Ladies and gentlemen, good day, and welcome to Max Healthcare Institute Limited earnings conference call. As a reminder, our 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 this 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. Anoop Poojari from CDR India. Thank you, and over to you, Mr. Poojari
Thank you. Good morning, everyone, and thank you for joining us on Max Healthcare's Q1 FY 2027 earnings conference call. We have with us Mr. Abhay Soi, Chairman and Managing Director; Mr. Yogesh Sareen, Senior Director and Chief Financial Officer; and Mr. Keshav Gupta, Senior Director, Growth, M&A, and Business Planning of the company. We will begin the call with opening remarks from the management, following which we will have the forum open for an interactive question and answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Abhay to make his opening remarks.
Good morning, everyone, and thank you for joining us today for Max Healthcare's Q1 FY 2027 earnings call. We started the financial year with healthy momentum across the network, recording year-on-year growth of 16% in revenue and 15% in operating EBITDA. We continued to execute well on our ongoing capacity expansion plans. At Max Smart, we have currently operationalized 50% capacity of the 400-bed brownfield tower. The remaining 50% are expected to be handed over to operations during the course of the current quarter. At Nanavati Max, remaining 50 beds will also be operationalized in this quarter, and work on the phase II expansion has commenced. Coming to our recent acquisitions, the integration of Max Super Speciality Hospital, Bhubaneswar into the network is proceeding as planned.
The hospital contributed INR 19 crores in revenue and INR 2 crores in EBITDA during the post-acquisition period in Q1 FY 2027, with an occupancy of 50% and ARPOB of INR 35,000, both of which provide significant levers for growth going forward. Prior to the acquisition, the hospital generated revenues of INR 154 crores in FY 2026. Going forward, our focus is on integrating operations, renovating infrastructure, upgrading technology, and enhancing clinical programs to turn around the hospital over the next 12 months. In relation to the Pune Greenfield, we have acquired the SPV, and it is now a subsidiary of the company. To further strengthen our existing network, the board has approved a capital expenditure of INR 425 crores for a new brownfield tower at Max Super Speciality Hospital, Vaishali. This will add 202 beds to the hospital's existing capacity of 387 beds. The building plans have been approved, and the construction activities have already commenced.
The project is expected to be commissioned before FY 2030. Alongside our capacity expansion, we continue to strengthen our research and academic ecosystem. We have recently established a standalone Max Research Centre, marking a landmark milestone in our research journey. Over the years, we have built an integrated clinical research ecosystem and have conducted over 750 clinical trials, completed over 2,200 investigator-initiated studies, published nearly 3,500 papers in index journals, secured over 30 competitively funded research projects, generated patents, and established capabilities that translate scientific discovery into better patient care. In recent months, we have also secured several research grants and awards from the prestigious institutes, including ICMR Centre for Advanced Research in Precision Diabetes, the ANRF-MAHA MedTech Mission, the DBT European Union Dengue Program, the IndiaAI Mission Initiative, and the National Cancer Grid, amongst others.
Our research capabilities are complemented by a dedicated education arm, the Max Institute of Medical Education. This institute trains over 12,000 healthcare professionals annually, spanning across 180 programs, and our post-graduate ecosystem has over 600 DNB students across clinical specialties. Emboldened by the above and the change in recent guidelines of the National Medical Commission, we have decided to embark upon the medical education business and have received in-principle approval from the board for the same. We believe this to be a significant line of business in years to come. Now moving on to the Q1 performance highlights. Average occupancy for the network continued to be more than 75%, despite the 13% increase in operational bed capacity year-on-year, with most units continuing to operate at near optimal capacity. Occupied bed days were up by 10% year-on-year and 5% quarter-on-quarter.
Average length of stay reduced by 4% over trailing quarter, reflecting concerted efforts on this front. Average revenue per occupied bed for the quarter stood at INR 81,900, growing by 5% both year-on-year and quarter-on-quarter. Network gross revenue stood at INR 2,982 crores compared to INR 2,574 crores in Q1 last year and INR 2,664 crores in previous quarter. This reflects an increase of 16% year-on-year and 12% quarter-on-quarter. Due to the discontinuation of select high-value chemotherapy drugs for institutional patients, the share of oncology for inpatient revenues dropped to 22% from 26% in Q1 FY 2026. Excluding oncology, gross revenue grew by 20% and ARPOB grew by 9% year-on-year. International patient revenue was INR 247 crores, registering a growth of 18% year-on-year, and accounting for 9% of the revenues from hospitals.
Digital revenue from online marketing activities, web-based appointments, and digital lead management was INR 941 crores, accounting for approximately 32% of overall revenue. Website traffic crossed 97 lakh sessions during the quarter, growing by 41% year-on-year. Network operating EBITDA stood at INR 704 crores, reflecting a growth of 15% year-on-year and 3% quarter-on-quarter. Network operating EBITDA margin was 24.8% for the quarter, compared to 24.9% in Q1 FY 2026 and 26.8% in trailing quarter. The margin was relatively muted due to the recent commissioning of new brownfield capacities and the acquisition of Kalinga Hospital. Annualized EBITDA per bed for the network stood at INR 71 lakhs versus INR 68 lakhs in Q1 FY 2026 and INR 73 lakhs in the previous quarter. Profit after tax per network was INR 357 crores against INR 345 in quarter one last year and INR 387 in the previous quarter.
The network generated free cash flows of INR 397 crore during the quarter. INR 386 crore was deployed towards the acquisition of Kalinga Hospital and Yerawada Properties Private Limited, and INR 337 crore was invested in ongoing capacity expansion projects. Net debt for the network stood at INR 2,384 crore compared to INR 1,908 crore at the end of March 2026. While the net debt to EBITDA ratio continued to remain below one, the increase during the quarter includes INR 153 crore towards Kalinga and the put option liability for the balance stake in Yerawada, which is the Pune project. Continuing our efforts to support the local communities, we provided free treatment to over 56,000 patients from economically weaker sections of the society worth INR 78 crore at hospital tariff.
We also spent around INR 6 crore towards various CSR initiatives during the quarter, which include provision of medical scholarships to underprivileged students, promoting maternal and newborn health, vocational skill training, and environmental projects such as pond rejuvenation and tree transplantations. Both our strategic business units continued to deliver steady growth in revenue and profitability. Max@Home reported revenue of INR 78 crore, reflecting a year-on-year growth of 32%. It offers 16 specialized service lines across 15 cities with over 56% repeat transactions. Max Lab reported revenue of INR 58 crore, reflecting a year-on-year growth of 20%. It provides services in over 60 cities and served over 6 lakh patients during the quarter. Now moving on to the status of our expansion projects coming on stream over the next two to three years. 100 beds at Max Super Speciality Hospital, Lucknow.
Additional 100 beds in the existing 468-bed facility will be commissioned over the next two quarters. 500 beds at Sector 56, Gurgaon. We expect to start phased commissioning of this facility by end of this year. 250 beds at Max Super Speciality Hospital, Bhubaneswar. Renovation of existing facilities should be completed within 12 months. 100 beds at Nagpur. Project work continues to be on track, and we expect commissioning by FY 2028. 400 beds at Zirakpur Mohali. Project is on schedule, and we expect to commission it in FY 2028. Onco day care block at Max Super Speciality Hospital, Dwarka. This is the second phase. Project work is complete, and we are awaiting occupancy certificate. 260 beds at Dwarka, which is the next phase because Dwarka Hospital is running full. It will be commissioned by FY 2030.
200 beds at Pitampura. Project is on track, and we expect commissioning in FY 2029. 271 beds at Nanavati Max Super Speciality Hospital in phase II. Project work has started and will be commissioned in FY 2030. 400 beds at Patparganj. D-wall work has started. We expect commissioning by end of FY 2029. 450 beds at Pune. We have received Intimation of Disapproval. Project is expected to be commissioned by FY 2030. With this, we open the floor for any questions that you may have. 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 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. Participants, you may press star and one to ask a question. 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 first question is If you can share your thought around the recent parliamentary standing committee recommendation for the healthcare sector. Any initial thought on the recommendation which came?
I think the recent committee report speaks about affordability. But I think one needs to look at another important aspect, which is going to be a need for new hospital beds and viability. I think both need to go hand in hand. I think once you take that equation into account, I think wise minds will think otherwise, perhaps.
Okay. Are you involved in some of the discussions which could have gone for these recommendations, or do you think it will be more in the future?
No, I don't think there's been any reach out to hospitals on this committee.
Okay.
I've read it as much as everybody else. It speaks about certain FDI caps and so on and so forth. Like I said, you know, it's a sector we believe that you require a lot more capital. You have to have an environment which is both viable and conducive to investment for hospitals to be built. I think all in all, this report is the 176th report by the committee.
Yeah.
I think you need to look at it in the balance, and I'm sure the ministries will look at it in the balance.
Okay. Thanks. My second question is your plans for turning around the Kalinga Hospital. You mentioned around 12 months to set up infra and bring the SOP changes, et cetera. Once these changes are implemented, what is the headroom to improve in terms of the profitability profile, ARPOB, et cetera? Because at this point of time, it looks very low compared to the corporate average. If you can share your thoughts.
Yeah. I think because the occupancy is 50% and ARPOB is INR 35,000. I think there's significant room in both these. You should be able to effectively have a 50% - 80% enhancement in both of these. In order to do that, we have a current hospital, so you have a head start, which makes a marginal amount of profit. But you have to renovate it, you have to get the technology, you have to get the clinical programs. We intend to do all of this over the next year or so. Then of course, alongside, we'll be building another 200 beds over here, 250 beds here. We've been through this route before, whether in Lucknow or in Noida with our acquisitions. We've done it many times. It's the same sort of route that we intend to follow.
Okay. My last question is on Max Smart, where you commissioned 50% of beds, and you mentioned 50% will come this quarter and beyond. On the commissioned beds, what is the current occupancy, and which is the focus segment or focus specialities which are offered in this particular unit?
You have oncology here. Whatever's been opened is running to 80% occupancy. It's quite full. The rest of the beds are not going to come in this quarter and the next quarter. They are all coming in this quarter. So you'll have all the beds operational in this quarter. Yeah. I think we're expecting good occupancy over here. Like I said, whatever's been opened is already at 80%. But it's been opened in a phased manner through the quarter also. I'm talking about half the beds are open now. A lot of them got opened in the last one month. As they are coming on stream, they are getting occupied.
Got it. Okay. One last question before I get back in the queue. In terms of your insurance empanelment or renegotiations, anything pending in near term, which are due for renewal or renegotiations?
Yes, Damayanti, this is Yogesh. There are ongoing negotiation going on with GIPSA and some other insurance companies. Also, the insurance company that we had discussion last time, those are up for renewal in September, October period. We hope we will get some pricing fees going forward in the insurance segment.
September, October is the time.
Yeah
Okay, when renewals are due.
Yeah. Damayanti, last time when we had this stalemate with the insurance companies we had agreed a 6% automatic price revision, and that is what is going to happen. Also, on the Confederation of Indian Industry side, there have been engagement with the IRDAI, et cetera, and with the insurers also. There, more or less, we have agreed that the level of inflation that hospitals have and some kind of a recommendation to the IRDAI in terms of automatic price revisions. Yeah. So at the end of this period, we have automatic renewal and price inflation, which is built in. Yeah. Which is a part of the previous negotiation. Please don't go into renegotiation.
Okay. So this is like 6% revision, which was earlier agreed upon, that will come into.
That's right.
Okay. Great.
Yeah.
Thanks. Yeah. I'll get back in the queue.
Thank you. Next question is from the line of Neha Manpuria from BofA Securities. Please go ahead.
Yeah. Thanks for taking my question. Abhay, on the Max Smart beds that we've commissioned, given that we are seeing such good ramp-up in the beds that you mentioned, that they're already at 80% occupancy, shouldn't the incremental EBITDA from these beds be very high and therefore start contributing to EBITDA significantly starting from first quarter itself? When should we start seeing that EBITDA improvement from these new beds come through?
See, what happens is a very standard sort of for any new hospital, brownfield otherwise or whatever, the trajectory is very simple. First, you ramp up occupancy, right? You ramp up that occupancy using low ARPOB, any ARPOB, whatever is sort of coming your way, but you focus on revenue while you're bearing the cost of the place. As you sort of ramp up, you start also improving your ARPOBs. So you hit breakeven with occupancy, and once you do that, you start improving your bottom line. Everything keeps as you kind of distill your payer mix, it starts coming down to the bottom line. We've been through this in Dwarka, we've been through it in other sort of brownfields that we opened up. The trajectory is the same. First revenues, then the profitability sort of this thing happens.
The revenues also, the occupancy will be high, revenue ramp-up will be lower relatively, and EBITDA ramp-up will be lower even more so relatively, right? The second thing which starts happening, your revenue ramp-up moves beyond your occupancy ramp-up, of course, and your EBITDA starts picking up, and then your EBITDA ramp-up is going to overtake your revenue ramp-up as well. So it's a very standard sort of operating book as far as occupancy is concerned. So over the next couple of quarters,[crosstalk] you're going to see that, yeah.
Okay. Sorry. In which case, when do I start seeing the revenue ramp-up and EBITDA ramp-up? When, like you said, couple of quarters s hould that start happening, let's say by third quarter, fourth quarter? Or is it a little more phased out in your experience?
No. By the second, third quarter of operation, you are there.
Understood. My second question is on Nanavati Max Super Speciality Hospital. I think you mentioned that the remaining 50 beds would be operational. Could you give us some color on how the beds that we've commissioned are doing? phase II , when do we expect to start that, given that we're just starting activities? When should that be ready and commissioned?
No. Look, the phase I, again, whatever we opened up is at about 80% occupancy. We are waiting for the 50%, 50 odd beds, which are remaining over there. As soon as they come up, hopefully, we'll have that occupancy also done. It's a little further out on the trajectory compared to Max Smart Super Speciality Hospital in the sense that there's already a significant pickup of occupancy happened before revenue, and now EBITDA is sort of catching up and is going to surpass that soon. We already have that curve and with respect to the second phase, what that means is we need to shut the 100 odd beds over there, which we have, and we've started the works on second phase. That will take us about two and a half years.
Okay. As I recall correctly, Nanavati Max Super Speciality Hospital was lower on the margins because of the type of patients that we were able to serve and the limitation of capacity. The improvement in Nanavati Max Super Speciality Hospital should therefore come once the phase II comes through, a meaningful EBITDA improvement, or you start expecting that it to catch up with the corporate average, let's say, with the phase I itself.
No, with the phase I itself. You have already seen the ramp-up over there.
Thank you.
You will have that. It is very high ARPOB business. Your EBITDA is already sort of ramping up and you will get there, yeah.
Got it. Thank you so much. Thank you.
Thank you. Next question is from the line of Viraj Shah from PGIM India Mutual Fund. Please go ahead.
Hi, thank you for the opportunity. I just have one question.
Viraj, I'm sorry, can you speak a little louder, please?
Am I audible now?
Yeah.
Okay, perfect. I just have one question. If you could explain a bit about the changes proposed in the National Medical Commission with respect to you guys setting up the medical colleges. What is the kind of capital commitment, or what are you seeing in this area specifically?
Do you want to talk about it?
Yeah. Basically, there has been draft notification to say that now even for-profit companies can open medical colleges. Before that, the regulation was that it is only not-for-profit enterprise which can get into medical college. I think with that draft change, which we assume will also become the law, for-profit companies can also open medical colleges. We have done some back of the envelope calculations, and our take is that for a 150 bed teaching medical college, you need around INR 300 crores of spend. This is what is the kind of capital required. This will be generally in the existing hospitals. For example, we have a 27 acre campus in Lucknow. Our plan is to start one at Lucknow, and then maybe come to the other hospitals where we have vast pieces of land and try and create this infrastructure there.
Okay.
Sure
Just for understanding perspective.
Please.
Just for my understanding perspective, what would be the kind of margins which one can make via this for-profit medical area?
We are seeing ROCEs of more than 25%. You've been following the recent NEET and the thing, you're aware that less than 2% of students who qualify for NEET exams find places in medical colleges. I think this is the government's impetus to increase seats in medical colleges. Previously, for-profit organizations were kind of curtailed from doing so. Also, there were restrictions on the sort of charges which could be applied to hospitals attached to medical colleges as well as the kind of wards and places. There were some infrastructure limitations as well that were there in the previous system, and all of that has been removed. Now, effectively what that means is that if you have a hospital, you're permitted to have a certain amount of seats for medical education attached to it.
The prerequisite for this business becomes to have a hospital, because the students have to train in the hospital, right? The second thing is that at the back end, we are already training DNB students. We are already teaching MBBS students. Once you become a doctor, you come and train, and we already have the faculty, we have the curriculum and so on. For us, it is very natural. It is almost backward integration for us to get into medical education. We have the campuses in multiple locations, in Delhi, in Lucknow, in Bhubaneswar, in other places, because we have the campuses, we have the lands, and we intend to get into this business. We are seeing more than a 25%-30% ROCE at present.
Understood.
We intend to do this at scale.
Understood. Great. Thanks a lot. That is it from my side.
Thank you. Next question is from line of Bino from Elara Capital . Please go ahead.
Hi. Good morning. Just a couple of quick questions. One, you have taken this board approval for additional tower and 200 beds in Vaishali. If I look at your earlier presentations, there were already 200 beds scheduled for FY 2029 in Vaishali. Is it the same or is it a fresh tower?
No, it is the same one.
Same, okay. Second, you made this acquisition in Bhubaneswar, Kalinga Hospital. After that, we have seen some litigations started immediately after that with the previous promoters. Could you briefly describe what this is about?
They were not the promoters. These are the minority shareholders of 39% equity. This is the group that sits outside of India. They have their own issues. They have the liquidation proceedings going on against themselves in the parent setup in UAE market. Their shares, as per our legal counsels, are not transactable. Their request or suggestion and plea is to buy their shares also as part of the transaction, which we are very okay to, and they have gone to the court that we should buy their shares. Our counter is that your shares are, as of now, untouchable. Please get us a court order to buy them. That is the discussion going on. They want to force it to us. Promoter is not an issue party. We have bought the shares from promoter only. We have the full control of the company.
Understood. Thank you very much.
Thank you. Next question is from line of Karan Vora from Goldman Sachs. Please go ahead.
Thank you for taking my question. The first one is with respect to the educational institution. We have highlighted in the past that doctors or availability of doctors is not an issue. But is getting into medical education coming from the fact that maybe five years or seven years down the line, when all the large chains would have expanded meaningfully, we might see a shortage of doctors, and is that a response to that, so that in the future we don't face such an issue? Also, this whole thing will be a part of the consol list co, right? The whole medical college setup. That's the first question.
No, absolutely, it is going to be all a part of the list co. There are no leakages over there. It's 100%, all the economic interest is going to be sitting here. I think that's one. Secondly, unless one was to do a private equity round or something else outside of that may be different, but yeah, this is going to be 100% sub of the list co. So that's one. The second thing is with respect to, what was the first question?
The supply of doctors.
Supply of doctors. No, this is a little too far out for that. What happens is that you get a good stream of resident doctors, DNB doctors to start with. Obviously, there's no bond which makes them sort of continue. At a later stage, they get better opportunities somewhere else if you're not growing. For us, growth is imperative. Okay? Because if you don't grow tomorrow, you don't give opportunities of career growth to your clinicians as well as management, then you're going to have a problem. People will move out. Right? I think all those things are bound to happen. But it gives you a good base of quality resident doctors and DNBs who come to your fold.
Okay. Got it. The second question is with respect to CGHS benefits. Are we on track to that INR 140 crore number for this year, and how much have we realized in Q1?
We are on track in the sense that that number is flowing ever since. There was some left out part, which was the complex specialty rates that also have started to flow from, I would say, June onwards.
Got it. Are we like a 140 divided by 4 kind of a run rate?
From June onward, yes.
Okay, got it. The last thing is maybe one request. Till last quarter, we used to give the regional disclosure, so that used to be really helpful to understand what is happening in different states for us. Maybe if we can reinstate that from the next quarter, it could be helpful. That is just a request. Also, if possible, if you could share for this quarter as well.
Yeah. The reason that we pulled it out, and we are happy to discuss that because lots of reasons. If I give east, then you know it is Bhubaneswar. There is one hospital that we have over there. So we can, t hat one same. There was too much tactical information at the hospital level because some states had only one setup as of now, and given the competitive request, data that gets used there m aybe we can give it as others, some part of it as others. Had to think and react. We can do that.
Yeah.
Thank you.
I want to avoid giving solo hospital data. I mean, as you can well imagine.
Sure. That's fine. Yeah. Maybe others is a good idea. Yeah.
That's right.
Thank you. Next question is from the line of Vivek Agrawal from Citigroup. Please go ahead.
Yeah, thanks for the opportunity. In IP revenue growth, actually, if you look at non-onco business has done well, but onco business continues to remain under pressure and some kind of challenges. Just want to understand, when are you expecting the growth of onco segment back to earlier level or maybe let's say industry peers. Thank you. Second part is that why we are seeing significant issues only in Max while your peers are reporting healthy numbers, especially in onco. Thank you.
One is that oncology will start to level from Q3 onwards. That means, mid of Q3 is when we took this action of not supplying or not using the overseas drugs for the CGHS after this new MoU was signed in October. That means Q4 onwards will be fully normalized and Q3 will start to normalize. That's one. The fact is that we have our franchise from oncology was the largest. We were 25% plus revenues coming from non-oncology. To that extent, the impact was higher on us. Also.
Highest amount of CGHS.
Yeah.
Highest amount of institutional business was us. You have.
We also have the largest share in terms of CGHS. I think that is because of our presence in Delhi, et cetera. I think that's the reason you see more impact here in Max.
Perfect. Second question is related to your peer mix. We have seen that, again, institutional sales came down this year. Going forward, how we should look at the share of institutional revenues? Is it going to go back to, let's say, earlier level, 22% or so, or is it going to come down meaningfully even from here on? Thank you.
No, it is coming down. We believe it to come down.
Yeah. It's a result of a concerted effort. We obviously put something in play.
Understood. Thank you. That's from my side.
Thank you. Next question is from the line of Abdul Kadir Puranwala from ICICI Securities. Please go ahead.
Hi, and thank you for the opportunity. First is a follow-up on the CGHS question. With the reimbursements now, other hospitals are also talking about that not being profitable. Have you guys, along with other hospitals, started to approach the government and the CGHS guys to roll this back to the previous levels?
Look, I think, the institutional business has never been profitable. It contributes to fixed costs. That's where we are. If you're going to continuously only rely on this business, then you will have a continuing issue in any case. A little bit of up, down keeps on payments, the lumpiness and stuff like that keeps happening, but this is a to and fro.
Okay.
It's part of the business, right? I'm not particularly concerned about that. The issue is that on an overall basis, it is not a profitable business. It's a loss-making business. It contributes to fixed costs.
Understood. Got it. There are certain media articles highlighting that the insurance companies have been now trying to dictate the terms at which patients get admitted and the kind of care should be offered. With our interactions with the insurance companies, are they kind of pressing a little harder on this aspect, and if at all, especially in the seasons of fever and flu, which might happen in this quarter, has there been any kind of an occupancy impact that you've seen so far?
Firstly, we are not seeing occupancy impact. More importantly, you have to understand what the role of a hospital is, right? A hospital does not admit a patient. A doctor admits a patient. This is a matter between insurance companies and clinicians. If a doctor says, "Admit the patient," we admit the patient. If he says admission not required, we cannot admit the patient. There is a protocol eventually. We only provide you the logistical infrastructure for it and the services. Once the patient is admitted, the triage, the call to admit the patient or not to admit the patient lies solely with the doctors. Look, eventually, if the insurance companies are able to standardize that in some manner with the doctors, et cetera, so be it. Eventually, the IMA, the medical council has to agree, right?
Got it. And sir, just on a bookkeeping question, between quarter one of this year versus last year, would it be fair to assume that the overheads of the new hospitals, along with the onco drugs getting discontinued, may have close to INR 100 crore -INR 150 crore kind of an impact on your EBITDA?
No, I haven't really looked at it in that fashion. What happens is, let's say if you're opening a 400-bed hospital, you want to staff that hospital. When you open the first 20 beds, obviously, the 20 beds are not absorbing it, but it's a brownfield. Maybe the first 50 beds or 100 beds absorbs it, and then as you sort of go further, all of it drops to the bottom line. Of course, your break-even for a brownfield is much lower than a greenfield, but your cost will sort of move up in line with that. But it's a matter of a quarter here, a quarter there. You can't look at it as cost going up. If you don't have the cost going up, going forward in the next quarter or so, you're not going to have the revenues coming through either.
Sure, sir. Got it.
If I have to open a hospital tomorrow, I have to staff it today. So I am carrying that cost.
All right.
Right.
Got it.
Yeah. You should not look at it in This is not extra cost. This will yield, and you will see it yielding now.
Sure. Understood. Thank you.
Thank you. Next question is from line of Ashutosh Kumar Jha from Balyasny Asset Management. Please go ahead.
Hi. Sir, I just had a question around the bookkeeping of free cash flow. The EBITDA seems to have grown by 15%. However, your operating free cash flow seems to have grown by 3%. A similar trend is observable at the EPS level. Can you just explain what is the bridge between the two that is causing this gap?
I think basically there has been a movement in the AR. There is a lumpiness in the collections when it comes to CGHS and other PSUs. The DSOs are gone up from 87 days - 95 days. In a way, there is a buildup of AR of around INR 250 crores in this quarter compared to quarter four. That is, in a way, eaten into the free cash flow conversions because this absorbs the working capital changes also. Also you would have seen that the ETR has gone up a bit. That is also, the tax outflows has also gone up compared to last quarter. That is the reason why you find this cash flows to be lower. Typically, we generally like it to be in the range of 62%-65%. This time it is around 56%, and it is mainly because of the AR.
Understood. Do we expect this to normalize in the coming years?
Yeah. It should, because the CGHS has a new portal. The new portal, they were not processing bills. Now we started to see collections from the new portal. We do think that this should come down going forward.
Thank you, sir. That was all my questions.
Thank you. Next question is from the line of Sidharth Negandhi from Chanakya Wealth Creation. Please go ahead.
Hi. Thanks for the opportunity. Just two questions. How are you looking at the viability of your expansion plans in light of the parliamentary committee's report? Does that sort of bring anything back to the table? Does that require you to reassess any of those? On the college business, do you also expect to start post-graduate colleges given that complex specialty is really a big source of revenue for you? How are you planning to fund this, and when can we see this sort of start commercial operations? Yeah. Those were my questions.
I think you will see starting of commercial operations over the next few years. We will obviously be open to doing any meaningful acquisition if it is available to kickstart our process sooner than that as well. We intend to fund it entirely through internal accruals. Yes, we intend to start PG courses, so no doubt on that front. What was the other question?
Just the parliamentary committee.
Yes
Any thoughts on the viability.
The parliamentary committee report does not put any thoughts or reassessment of expansion plans. My belief is that, eventually, you have to believe any sort of policy will be rational. We are efficient providers of healthcare. If there is going to be any sort of risk-free return available and it is going to be a viable proposition for anybody to set up hospitals, we believe we will have superior returns relative to that. Therefore, if tomorrow, God forbids, you have a situation, hopefully it will become an opportunity for consolidation for us. So I am focused on providing best of healthcare and being the most efficient. Eventually, any policy has to cater to the mean, not to the outliers. I believe as far as efficiency is concerned, we are outliers.
Got it. Just one more thing on the direct costs. Are most of the direct cost increases, while that is a very marginal one, are most of those because of the increase in crude and hence the possible increase in your consumable prices, or is this not giving you any significant impact on the direct costs?
No, there has been.
There is not much of an impact, no. We have seen some impact in the indirect costs, but not much on the direct costs.
No, it's contributed historically to some delays in materials, if you're importing furniture for hospitals from overseas and so on and so forth. But a lot of those delays are behind us.
It's coming from the point that our net revenue has grown by 15% and direct costs has gone by 16%. That 1% is the clinician cost.
That 1% is the increase in clinician cost, really.
Okay. So no impact on account of all the crude prices and therefore.
No
The consumable price increases, et cetera. That's not really happening much.
Yeah, that's right.
Okay.
The good part about increase in clinician cost is over a period of time, as your revenues ramp up, they kind of normalize.
Sure. Thank you so much. This is helpful.
Thank you. Next question is from the line of Ankur, Individual Investor. Please go ahead.
Hello. My question is with regards to the opportunity in the market. You previously alluded there's a long runway to growth over the next few decades. We also see in the market there's a huge supply-demand gap for private hospital beds and the consumer preference as well towards private hospitals. Given that context, what's your view if we look at, let's say, two decades from now, 15, 20 years, do you think the top two, three, four hospital chains in India, they can each be a size of 100,000 beds? Is that something which is viable according to you?
You know the total in how many years?
In 20 years, two decades.
No. I don't think that will be the case because what that would mean is for top three players, you will be building about 300,000 beds. The total number of beds in India right now are 100,000. You are going to have complete consolidation. That means building 300,000 beds over two decades. My belief is that kind of execution capabilities, that kind of capital which is required, it is going to be a big challenge.
Okay.
I don't see any player becoming 10x in two decades.
That means we always have this demand-supply gap between what the consumer wants and the availability, right?
That's right.
Private lessons.
Yeah. The largest hospital chain is 10, 11,000 beds. For them to be 100,000 beds, they need to be 10 times their size. That means I need to be 15 times my size. No, sorry, 20 times my size. Okay. I don't see building 20 times my size.
Yeah. Okay, cool.
You need all the FDI, you need all the investments. You need it to be viable for the next person who's setting up a hospital. So he's buying land, he's doing construction cost at that point of time, and so on and so forth, right?
Yeah.
Yeah.
Your growth rate, you have been doubling your capacity. You are on a trend of doubling capacity every four or five years. Do you foresee this continuing for next 15, 20 years?
Yeah, absolutely. I mean, if that you look at them from 5,000, it will get to 10,000, 10,000 - 20,000, 20,000 - 40,000 at best. Anyways, I am just crystal ball gazing. We have no such listing et cetera. We are looking at increasing capacity as much as we can and investing in whatever cash flows we have in the sector.
Okay. In terms of your ARPOB growth, we have seen 7%-8%, which is a couple of percentage points above the rate of inflation. Again, that trend you see going forward the next 10, 15 years, that trend continuing?
Look, hospital growth, top line ARPOB growth will always be superior to inflation because whatever real growth happens in terms of novel treatments, et cetera, that is a part of ARPOB. ARPOB is not only inflation. Yeah, if inflation continues at this, hopefully innovations will continue in the sector in years to come and like it has for the past century. Then you should have the same outcome.
Thank you. Ankur, I will request you to come back for a follow-up question. Next question is from the line of Saurabh Kapadia from Sundaram Mutual Fund. Please go ahead.
Yeah. Thanks for the opportunity. Just one question on the institutional patient bed share, which has now come off this quarter versus previous quarter. But how we should look at this number given upcoming bed additions, capacity additions that we are doing?
You add capacity addition and yet you have seen it come down. So I think trend-wise, that should continue. Unless we acquire significant capacities, then that is a different ball game. But as far as this present infrastructure is concerned, I think this trend of reduction perhaps will continue.
Okay. Thank you.
Thank you. Next question is from line of Alankar Garude from Kotak Institutional Equities. Please go ahead.
Hi, thank you for the opportunity. Sir, we have seen a sharp sequential increase in Operating Expenses, even if we adjust for Bhubaneswar. While you will be adding incremental beds at Nanavati and Max Smart Super Speciality Hospital, would it be fair to say that we will not see any material increase in OpEx till Gurugram comes up?
That is right. Rather than Max Super Speciality Hospital, Bhubaneswar, the large increase in indirect cost is due to the new capacities which have been like, whether it is Mohali, whether it is Nanavati, whether it is Max Smart Super Speciality Hospital. That along with Bhubaneswar has caused the big increase in indirect costs. Yes, I think you will not see any significant increase and you will see increase in revenue, and therefore, you will see a higher amount of EBITDA through-flow. I mean, if that is what your point was.
Yeah. That was the point. Similarly, Abhay, if you can comment on net debt as well. Would it be fair to say that net debt has peaked out at current levels?
It is still lower than one in terms of net debt to EBITDA. If I can get to 2.5x by doing acquisitions or whatever else, I would be happy to go to 2.5 x net debt to EBITDA.
Yeah, but barring any acquisitions, it should come down from current levels. Would that be fair to say?
Yeah. I mean, we have the ongoing CapEx plan. You know, we are spending money on the Shaheed Path, this 475 - 424 approvals, et cetera. I would say whatever cash we generate, we will obviously consume that, and maybe we will also take some loan to finance the projects. This net debt will marginally go up if you are seeing end of the year.
Okay. Got it.
I mean, there is no meaningful. See, it really depends on what kind of cash flows we are throwing out and so on and so forth, okay? At present, if you look at three years down the line, effectively, you should have funded your CapEx and paid down the debt three, four years down the line.
Fair enough. The second question was, can you provide some color on how the three acquisitions have been doing? It has been almost two and a half, two and a half years now for Lucknow, Noida, and Nagpur. Any qualitative insight there would be helpful.
I think first and foremost is the fact that we are expanding these capacities, because what we acquired, if you recall, were operating at low occupancy levels. So you have seen very high ramp-up in occupancy, obviously very high ramp-up in revenues and profitability, and now we are moving towards capacity expansion in all three. And that brownfield capacity expansion leads straight to the bottom line. So I think qualitatively, all three have been successful from that standpoint. I mean, it has been the playbook, honestly, I think. Yeah.
Okay. Got it. And one final one, can you update us on the status of Shaheed Path as well as Thane?
For Thane, regulatory approvals are coming in. We have got Stage 1 approval for the overall master plan for the site, and we have to submit specific building plan drawings now. For Shaheed Path, we have prepared the drawings. We are discussing with the authorities, and we will submit them after we have the broad clearance on the concept.
Broadly,
After we have the approval for both projects, after we have the approval, which is another six months from now, after that, they will take about 30 months-36 months for delivery.
Got it. That is helpful. That is it from my side. Thank you.
Yeah.
Thank you very much. Ladies and gentlemen, we will take that as our last question. I will now hand the conference over to the management for closing comments.
Thank you everyone for joining us today. We appreciate your time and look forward to interacting with you again next quarter. Appreciate it. Thank you.
Thank you very much. On behalf of Max Healthcare Institute Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.