Ladies and gentlemen, good day, and welcome to the Max Healthcare's Earnings Conference Call. As a reminder, all participant 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 call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Degevekar from CDR India. Thank you, and over to you, sir.
Thank you. Good morning, everyone, and thank you for joining us on Max Healthcare's Q2 and H1 FY 2023 Earnings Conference Call. We have with us today Mr. Abhay Soi, Chairman and Managing Director, and Mr. Yogesh Sareen, Senior Director and Chief Financial Officer. We will begin the call with opening remarks from the management, following which we will have the forum open for interactive question-and-answer session. Before we begin, I would like to point out that some statements made in today's discussion 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. Thank you, and over to you, Abhay.
Very good morning to everyone. We're pleased to welcome you to Max Healthcare's Q2 earnings call. Let me start by giving you updates about the company performance for the quarter. Like the previous quarter, this was a normalized quarter. We witnessed a steady growth in occupancy, driven by improved patient footfalls from international and insurance segments. There were concerted efforts to unlock value through previously articulated growth levers. Consequently, we delivered our best ever performance for the second consecutive quarter this financial year. A significant development this quarter is that we are now a net cash surplus company compared to a net debt of INR 217 crore at the end of Q1 FY 2023. We have a net cash surplus of INR 42 crore at the end of this quarter.
We are also happy to share that our digital app, Max MyHealth, has been successfully launched at the end of September 2022. The app has enhanced the experience of both patients and clinicians in our ecosystem. It provides a gamut of services including pathology, radiology, ambulance, home care, and facilitates physical and virtual consults, among other things. It also provides access to patients' health records and trends at the click of a button. Before I move on to the highlights of this quarter, please note that in Q2 last year, we had a revenue of INR 91 crore and an EBITDA of INR 25 crore from COVID-19 vaccinations. Since this was a non-recurring revenue, the comparative numbers and percentage are thus being reported on a like-to-like basis.
Key highlights of our performance in Q2 are occupancy for the quarter improved to 78% from 74% in the previous in Q1 FY 2023 and 75% in Q2 FY 2022. Institutional bed share has been brought down to 28% this quarter from 30% in Q1 FY 2023 and 37% in Q2 FY 2022, in line with our strategy. Consequently, the institutional revenue share dropped to 16% compared to 23% last year. Revenue from international patients grew by 16% quarter-on-quarter and reflected 110% of pre-COVID average despite negligible patient footfalls from Afghanistan, a key territory for us that contributed around 12% of the revenues previously. Network gross revenue rose to INR 1,567 crore, our highest ever, reflecting a growth of 6% quarter-on-quarter and 17% year-on-year.
ARPOB for the quarter was 66,000, same as previous quarter, but grew 12% year-on-year. The mix of medical patients went up compared to last quarter due to seasonal infections, and this was reflected in the lower ARPOB. Increase in ARPOB over Q2 last year was led by improvement in the payer mix and case mix, as well as annual price revisions. Network operating EBITDA for Q2 FY 2023 was INR 410 crore compared to INR 370 crore in the previous quarter, and INR 337 crore in Q2 FY 2022, reflecting a growth of 11% quarter-on-quarter and 22% year-on-year. Indirect overheads were up during the quarter due to relatively higher provisioning for CGHS bills outstanding beyond 365 days, in line with our tight provisioning policy.
Seasonal cost increase for power and marketing expenses related to international patients. EBITDA margins improved to 27.7% versus 26.6% in Q1 FY 2023 and 26.7% in Q2 FY 2022. Annualized EBITDA per bed, most importantly, rose to INR 64.3 lakhs, our highest ever, clocking a growth of 4% quarter-on-quarter and 17% year-on-year. Q2 FY 2023 PAT was INR 267 crores versus INR 229 crores in Q1 FY 2023 and INR 207 crores in Q2 FY 2022. This excludes gain of INR 244 crores in tax expenses due to reversal of deferred tax liability relating to intangible assets transferred to MHIL pursuant to voluntary liquidation of Saket City Hospital Limited. During Q2, INR 28 crores was deployed towards ongoing capacity expansion projects.
Construction of 100 beds at Shalimar Bagh and 300 beds at Dwarka is on track, and we expect them to be commissioned in last quarter of FY 2023 and first half of FY 2024 respectively, as indicated earlier. The outlay for some of the expansion projects has been deferred in view of ongoing discussions with some of the world's top contractors for faster build-out. Digital revenue grew to INR 242 crore and accounted for 15% of overall revenue. Continuing our effort to give back to the community, we treated 39,700 OPD and 1,300 IPD patients from economically weaker sections of society free of charge. Both our strategic business units continued their growth momentum. Max Lab reported a gross revenue of INR 30 crore. This reflects a growth of 21% quarter-on-quarter and 65% year-on-year on like-to-like basis.
We added 65+ channel partners during this quarter, taking the overall active clients to 900+ and now offer our services across 34 cities. You may keep in mind that we have made huge investments towards Max Lab for the organic growth in the past quarters. MAX@Home reported a top line of INR 35 crore, reflecting a growth of 9% quarter-on-quarter and 26% year-on-year, supported by a team of 800+ people. MAX@Home offers services across 13 service lines and enjoys a high degree of customer loyalty. Now coming to the overall overview of the company's financial performance in the first half of this financial year. Network gross revenue stood at INR 3,040 crore, reflecting a growth of 17% year-on-year.
Network operating EBITDA grew by 22% year-on-year to INR 780 crore. Increased OPD footfalls, improved case mix and reduction in institutional bed share resulted in margin expansion by 120 basis points to 27.2%, while EBITDA per bed grew by 26% to INR 63.2 lakh per bed. We continue to focus our efforts on the growth levers articulated earlier. That is, one, we are making significant investments to expand our bed capacity in the next three to four years, which is in line. Second, to complement Indian government initiatives such as Heal in India, we continue to augment our international outreach initiatives and setting up offices across new geographies.
We are also actively looking at inorganic expansion opportunities across existing and new markets, and we continue to improve our case mix through deployment of technology and hiring new talent. With this, we open the floor for Q&A. Thank you.
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 the touchtone 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. The first question is from the line of Kishan Amarchand Tosniwal from Polar Ventures LLP. Please go ahead.
Yes. Good morning.
Hi, good morning.
Hello. Am I loud and clear?
Yes. We can hear you.
Yeah. Just wanted two questions to be answered. How do you see growth in the coming quarters?
We're very positive about it. You know, it's been growing, like I mentioned, in the announcement that it's already 110% of pre-COVID levels. This is in spite of the fact that 12% of our business, our key market, was Afghanistan, where the Indian government right now is not issuing visas. Once that opens up, we will see, and we hope it to open up shortly, because things seem to be normalizing over there, at least from a government to government perspective. Once that happens, you know, this will all go even better for us. It's a big thing to say that we've been able to sort of compensate and overcompensate this through other growth levers that we've invested in the international business. That's done well.
We are quite positive about it going forward. I think, you know, if you couple this with the new Heal in India program of the Indian government, you know, it's very similar to Make in India, you know, which, you know, has been, sort of announced, by the government. I think, that will give us huge impetus, particularly because we have so much of our capacity in the metros.
Okay. The second part is that how is that Nanavati doing after the VRS has been done?
It's been doing reasonably well. We are in mid-teens as far as EBITDA margins are concerned. You know, going forward, hopefully we can go back to the rest of the portfolio as well. Like I mentioned in the past, the ROCE is the highest amongst the ROCE, although in terms of percentage, the EBITDA margins are lower than the rest of the pack.
The building that was coming up, which has been already dismantled, and you started work. How is the progress on that?
Very well. I think we are well on schedule as far as that is concerned. You know, the piling work is being completed. We are beginning excavation soon, and you're gonna see that online in the next two years.
Thank you very much. Best of luck for the quarter.
Thank you.
Thank you.
Thank you. The next question is from the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead.
Yeah, hi. Good morning, everyone.
Thank you.
Yeah, hi. My first question is on the CapEx plans of the company. If I look at first half, the CapEx incurred is, I think, INR 41 crore, if I'm getting that number right.
That's right.
I think the budget in the most recent investor presentation was around INR 657 crores for FY 2023.
That's right.
Any particular reason why this gap?
I think, yeah. A large amount of it was to be bunched up towards the second half. It's a little difficult to sort of break it up. You're gonna see a majority of that investment happening in the first half of the current year. Of course, you know, one is engaging contracts, engaging vendors, and work starting, et cetera. Besides the mobilization advance, really the payments start happening on delivery of certain milestones. I think as and when that happens, you will see that payout happen. You know, when you're making five-year plans for so many hospitals, it's a little difficult to sort of put it out quarter by quarter, so we put it out in a year.
You're gonna see significant investments will be complete, investing entire INR 640 crore in the second half of the year. Doubtful. You know, will it sort of bunch up in the first quarter of the next year? Likely. At this stage, we are not seeing any delays on the overall project schemes.
Right.
You know, I'll give you an example. You know, because when we were conceiving the projects, you look at, you know, construction as usual, but then new technologies such as structural steel and hollow tubes, et cetera, which cuts down timelines as far as the entire construction is concerned. You know it sort of takes you back a little bit into the planning stage about how to technically go about it. That's when you know we don't see delays because we see benefits coming out of using, you know, alternative materials. They may be marginally more expensive, but you know that's the new sort of way of doing things faster these days.
Okay. It can be safe to assume that CapEx running behind budget will not have any impact at least on Shalimar Bagh and Dwarka. Is that the right assumption?
Absolutely not as far as Dwarka is concerned. You know, we are hoping within the first quarter of next year for it to come on stream. As far as Shalimar Bagh is concerned, it will be on stream early on in the last quarter of the current year. Shalimar Bagh expenditure has been as per budget, as per plan, so there's no sort of delay over there. Dwarka, as you're aware, there's actually somebody else who's constructing it, and that's well on stream.
Got it. Second question I had on Max Lab. Now, there seems to be some pretty strong traction building up from Max's perspective. There's quarter-on-quarter growth, there's year-over-year substantial growth in non-COVID revenues, and I think you have added quite a few partners as well. In two quarters, I think 150 partners have been added. Two questions there. I mean, A, obviously, it would be very helpful if you can share the Max Lab outlook from a three- to five-year horizon. B, when you talk about partners, is it some sort of a franchisee model or who exactly are these partners? Some revenue sharing happens, if you can help us understand a bit of concept there and how you're going about growing your business.
Yeah, sure. I think, you know, there are two things. One is, you know, we've been investing heavily in this business. When I say investing, both in terms of, I mean, there's been a mild investment towards marketing, but investment towards creating partners and partnerships with franchisees and so on and so forth. I think in the first quarter of the current year, we added about 400 franchisees to this, and, you know, so significant sort of this thing. Your EBITDA sort of gets depressed because of the investments that you're making in it.
I don't want you to kind of get misguided by looking at lower EBITDA margins or, you know, somebody actually mentioned to me that from a loss-making this thing in the past quarters that you've gone to a marginally profitable, et cetera. This is on account of the new sort of investments that you're making. I think overall, this business has always been profitable. There's no reason for it not to be, et cetera. If you were to sort of draw a line and not grow, immediately you'll see this business coming into profitability. That's not what the idea is.
You know, it's about such an under-penetrated market, and we have such a strong sort of brand and you know strategic advantage and you know comparative advantage compared to other players in this that we continue to invest in the business. Yogesh, do you want to sort of shed light on what sort of arrangements that we have?
We obviously have franchise model. We also have our own company-owned centers. We then also have a model which is the Lab Outside. This is the, we make stationary lab at the nursing home of a doctor, et cetera, or a smaller hospital. We also have HLMs. We do third-party hospital lab management. In this, there are more than 20 labs that we manage here. You know, big ones I would say. We also have pick-up points, where our labs go and pick up the samples from. There are obviously various models. I would say the HLM is the deep discount model where they're probably, you know, 55% of the amount billed to the patient, but others would be a discount of 25%-30%.
That's the sort of model. Obviously company-owned center we bill at retail price, so there's no discounting there.
Right. In terms of the lab network, are only the hospital-based labs being leveraged as of today or there are some standalone labs as well? What's the lab network outlook over the next three to five years?
As of now, we are leveraging the hospital lab, and not only our own hospital, but also these HLMs that we have, right? This third-party hospital lab network. These are hospitals, you know, so we pick up samples and try and get it tested in the nearest lab. The nearest lab may as well be a lab which is managed by us but not owned by us. I think that's the way it is. They have their own labs in terms of the HLMs, but I think they don't have a reference lab of their own, the Max Lab team. I think they will certainly be, you know, looking forward to one once the business scales up.
Got it. Got it.
I mean, right now we have spare capacity in our labs, so we obviously use that. If as and when there's a need for a centralized lab, I don't think there's a problem. In any case, the investment isn't too much, right? It's a very negligible sort of investment to us.
Yeah. Yeah.
Right. I mean, would you comment, Abhay sir, that Max Lab now that it is crossing INR 100 crore kind of a revenue mark, if I analyze this quarter numbers, is as important a piece for the company as hospitals? Can it be looked at that way?
No, absolutely. It always has been. I think, you know, we started focusing more on it and, even in the past we also said we'd like to look at inorganic growth, but obviously, you know, sort of, numbers and valuations and, you know, the dynamics of the industry sort of, changed. You know, we decided to kind of focus on more on the organic growth as far as this is concerned. This is always going to be a key focus area. You know, otherwise we won't be in it, otherwise we won't be showing it as a separate segment. You know, similarly, I mean, you're saying this about Max Lab and similarly about MAX@Home as well.
You've seen, I mean, that's a high number and, you know, it's a profitable business. It does mid-teen sort of EBITDA margins. It's the largest home care business in the country, and actually the only profitable one. We're very, very excited about that as well. I mean, the traction that we are getting is essentially extending a hospital to your home.
Sure. Thank you so much, sir. That's all from my end.
Thank you.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah. Hi, good morning and, thanks for the opportunity. First question, trying to understand this occupancy run rate better. We've been tracking very well and now touching 78%. I understand Saket and other marquee ones would be even higher, 85% +. What is the headroom here for us to, you know, max out on the existing hospitals?
Look, I think there are two or three things that you need to look at this in perspective. Okay? Yeah, pre-COVID level we were at 70%-73%. Compare it to about 75%, 76% post-COVID, as a base. Now, certain quarters and particularly quarter two every year is the, you know, that's the time when you have rains, et cetera, so you have more viral diseases, more dengue and so on and so forth. This quarter is typically characterized by higher occupancy, okay? Because of more medical patients coming. But also it's characterized by, because these patients, you know, your earnings from these beds are lower, okay, you have a downward pressure on ARPOB. Yes.
Although you see the 78% occupancy, it's basically this peak has a little bit happened because of the viral load and the medical business which has come, the dengue business and so on and so forth, which is a seasonal business. Having said that, you also have a secular increase, okay, in your business as usual, which is your surgical business and your regular business, which is the non-seasonal business. Which is further augmented by your international business reverting to even higher levels and growing, your insurance business growing and so on and so forth. What you're going to see in the subsequent quarter this business, okay, A, it will bring you a little higher occupancy, but it also brings you higher ARPOB.
Overall, when you look at a 70% or let's say 75%-78% sort of a range, okay, of occupancy, your question being where do you sort of go from here? You have to keep in mind that even now, 28% of the total beds, that means of the 78% occupancy, 28% of the 78%, so almost like one-third of it, okay, is being consumed by institutional business, which is very low ARPOB business and the ARPOB basically is close to half of what the ARPOB of the business as usual is.
No, I understand that. That was my second question anyways. Occupancy-wise, what is the max we can get over-
Let me put it this way: month of September we were operating at 81% occupancy, right? I mean, if you ask me the same question, we have hospitals which are operating at 90%+ occupancy. The question is, can all hospitals operate at 90%? Theoretically, yes. Okay. You know, one year back, somebody asked me that, "Look, on a sustainable basis, can you operate at 77%-78%?" I would've said it's difficult. Today, I'll say yes. Next year I'll say, look, you'll probably eke out two more percentage points over here and so on and so forth. You're pretty much. Look, in my mind, 77%-78% occupancy on a sustainable basis is where you should be, and then, you know, your patient services, et cetera, on the subjective area start getting compromised a little bit.
Understood. Fair enough. Thanks for the elaborate answer. Second one is similar on the ARPOB side, as you already touched that you already declined to 28% in terms of institutional business versus 37% a year back. Here, I mean, do we have minimum threshold where we have to give minimum institutional services to central government employees, or this can go to, say, 10%, 0%? What is the view here over the next four to eight quarters?
I can give a 30-day notice today and at the end of 30 days, bring this business down to zero. Keep in mind one thing.
You don't have any obligation. Okay.
None. None whatsoever.
Mm.
Okay.
What is your goal for the next four to eight quarters?
I do this business because I want to do this business, not because I have to do this business. We do this business because we don't want the bed idle. If I bring this down to zero today, my occupancy comes down to 55%-57%, right? The next question is, why are you filling those beds? Now, my goal in the past also, we said, that five quarters later or six quarters later, this will be below 15%. That goes down to 15% because that's when majority of my capacity starts kicking in as well. Now, I would say not five to six, I'll say four to five quarters. We've always sort of guided down to that we comfortably come down to 15% or below. The reason is that the new capacity comes in.
Suppose the new capacity wasn't to come in or was to get delayed, this goes down even further.
Perfect.
That's the inherent advantage within the listing. These beds are built, they're sub-optimally used right now. Okay, and you have this entire brownfield, et cetera, kicking in.
Okay, perfect. Great. One more question was on, you know, the CCI probe which came in on, you know, a few of the hospital companies, including yours.
That's right.
If you could give some color, is it to do with the annual price hike or is it due to that we came into light like because our ARPOB is highest in the industry today? How are you tackling this? Because I heard in your opening comments that you're still taking price hikes, annual price hikes.
I'm glad you asked this question. This is purely and simply relating to a case in 2015, where a person came to the hospital and said that, "Look, a syringe, you're delivering a medicine at an injection at so and so price, whereas I can get it from a pharmacy at so and so price, which is lower than that. So I should be able to bring my syringe in." He went and complained regarding this. The sum total of this case is that they're saying that I think firstly it's an investigation that they've done. They've asked us for a response on that investigation. They haven't given us the basis of that investigation.
We went to Delhi High Court, and we said, "Please ask them to give us a basis for the investigation so we can give a response." Because as a hospital, what we do is we do not sell medicines and injections, we apply it. Right? What we sell is at MRP. I mean, for the life of me, we can't understand where we are sort of off track on this because we sell at MRP and we are not in the business of selling the medicines. We, you know, we sort of, The nurse comes, gives the injection and so on and so forth. It's got nothing to do with any price hike. It's got nothing to do with pricing. It's got to do with, is a patient allowed to bring his medicine from outside to in?
That's not even the jurisdiction of the CCI, frankly, because we can't have somebody bringing a spurious injection, okay, which may not be sterile or whatever, from outside the hospital to inside the hospital.
Perfect. No, this is very helpful. Thank you.
As narrow as that. There's some comments made on the investigation, okay, which we don't know the basis of, okay, such as the rates for the hospital beds are more than four-star hotels in the neighboring listing. Now, four-star hotels. Firstly, you know, nothing stops us from selling our beds at any price. That's one. Secondly, it's definitely not the jurisdiction of the CCI. You know, we don't sell rooms. There's a nurse, there's a doctor, you know, and there are all of those services which comes with the beds and services. You can't make a like to like comparison, right?
I mean, right now it's at the investigation. You know, if we will give a response, you know, if it's a litigation, it'll be a litigation or it'll be killed by them at this stage.
Okay. Got it.
Raj, also the question is that when we have some 70% of the patients being treated on a cashless basis, how can we ask patients to bring medicine from outside, right? They are saying that you allow patients to bring medicine from outside. Now, I mean, the whole cashless, you know, falls if that also happen, right?
Okay, got it. Okay. My last question is on your M&A and asset-light strategy, given that, you know, you have a six-year, seven-year plan, you're doubling from, you know, internal accruals largely, but still net cash balance sheet. But you know, to propel growth or maybe, you know, add on to the growth, we've seen some companies like KIMS, you know, buying out doctor-owned model hospitals which are, you know, not run properly. What is your thought there? Or what are the M&A and asset-light acquisition plans you have?
Look, we've written the playbook on it, right? I think essentially, as far as buying hospital, unlocking value, but you have to maintain a certain critical mass, and be able to do it, et cetera. Because KIMS or anybody else finds an opportunity does it, is not the sort of this thing. We at any given point of time are diligencing companies. We are very, very focused on, you know, organic growth. Like you rightly pointed out, we have unlevered balance sheet, and we have excess cash on the books. We can easily sort of do that. You know, at the same time you have to maintain, we have a ROCE of 33% and, you know, whatever we do needs to be accretive to that, in the long run.
I'm fairly certain in the next, you know, sooner than later, we will be able to conclude another transaction. Do keep in mind, over the last 10, 12 years, our entire platform has been based on acquiring assets, unlocking value. It doesn't sort of stop us from doing it. We have a stronger balance sheet, stronger team, stronger abilities to do that, to execute even better on this.
You would be still looking at it, but you're not talking about it which way you're going here. I mean, is it asset light? Is it KIMS model? Is it straight away I mean.
No. Look, partnering with doctors, et cetera, doesn't excite us. If we like something, we want to own more of it than less of it, and we like to have control on it as well.
Got it.
I think, you know, sort of our EBITDA per bed, keep in mind, is 50% better than the next best player in the industry. Obviously our model is, sort of, works very well for us and for investors.
Okay. No, that's fair. Okay, thank you so much and all the best.
Thank you.
Thank you. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi. Good morning. Thank you for the opportunity. Abhay, my question is on bed addition, new bed addition happening over next nine to 12 months. We have Shalimar Bagh and Dwarka adding around 400 new beds. Currently you are operating at somewhere 26%-28% EBITDA margin. After these new beds come in, should we expect some dilution in margins? Or other way to ask it, like how fast you think these can achieve EBITDA breakeven after the launch?
I think the way to look at it is look at what our EBITDA per bed is. Okay. You say, "Look, if this is our 400 beds coming, how long will it, you know, take me to get to, let's say, 75% occupancy?" That's about, I guess, 300 beds and multiply it by the EBITDA per bed. Yes, I think as far as Shalimar Bagh is concerned, it should be a matter of, you know. I mean, there's no dilution. In fact, day one there should be accretion as far as this thing is concerned because it's a brownfield. There is no significant fixed cost or any fixed cost which is being incurred. It's essentially variable cost as in when you open the bed.
You know, my belief is that it's only 100 beds in that location, which is a hospital which is operating at 90%+ occupancy at present. You know, it's untapped demand. As far as Dwarka is concerned, again, you know, I think it's not really going to be dilutive because it's a very sort of 300 beds on top of this thing. I think the kind of response we've got, the ramp up and the breakeven and everything else should be very, very quick over there. I'm not seeing any real dilution, okay, on an overall basis.
Broadly, the current level of margins can be maintained.
Absolutely. You know, again, like I said, please focus on EBITDA per bed rather than EBITDA margins. I would rather do a $10,000 surgery with a 20% margin than a $5,000 surgery with a 50% margin.
Okay. Got it. My second question is on Nanavati Hospital. You mentioned this facility is currently operating at mid-teen margins. How long can it take further to reach near to the corporate average? Or, how should we look at margin for this particular unit?
Well, you know, Mumbai by and large has a higher sort of doctor payout, okay? So you typically have lower margins. But yeah, there is room to increase the margins over there. Do keep in mind, you know, it's if one was to sort of increase the margins from by 5% or 6% also from here, it means on a INR 400-odd crore top line, INR 450 crore top line, you're talking about INR 20-INR 22 crores, you know, on a base of INR 1,600-odd crores. So it doesn't really move the needle from that standpoint. But I think the big, big sort of swing will come over there when the new capacity comes in, which is, you know, the construction is on.
Abhay, I think I just lost you in between.
Sorry. I said even if you look at a 5% increase.
Mm-hmm.
in EBITDA margins per se, on about a INR 450 crore top line, it's about a INR 22 crore EBITDA increase.
Yes.
On a overall company base of, let's say roughly INR 1,600 crores.
Okay, got it.
It's not really the big thing will come over there when the new 500-odd beds come.
Okay.
With the construction on, because these will really be the. You know, what it also does is it will flatten out your higher doctor cost as well as the personnel cost.
Okay. Operating costs will be spread over a larger bed network and that will obviously
Actually, you know, there is, and as far as Nanavati is concerned, there is a legacy personnel cost, okay, which is the workers' cost. Okay? That's the only single line item which is out of whack. I mean, it's 31% compared to 20%-23% for the rest of the group.
Okay.
Okay. That either through expansion of capacity or through VRS is the two ways of tackling it. We tackled it partially through VRS. We may be looking at another VRS going forward, but more importantly, I think when the new capacity comes in, it gets taken care of by itself.
Okay. My last question is on seasonality on your hospital business. 2Q, as you said, due to rainy season, we have higher incidence of infections, et cetera. 3Q, should we assume it should be a lower quarter due to like major festivals falling in? And again, fourth quarter should be a better one. Or how does this seasonality vary across different quarter for your hospital business?
Let me put it this way. Usually your Q1 and Q3 are the sort of weaker quarters, right?
Mm-hmm.
Rather than timing it like this, because sometimes Diwali is there, and so on and so forth, H2 is usually better than H1, historically for all hospital groups.
Okay. Very broadly, second half perform better than the first half.
Always. I think, you know, if you see any hospital group, typically and historically, our hospitals or any other hospitals, they all H2 is much better than H1.
You'll see a 48%-52% type in EBITDA.
Yeah, yeah.
Revenue will be INR 49-INR 51 type.
INR 49, INR 51
Historically, I'm just giving you based on, you know, experience or whatever. I'm not giving you a guidance.
Yeah.
Usually as INR 49-INR 52 first half versus second half.
Okay, got it. Final clarification, CapEx you maintain whatever budget we have done or we have disclosed earlier, that remains on track and this lower CapEx in first half of this fiscal is just a matter of timing issue, and eventually as and when payments, et cetera, start happening, it should be in the budgeted line.
Yeah. I mean, if I was to look at things which are gonna come up in the next one year, okay, there is obviously certainty because we know where we are. We have the fit outs, et cetera, over there. As far as, you know, anything which is coming up really is bunching up towards the end of 2024, 2025, and 2026. I think there is strong visibility that we should be able to meet timelines over there.
Okay. That's very helpful. Thank you.
Thank you. The next question is from the line of Praveen Sahay from Edelweiss Wealth Management. Please go ahead.
Thank you for taking my question. One clarification related to the bed addition. Beyond Shalimar Bagh and Dwarka, you have a major bed addition plan for FY 2025. Is there any deferment in that 1,170 bed odd?
Not really, no. Like I mentioned, the visibility is there and works have started. At the same time, I just want to sort of also layer it up that we all. Like I mentioned, you know, the reason I was going down to about 15%, institutional share is because I had visibility of this coming out at that time. Let's say, hypothetically speaking, some project gets delayed at the end, and let's say it's not adjacent to a place which is at zero institutional, you still have the lever, by the way.
Okay.
Having said that, just, you know, squarely answering your question, we are not right now, as far as our visibility is concerned, we're not foreseeing any delays.
Okay, great. The second question is related to the ARPOB. For a sequential basis, if I look at your ARPOB is around INR 66,000. Even after improvement in the payer mix, like institutional gone down to 28% and the international patient mix also improved. There also sequential improvement we had seen. What exactly on the QOQ basis related to this flat ARPOB?
Can you just repeat that question? Sorry.
Basically, this is because of the fact that the medical mix of the patients have gone up during this quarter. As Abhay mentioned this earlier also that, quarter two, we had some dengue and viral fever patients across. The internal medicine has jumped by 26%. You've seen that comment in the earnings update also. Basically because of the. If it was not to happen, generally you would find that the ARPOB will drop in quarter two compared to quarter one because of the medical patients going up, right? Medical patients typically-
Mm-hmm.
You know, the dengue patient will be 50% of the normal ARPOB that we have, right? It should have dropped by the fact that, you know, we have this, you know, institutional share going down and the international going up, so it's been maintained at the same level.
Yeah, got it, sir. Got it. Thank you. Thank you for answering my questions. All the best.
Yeah, purely you can't look at it like, look, the occupancy went up, so you know, there's a secular increase in occupancy also of your business as usual, right?
I got the answer because of our internal medicine increased the contribution, maybe that is the reason why the ARPOB is maintained on the same level.
Yeah. Yeah.
Thank you, sir.
Thank you. The next question is from the line of Shaleen from UBS. Please go ahead.
Hi, Shaleen.
Yeah. Hi, Abhay. A great set of numbers. Congratulations on that. Abhay, more of an understanding thing. See, I understand your institutional patients are coming down, but is it right way to think that they generally take general ward, right? You will be replacing them with a patient in general ward, right? Probably my improvement in ARPOB when I replace institutional patient will not be the same level of my average ARPOB.
See, that's not true. Okay. Let's say you are working in Northern Railway, right?
Mm-hmm.
Who are these people, effectively? These are public sector undertakings. They're Delhi Jal Board, they're various central government, this thing, et cetera. It could be anybody from income tax to, let's say, from irrigation department, right?
Supreme Court, et cetera. All the IAS officers also.
Yeah, yeah.
Mm-hmm.
All IAS officers, Rajya Sabha members, Lok Sabha members, former members, et cetera, et cetera. All judges, Supreme Court judges, High Court judges, and so on and so forth.
Understood.
Yeah. Now, each one of them, if you're a lower sort of tiered officer, or you're, let's say, a Class III employee or whatever, then your allocation or your entitlement, like in insurance, okay, maybe general ward. If you're a judge or if you're an IAS officer or whatever else it is, it'll be single room or deluxe room. Well, single room. Okay?
Right.
What you're replacing it by is not that. The other thing you need to keep in mind is my INR 66,000 ARPOB.
Mm-hmm.
Right, is a weighted average. It includes the INR 35,000-INR 36,000 of CGHS as well.
Yeah.
What actually replaces it is the higher ARPOB.
No, it replaces, but will it replace by the hospital average? I think what you said is possible, yes.
Right. Another point I want to make is that, yes, you know, although we are talking about reduction in institutional business, right?
Mm-hmm.
I think the right way to and the best way to think about it is increase in the non-institutional business.
Right.
Because if you can increase occupancy, all right? That's what I sit with my teams on. I'm saying, look, rather than pushing, your best case scenario is where you can find ways of increasing occupancy, retaining this, as well as increasing your and finding ways to accommodate your preferred channels.
You yourself said, right, that beyond 80%, it's like service compromise can happen, so it's too difficult. I mean, I don't know.
Today, yes. You know, like I said, you know, three years or two years back, somebody asked me at 75%, I would have said, "No, you'll compromise." The fact is, I'll give you example of Breach Candy Hospital in Mumbai. I mean, your service is not compromised. It operates at 90%+ occupancy. It's just that over a period of time, they found ways to do it. You become more efficient. If you look at P. D. Hinduja National Hospital & Medical Research Centre over there in Mumbai, I mean, they've got 27 ICU beds. They've got the lowest ALOS because they've got it down to a T. Simply, they got it down because they've been living with this situation of saturation where they can't expand it even by a square inch for so many years. I mean, everything is down to just in time and so on and so forth.
Yeah, those are all incremental efficiencies, but I still want to sort of put that down.
That's important, right? Because from a modeling perspective, when we model, we start doubting whether the hospital can hit beyond 80%. If you see there is a possibility and there are models and you can kind of build in, then it's very interesting thing and very important point for us to not have a ceiling.
I have hospitals right now operating in 90%+ .
Okay.
Without compromising anything. Because that's one place we put our foot down as far as, you know, that's what you don't want is. Immediately you see a sort of a pushback in the next couple of quarters. Your doctors will have a problem, your patients have a problem, and so on and so forth. Our PSAT scores, all of that, okay, on a daily basis, which we look at, has been increasing and improving.
Right. Do you have a score like NPS score kind of thing as well here? Do you patient satisfaction scores, do you track something like that?
Oh, absolutely. Multiple this thing, including, and we do it through, you know, even SMS this thing, et cetera, where it's voluntary for you to sort of respond to it. Although, you know, you'll only have 4% or 5% people responding to it, okay, but those are very true sort of this thing, right? It's not as if you're sitting in a hospital where the management or the nurse is coming up to you and says, "Sir, please sign this.
Okay.
Multiple this thing. We have, you know.
Understood. I think you also mentioned about moving away from probably a traditional way of construction. Are you going with hollow structure tubes for the construction instead of RCC?
Look, we evaluate hollow tubes versus structural steel frames, okay, or let's say composite. You do your basements; we still have to do in concrete. We are still finding ways of doing that too, mostly in steel as well. The rest of it you do on steel frames, which is very promising. You see, unlike, you know, the cost of construction is maybe higher by 15% or 20%, but if you can save 20% of the time.
Right.
In our case, okay, you can get to market that much sooner because for me, every day is a loss of profit, right?
True.
Unlike a residential real estate.
Mm-hmm.
where the cost of construction matters because the delay is to, let's say, the consumer's account. Here, it's actually. I have a positive incentive for me to get it up and running sooner rather than later, you know.
True. Ballpark, have you looked at the IRR? Basically, it's all about IRR at the end of the day, right? It's positive, it's accretive if you-
Look, I mean, each bed, I mean, when you have a cost of construction or a brownfield of, let's say, INR 150 lakhs or whatever, and your EBITDA per bed, okay, is INR 60 odd lakhs.
Mm-hmm.
Okay? You may as well get that sooner. You have 50% ROCE. I mean, the question is, how soon do you get to that 70%, 60%, whatever that occupancy is? Largely, these are brownfields, right?
Right.
Like I said, it's unsaturated demand at my doorstep. I have no fixed costs. I mean, there is absolutely no benefit on any Excel sheet for any, even a day's delay on this. Shaleen, also it is about the patient convenience because, you know, when you have the traditional, you know, construction, you have more disturbance to the patients who are in the hospital, right? So they're obviously annoyed, et cetera. So I think by doing this structure, you're also able to reduce the interference into the ongoing patients.
No, I very much agree.
When you're doing it. Let's say you're doing it in Nanavati, right? You already have a running hospital there, right? If you have all this digging out going there, and you have a lot of construction activity going on there, this obviously disturbs people, right? You can't do 24/7 construction in that case. I think this allows us to, you know, fabricate the stuff outside and bring it in and, you know, so it's a faster construction and also lower disturbance on the site, especially where you are running the hospitals.
Fair enough. No, that's very, very interesting, I think, and that's a great move. That's all from my side. Thank you so much.
Thank you. The next question is from the line of Dheeresh Pathak from White Oak Capital. Please go ahead.
Yeah, thank you for taking my question. Sir, can you give the CapEx outlay for the Dwarka project and as well as for the Shalimar Bagh?
As far as Dwarka is concerned, we are not incurring the CapEx, okay? It will be about INR 130-odd crore. Yogesh can give the precise figure as far as the medical equipment is concerned.
Right.
The entire CapEx is being incurred by the developer. We have a fixed rental that we are going to be paying him, which
Right.
You know, which is INR 20-odd crore. Yogesh can give the details on both Shalimar Bagh and
Shalimar would be roughly a cost of INR 150 crores, including the equipment. On the Dwarka one, that'll be around INR 170 crores, because we are expecting the LINAC also there. Now, this 170 crores is in addition, we've given some deposits to these guys, you know, to start with, advance when you sign the contract. That's the total investment that we have. INR 170 crores plus INR 150 crores.
What is the rental in Dwarka? INR 20 crore.
2024. What is it, Yogesh?
That's what. The rental in Dwarka would be INR 22 crores a year.
INR 22 crore. Okay. Sir, on the labs business, can you give like the share of revenue from B2B and B2C?
Yeah. I would say it will be a 50/50 type of, you know, thing. 50% will come via B2B. When I say B2B, this also includes franchisees, right? Balance will be B2C.
Franchisee in true terms it is B2C, right? The HLM business would be typically B2B.
HLM will be 40%, around 40% of the business will be through HLM, right?
Okay.
25% will be coming via the franchisee. Another 5% through the, you know, this Lab Outside side, et cetera. Balance will be all direct, including couriers and home pickups and the wellness, et cetera.
Okay. One last question, for Nanavati, what would be the EBITDA per bed?
What would be EBITDA, Yogesh? INR 50 odd lakhs.
We don't share the hospital level EBITDA per bed.
Okay. Because the numbers you said is double-digit EBITDA margin. If I do the math-
15. Yeah.
Huh?
Mid-teen.
INR 450 crore revenue you said, right? 15% margin.
It's around 15% margin. Yes. I would say it's actually in quarter two, it's around 16% margin, right? You have the, you know, revenue from Maharashtra already in that listing, so you can compute it.
Okay.
Yeah.
also it will look lower. Primary reason, like sir explained, is because of the legacy doctor cost, which is 10%-0.5%.
No, personnel cost. Personnel.
Personnel cost. Okay. There's a union there, is it?
Yeah. I mean, it's a benign union. That's not the issue. The issue is not that. The issue is that, look, when you do a VRS, right-
Mm-hmm.
Typically you pay, let's say six months of salary for every year of service left, or nine months of salary for every year of service left. We did the first VRS for six months of salary for every year of service left. Now the ask is one year of salary for every year of service left, you know. Rather than paying that out, I'm saying, "Look, when new capacity comes in, this gets defrayed over a larger this thing in any case, excess manpower.
Okay. Okay.
We also have to do cost benefit.
Even outside of that also the EBITDA per bed, I don't know, based on the numbers you're sharing, even adjusted for that would look lower. Is there something else also in Nanavati? Like, is it lower occupancy? Is it lower ARPO, apart from that?
Higher number of general ward beds as per this.
Okay.
The configuration has fewer single rooms, fewer double rooms, attached bathroom, et cetera, because these are older sort of buildings.
Mm-hmm. Understood.
The big, big listing over there is for single rooms.
Understood. Thank you for the detail.
If you're from Mumbai, you'll know that you don't get a single room in the hospitals, right? I mean, you'll typically get an admission in lower category than move up.
Okay, sir. Thank you for taking my question.
Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Yeah, thanks for the opportunity. Just firstly, on the international patients, will, like historically, if at all, does the patient from Afghanistan have better realization when compared to what you are having from the current international patients? Or will that be just driving the volume if at all, the Afghanistan patient starts coming into India?
Sorry? No, ARPOB and ALOS haven't been any better, you know, ARR, et cetera. It'll be all the same. It'll be in the same range.
Okay. Drive the volume basically, not the realization.
Yeah. Yeah.
Secondly, on the
Nevertheless, you know, you know that international patient, the ARR is generally double of the domestic, right? Because we get more acute patients there, and that obviously helps us, and it's more complex work that we get on an international side. Obviously that helps us in terms of the ARPOBs and the ARPOB, et cetera. Your average bill is twice. It's not about the pricing, it's the average bill is twice.
The resource as well as the service aspect also will be typically much superior compared to.
No, no, but I.
Even on the cash.
In spite of that, I mean, if you, if today I have a patient for a fracture and I have a patient for a liver transplant, right?
Right.
I make a lot more absolute margin, okay, as well as the overall billing on a liver transplant. Of course, the resources are higher, but my margins are much higher. When a person comes, okay, nobody's gonna have a fracture and come from Afghanistan to get it sort of sorted over here, but he'll come for a life-saving, you know, a liver transplant or a transplant or a life-saving procedure or whatever, where the average billing is much higher.
Approximately what would be the-
Mm-hmm.
Sure. Just to understand approximately what would be the margins from the international patients flow compared to the company level mar-
No.
Just a broad picture.
No. You see again, you're talking margins in percentage, which is the wrong sort of cadence to look at. Like I said, you'd rather do a.
A bit up on bed.
Okay, on a $10,000 dollar surgery than do a 50% margin on a $2,000 dollar surgery, right?
Right. Right.
Okay. What I'm telling you is the average billing is twice.
Got you, sir. Secondly, on the case mix side, the cardiac side seems to be improving nicely over past couple of quarters, and oncology remaining pretty stable. While the payer mix change can definitely drive the ARPOB, but from a case mix perspective, typically cardiac is relatively lower compared to oncology. Will that have a certain impact on the overall ARPOB?
No. You've seen it like you said yourself, right? You've seen it increase, yet you've seen overall increase in ARPOB, correct?
Okay. And just lastly, just to understand the mix of, so while this quarter had a viral load, maybe on account of dengue. The typical mix of surgery and the medical business for the quarter or for the first half, and how probably that can change in the coming when there is no viral infection per se. Any broad color on that?
Tushar, this was down. The medical mix was up by 2% this time. Let's say this was, you know, generally a 43-57. This time it was 45-55. 45 is for medical. In quarter one it was 43-57. I think, as we get into quarter three, I think this will normalize to the old levels.
Effectively resulting into, let's say a ballpark, what kind of increase in ARPOB or is it like in the meaningful range of INR 1,000, INR 2,000 or much more than that because of change in this proportion?
No, I can't obviously give you the figures, what would be the change, but I think you can see that, you know, a 2% change in the mix of the PSU patients and an increase in the international of the level which has come in the quarter two compared to quarter one. If that increase was to happen, there's obviously, as I said, the ARPOB is 1.5x For the international and for the PSU it is double. If you compute that, you'll get to a number.
Okay, sir. That helps. That helps. Thanks a lot.
Thank you. The next question is from the line of Bharat Sheth from Quest Investment Advisors Private Limited. Please go ahead.
Hello? Hello.
Hi.
Hi. Thanks for the opportunity. Sir, you said typically in Mumbai, doctor payout is higher than the rest of the world. Is that correct understanding? If that is there, what exactly are we doing to retain this kind of a talent, I mean, for our hospital? In future then would you like to go for a Mumbai?
Sorry. In Mumbai I compete with again other hospitals in Mumbai, right?
Yeah.
The doctor payout which is higher for me also applies to all other hospitals.
Sorry, I don't get you, sir.
My Mumbai hospital does not compete for doctors against hospitals in other parts of the country.
Correct.
It competes with the hospitals in Mumbai.
Fair.
It's a secular trend that the doctor payout in all hospitals across Mumbai are similar, which is higher compared to the rest of the country.
Fair, sir. Then ARPOB in Mumbai is much higher than the rest of the country vis-à-vis the way because the payout is higher.
Not necessarily. The doctor payout has nothing to do with ARPOB.
Fair.
Your doctor payout is a cost line, your ARPOB is a revenue line.
Okay. Sir, can you give, share some kind of, I mean, broader statistics apart from in these, all these metro city, how these international tourists, which city attracts more international and which has less?
Number one place in India is Delhi NCR. 40% of all medical tourists come to Delhi NCR.
Okay.
The rest is distributed. Mumbai share is the least.
Fair. Second, sir, now, since we are currently in the next two years, we'll be expanding brownfield. Once our brownfield opportunity is over, and if we go for a greenfield, then it will be taking a little hit on the margin. Is that understanding correct?
When you do greenfields, which are sizable in nature, okay, compared to the rest of your portfolio, okay, it will have, you know, a sort of temporary dint in towards your margins. Okay. It does not mean that you give up that opportunity, you know, when you have the opportunity. If I get opportunity to do, let's say, three greenfields right in the middle of Mumbai, not that I'll get the land for it, but if I was to, I'd do it, right? Having said that, we have a large base of, you know, INR 615-1,600 crores of EBITDA, you know, about INR 6,000 crores of top line. How much will it be impacted by is the question.
Okay. Fair. Second, last question, sir. We have several levers for expanding the margin. When we are talking currently, we have around annualized INR 65,000-INR 67,000 per bed EBITDA. With all this lever, what is our aspiration? Of course, occupancy also increasing.
Like I said, you know, we cannot give you forward-looking guidance on EBITDA on this thing. Our EBITDA is 65-
Lakhs.
INR 64 lakh.
Lakhs.
Not thousand.
Sorry, INR 64 lakh, sorry.
Yeah, per bed. As far as the levers are concerned, all of them should augur better and improve this going forward. You know, some sort of calculations you can do. Like I said, you know, I'm reducing institutional bed share by 13% in absolute terms. That means that 13% should be able to generate at least 50% more revenue. 85% of that will flow to EBITDA. That has some impact on your EBITDA numbers, your international patients increasing, your insurance patients increasing, et cetera, et cetera. I think overall, we are in a good space. You know, exactly where it will lead you to which quarter is something for you to estimate.
You know, but, like I said, you know, I think, you know, as a sector, as a company, we are in a good space. We are generating significant amount of free cash flows. We have very good land banks right in the middle of the metros from 85% capacity will move to 93% capacity post-expansion. We already have these lands where work has started, most importantly. There's an opportunity set in the rest of the country. I've always gone out to say that, look, any location which is viable, where at least two of my competitors have proven viability, we'll be more than happy to sort of enter those places. Of course, you know, M&A is another big lever for us.
you know, that will throw out further geographies and opportunities for us. We certainly have the balance sheet and the cash flows to support those expansions.
Okay. What are the criteria for M&A? I mean, do we still, I mean, would like to have an evaluating any 33% kind of ROCE would like to generate?
Of course. In the long run, of course. I mean, it may not be immediately available, that sort of ROCE, but yes, over a period of time, through those assets, through further expansions over there, brownfield, et cetera, it can unlock value. Because do keep in mind, brownfield expansions allow you a significantly higher ROCE than your present set of operations. Because your EBITDA per bed is much higher in a brownfield. There is no stress on your, even short-term sort of EBITDA margins.
Okay. Thank you and all the best, sir.
Thank you.
Thank you. The next question is from the line of Harith Ahamed from Spark Capital. Please go ahead.
Hi. Thanks for the opportunity. Looking at our 2022 bed addition plans, we have roughly 1,500 new beds getting commissioned in FY 2025, and I believe a higher number probably in FY 2026. How should we think of the payer mix, specifically of these new beds? Will we stick to our targeted 15% share from institutional patients, or will we prioritize occupancies and probably accommodate a higher share at these new beds?
Look, 15% is a derived number, right? Essentially, what we believe is that the reduction in institutional business will stop when this new sort of capacity comes in. It's beneficial that majority of this capacity or almost all of this capacity in 2025, 2026 is all brownfields. So it will not disturb the payer mix at that time, but at the same time, you know, any further acceleration will stop towards non-institutional. I mean, I don't. Then again, coupled with the fact that, look, you've got a lot more operating levers for almost all of this capacity because it's brownfield, it will not disturb your payer mix or your margins at that stage.
Okay. Got it, sir. Then in terms of M&A priorities, are we open to assets outside metros and Tier one cities, which is our current,
No, absolutely.
Also assets outside the north region of the country, which is again our core market today.
Look, we have capabilities of executing anywhere in the country, you know, on similar sort of models that we understand, okay. My only criteria has been that, in a new geography, I don't want to do a greenfield, and B, I don't want to go to uncharted territory where, you know, I only want to go to places where at least one or two of my competitors at least have proven viability. We will do it better like we do in each and every micro market that we compete in without exception. You have witnessed to that over quarters, right?
Got it. Thanks for taking my question.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.
Thank you so much for your time, for logging on to the call, and we look forward to connecting with you in the next quarter with good news again. Thank you.
Thank you. On behalf of Max Healthcare, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.