Please note that this conference is being recorded. I now hand the conference over to Mr. Mayank Vaswani from CDR India. Thank you, and over to you.
Thank you, Yashashi. Good afternoon, everyone, and thank you for joining us on this call to discuss the financial results of Apollo Hospitals for the second quarter of financial year 2023-2024, which were announced yesterday. We have with us on the call today the senior management team, represented by Mrs. Suneeta Reddy, Managing Director, Dr. Hari Prasad, President of the Hospital Division, Mr. A. Krishnan, Group CFO, Mr. Sriram Iyer, CEO of AHLL, Mr. Ashish Maheshwari, CFO of AHLL, Mr. Obul Reddy, the CFO of the Pharmacy Division, and Mr. Sanjiv Gupta, CFO of Apollo 24|7. Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties.
Please note the disclaimer mentioning these risks and uncertainties on slide two of the investor presentation, which has been shared with all of you earlier. Documents related to our financial performance have also been posted on our corporate website. I would now like to turn the call over to Mrs. Suneeta Reddy for opening remarks. Thank you, and over to you, ma'am.
Good afternoon, everyone. Thank you for taking time out to join our earnings call. I hope you have received the earnings documents, which we had shared earlier. We are pleased to report that we are able to sustain and improve our momentum in FY 2024, with a robust second quarter characterized by continued growth in top line, improved volume and payer mix, meaningful network additions, and further growth in the user base for our digital health offerings. Our healthcare services business witnessed strong 12% year-on-year revenue growth in quarter two FY 2024. Within this, the insurance revenues grew by 18% and contribute 43% of total IP revenue. Revenue from international patients also grew by 20% year-on-year. Within IP volume growth of 4% , [capital] volume grew by 7%, representing a strong surgical performance in a quarter, usually characterized by seasonal medical admissions.
Overall, occupancy across the group was a healthy 68%. This was after the planned calibration of low-paying business and despite a delayed onset of expected seasonality, and also the reduction in ALOS by 5% from last year. ARPOB on an overall basis increased 14% year-on-year to INR 57,379. Against this backdrop, let me walk you through the financials. Consolidated revenue grew by 14% on a year-on-year basis to INR 4,847 crore. Healthcare services grew by 12% to INR 2,547 crore. Revenues from Apollo HealthCo to INR 1,945 crore in quarter two FY 2024, a growth of 17% year-on-year. However, combined pharmacy grew by 21% on a year-on-year basis.
Apollo Health and Lifestyle revenues registered 11% year-on-year growth at INR 354 crore for quarter two FY 2024. Consolidated EBITDA was at INR 628 crore, registering an increase of 11% year-on-year. Within this, the healthcare services EBITDA was at INR 634 crore, a growth of 11%, and EBITDA margins were at 24.9%, marginally lower than quarter two last year on account of increased investments in clinical talent and enhanced focus on advertising and marketing. The pharmacy distribution business in Apollo Healthco recorded an EBITDA of INR 170 crore, a year-on-year growth of 9%. 24|7 operating costs were INR 197 crore. However, the operating costs were INR 204 crore, against the operating costs of INR 204 crore in the trailing quarter.
EBITDA loss in the company was at INR 39 crore, of which non-cash ESOP charge accounted for INR 35 crore. This loss is down from INR 57 crore in the trailing quarter, in keeping with our commitment to reduce costs in this vertical. The business is on track to achieve operational break-even in quarter four FY 2024. AHLL recorded an EBITDA of INR 32 crore as compared to an EBITDA of INR 38 crore in quarter two FY 2023. The EBITDA was subdued on account of ongoing network expansion, as well as the relocation of two Spectra units. The margin profile is expected to improve with the ramp-up from the new network. Consolidated PAT was at INR 233 crore. Healthcare services PAT was at INR 314 crore, a growth of 14%.
We are happy to announce a new 250-bed hospital in Pune, which is expandable to 425 beds in the next two years, at an overall cost of INR 675 crore. The hospital is expected to be commissioned in quarter one, FY 2025. We have already announced the expanded footprint in Eastern India with the acquisition of a 225-bed hospital in Kolkata, expandable to 325 beds. We are on track to add 2,300 beds across eight locations at a cost of INR 3,400 crore in the next three financial years. With this pipeline for growth in place, there are several highlights within the quarter's performance, which signal a healthy trajectory for all of the verticals going forward.
Within the healthcare services business, we have delivered an ROC of 28%, with a balanced ROC across all geographies, the metro, tier one, and tier two. The metro ROC is at 27%, and today we have the largest non-metro presence in the country, with 3,995 operating beds, delivering an ROC of 23%. Within the pharmacy, the private label and generics business contributed to 16.5% of total pharmacy revenues. This was an improvement of 92 basis points over the same quarter last year. Our digital platform, 24|7, added 2 million new users this quarter and now has 29 million users overall. The platform GMV was at INR 726 crore, a growth of 16% on quarter-on-quarter basis, and in line to deliver INR 3,000 crore of GMV this fiscal.
The diagnostics vertical within AHLL recorded a revenue of INR 124 crore for the quarter, well on track for an annualized top line of INR 500 crore with improved margin profiles. All these indicators validate our intent to create Asia's largest integrated healthcare ecosystem, with high-quality healthcare at the core, supported by multiple consumer touchpoints, such as offline pharmacies, multi-format clinics, diagnostics, and a comprehensive digital health platform, 24|7. This ecosystem will be underpinned by a focus on achieving the best possible clinical outcomes, accentuated by investments in cutting-edge technology and AI for clinical decision-making. By providing each guest a seamless journey, which accords them with consistently high standards of healthcare at each touchpoint, we ensure that we cross-pollinate our offerings while unlocking the network effects, resulting in robust upstream and downstream funnels.
On that note, I would like to hand it over to our moderator and open the line for questions and answers. I have with me Dr. Hari Prasad, Krishnan , our CFO, Sriram Iyer, CEO, AHLL, Ashish Maheshwari, CFO, AHLL, and Obul Reddy, our CFO, Pharmacy, and Sanjiv from 24|7.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to 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. We have our first question from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Thank you for the opportunity, and seasonal greetings to everyone. My first question is on inpatient volume growth in our core markets of, Tamil Nadu, AP, and Telangana, which has kind of remained muted for first half in quarter one. We suggested there was some holiday season. But any particular reason why the trend is not picking up in quarter two as well?
Hari, you want to take that?
Yeah. Actually, if you're looking at the quarter two, it is a quarter where we have a high volume of medical cases, particularly this, because the monsoon-related cases like dengue and stuff like that, which we had in the last year, second quarter. But I guess because of a delayed monsoon or whatever may be the reason, we did not have that influx of medical cases during the second quarter this year, especially in the southern region. And that's why you would see a growth, but it is not in line with the other regions that we have seen, have seen the higher growth.
Would you say that similar seasonality played out in other regions? Because there, the inpatient volume growth is quite significant.
Yeah. You know, similar, some of the things which we actually noticed, our surgical volumes have gone up in volume two compared to medical volumes, and the same thing explains the other regions also.
Sure. And the second question on the ARPA growth across, when I see across our all the regions, it's in the double digits, in Q2 as well as for H1 also. So is it driven by, decent rate hikes that you would have taken across the network, you know, and if you can also provide the current AMAs. I know Ma'am has said 43% in insurance, but, you know, how would be, self-pay, international, et cetera, also be before?
So you know, what's happening in the overall case mix is there are three trends that we are witnessing. One is we are seeing that there are higher category of beds, which we are... You know, there are a lot of patients who are opting for, including private beds, et cetera. So you could have seen that we have, you know, we have reconfigured some of the beds across the system, and we have, you know, eliminated some of this. We have brought down some of the double wards and increased semi-private and private, because we are seeing that there is a higher demand that we are witnessing for both semi-private and private. This is one of the reasons that the average ARPOB has also gone up across, because, you know, clearly, the ARPOB of some of those beds are better.
Pricing-wise, we have not taken any price increases in this quarter, and these are the price increases which have always been there since that was last, and that is what continues to prevail. We are getting better realizations from insurance.... We continue to work with insurance companies because, you know, some of the insurance companies contracts are still over two years old, and we are working with them to see how we can, you know, get better yields from some of those, as the contracts come up for negotiation.
Sure, sir. On payer mix?
Payer mix is, you know, there is an 18% growth. You know, while we have said that, you know, overall revenues have grown by 12%, our insurance revenues have actually grown by 18% in the same year. In the same, you know, YoY, this quarter versus last year, same quarter. And as 40% of our revenues now comes from, 42% of our revenues comes from insurance, and almost 43% rather, and 38% comes from self-pay.
The international growth is...?
International is 20%, and we are now around 7.5% of our revenue is coming from international.
Okay. Perfect. So just one suggestion, I highly appreciate more detailed segmentation for our business in the investor presentation. But if you could provide probably one year of historical data as well to the investor community, I think it would help us.
On what exactly? You can come offline.
Uh.
Any information we are willing to provide, you know that we are open for all of that, and you can get offline. You know, there is always we can keep providing more. We have done... You know, this time, if you have seen, we have given, even you were given a regional as well across regions so that you get all the regions clearly now. You also see that both metros and non-metros are doing well for us. So that's the other slide that we have given. Happy to keep, you know, help you build your models.
Sure, sure. Thank you, sir. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to answer queries from all participants, please restrict your questions to one time. You may join back the queue for follow-up questions. We'll take the next question from the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead.
Yeah, hi. Good afternoon, everyone. My questions are centered on the hospital business. When I look at the expansion plan, the projects are coming on stream in FY25. They are towards 4Q FY25. I'm not sure, on the project side, what the phase I is coming up in Q1, but I'm not sure what the stage of development is. But it seems that a lot of the expansion plan is quite backended towards FY25, perhaps FY26. So till the time these expansion activities come on stream, how do you see growth for the hospital business, especially with [ARPO] growth being so strong, the last few quarters, expense also reaching 68%? Does it mean that the growth, without the expansion is kind of coming to a plateau or some sort of stagnation now?
No, that's not true. In fact, you know, at 68%, you know, we are, you know, we are seeing good increase overall this year. This quarter, if you look at the volume growth, we had a 4% volume growth. But even within the volume growth of 4%, if you look at the, mix, we had a 7% growth from surgeries. So clearly, there is a focus on surgeries. We have added a lot of guarantee money doctors across our system, you know, in the new hospitals, et cetera, et cetera, which has also enabled the growth. And we are seeing, you know, the new hospitals really delivering well also, on the growth. 68%, still, you know, there is headroom for growth.
We can take it to 70%, 72% next year, and we still have headroom for growth over the next couple of years, as you will. And we are also seeing that the average length of stay, even now, if you look at it last year to this year, the average length of stay has come down by 5% in 3.26 days. So while we have said that there is not much room that we have to bring down the ALOS, our focus is on inpatient volume growth, a lot of minimally invasive work, a lot of robotic work that we are doing across the system. We are seeing definitely average length of stay is trending lower, as you know, with the better infection control, better discharges that we do, et cetera.
So I think from a headroom for growth, so growth from the existing hospitals itself, we still have, you know, headroom that is minimum there, as we can see. And from our perspective, we continue to work on the cluster approach even in this, right? So doesn't mean that we cannot, actively add some asset-light models in some of these clusters as we have opportunities. Like, Kolkata is a classic example of something that we have brought on stream. So you know, both these assets of... For your information, the Royal Mudhol Hospital, Pune, it's a new hospital. It's a new asset built in the Swargate area. It's a very, it's an asset which has already been brought into place. Five floors is already built.
They're close to get the occupancy certificate, and which is the reason that we are quite comfortable by itself. So 250-bed.
I'm sorry, sir, we are unable to hear you.
Are you able to hear us?
Yes. Now we can hear you, sir.
You know, in the Pune market, the Q1 FY 2025, we are quite sure we'll be able to get there because that's a new asset, already constructed, been under construction by the other partners for the last three years. We are now acquiring this, and we will be in partnership with them. You know, it's a full 100% acquisition by us. It's a lease asset is how we are working on it. Again, the one in Calcutta, where we are 70%+, 75%+ occupied, it's again an asset which is, you know, already constructed. So the construction of the asset is done. We actually bought it in an asset sale from a trust, which is why we are quite confident of bringing it also on stream by Q4.
The one in [audio distortion], again, is a greenfield. The building is already there. It's an [asset-light model], which is where we're comfortable. So I guess, you know, Q4, FY 2025 is something that we are comfortable in both Kolkata and Hyderabad as we speak. And, I think, you know, these expansion plans, as we have laid out, as of now, we're quite comfortable of achieving those, timeframes.
... Right. Before I move on to the second question, just a quick follow-up on this. So I don't know if you can give a number or not, but can we expected that even without the expansion plans, a low double-digit kind of growth is achievable, on the base that you are at currently in Q2?
Yes.
Okay, sure. And the second question is, again, centered around the expansion plan. So the expansion that I see is kind of most skewed towards the metro cities, especially in FY 25, Hyderabad, Bangalore, Kolkata. In FY 26, you have [audio distortion] and Pune. At a non-metros, your non-metro data that you've given, which is quite helpful, the return on capital is pretty strong at 23%. And we also see that in metros, there's a lot of competitive intensity. In the south, there are so many hospitals expanding capacity in the north as well. So given your early mover advantage in the non-metros, shouldn't the focus should be a bit more on expansion in non-metros rather than metros, where already the supply is pretty strong over the next three, four years, which is coming on stream?
Well, I think we have a very calibrated expansion plan. And the cities that we have selected, it's actually the one-year strategic study, where we looked at one, the size of the market, the ability to pay. Secondly, ability for us in those institutions. And and really, I think it's based on that and the fact that, you know, these hospitals that we chose are they become regional centers as well.
All right.
But we continue to look at assets across. You know, I think wherever there is a penetration of private insurance, those are markets that we will continue to look at.
So does it mean that?
I request you to join back in, please, as we have other participants waiting.
Okay, sure.
Thank you. We have our next question from the line of Neha Manpuria from Bank of America. Please go ahead.
Yeah, thanks for taking my question. My first question is on the pharmacy business. If I look at pharmacy distribution business, you know, I see that the store addition that we have is lower versus what we did last year. You know, what should be the average store addition we should be looking at, and the growth for the-
Ms. Manpuria, I request you to use your handset more and speak louder, please.
Is this better?
Yes, you can go ahead.
Okay, sorry about that. So I was wondering on the store addition of, you know, the physical distribution base. You know, we are seeing a slower pace of store addition and probably, I don't know if that's why the growth growth rate is lower than what we have done historically, you know, for the pharmacy business. What is the pace of growth that we should see here? And second, on the 24|7, we've reduced the cost. You know, I know you've mentioned behavior in fourth quarter. But is there scope to materially reduce OpEx, you know, more from a FY 2025, 2026 perspective? Or should we assume a large part of the profitability in HealthCo comes from, you know, revenue growth rather than OpEx reduction?
First part, you know, on the number of stores, as explained to you during Q1 call, we have planned to open lower stores in the current, half year. Our plan to add about 500+ stores is on. In H1, you will see more number of stores. On the operating cost of Apollo HealthCo, Miss, Sanjiv will answer you.
Yeah. Thank you, Sir. So, ma'am, I think, if you look at it, you know, we had INR 190 crore of operating expenses, excluding the, we saw non-cash expenses during Q4 of FY 2023. From INR 190 crore, we are down to INR 162 crore, and I strongly believe that, you know, another INR 10 crore-INR 15 crore will further come down as we move forward. So I'm looking at anything, you know, as a run rate of INR 160 crore or slightly lesser than that in Q4. But to be fair to this question that, you know, we'll see some change in the next nine years, I think we'll continue to looking to all the opportunities. It is, it is a fine balance between the growth and the cost, plus the investments that we're doing into system technology.
This cost also takes care of the digital intelligence experience that we have built up, some of the AI tools that we are working on. Those are the investments that we are doing it. But yes, we can expect some changes in the next fiscal year, but depending upon to what an extent we put money into technology, we'll be able to guide you much better in Q4 than today. But yes, current costs will continue to come down as we move into 2024.
Okay, but-
Also rationalization of the discount.
Okay. Isn't that largely done, ma'am? Because I remember you mentioning in the last call that now we are below peer.
Yes, we continue to be below peer.
Understood. My second question, I also saw we announced, you know, some sort of a tie-up in, you know, Rourkela. Now, is this an existing hospital that we are taking over, and this is not part of our expansion plan? And what's the process there? Because, you know, it's very different from, the cities that we've chosen for the expansion plan.
Well, yeah, it's not. We are not investing capital in that asset. Incidentally, it's a fully managed asset-light model that we have. This should come into. We will be able to commission this in the coming quarter itself. And this is something that we have not put in our expansion plans here. But it's a full bed. It's something that has been developed by Steel Authority of India, and they have, you know, they have given it an operations management contract to us. We hope to start, we start this, commissioning this in the coming quarter fully. And this is a profit share model that we have, that 1/3 of the profits go to them, the balance comes to us.
That's a very, I think it's not easy to get such kind of models, but I think given our reputation and the clinical progress, you know, I guess, the Steel Authority wanted us to operate that asset, and which is how we've got that.
This will be run as an Apollo Hospitals, you know, facility?
Also by us. It will be the revenues and profits will be consolidated with 1/3 of the profits.
Understood. Thank you so much, sir.
Thank you. We have our next question from the line of Shyam Srinivasan, from Goldman Sachs. Please go ahead.
Yeah, good afternoon, and thank you for taking my question. Just the first one on the hospital margins. I missed the, or I couldn't fully get the opening comments around a higher cost in terms of talent acquisition, and the margins being lower for the hospital. So if you could please elaborate that again?
So our margins were at 24.9%. There was 75 basis points decrease because of we have spent on acquisition of doctors, guarantee money for doctors. In fact, we put 100 new doctors into the pipeline, and this has led to an increase in cost, plus the 0.5% increase in marketing cost.
Okay, so how should we look at the margins going forward, ma'am, in the sense, are these done and in the numbers, or do we plan to keep adding these guaranteed doctors even in the second half?
So I think the guarantee doctors are something where we've, you know, we had planned last year, and I think we've, we've created a pipeline of new talent for our hospitals. So, you know, you should not expect to see an increase in that. But what you will see is that, you know, these doctors, when they start having started working, their payoff will be, you know, very good, and therefore, over a period, better margin improvement.
Got it. And just my second question on the difference in growth rates between the platform at 21%, versus when I look at the pharmacy, when I look at it disaggregated, it's lower, right? What explains that?
The pharmacy distribution growth is independent of the platform, because in the front-end, the 21% growth is on both omni-channel, which consists of offline, online. Whereas pharmacy distribution report in the investor presentation only relates to the offline, which is about 17%. So both are independent numbers.
Yeah, but over time, I'm talking growth rates here. So those numbers should ideally be aligned, right?
Omni-channel front-end growth, which is at 21%.
Okay.
[crosstalk]
Yeah.
Got it. Thank you. Thank you, and all the best.
Thank you. We take our next question from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi, good afternoon. Just a couple of questions from my side. Karnataka region, I can see a reduction in the number of operating beds. Why has that happened?
We're doing some refurbishments in Karnataka and Chennai, so there has been a reduction. And also, the shift, I think earlier we mentioned that, you know, we are replacing some of the general wards with semi-private because of the penetration of insurance, that people are willing to pay for, for a semi-private room.
Yeah, and in this, this particular case, it was Mysore where this happened predominantly. Mysore was a place where, you know, we had, we had more of this, beds, which were general wards, etc, where we, you know, shifted them to semi-private and private.
Okay. You commented on the hospital margins. Can I also get some comment on why the pharmacy and the AHLL margins are also down YoY?
On the pharmacy, our margins have remained stable in the last two quarters, because, you know, the pharmacy distribution is a very stable business where we are maintaining the margins. Include-
We can't hear you.
From about [4.6% to 5.8%].
So if you look at the sequential quarter, the margins are better. If you look at it last year, from last year to now, if you look at it, you know, we had increased the costs in the... There were higher costs in the online business, and also, and which is all starting to come off now, and you will see better margins. You know, as you see Q1 to Q2, which is a sequential quarter, we have done well. And we are hoping that as we move forward, the margins will even go back better.
You know, overall, on the consolidated numbers, we have said we are on track to achieve INR 10,000 crore of revenue this year on pharmacy, with 6% EBITDA between the pharmacy distribution and AHLL.
Okay, understood. One final question on this, 24|7. When you say this operating cost was INR 162 crore for the quarter, assume that it is the overall cost, total cost. There would be some revenues associated with it, right?
This is on top, right? But the associated costs are, revenues are there on top. What we have said, shown, the INR 231 crore is the total revenues that we are getting, out of it, and there is an EBITDA, which is coming because of that, because the EBITDA is a bit higher than the offline pharmacy distribution, because they also get take rates on the, on the, on the diagnostics and on the, hospital feeders. This is there on the top, as you can see.
So if I want, if I have to understand,
I understand. If I have to calculate the net EBITDA loss because of Apollo 24|7, I should subtract that, 21. Sorry, I should take INR 231 crore - INR 160 crore. Is that correct?
INR 28 crore is only the profit that I'm making out of it. At one level, higher, if you look at it, EBITDA. So, you know, so I-
Okay.
So if you look at the loss, which is what we are reflecting there of INR 169 crore after ESOP charge, or maybe, you know, close to a INR 130 crore with or without the ESOP charge, is how you should think of the cash loss there.
Okay, the other way around. INR 162 crore, I can remember INR 28 crore.
I request you to join back the queue, please, as we have other participants.
Sure.
Thank you. We have our next question from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Just a question, just persisting on the pharmacy question. When we say that INR 10,000 crore of omni channel revenues for specific EBITDA margin, what is the EBITDA margin for H1?
About H2 is 5.7.
H1.
H1, H1 is 5.6.
What is the total revenue for H1?
We have INR 4,700 crore.
We're talking of-
[crosstalk] crore.
So we're talking of higher revenue in H2 as well as higher margins for omni channel revenue?
Yes.
Beyond the numbers that you reported in the HealthCo, omni channel represents the front end of the business, that's not consolidated. That's, that's the difference between the two?
That's right.
Typically, what proportion of our profitability sitting in the front end or the back end, what proportion of EBITDA sitting in the front end, which you're not consolidating right now?
Of the profitability is sitting in the back end, and about 20% of the profitability is in the front end.
And so this is going to continue because the kind of structure continues the way in this current form?
Yeah, that is what it has been, and it will continue so for some more time until we relook at it that.
And so then one last one, on the hospital business, so what is the guidance for EBITDA that one can look at over a two-year period, or what is the H1 level that we have?
I think we... There are two things, right? One is that the operating leverage definitely should kick in as we move in from the 68 to higher, which is our target for next year. Definitely move it above 70, 72 is something that we are working on. As you have seen, ALOS still comes down even from last year to this year, the ALOS has still come down by 5%. If the, if the ALOS was not lower, adjusted for a higher ALOS, the occupancy would have been 72. But that's okay, it's good for us. So as it goes to [audio distortion], et cetera, we should be looking at at least a 200 basis point increase in the overall EBITDA margins.
Something like 26.5% margin for the hospital business?
Yes.
Okay. Thank you very much.
Thank you. We have our next question from the line of Madhav Marda from FIL. Please go ahead.
Hi, good afternoon. Thank you so much for your time once again. I just had one question. So, you know, very interestingly, that you all mentioned this shift from the general wards to semi and private rooms as insurance penetration picks up. This seems like a very structural thing which can happen in the country in the next, like, medium term, right? Because as insurance picks up, people would want security service wherever they can afford to. So just wanted to understand, is this like a structural trend, and as some of the patients shift to semi and private rooms, is that margin accretive for us, basically? Just wanted to get that sense from you.
So it is. So if you look at it, yeah, it is margin accretive overall from that base perspective, clearly. But, so we, as we are now looking at some of the newer hospitals, we are now bringing in the standard beds or the sharing beds that are, you know, even the general wards are less than 15% of the overall beds. So that's how we are now configuring some of the new hospitals that we are currently planning, with more, more focus on private, deluxe, and semi-private. Some of, you know, in our, in our erstwhile, in some of our earlier hospitals, we have this opportunity to reconfigure, which we will keep looking at, depending on market to market. Because some markets we still see there is still a good uptake on the, standard beds and the general wards.
Okay. So basically, as we shift, the mix towards this thing, on an absolute EBITDA basis, it adds for the, for the hospital unit, basically. That, that's what I wanted to check.
Absolutely.
Got it. Okay, sir. Thank you.
Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone now. We'll take a follow-up question from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi, thanks for getting me on the line again. Just, wanted to continue my discussion. So, we were discussing INR 162 crore, on which there is an EBITDA made of INR 28 crore. So if I say that, the net loss because of 24|7 operations is INR 162 crore - INR 28 crore, is that correct?
That's the correct way of looking at it.
Okay, great. Thank you. Thank you very much.
Thank you. We have our next question from the line of Prashant Kshirsagar from Unived Corporate Research. Please go ahead.
Good afternoon, ma'am and sir. Just wanted to ask you, what is the progress on the Delhi expansion front? And, a question on your associate company, Indraprastha Medical. Can you give us the capital expenditure figure, planned for that hospital?
On Delhi expansion, you know, there was a stay which has been vacated in the Gurugram courts, and we are now proceeding with the expansion already, and that's, you know, we had anyway, the asset was already bought and secured and processed by us already. There was one extra stay which was there because of an MOU that the seller had with another buyer, which, you know, for which there was no money, which was paid by the other buyer or other person to the seller. So there was a stay until the whole thing was done, but that stay is now vacated, and we are now proceeding with the expansion.
The expansion, the INR 150 crore expansion plan, that will be funded by cash flows and a little bit of debt.
That is for Indraprastha, you are talking about?
Yes, Indraprastha, yes.
Yeah. After the, when should that get completed?
That should take two years to complete.
So there will be some capacity addition, or it's just a quality improvement in the hospital? Because,
There is a capacity addition. There is a capacity addition. There is a center of neurosurgery wing established. So there will be there is a capacity addition of about 75 beds, plus the multilevel parking.
Okay. So there will be multilevel parking, plus addition of 75 beds, which will take approximately to around 800 beds.
Yes.
Center of neuro wing established for the hospital. And what sort of revenue accretion do you see after the capital expenditure in that hospital or-
We continue to see strong revenue growth of 15%.
Oh, 15%. Okay. And can you tell us the mix of the international patients in that hospital, ma'am?
That hospital, it has highs about over 15%, between 15% and 20%.
Okay. Thanks a lot. That answers all my questions. Thanks a lot, and happy Diwali to you, ma'am.
Thank you. Happy Dipavali.
Thank you. Before we take the next question, I would like to remind participants to restrict to two questions, please. We'll take our next question from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi, good afternoon, and thank you for the opportunity. So, my question is, regarding the margin impact as you are adding on, quite a lot of beds. So, can you tell us, like, in cities like Pune and, Hyderabad, Bachupally, what kind of break-even time you are, expecting for the hospitals, and, whether, there will be any impact on margin participation of these, new, newer facilities?
Yeah, base of EBITDA now is a very significant base across. If you look at the consolidated numbers, we are over INR 2,000 crore now. And, clearly, you know, we don't think that any of this should... And we have a calibrated expansion plan between the next three years, adding 700-800 beds every year. And in places like Pune, we believe that, you know, in fact, even when we have made this announcement, we've got a lot of doctors who have wanted to join us. It's a type of market where there is not much of a penetration of quality corporate hospitals like ours. So we typically believe that, you know, we should be able to do well in some of these markets. Hyderabad is a lone market.
Again, we know that, you know, the reason we are putting up this expansion there is because, you know, that side of the market is definitely having a lot much capacity, and we have a set of doctors who are wanting to join us there. So I think 18 months is what we typically look at for break even on the EBITDA. I think we think in both these markets, between 12 and 18 months would be the answer.
So, 1- 1.5 year typically, and both these should turn around.
Correct.
Like, first, funding your CapEx, you are relying on your internal cash flows, or you're looking to add on some debt also? So your balance sheet will tell you-
From internal accruals, you know, you know, if there is a small debt required at the third year, we would probably take some debt.
Okay, and my last question is on the international patient attraction. Right now, it's 7.5% of your hospital revenues. How do you see this picking up in two years? Or we expect major traction to come once your Gurugram facility comes on board.
So, Hari, you want to take this?
Yeah, we expect the major traction both with the Gurugram, particularly the Gurugram facility coming up, because a lot of patients, there's a direct access to Delhi, and this facility is very accessible from the Delhi airport. So we see a significant impact on international business once this facility is up.
Okay. And any markets where you, you are yet to see normal level of patients coming back from say some countries for this medical tourism, or most of the markets are seeing a normal flow as we anticipated after COVID?
As you said-
Existing markets... Sorry.
Go ahead. Go ahead, Hari. Go ahead.
Our existing markets, we are seeing the regular flow, pre-COVID levels and above pre-COVID levels. We are also looking at new markets, and the new markets we hope to leverage. We've invested resources and time into new markets, and we hope to see results coming in from them, these new markets in the next 1-2 years.
Okay. That's helpful. Thank you and all the best.
Thank you. We have our next question from the line of Lavanya from UBS Investment Banking. Please go ahead.... Lavanya?
Yeah. Could you hear me?
Can you use your handset, please? Your volume is very low.
I'm using the handset. Is it any better?
Can you speak a bit louder and then proceed with your question, please?
Yeah, sure, sure. Thank you. Thank you for the opportunity. Just one question from my side is that if I look at EBITDA margin of offline and online pharmacies, online pharmacy margin increasing on sequential basis, like last two quarters as well, with offline pharmacy EBITDA margin have declined. Anything specific for these two to go in a different direction?
There is no difference between the two. In fact, we look at it, you know, EBITDA at omni-channel level, and it's growing. It's only one quarter we had some decline because of the sales, and we are back into normal level. And Q2, it stands at about 5.7%, and we have guided to be at 6% or 6%+ for the year.
Okay. Okay, got it. Anything on the fundraise at HealthCo level, like how do you see what the timeline and where does it stop?
Regarding the fundraise at the 24|7 level, I think we've always maintained that, as you know, as long as we have enough cash for growth, we should be good. Having said that, the company has really improved in terms of they had a lot of EBITDA, out of which INR 34 crore was a non-cash loss due to ESOP. So just going forward, I think, you know, the back end with INR 130 crore of EBITDA is able to support the growth. Having said that, we will look at an investment where we believe the valuation is appropriate, because we're quite sure we don't want to go below our dilution of 10%. And this cash will be used, like Sanjiv said, to develop, to invest into AI and to offer new services.
Right now, let me just say that we have access to investment. We are looking at the right valuation, and this could happen, you know, I think within the next six to 12 months, but there is no pressure unless we get the right valuation.
Got it. Got it. Thank you. Thank you so much. Happy Diwali!
Thank you. We have our next question from the line of Rahul Jeewani from IIFL Securities. Please go ahead.
Yeah, thanks for taking my question. Sir, regarding this target of 70%-72% kind of occupancies for next year, can you help us understand in terms of what would help us to drive this occupancy improvement? Given that in first half of this year, we are at around a 65% kind of an occupancy. And if I see even in FY 2020, our peak occupancy used to be 58%. And at that point in time, the ALOS was also higher. And as you have indicated, the ALOS numbers are also down, let's say. From FY 2020 levels, the ALOS numbers are down 20%. So do you think that you can hit this occupancy target of 70%-72% for next year?
For next year, yes. We are looking at the funnel and really looking at how we can, you know, OP to IP conversion. We are looking at different markets, which is the corporate market, the retail market, the international market, and the insurance market. We are seeing growth in all these segments, and we're quite hopeful that we should reach 72%. I think the only disclaimer here is that, you know, ALOS being what it is, we should be able to achieve it. And hopefully, they, you know, we're not expecting a reduction in ALOS. What is happening in Apollo is that we're doing a lot of daycare surgeries using the robots, and this has made the system very efficient and therefore increased decrease in ALOS.
We are looking at expanding the funnel and making sure that occupancy picks up, because all of our units now have doctors in place. Like I said, we had spent 5% more on marketing this year.
Sure, ma'am. So there's been a decline in ALOS. Do you think that occupancy is a relevant parameter to be tracking? So instead, shouldn't we be tracking, let's say, the growth in IP volumes or occupied bed days, rather than tracking the occupancy metrics?
No, no, we do both. We do both.
Sure, ma'am. And second question on this margin expansion for the hospital business, which you talked about, 200 basis points. Can you talk about the net margin expansion, which would be—which we would see, after accounting for the capacity expansions which we are doing?
So this is before the capacity expansions that we are talking of, because, you know, the way we will, you know, we will, you know, we will from the next year, once we add the new expansions, we will give you the split of the, of the current and the new ones. But this is on the new as well we are looking at, the existing is what we are looking at, the 200 basis point expansion. The new ones, you know, I don't have a number to just give you a EBITDA now, but as I said, you know, most of the new will, you know, between 12-18 months is what we are expecting the EBITDA margins to neutral, become neutral in some of the new ones that we are adding next year. So, that is going to be a separate number.
I don't have that number offhand.
What has been created with basis point margin back from these new hospitals for the initial two to three-year period?
... I'll give you the number offline. We will give you the expected anticipated EBITDA loss from each of these expansions.
[crosstalk] .
Thank you. We have our next question from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Yeah, thank you for taking my follow-up. Just two quick ones. First, on ARPOB, and you know, when we look at your investor presentation historically, over like a 10-year period, I think ARPOB growth has been 7%, maybe 8%. We are doing ARPOB growth of 14%-15% now. Do you think at some point of time, say maybe one year, two years, three years later, that this comes back to that 7%? Or you think, you know, and maybe one of these, price and case mix, how long do you think this, this kind of higher than historical run rate lasts?
I think 7%-8% is the right number to model, and we are not expecting it to be more than 7%-8%. As you rightly have assessed, this change in ARPOB in the last three years is something which you know was enabled through a significant mix in the payer. As you know, from 30% to 25%-30% on insurance pre-COVID, we are now at 43%, and that is what is enabling us to get a better ARPOB. I think going forward, you should look at the 7%-8% only.
Okay.
Our case mix, you know, is a very strong growth in Hong Kong.
I'm sorry, ma'am, your voice is sounding muffled. Can you please repeat?
I think the case mix is also definitely improved. It's matured. So cardiac, oncology, neuro, ortho, contributing to a significant portion of the revenue with high margins.
Thank you. Yeah, just the second question on the GMP split, if you could get that in, in terms of pharmacy, diagnostics and IP/OP? Thank you.
Yeah. So, actually, pharmacy is running at about 45% GMV, and diagnostics is another 5%. Overall, consultations is between 10%-12%, and the remaining is IP/OP and certain subscription packages that we sell to our staff.
Got it. Thank you.
Thank you. We have our next question from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Thanks for the question again. So on the pharmacy business, you know, in terms of the EBITDA that you report, 8.2% margin, which is INR 159 crore of EBITDA, prior to the 24|7 operating losses, how should we see the trajectory of this number over the next couple of years, on an annual basis? Sanjiv?
I think, you know, if you look at the, you know, margin for online pharmacy distribution, Apollo 24|7, you know, which is the combined one, it is at 12.2% for Q2, and quarter-on-quarter it is increasing. So I believe that more and more of pharmacy contribution, as well as the new verticals that we're bringing in, which is insurance, is to start in this quarter, our margin profile would be better. And margin profile should be, you know, Q4 it was 9.7%, now it is 12.2%, so a 3.5% increase in six months.
Another 3%-4% is what I believe that, you know, should go up in another six months, and going forward, it should be near 20% is what we look at it. So that's on the operating cost of potential growth. I think, as I said in, you know, responding to one of the question, first, you know, there is a reduction that is happening on this expense, and the reduction is attributable to certain, you know, automation-related things, as well as certain reduction in, you know, variable expenses, I mean, digital expenses, that is the right thing. We are looking at anything like, you know, INR 150 crore of running expenditure for a quarter.
As we step into the next year, this year we'll complete about INR 3,000 crore of AMV, and next year we should be doing anything between INR 4,500 crore-INR 5,000 crore. As we step up our margin profile and looking to the you know cost structure, I think the overall losses, what we see today and what we will see in the next year is entirely going to be very different. So we have other things we have placed, you know, increasing our margin profile as well as you know reducing our expenses.
Sanjiv, going forward, what GMV revenue conversion should we work with?
So, revenue to GMV today is at about 22%, Q2, and, I think we should be in the range of about 40%, you know, as we step into the next year. That should be the ideal number to work on, you know, from the P&L point of view.
If I take that to your view, a 40% GMV to revenue to GMV conversion and a 20% margin is what we should aim for prior to the operating costs?
Yes, sir. To start with this, and as we progress forward, you know, we'll have a little bit more insight about.
Thank you very much.
Thank you.
Thank you. We take the next question from the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead.
Yep. Thank you so much for the follow-up. I just had one more question. In the non-metros, can you share what percent of revenue is derived from the insurance channel, and how has that grown over the last year or two year or three years or so?
This is specifically on non-metros, you're saying?
Yes, on non-metros.
I'll have to get back to you offline, please. I don't have that number now.
Okay, sure. I'll just visit.
[crosstalk] %.
Yeah, overall. Overall, it's [crosstalk] growth. Metro, non-metro, I'll have to get back to you on it.
Okay. Sure, I'll just visit offline. Thank you.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments. Over to you, please.
So thank you, ladies and gentlemen, for joining us on this call. This first half has been eventful, and FY 2024 is shaping up to be an exciting year, during which we will achieve meaningful progress on strategic plans. As I conclude, I would like to emphasize that we remain confident that the investments made by us and the solutions being worked upon will continue to differentiate us and provide us with a disproportionate share of the wallet from discerning customers. With occupancies in the high 60s across the network and capacity expansion underway in facilities that are registering notably higher than network occupancy, we continue to position ourselves with adequate headroom for growth. Before I close, I would like to wish all of you a happy Dipavali and a prosperous new year. Thank you, ladies and gentlemen.
Thank you, members of the management team. On behalf of Apollo Hospitals Limited, I conclude this conference. Thank you for joining us, and you may now disconnect your lines.