming through. Now, two, three things have happened. One is, apple to apple from 29.7%, it's come down to about 25%, in the current quarter. Second is that it's on an increased capacity, including Shalimar Bagh, which has happened.
Currently, certain rates have moved up in CGHS, and we're expecting certain other rates from institutional business to move up in the current quarter, because of which little bit we would have taken the foot off the accelerator. And finally, even within you know the institutional business, there's been a churn in the sort of specialties we are catering to and the ones we are not catering to. And all of which sort of comes down and plays out in your higher EBITDA.
So what you're seeing is, although, because of the overall capacity constraints that we have, your occupancy has moved up by only perhaps 3% year-on-year, but there's been a churn of about 3%-4% year-on-year also, within the patient, within the payer mix, and all of that is then translated into a higher percentage margin as well as, EBITDA per bed. So to say, I mean, apple to apple, the same inventory going forward will be coming down as far as, institutional business is concerned. But to your point, as you rightly mentioned, as and when you have new capacities coming, those capacities initially will have increase in institutional business.
So in percentage terms, it may move up, but in or remain stagnant just when those capacity is coming, but I think overall still translates to your better EBITDA margin.
Okay. Okay, so, you mentioned, like, in-
Just to sort of complete that point.
Yeah.
In, you may have seen because of Shalimar Bagh, new capacity coming in, the institutional business sort of moved up. But if you actually see the EBITDA coming from those incremental beds, in spite of that-Sorry, this is this increase in institutional business is yet 40% margin.
Okay. So, that means obviously you are getting much better realization from these set of patients also. As you mentioned, wage hike in CGHS could be one of the reason, which might be contributing, and then obviously, specialty mix. Just-
Not, not that. There is a largely because of the operational efficiencies that you have. You have new operating leverage on the new beds. You don't have the fixed costs, et cetera. So what happens is, even the lower mix, right? I mean, the lower payer mix, okay, becomes more viable and more and more viable even on the new set of beds, because your operating cost is very low on the incremental.
Okay, sir. It's primarily driven by efficiency, as you mentioned, like, you, you have better absorbed the overheads there, that is, resulting in these kind of numbers.
That's it.
Okay. And, just a clarification, you mentioned there has been a bit of hike on the CGHS patient also. So right now, like, what is the difference between that price channel and then the normal cash and others? Like, very broadly, like, what is the... Yeah.
So Damayanti, typically, if you take the RPO of the two channels, they will be... So the, so the CGHS channel, the preferred channel, is 85% higher than the PH channel.
Almost 100% higher.
No, no, no, 85% higher.
80%, so the preferred channel is 85% better RPO than the-
If your PSU RPO is 100, this will be 185.
Okay. 100, 100. Okay, my last question is your difference between gross revenues and net revenues, which you book for pro forma financials, that's primarily driven by what you pay for EWS patients, right?
Yeah.
So-
That's right, yeah. Lastly, lastly, that's the, that number, yeah.
Yeah, and I'm seeing that number has broadly remained somewhere like 5% of gross revenues. So, should we assume similar numbers to trend, even if, let's say, we are commissioning new facilities ahead, and then according to government rules, we have to allocate some bed for the EWS?
Dwarka may not have any EWS population. It does not have.
Uh, it-
Dwarka does not have. Mumbai will have, and others will have. I mean, Gurgaon won't have.
Okay. So Dwarka and Gurgaon does not have?
Other than Gurgaon, Dwarka, and Mohali, all others will have.
Okay. Okay. Thank you.
Up to 200 additional beds.
Mm-hmm.
... I think between these you have, 200 in Mohali, 300 in,
Thousand beds.
1,000 beds will not have, balance 2,200 will have. Sorry, balance 1,200 will have.
Approximately 1,200 beds will be utilized, and then others don't have such requirement.
Yeah. Let's say we have 2,200 beds further coming up.
Mm-hmm.
2,700 beds further coming up, of which 1,000 beds will not have any EWS obligation. So the balance 1,700 will have the 10%, so let's say 170 beds out of 2,700 beds.
Okay. Got it. Thank you, and all the best.
Thank you.
The next question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Thank you for the opportunity, sir. Just on the housekeeping question, on the international patient bed share, what was that for the quarter?
Yeah. That'll be around 5%.
5% only?
Yeah,
So there'll be ARPOB guy, so that's how it. Now the, the revenue share build up. So it's, I mean, that experience 5.5%.
5.5%. Okay. Okay. So then, probably the pricing, et cetera, kind of more or less will remain same.
Mmh
Okay, thanks for that. And secondly, when I look at our specialty mix, oncology therapy, if I see, has been growing at almost 2x the overall revenue growth, primarily for the last Q2 . And even if I look at a longer term trend, for the last Q9 in a row, it has grown faster than our overall revenue growth. So what are we doing differently there, and you know, is it a market growth or price as a-
Yeah, I think overall growth is 17%. This is about 26-28%. Not exactly double. But, there's been a focus on oncology, and, we've also seen, larger burden of the disease sort of just playing out. We've also had, a focus on robotics, et cetera. And, as we are moving up the value chain, what we are seeing is more and more people are choosing, more, more sort of, better technology.
Okay. And,
Also seeing, as you're seeing more and more, population on insurance-
Mm-hmm.
Then people tend to sort of go higher and these things et cetera, do less of window shopping. They go to more established corporate hospitals and brands. So we are seeing more and more people for oncology and some of the other diseases, whereas they would have gone to smaller places earlier. Now coming to larger hospitals, so insurance plays an important part.
Kunal also, oncology tends to have higher entry barriers, right? So there's a lot of investment to add equipment, et cetera, bunkers, infrastructure, et cetera. So to that extent, you know, the patients do gravitate towards, you know, bigger players.
Sure, sure. Is it possible to share the split of this 25% of revenue mix between, let's say, surgical and non-surgical? Because we have also have chemotherapy and radiotherapy included in this 25%.
Kunal, that's not a public number. But I think obviously a large part, I would say. So it will be a large part of this will be chemotherapy. All right? But I would say it's a fair share of all three: radiation, you know, surgical and medical. Now, we haven't publicly given that number, so we won't publicly disclose the distribution between the three.
Sure. And is it fair to say that oncology would be highly accretive to profitability for us?
Yes.
Now, yes, the oncology happens to have higher ARPOB, right? So to that extent, yes, it will be higher profitability also.
Sure, sure. Second,
Looking at it, I mean, it also occupies more space. So, you know, there's also a return on capital and return on real estate over that one.
Mm-hmm. Okay. Okay. So, so return on capital is also higher in your view, or, does it require more space, so it would more or less-
I think return on capital, it's, it's even, even with the rest.
Okay
Okay, great.
Thanks for that clarity. And secondly, on, you know, drivers of a strong ARPOB growth from 13% year-on-year, for the first half. If I kind of, you know, do some back calculation using the bed share and, revenue share, it seems that, CGHS, ARPOB or institutional ARPOB would have at least gone up by around 20-25%. Is that a fair, number, or I'm overestimating, underestimating?
That's not, that's right. I mean, the PSU ARPOB has gone up by 48%.
48% for the first half.
48% year-on-year.
That's not because of pricing?
Yeah, it's also because of the mix and the mix change, which I was mentioning earlier.
Mm-hmm.
It's a change in mix, it's not a change in price. The change in price would not even have an INR 14 crore impact on the overall revenue.
Okay. Okay. Perfect. Thank you. I have more questions. I'll get back. Thank you.
Thank you.
The next question is from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi, good morning, and, congrats on a great set of numbers. Just one question on the expansion plans. For all these facilities, the greenfield facilities that are coming up over the next couple of years, what's your internal target for EBITDA break even, in how many months or quarters?
You know, almost 90% of our expansion is brownfield. And normally we see EBITDA break even in a quarter or two, if not the Q1 itself. But the last experience was EBITDA, again, EBITDA break even, we were hitting 40% margins within 40 days... So it doesn't work on greenfield facilities. On greenfields, we do see 11-- I mean, within the first 12 months, breakeven. That means 11-12 months should be the breakeven with that. Just 10% of the total expansion is happening with green.
Okay, understood. So, within a year for greenfield and within a quarter for brownfields. Okay.
That is,
yeah.
Great. Thank you.
Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Hi, thanks for taking my question. Abhay, what can you give us some numbers on what has been the increase in discharges, inpatient discharges of QOQ and YY?
Seven percent.
This is YY.
That's it. QOQ shouldn't matter, I think, because you know, medical patients, et cetera.
So when you have more medical patients, you're discharging because ALOS is lower, discharging may be the same. Look at everything on a year-on-year basis is a better sort of way.
Okay. And secondly, on the, you know, the seasonality part of it, you know, typically, I mean, how should one think about seasonality in our business? Q2 obviously is bigger than Q1, and how should we think about the rest of the year, with respect to Q2?
Well, Q4 is the best quarter in a year. Q2 is the second best quarter. Q1 and Q3 are weak quarters, and that seasonality in the business can happen every year. Typically, your H2 is better than H1.
Okay. And I guess given the way things are, that's a trend we should follow even this year for us.
That's right. I mean, unless something disruptive happens, that's typically the secular trend in healthcare is H2 is better than H1, and Q4 is peak. Q because the burden of disease, et cetera. Also, your Q2 is the second best simply because you have the seasonality due to dengue and vector season. And Q1 and Q-- You know, Q1 is weak because you just had the increase in salaries and fixed costs, et cetera, on the first of April, so your margins are kind of squeezed. And yeah, Q three is the festival season, which is Diwali and all of that kind of stuff.
Thanks. Secondly, on your expansion plans, barring you know the beyond what you've already outlined so far, how are you thinking about you know expansion? You know, we've got enough cash reserves on books now. Enough in terms of the inorganic growth opportunities which are there, I mean, have you how have you seen the landscape playing out? There've been a lot of private equity interest in the space, which probably I don't know would have had its own create own challenges for value buying. So how are you looking at the inorganic growth opportunities outside of NCR?
So I think there are quite a few. I think there are about 20-odd cities that we are looking at, and, you know, we've been busy at it. Hopefully in the near future, very shortly, we should, you know, come up with some surprising stuff. But yeah, there's been a lot of, listing on the... I mean, we maintain some fiscal discipline and, don't want to run full errands by the end of it. But, there are, quite a few amount of opportunities, both from the build side, partner side, on the asset light, you know, model, as well as, certain, acquisitions as well. So yeah, we intend to deploy this capital.
Okay. And last one, on the Shalimar Bagh expansion that we did in brownfield, what is the capacity utilization on that?
78%. 78% on the overall.
Hmm?
On the overall, new and old combined.
When you would have put the new capacity, the older one would have been closer to 80% plus, or the-
82%-83%. Yeah.
Okay.
Eighty-three percent.
And just sort of reconfirming, on the incremental beds, we're making right now 40% incremental margins?
Yes, that's right. That's right.
How do you think-
Within 40 days of opening those beds.
Right. Right. And, in your assessment, incremental brownfields that you're gonna be putting out, how should we even think about, you know, we did talk about the first quarter breakeven, but, in terms of, you know, is Shalimar Bagh an exception in the way it's played out, or this is gonna be a template that's broadly gonna get replicated across the new brownfields?
Look, honestly, I think, you know, there's been a, what the Shalimar Bagh experience was, was the experience in Vaishali before that as well. Because, I mean, theoretically, you're tapping into untapped sort of demand on your doorstep to start with, and then you have operating room, I mean, fixed, real fixed costs with the those incremental. Theoretically, it should be... I mean, this should be the template. I mean, I don't see that changing.
Okay. That's interesting. Thank you very much.
Thank you.
Thank you. The next question is from the line of Ankur, an individual investor. Please go ahead.
Hello?
Hi, Ankur.
Hi. See, I think my question is partly answered in one of the previous questions that was raised by one of the participants. Really, it was about the last two years. There's a bit of a concern that we haven't acquired any project and added anything onto our already announced development pipeline. And obviously, we've been running an underleveraged balance sheet for a while now, and then now we've got all this cash accumulating. And you've talked about, you know, acquisitions, M&A, and all of that. But, I mean, it's two years since we added anything. And also on the greenfield side of things, are we looking at, you know, any greenfield projects that we want to add?
I know you keep saying, like, imminently that there should be some announcements, but, you know, it also takes about, I think, if you add a new project, a greenfield project, about 3-4 years before it's operationalized. So if you can throw some light on all of these things, please.
... I think, you know, there's always a tug-of-war between the desire to expand and, fiscal disciplines, and, you know, one has to maintain that. You know, it's not, as if we haven't been listening. We kiss, many frogs before we find the prince, and, you know, we are at it, and, we are quite certain that, shortly we should be able to deploy. Do keep in mind, it's not a huge amount of cash, because even to construct a 500-bed hospital, you would for it to take about INR 1,000 crore, right? To acquire a, a 1,000-bed, a 500-bed hospital will cost you another maybe INR 1,015-INR 1,500 crore. So, you know, 1 or 2 acquisitions, then you're done.
So, you know, at one side, we are sort of excited about the fact that we are accumulating cash, but we are also conscious of the fact that, you know, this amount of cash and even the ability to leverage is not going to take you very far. I mean, today, transactions are available at 15 times, 16 times, let's say, EBITDA. What that means is, even at entry, we'll be able to buy, even if I was to go and spend INR 5,000 crore, right? I mean, we can invest, what is the math on that? Divided by 15. About INR 200 crore EBITDA. That's about 10% of my total EBITDA. 10 total, so INR 300 crore EBITDA, that means 15% EBITDA.
So I can increase my EBITDA by 15% by deploying INR 5,000 crore, and that would pretty much use up all my cash and my leverage ability.
Okay.
Right? So I think, you know, it's important to, while, we notice that there's amount of cash which is being accumulated, do keep in mind it is a capital-intensive sector, one, and secondly, there are massive amount of opportunities in the sector again. So if we want to sort of participate in that, okay, we need to accumulate the cash and spend it with the right amount of fiscal discipline at the right time.
Yeah, for sure.
There is money, but it's not that much money also.
Yeah. And also, like, you know, like, as where we've been growing and it's about almost, let's say, 20% sort of EBITDA growth, cash flow growth over the last couple of years, and going forward also, it seems we're going to continue on that trajectory over the next 4-5 years. So then beyond that, to continue growing at the 20% sort of rate, we also need to keep adding, the bed capacity at that sort of rate, right? So we need to have, like, this continuous development pipeline, which keeps, you know, every year keeps adding projects year on year, so that, you know, the growth continues for long duration. So I'm sure you guys are working on it, but just, and you mentioned like you're looking at 20 cities. so, but there has been no, like, actual project acquisition.
That was my only question, but, yeah.
No, but you're absolutely right. Just keep in mind two aspects, right? In the last two years, there's not been any significant capacity expansion. That's right?
Yeah.
Yet you're seeing a 20-odd% increase in EBITDA.
Yeah.
In the next three to four years, you're gonna have 2,500-2,700 beds coming, increasing your capacity, 85% of it is through brownfield. That is almost like doubling your capacity over the next three to four years.
Mm-hmm.
Those are coming on stream. So shouldn't that be giving you expansion for the next 5 or 7 or 10 years itself? And increasing your... Given the fact that your breakeven is so short in these brownfields, okay, it'll add a bunch of more cash flows for your business, which again, all of it gets deployed and gives you further business. So look, I mean, I think there are three streams of growth over here. One is your current bed capacity, which has been growing in terms of EBITDA. Okay, then all the expansions that are already being announced, which have already been underway, which we said are largely online. And the third is what we are going to do with this cash.
Mm-hmm.
Right?
Yeah.
I mean, it's an exponential 3x strategy. It's not a strategy with a 15%-20% growth. I mean, if I was not to sort of deploy this cash, give it all back as dividend, yet you'll be doubling your capacity over the next 2 years, or sorry, 3-4 years.
Yeah. Yeah. I think that's it. I mean, from my side, I understand where you're coming from. It's. And also it's clear, like, as the cash flow keeps accruing over the next 3-4 years and they keep growing, you'd continue to, you know, add on to your development pipeline, and we will continue this growth for long term. So that's it from my side, and thank you and all the best.
Thank you.
Thank you,
yeah.
Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
So thanks for the opportunity. Just on the organic basis, on EBITDA per bed, while we've already, I think, you know, optimized in terms of agency, at the lower level, so how do you think about, you know, the levers for improving EBITDA per bed, for next 2-3 years?
I think EBITDA per bed, now the first half has already happened, right?
Right.
You know your second half is usually marginally better than your first half and so on and so forth. I think for at least the rest of the year, some sort of trajectory has been already articulated.
So, more from, let's say, beyond FY 2024, how to think about it?
Sorry, more from?
Beyond FY 2024, how to think about it? In the sense, in the sense we, the case mix of, let's say, the payer mix is also, we have already taken good price hike on terms of institutional patients, the insurance penetration.
No, no, it's not a price hike, impact is only INR 14 crore. There's a 28% increase in ARPM, and that's really due to the clinical sort of missing, because you're moving into higher-end procedures. You're distilling procedures.
Right. Okay.
The price cycle is being negligible, in fact. Yeah. Of the 28%, only 5% is the price cycle impact in the PSU segment. In the PSU, right. So like, Yogesh actually pointed out, out of 28% increase in our ARPOB in PSU, only 5% is due to price cycle.
Okay. No, I meant to ask, like, how much more can further be optimized, if not on price cycle, but other levers so as to, you know, drive the EBITDA ahead, maybe mid-teens or more or less growth over the next 2-3 years?
In a similar fashion, as your payer mix sort of start moving up on a particular trajectory, your clinical mix moves up on a particular trajectory, all of it flows through your EBITDA. Your indirect cost is increasing by maybe six odd % every year, six, seven % every year or whatever.
Okay.
Difference between your revenue increase, so you have to make an assumption for revenue increase. The difference between that and the indirect cost increase is also flowing down effectively.
Got it. Understood. That's it. That is understood. Thank you.
Thank you. The next question is from the line of Bansi from J.P. Morgan. Please go ahead.
Hi, thanks for the opportunity. So I have one question, and this is on the advancement of robotics that we've seen in the overall healthcare space. We've seen more and more specialties using robotics, and even the non-complex ones, you know, are making use of robots. So in general, you know, where are we today in terms of, you know, surgeries which are getting done on robots, and what's the scope here, you know, where it can go to? And also, you know, will this be, you know... I'm assuming this will be lucrative enough, so, you know, what is it in terms of, you know, ARPOBs and, you know, margins, you know, how different they are, you know, compared to other traditional, you know, surgery work?
So I think first and foremost, I think, you know, although robotics has been around for some time, over the last couple of years, there's been a sudden uptake of that, and acceptability between doctors and patients both has been quite dramatic as far as robotics is concerned. I mean, to be honest, it surprised us also on the upside. I mean, like I mentioned earlier, our total number of robotic procedures have more than doubled in the last one year. And, you know, we were pleasantly surprised. Most specialties now, you know, you get into this flywheel concept as the acceptance sort of this thing we are being pushed by many of our hospitals and many of the clinicians now, okay, to set up a robot, because then prices become more and more viable.
What happens is it, of course, it's at a higher cost compared to, you know, laparoscopic or even for that matter, a general surgery for the same visiting. But, and so it leads to higher ARPOB. But, the contribution levels from robotics are lower, and EBITDA in terms of margins are lower in percentage terms, although in value terms are higher. And this is something that Bansi has previously mentioned with respect to both higher end payor mix and clinical mix, that you get lower percentage margins, but higher value in terms of absolute EBITDA coming from this. What is that? It also helps us in terms of productivity a lot, right? So EBITDA per bed is obviously better, but in terms of margin, that may be probably, you know, lower than the overall EBITDA.
It's a little difficult right now to sort of present a trajectory where do we see growth happening and, you know, will it continue to be 100% growth, or will it drop it down to 70% or 50%, but or will it increase from here?
Got it. But the adoption has increased, and in general, you know, it also improves your throughput, right? Within a particular-
That's right.
Specialty.
That's right. That's right. And, you know, I mean, overall, it's a, I mean, it's got all the sort of positives with it. And, you know, as public acceptability sort of increases, you see technology advance, you know, there are entry barriers in this. The smaller sort of places can't adopt it increasingly, and awareness increases, then you see it move towards larger hospitals and more sophisticated healthcare systems. It's also better macro outcomes for patients. Yes.
Got it. Thank you. That's it from my side.
Thank you.
Thank you. A reminder to our participants, please press Star and One to ask a question. The next question is a follow-up question from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Thank you for the opportunity again, sir. So, one on Dwarka. So as we are kind of getting closer to the commissioning of the facility, would have we like, started hiring in terms of doctors for key specialties, nurses, paramedical staff, or would it be more closer to the commissioning?
So, so we started all of that, and I think we've, at least all the head of the programs and functions are already in place, and they've been in the system. As we speak, they are working in some of our other facilities. And, yeah, so we... I mean, as far as the soft power is concerned, people are concerned, et cetera, all that is in line and schedule, so there, there's no lull on that. And there's enough availability and excitement around the facility from a clinician perspective.
And would it be more like a staggered hiring in terms of specialties, or we would go with the full-fledged 300-bed operationalization on day one?
So no, we'll do about 150-odd beds. 164. 164 beds we are doing, to be precise, like you pointed out. So 164, day one, and as we revise, sort of open up more and more.
Okay. One follow-up on the robotic surgery, where you have alluded that it's good from the ARPOB perspective and the absolute EBITDA perspective. But in a longer term, you know, if let's say even the other hospitals also kind of start affording it, you know, does that bring them to the equal level in terms of surgical outcome, et cetera, and then, you know, the importance of brand or surgeon skill kind of get reduced. Do you see that happening?
Not particularly. I think the market is growing. I mean, there are only those many players which can adopt robotics. Because, you know, it's also, you know, people have to be trained on it. You have to have availability of the talent to be able to do this. So, you know, all of that will take time, but I think more and more before that, you know, market would have expanded. And we've seen this, right? I mean, why robotics? As far as any technology is concerned, the largest players sort of adopt it first, the smaller players adopt it thereafter. The market continues to expand. But I've never seen the largest players sort of market share go down because the smaller players have adopted the technologies thereafter.
I think you kind of increase the size of the market, all the smaller players also have a hand in increasing awareness for that product.
Mm-hmm, mm, sure. And for us, is it more like a CapEx model or is it more pay-per-use model?
You know, actually we, right you asked, when we started this off as pay-per-use, we were quite unsure. But, we've actually bought back or bought, more than 50% of the robots, recently, because, you know, it's kind of surprised us in any case. So yeah, at probably, at this point in time, we have a hybrid, simply because, we started off by pay-per-use, but now we got into buying it back. We bought more than 50% of the robots that we have.
Okay. And return on capital is higher on the-
Of course, that's why we are buying.
Okay. Perfect. Okay. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Naisal Aric from Native Capital. Please go ahead.
Yeah, hi. Thanks for the opportunity. The first question was on the, you know, overall industry trend. Are you seeing still there is a gap between supply and demand growth? And what we see for the next, you know, couple of years, there will be leverage to continuously grow price and ARPOB. How are you seeing that?
I don't know, seeing it over the next couple of years, I'm seeing it over the next few decades. I think, this is a multi-decadal opportunity. There is huge amount of under-penetration. You know, there's a massive, massive, massive gap between, supply of quality health care and demand for quality health care, which is only increasing as we go by. So, you know, and that's the reason, you know... And India perhaps offers this opportunity which nowhere else, no other country, no other health system in the world does. I mean, you have, at one, site, you operate almost like a utility because you have the sort of, it's inflation-free, it's insulated business.
But on the other hand, you also have this massive growth opportunity because of the, I mean, just the sheer lack of penetration or availability of quality facilities.
Got it. And on the international patient side, you said around 5%-5.5% of your beds. Is there scope to, for that to significantly go up to, say, 10% or higher? And, how are you seeing the international traffic on the hospital side?
It's grown 25%. Traffic has grown by 25% of, in revenue terms, at least over last year. Okay, even I suspect, even in terms of total number of bed days, that means in terms of volume of patients, also grown by 25% over the same quarter last year, and 11% over the last quarter itself. And do keep in mind, this is, you know, 12% of our total business, which Afghanistan is down to zero. I mean, if you assume that coming back to normalcy, I mean, this would have been an increase of, you know, 30-odd% over last year, or more in fact. So, you know, I mean, where does this train stop? I think we haven't even scratched the tip of the iceberg.
You know, this should continue, in my mind, much at a significantly higher pace than the rest of the hospital growth.
Got it. Got it. And the 2,600 bed expansion that we have, can you give some idea in terms of how much can come in the next six months and how much in 2025?
The 300 beds should come in by end of FY 2024, current fiscal year. FY 2025, towards the end, you will have another 350 beds of Nanavati coming. Then Mohali, another 200 beds.
When is that?
Again, same time next year. Gurgaon, same time next year. You have about 1,000 beds coming in the next 1 year. 1,300. 819 beds, sorry.
So 300 by the end of this year and another 800-900 by the end of next year, right?
Yeah, it's on the presentation on the website, you can see it. I mean, it's a quarter-by-quarter expense and EBITDA comparison.
Got it. Okay. Got it. Just one last data point. You know, you said the institutional ARPOB obviously has improved significantly. So now, where does the gap between institutional and non-institutional ARPOB lie? Roughly, what would be the gap?
85%. Somebody asked the question earlier, 85%. If for institutional, it's 100, for non-institutional, 100 and 185.
Okay. Thank you. Thank you so much.
Thank you. Thank you.
Thank you. The next question is from the line of Alankar Garude from Kotak Institutional Equities. Please go ahead.
Hi, thank you for the opportunity. So you mentioned about expecting to make some announcements on the expansion bids shortly. So just wanted to check when it comes to different expansion models, like, say, between partnered, build to suit-
... M&A and acquisitions, do we have any specific preference?
No. I mean, acquisitions are, you know, at the right price or the existing, but otherwise built to suit, in the sense, asset light is very good, or we don't like greenfields.
Understood. Okay. On that point, on this Care acquisition, you have been providing regular updates, including one yesterday night. Now, on one hand, the appeal is reserved for orders, and on the other hand, Blackstone seems to have announced the acquisition, at least as per media articles. Not sure what to make out of this. Can you please help elaborate on the current situation?
I mean, the situation is what it is. We've made an appeal to the High Court; now it's for the High Court to decide.
Understood. Okay. And, one final question of-
I can't give you any opinion on that, no? I mean, it's all the judge's decide.
True. Okay. And, Abhay, one final question: now, when it comes to some of these allied services, we are into diagnostics, then at home, but we have seen some of the other hospital chains, doing far more as far as some of these allied healthcare services is concerned, getting into pharmacies, then insurance, diagnostics in a maybe bigger way. So maybe in future, not immediately, but in future, are we open to, being more aggressive on some of these allied services?
I am open to anything and everything in the healthcare business, okay, which others have succeeded in. Philosophically, we don't like to do pioneering things. When they succeed, we will study, we will learn from their mistakes, and we will gain confidence from what they got right, and then we will do it better like we do. Okay? So anybody does it, I'm very open to doing those things, but let somebody else do it, you know, successfully first. I mean, there are more than enough examples in front of you where people have, you know, jumped into a situation and got it wrong, and that's not a game we play. That's not what we're good at, to be honest.
Fair enough. Okay. That's it from my side. Thank you.
Thank you. The next question is from the line of Amit Kavani, as an individual investor. Please go ahead.
Hi. Hi, Abhay. Thank you for taking my call. My first question is that I don't know if it's already been asked or, and have you answered it, but the revision impact on the institutional business, can you tell us what it is expected to be in the December quarter and March quarter?
I have no idea what is expected to be because they haven't, you know, take us into confidence on that. So far, the impact has been 5% of ARPM of the PSU business, but we have absolutely no clue how the government is thinking about it.
So, no further any institutional revision has been announced?
No. We were told we were expecting it this quarter, and now-
Yeah.
Hopefully we are expecting in next quarter, but, you know, I, we don't know when it will come through and how much will it be.
Okay. Okay. The second question is actually, you know, when I speak to other hospital companies who are not really in metros, they say that the institutional business does not have lower margins than the overall business. So just trying to understand the kind of, you know, the difference between them and us, is it just because that we are in metros, that our non-institutional business is higher paying? Is that the conclusion to reach?
No, no. Look, the, the institutional business, let's say, has a ARPM of, let's say, INR 40,000 odd, right?
Mm-hmm.
If the rest of your business, for whatever reason, has a ARPM of INR 40,000 or lower, okay.
Mm-hmm.
then it doesn't impact you, does it?
Right. So-
ARPM is the highest in the industry. Now, why is that? You know, a lot of players have a ARPM of INR 40,000.
Mm.
Now, that could be a function of two or three things. One is that their clinical program, okay, they're not doing high-end clinical programs like transplant, high immunology, et cetera, et cetera, et cetera. They're more medical patients. Okay? Their payer mix, okay, is not very busy. You know, they don't have international patients, they don't have, cash-paying patients, insurance patients to that extent, and whatever else it is.
Right.
Institution or institutional isn't there. So obviously, you know, for them, there is no benefit in, you know...
But the question actually is that suppose if someone has a hospital, let's say, in Ranchi-
Yeah
Which is like a tier two city, so, will the CGHS co-compensation to them be the same as another hospital in, you know, Saket?
Almost same.
Almost same.
There are difference in the NCR and non-NCR, but I would say not a great difference. A negligible difference. That is be the same.
Okay.
So Ranchi, you will do it. The only thing is Ranchi, there won't be too many CGHS additions, right?
Got it. Got it. Got it. Got it. Got it. Thank you. Thank you, Abhay. Thank you. Thank you.
Thank you. The next question is follow-up line from Kunal Dhamesha from Macquarie. Please go ahead.
Thank you, sir. So on the CGHS and self-pay ARPM, we have said the difference of around 85%.... Can you also quantify what would be the difference for the international patient? So let's say CGHS is 100.
International patient, typically be 1.5 times of the, of the, you know, cash and insurance. And also, so that means domestic patient versus CGHS load. Domestic to international will be 1.5 times or more.
So could it be roughly around INR 250? Like, if the CGHS is INR 100.
CGHS, well, do the math now.
I'm saying-
If CGHS is 100, that is 185. This is, you know, 50% more than 185. Yeah.
Okay. Okay, perfect. 275 then. This is, these are the numbers for H1, I would say, or like more or less, this remains the same?
The current numbers, annual numbers.
Current, current numbers. Okay, okay. And secondly, on CGHS, you said that, on institutional, you said that we are now taking higher complex procedures, et cetera. So do we have that flexibility, you know, to choose on the specialty on CGHS or some of the institutional, you know?
Well, we all inherently do, because some of the hospitals have now disengaged, and our hospitals which are engaged are doing, don't have those sometimes facilities.
Okay.
There's a change happening.
Okay. So basically, some word of mouth, something, you know, more, more people-
More word of mouth. Like, Max Super Speciality now only does cardiac and oncology, has stepped out of CGHS on all other diseases, et cetera. That's the aim, so you start moving towards that.
Okay. So we have the flexibility of, you know, saying no to other specialties.
It's not a question of flexibility. It's a matter of contract. It's not a folder that we can't treat patients, right? No, no. We, we entered our contract is amended to this thing. It's not a flexibility that we have. We have the flexibility for all of it, then you do all of it.
Mm-hmm.
Can't start very big. Start for whatever arrangement you have.
Mm-hmm, mm-hmm. Okay. So our contract is only for few specialties where we have, you know, strong base and more complex. Okay, perfect. Thank you.
Thank you.
Thank you. Any participants who wish to ask a question at this time, then you please press Star and One. Ladies and gentlemen, as of now further questions from the participants, I would now like to hand the conference back to the management for the closing remarks. Thank you, and over to you.
Thank you all for coming on to Max Healthcare's Q2 fiscal year 2024 results. We will look forward to seeing you for our next event. Thank you very much for that.
Thank you very much. Ladies and gentlemen, on behalf of Max Healthcare Institute Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.