Good morning, everyone. I welcome you to Aster DM Healthcare Earnings conference call for the second quarter of FY25 . The company declared the Q2 results for FY25 . With us, we have the senior management of Aster DM Healthcare, namely Ms. Alisha Moopen, Deputy Managing Director, Mr. T.J. Wilson, Non-Executive Director, Mr. Anoop Moopen, Non-Executive Director, Mr. Ramesh Kumar, Chief Operating Officer, Mr. Sunil Kumar, Chief Financial Officer, and Mr. Hitesh Dhaddha, Chief of Investor Relations and Mergers and Acquisitions. I would like to inform everyone about how we will conduct this call. All external attendees will be in listen-only mode for the duration of the entire call. We will start the call with opening remarks by management, followed by an interactive Q&A session.
During the Q&A session, you will get a chance to ask a question by raising your hand by clicking on the Raise Hand icon in Zoom application at the bottom of your window. We will call out your name, after which your line will be unmuted, and you will be able to ask your question. We request you to please limit your question to two, but not more than three per participant at a time. Certain forward-looking statements may be discussed in this meeting, and such statements are subject to certain risks and uncertainties, like government actions, local, political, or economic developments, technological risks, and many other factors that could cause actual results to differ materially.
Aster DM Healthcare Limited will not be in any way responsible for any action taken based on such statements, and undertakes no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances. With this, I will now request Ms. Alisha Moopen to start with opening remarks. Over to you, Ms. Alisha.
Thank you, Puneet. Good morning, everyone, and thank you for joining our Q two FY twenty-five earnings call. To begin, the Indian healthcare sector is experiencing robust growth, driven by several macroeconomic factors. Rising healthcare demand, fueled by a growing middle class, the increasing prevalence of chronic diseases, and enhanced government focus on expanding healthcare infrastructure and insurance coverage continues to create significant opportunities. Additionally, India's emergence as a major hub for medical tourism further amplifies the attractiveness of the hospital industry. Amid this favorable backdrop, we are very pleased to report that we are outpacing the industry growth. Our superior quality of care, state-of-the-art infrastructure, and leadership position in key micro markets have allowed us to consistently deliver results that exceed broader industry benchmarks. In Q two FY twenty-five, we sustained our strong momentum from the first quarter, with steady growth across all key operational and financial metrics.
The strategic realignment we executed earlier this year, combined with our deep understanding of India's diverse healthcare needs, has been crucial in driving this performance. Our focus on expanding capacity, streamlining operations, and enhancing service delivery has further strengthened our ability to meet the growing needs of the healthcare sector. This focus has also solidified our leadership in the regions we serve, where our reputation for quality care continues to differentiate us even in a highly competitive landscape. Now, coming to the financial performance. Looking at overall India's long-term performance. Over the last five years, our India operations has achieved robust growth, with a CAGR of 23% in revenue and 38% in operating EBITDA up to FY 2024. This success has been driven by a strategic focus on expanding capacity, boosting the ARPOB, and increasing the international patient revenue.
At the same time, we've delivered stronger margin improvement through disciplined cost management, operational efficiencies, and optimizing our service mix, allowing us to scale profitability while maintaining high-quality care. Now, coming to the H1 FY25 performance, our overall India business recorded revenue growth of 18%, reaching 2,088 crores in the first half of FY25. This growth was driven by 7% increase in occupied beds and a 12% year-on-year increase in average revenue per occupied bed, the RPOP. Aster's operating EBITDA also grew by 44%, totaling INR 410 crores, with EBITDA margins expanding to 19.6% in H1 FY25, up from 16.1% a year ago.
This substantial improvement has been fueled by operational efficiencies, evidenced by a reduction in average length of stay, cost optimization initiatives, and enhanced EBITDA performance from our labs business. Notably, our material costs, excluding wholesale pharmacy, decreased to 20.7% in H1 FY25 from 22.8% in the same period last year. Our net profit, post NCI, doubled to INR 171 crores in H1 FY 2025, compared to INR 91 crores in H1 FY 2024, which showcases our strong operational performance and increased other income from interest earned on the investment of remaining sale proceeds from the segregation of our GCC business. Furthermore, we have seen a positive shift in our payer mix, with the contribution from insurance business increasing by over 300 basis points to 30%. This growth was partially offset by a corresponding reduction in the scheme business.
Now coming to our core business, hospitals and the clinics. Our core hospital business is demonstrating continued growth, achieving an operating EBITDA margins of 22.4% for H1 2025, up from 19.1% in the prior year. Specifically, our mature hospitals, which by definition are for us, has been in operation for over six years, has showed a very impressive expansion in operating margins, reaching 25% in H1 of FY 2025, compared to 22% just over a year ago, with a return of capital employed of 32%. Our deliberate focus on building a sustainable business model is reflected in our well-diversified specialty mix, where no single specialty accounts for more than 15% of total hospital revenue. This strategic diversification, it enhances our resilience and positions us well for future growth in the healthcare sector.
We are actually making significant progress in enhancing our oncology services, with Aster Whitefield Hospital becoming the first hospital in India to introduce the groundbreaking intraoperative electron radiation therapy for cancer care at the Aster International Institute of Oncology. This represents a significant leap forward in the hospital's commitment to providing the highest quality treatment options for our cancer patients. Coming to some of the newer businesses as pharmacy and labs. As of September thirtieth, 2024, we have established 232 patient experience centers and 212 Aster Pharmacy branded retail stores. Additionally, our lab for business performed well, achieving a revenue growth of 17% year on year in Q2 FY25, while maintaining a positive EBITDA margin of 11%, up from 3.4% in Q1 FY25. Coming to our CapEx plan, we remain committed to our robust expansion plans.
This quarter, we successfully operationalized 100 beds at MIMS Kannur and added 25 beds at Aster Aadhar, bringing our total capacity to nearly 5,000 beds as of September 30, 2024. Additionally, we are excited about the greenfield expansion of Aster Women & Children Hospital in Hyderabad, which will feature 300 beds and is anticipated to be completed by FY26. This project further to add approximately 1,800 beds to our overall capacity, elevating our total bed count to nearly 6,800 by FY27. Our expansion pipeline also includes significant brownfield projects at renowned hospitals such as Aster Medcity, Aster CMI, and Aster Whitefield, which are on track to become large capacity facilities with approximately 950 beds, 850 beds, and 500 beds, respectively.
Coming to some of the changes in our board of directors and leadership team. We are very excited to announce recent changes to our board of directors, welcoming Mr. Madhavan Nambiar, Sunil Theckath Vasudevan, Anoop Moopen, Zeba Moopen as our new members. Their diverse expertise and fresh perspectives will enhance our leadership team, strengthen our governance, and support our strategic growth initiatives. We look forward to their valuable contribution as we continue to drive our mission forward. I'm delighted to announce the promotion of Mr. Ramesh Kumar to Chief Operating Officer of Aster DM Healthcare India. Previously serving as the Regional CEO for Karnataka and Maharashtra, Mr. Kumar brings a wealth of experience and leadership to his new role. We are confident that his strategic vision will play a crucial role in advancing our operations and enhancing the quality of healthcare services that we provide.
Just to share some of the recent recognitions that we have had, we're thrilled to announce that following Aster CMI Hospital in Bengaluru achieving platinum-level NABH digital accreditation last quarter, both MIMS Calicut and Aster Medcity Kochi have now become the first hospital in Kerala to achieve this prestigious status. With a total of nine hospitals currently holding NABH digital accreditation, we're proud to demonstrate our leadership in the digital transformation of healthcare. Looking ahead, Aster DM Healthcare is very well positioned for substantial growth with a focused strategy on expanding capacity, enhancing operational efficiencies, and improving patient care. These strategic priorities not only help us maintain our momentum, but also deliver long-term value for our stakeholders. We are confident that this concentrated approach will further reinforce our leadership in the Indian healthcare sector and enable us to meet the rising demand for high-quality medical services.
I will now request our Group COO, Mr. Ramesh, to further elaborate on our cluster performance. Over to you, Ramesh.
... Thank you. Thank you, Ms. Alisha. A very good morning to everyone. I'm really excited to provide you an overview of our cluster performance for quarter two, FY25. In fact, we have witnessed a continuous growth and improved operational efficiency across all our regions, and I would like to provide a few highlights around the same. Starting with Kerala cluster, the region remains the cornerstone of our operations with a total bed capacity of 2,501. We have 1,898 operational census beds, with a solid 77% occupancy rate. This utilization demonstrates the trust our patients place in the quality of care at our facilities. In terms of our financial performance, Kerala has showed a significant strength.
Total revenue from the cluster has increased from INR 1,087 crores in H1 FY25, compared to INR 965 crores, which was in H1 FY24, making a growth of 13%. The operating EBITDA for the Kerala cluster has grown by 30% year-on-year to INR 259 crores in H1 FY25. The margins have improved to 23.9% in H1 FY25 from 20.7% in H1 FY24, reflecting both our top line growth and our efficiency in managing operational costs. Next, turning to Karnataka and Maharashtra cluster.
This cluster has also shown a significant progress with the total bed capacity of 1,446 beds and 1,010 operational census beds, where we are seeing the occupancy improve by almost around 600 basis points year-on-year, from 59% to 65% in H1 FY 2025. Revenue of Karnataka and Maharashtra cluster has grown by 35% year-on-year, reaching INR 696 crores in H1 FY 2025, up to around INR 516 crores in H1 FY 2024. The operating EBITDA for the cluster also shows a robust growth of 62%, increasing from INR 101 crore in H1 FY 2024 to INR 164 crores in H1 FY 2025. Our operating EBITDA margins have also improved to 23.5% in H1 FY 2025, up from 19.6% in the previous year.
This demonstrates our ability to enhance the profitability while continuing to expand services, especially through our high-end treatment in hospitals like our Aster CMI and Aster Whitefield in Bengaluru. Finally, both Andhra and Telangana cluster has also demonstrated a strong performance with a total bed capacity of 1,047 beds and 781 operational census beds. The occupancy rate improved by around 700 basis points from 49% in H1 FY 2024 to 56% in H1 FY 2025. Revenue for Andhra cluster grew by around 17%, reaching INR 236 crores in H1 FY 2025, compared to INR 202 crores in H1 FY 2024.
Operating EBITDA grew by around 44%, from INR 21 crores in H1 FY 2024 to INR 30 crores in H1 FY 2025, with a margin improving from 12.8% compared to that of 10.4% in the previous year. Now, we see across all our regions, the performance continues to drive both the revenue growth and enhanced profitability. In total, our bed capacity stands at 4,999 beds, with 3,689 operational census beds. Outpatient visits have grown by almost 13% and inpatient visits by 14%, which clearly highlights the increasing demand for our services.
Looking ahead, we remain confident in our ability to sustain the growth trajectory by maintaining a focus on the operational excellence and expanding our reach and delivering the highest quality of care. We are well positioned to continue with this positive momentum. I now request our CFO, Mr. Sunil, to elaborate more on our financial performance. Thank you.
Thank you, Mr. Ramesh. Good morning, everyone. For the quarter ended thirtieth September 2024, India revenues have increased to INR 1,086 crores, up by 16% from INR 934 crores in Q2 FY24, and operating EBITDA has increased to INR 233 crores with a margin of 21.4%, compared to INR 157 crores in Q2 FY24, with a growth of 48%. PAT post NCI for Q2 FY25 is at INR 97 crores compared to INR 50 crores in Q2 FY24, with a growth of 95% year-on-year.
For the half year ended thirtieth September 2024, India revenues have increased to INR 2,088 crores, up 18% from INR 1,772 crores in H1 FY 2024, and operating EBITDA has increased to INR 410 crores with the margin of 19.6% compared to INR 285 crores in H1 FY 2024, with a growth of 44%. PAT post NCI for H1 FY 2025 is at INR 171 crores compared to 91 crores in H1 FY 2024, with a growth of 88% year-on-year. For the quarter ending thirtieth September 2024, our EBITDA margins have grown by more than 450 basis points, increasing from 16.8% to 21.4% year-on-year.
This growth is driven by several factors, like the hospital and clinic segment has achieved over 19% revenue growth, with the margins expanding by more than four hundred basis points from 19.8% to 24%. Our matured hospitals, which contribute 72% of our hospital clinic segment, are now operating at an operating EBITDA margin of 25.9%. Revenue growth is in this segment stems from a combination of increased volumes across our hospitals and 11% rise in ARPA and 6% improvement in ALOS, alongside revenue assurance measures, which we have taken. The growth in operating EBITDA is a result of various optimization initiatives across our hospitals.
Our material cost percentage, excluding wholesale pharmacy, has steadily decreased from 25.3% in FY 2022 to 22% in FY 2024 and further 20%-20.3% during quarter two FY 2025, marking 500 basis points efficiency improvement over three years period. Additionally, manpower costs and overheads have contributed through operating leverage to the EBITDA growth. Aster Labs reached breakeven in quarter four FY 2024, with margins increasing to 3.4% in quarter one, FY 2025, further to 11% in quarter two, FY 2025. This impressive turnaround has been fueled by strong 41% year-on-year growth in external business, improved operating coverage, and material cost efficiencies. For the half year ended 30th September 2024, our capital expenditure totaled INR 161 crores, with approximately 65% spent towards expanding our capacity.
We operationalized 100 beds in MIMS Kannur during the quarter. Over the next three years, we aim to further add nearly 1,800 beds, with the majority of these being brownfield expansion, to ensure that there is not much dilution in our margins. Optimized capital allocation, coupled with margin improvement, our ROCE has experienced a significant growth. ROCE surged by 390 basis points year-on-year, reaching 18% at consolidated level. On hospital and clinic segment, ROCE rose to 23.8% from 20.1 in H1 FY24. Matured hospitals saw impressive increase in ROCE by over 530 basis points, reaching 32.4% in H1 FY25. As of now, Aster India net cash stands at INR 988 crores as on 30 September 2024. On that note, I conclude my remarks.
We would be happy to answer any questions that you may have. I now request Puneet to open the question and answer session. Thank you.
Thanks, Sunil. We can now move on to the Q&A session. Before moving on to the Q&A session, I would also like to request to all the participants, if you can introduce yourself with your name and the company that you are associated with before asking the questions. If you are not associated with any company and you are an individual investor, you can highlight that also. Moving on to the Q&A session, the first question is from Mr. Sanjay Shah. Mr. Sanjay, if you can unmute yourself and introduce yourself as well.
Yes, sir.
You can ask the question.
I think I'm audible.
Yeah, you are audible now.
Thanks. Thanks for opportunity. And, sir, congratulations for decent set of numbers and very nice presentation, too. So my question was regarding growth trajectory, what we are highlighting, that is we are adding 1,800 bed. Can you highlight upon what will be the CapEx required for it, and which are the geographies where we plan to increase our bed capacity?
Sunil, why don't you?
Yeah.
Thank you.
Thanks, Sanjay, for the question. Yeah, as we put across, we are adding something around 1,800 to 1,900 beds in Aster India. Out of which, you know, 100 beds is which we're supposed to add in Kannur. That's got operational in the quarter two. In addition to that, in the downs, you know, coming down from the north, in the Calicut, we are adding 75 beds, which is again an existing hospital with 500 or 600 beds there. In addition to that, Aster Medcity Kochi, where we are at 750 beds, there we are adding 100 beds. As of now, it's almost ready, and we have also got occupancy certificate also, and we expect it to operationalize sometime this month end.
Coming down further south, Aster Capital, Aster Capital is another hospital which we are adding in Trivandrum. It's a greenfield hospital. It's overall a 600-bed hospital, but the phase one, we are adding 450 beds. Coming to Karnataka and Maharashtra cluster, in Karnataka, you know already that 350 beds of Whitefield Hospital, which is operational, we are adding another 150 beds there as a brownfield expansion, which is expected to get operationalized sometime this year or later part of it. Then also in the Aster CMI Hospital, which is again, a 500-bed hospital with a 65% to 66% occupancy, we are adding another 350 beds there. So this is the, you know, broad expansion which is happening.
In addition to that, Medcity, considering I told that, we're already adding the 100 beds in the current month. We also started working on adding another 100 beds, specifically for a physical medicine rehabilitation. That is expected to come in next two years' time. In terms of CapEx, for the current 1,800, 1,900 beds we're talking about, that's going to cost us something like INR 1,450 crores, right? The overall CapEx. Out of INR 1,450 crores, almost INR 215-220 crores already been spent. So balance INR 1,200-1,250 crores is going to be spent in the year FY 2025, 2026, 2027. Sanjay, I hope that answers the question.
Yes, yes, yes. Helpful, sir. Helpful. Thank you. And so my second question was regarding, we have seen some good uptick on our ARPU, especially on Kerala side and Karnataka side. So can you highlight upon how is the trajectory ahead of this? And this ARPU is more coming from our specialty businesses where we offer to the patient, or there is addition of some international patient, or there's a price rise. How you
Yeah.
-state that?
So Sanjay, ARPU of growth, if you look at history. So if you look at our historical growth, right, we have been last five years CAGR, we've been growing at a 9% average. And here you can see 12% we've grown H1, and around 11% ARPU growth, which has happened in the quarter 2 FY25. Even if you look at the what you call Karnataka cluster or the Kerala cluster, there also you get a double digit, you know, ARPU growth. Now, with this ARPU growth, there is multiple factors to it. First one should be the price increase, because that is something which we take every year. At the same time, it's not we spread it across the units, right? It's based on the geography.
To geography, we take the decision. So somewhere between 3%-3.5% will be your price increase. In addition to that, we also initiated a lot of revenue assurance measures. See, considering we have 19 hospitals today, last two years, we have done a lot of work from the IT part of it to consolidate our HIS, consolidate our ERP, consolidate our service and item master. With this, we are trying to leverage on the, you know, the, volumes what we have and trying to do a revenue augmentation, right? By looking at what are the billings services which is missed, what about the service slotting. All these things we have brought into the picture, which has helped us to drive at least 1% of our ARPA through that.
In addition to that, I would say major other part also is basically your ALOS. ALOS has decreased year-on-year almost by 6%. That is also one of the very important factor which is driving the ARPA growth. In addition to that, scheme patients, if you recall, Calicut, almost a year back, right, we used to do a, you know, scheme of something like 8% to 9%. Now, it has gone down at least by 300 to 400 basis points. Even in MedCity, we have reduced the scheme patients by almost 400 basis points. So considering all these things have really impacted the ARPA growth. Now, looking at the future, even if you look at our pay-per-base mix also, right, in the H1, we are growing even walk-in patients or cash patients have grown by 20%.
Your TPA patients have grown by 30%. At the same time, your scheme patients have reduced by around 11-12%. So all these factors have helped us with ARPA growth, and we've been considering still our majority of our business comes from non-metros. We still see a good scope for our ARPA growth, at least 7-8% in the medium term. I'm talking about three to four year, you know, span period. I think in average, we should be able to still grow at 7-8%.
That's great. So my last question was regarding our Andhra and Telangana, where we see still a growth where we can bring in. So how we see that sector panning out for us on occupancy side also and ARPA side?
I can start with the first part. Maybe Ramesh can come in to that. If you've seen historically, Sanjay, Andhra, Telangana has been... During the COVID, they did really well, but post-COVID, they were not able to scale up the non, you know, basically the occupancy bit of it. And that's also specifically because they are perceived as a more like a cardiology hospital. Even today, 35%-40% of their business comes from the cardiology or cardiac sciences per se. Now that we are last year, we rebranded that into Aster Ramesh Hospital, and also we are driving to add more specialties like multi-specialty, then the, trying to bring the pediatric, women's health. All these things are really driving the growth.
If you see long for a long time, at least last two years, we were stuck at occupancy of 50%. But now you can see an uptick in both our Ramesh hospitals also and the Telangana cluster also, where what you can say, occupancy has really gone up to almost 56% for the H1 FY 2025. But we still see a good scope to grow here. One important thing which has happened is that last two years, the EBITDA has been stuck at 10%-11%, but you can see a very good turnaround which has happened in the quarter two. Quarter one, we are at something like 10.9%, specifically.
The cluster has moved to almost 15-16% in quarter two, with the average EBITDA margin of something like 12.9% in H1. So we see that, this has got a very good scope. Even today, ARPOB is very low at 30,000. It's got, again, here also we have got a very good scope to increase the ARPOB further. Keeping this, this in mind, this particular, specifically the Andhra and Telangana cluster, which is today at a 15%, EBITDA, it should go to about twenties. So that is something which is, achievable and sustainable. Ramesh, you want to add to that?
Yeah. So, moreover, if you look at the split between Andhra, that is in Vijayawada, primarily it is a cardiology center, so we are trying to enhance all of the multi-specialty verticals also into the cardiology center, so that we are expecting good growth in Vijayawada. Guntur is a 500-bedded facility. Guntur is a larger facility. It is which has a bigger multi-specialty hospital, so we are expecting good traction in Guntur and also focus on oncology business there. So your ARPOB increases, and we are looking at a good footfall coming in. The other two centers, especially coming down further, Tirupati.
Tirupati is another center where Narayanadri we have taken over, and in fact, there is a significant growth which has happened from hardly around 2.5-3 crores. Within a year's time, it is we have doubled the revenue of Tirupati. Good amount of traction happening there. And of course, we have a since Prime is a smaller facility of 150-bedded, we are trying to scale up that also with the case mix. So there is a good potential. We are looking at the case mix, we are looking at the ARPOB to increase the ARPOB also, and also the mature hospitals, a few of them, and we are trying to increase the EBITDA margins as well.
That's great, sir. Really helpful. Thank you very much, sir. Thank you very much.
I just wanted to add to that point, Mr. Sanjay, what you asked.
Yes, yes.
Even for the future, when you look at it, we have announced our new 300-bed hospital in Hyderabad, which is a specialized women and children. So we are very bullish about the market. We believe that there is scope, and having sort of a specialized center for women and children will further enhance sort of the portfolio we have in Andhra and Telangana as well.
Thanks. Thanks for updating, and, I congratulate new members board, joining the board, and good luck to you, ma'am. Thank you. Thank you for replying my questions.
Thank you, Sanjay. The next question who's asking is from Damayanti from HSBC. Damayanti, can you unmute yourself and ask the question?
Yeah, hi, I hope I'm audible. This is Damayanti from HSBC Securities and Capital Markets. So, my first question is, continuing the discussion on margin pickup, which we have seen during the quarter or in first half. So, you mentioned, in AP and Telangana cluster, margins can go upward of, say, 20% or so, and in the existing Kerala and Maharashtra, Karnataka cluster, it's already at mid-twenties. So if you can, talk a bit about how we should see, margins moving up in the more mature, clusters from here on, say, from 25% level or so, how or what is the potentially, margins can go up to?
And very broadly, if you can also talk about some of the initiatives which you believe can really push margins from current levels also? And how should we see margins in, say, next two or three years?
Sure. Thank you, Damayanti, for that question. Yes, with respect to margin, we can see that, right? Specifically, at least on the H1, we have closed at a consolidated level at 9.6% operating EBITDA, and the hospital segment at 22.8%. There is at least 300 to 400 basis points improvement which has happened year-on-year, and it's specifically driven by two, three levers. Majorly, it's our material costs. Material cost has gone more than 200 basis points, efficiency we have brought in there. And if you look at, okay, quarter two itself is at 20.3%. But if you ask me, do you think there's still scope to reduce? Yes, there is at least another 100 basis points; further material costs can be done, which is in the coming years.
Next, another efficiency which we brought is in the, specifically in the manpower cost. So manpower cost also, we see at least, you know, ninety to a hundred basis points has reduced. And again, as I've been calling out previously, also saying that, with the increase in occupancy going on and with the brownfield expansion, which we are doing, you don't really need to add, across the employees, across the board, right? You only need to add the bedside, you know, staffs. Other than that, you don't have to expand the leadership team or the admin staff. To that extent, we keep on going to, you know, increase that efficiency. And you'll see that, because, as I said, material cost already is, you know, leveraged more than four hundred basis points in last three years.
We see the further growth will come from the efficiency increase in the manpower cost. In addition to that, another hundred basis points we are able to expand in the overhead also, because overheads is mostly semi-variable cost, right? It's, it doesn't go very linear with our, you know, revenue growth. To that extent, we are able to get that benefit also. And also, one of the reasons why we're also getting is that if you look at our maturity profile, right, today, 70% of our beds are above six years, and 72%, revenue, or 73% revenue is coming from the, six, above six years hospitals. And there, already margins are at more than 24%. So considering more assets are getting into mature stage, we expect the margin expansion to continue.
From an overall perspective, today, where we are at 19.6, we can say at least I'm saying broadly, next two, three years, we can go to 21% plus, and also at a yearly basis, and also with respect to, hospital and clinic segment, which is our core segment, where 94% of the revenue comes in. There, we see that, which we are today at 22.8 for the half year. On a full year basis, we should go around 24% plus. Even this is all numbers, Damayanti, I'm putting it across, including the addition which we are doing. So if you're not just adding it, then it could go faster, but, at the same time, there is no dilution happening because they're all EBITDA accretive, and that's where we see the, you know, our power...
Sorry, EBITDA margins to expand in the next two to three years timeline.
Sure, that's helpful. And, I understand you had some restructuring done at the wholesale pharmacy segment also. So if you can talk about it, and how do you see that business from your overall service or offering perspective?
Yeah. See, wholesale pharmacy, it has got two segments. We call that as a business unit one and business unit two. Business unit one is something which we acquired, around almost three years back, right? So that has got a more of a B2B business and a B2C. Basically, we're talking about a trade business also. So that continues to grow at 10%, year on year. Another business, another vertical, which we added after purchasing or acquiring that is the BU two. Basically, this segment used to drive the back-end purchases for the our retail business. But we have seen that handling the, you know, the back-end pharmacy from our end, it is, it's logistically, it is, not really creating more benefit or creating operating leverage in terms of expanding our EBITDA margin.
That's where we thought that why don't we outsource it? And that's where, six months back, we did the outsourcing of that. To that extent, you're seeing there's a dip in revenue, but at the same time, it's benefiting us by reducing the EBITDA losses in the wholesale pharmacy and also giving us the overall EBITDA margin expansion across the India, Asia India level. And we expect to, from the wholesale future point of view, as I said, the BU two is completely outsourced, so we can only look at whatever revenue is seeing is 95% is coming from the business unit one, and that's expected to grow at a 10%-12% year on year.
Sure. And, my last question is for, Miss Alisha. So, Alisha, I think, you mentioned like you have, introduced, several board members and, management team also. So do you have plan to hire a new CEO for India operation, or do you think the current team is, good enough to, sustain the current operations?
Thank you. Thank you, Damayanti. So a really good point, really good question. So definitely, we've had these new board members, including some of the promoter members, like Zeba and Anoop, have joined, and they've been involved now in business reviews, strategic oversight. They're supporting the unit heads, Ramesh, the CEOs and the COOs and function heads. The business seems to be doing quite well for us. We have said that, you know, it's very important for us to have the right team in place. We do have very strong unit leadership and functional leaders at play right now. We would look at maybe a CEO in the future. Right now, we seem to be scaling up quite well. Ramesh is doing a great job along with the rest of the team.
We didn't want to rush into this because this is a very key role for the organization. We believe that the team at hand is more than capable of delivering what we have committed to for this year, and we will relook at this maybe over the next few quarters.
... Sure. Thank you. Thank you for your response.
Thanks, Nayanthi. The next question is from Mr. Krishnendu Saha. Krishnendu, can you please unmute yourself and introduce yourself also?
Can you hear me?
Yeah, we can hear you.
Yeah, yeah. This is Krishnendu from Quantum Advisors. Most of the questions have been answered, but so quickly, but on the slide 35, when we're looking at the Karnataka and the Maharashtra cluster, the inpatient volume is like 24% growth. So just trying to understand, because I'm new to the business, just trying to understand what this is on a H1 to H1 basis, YOY. There's a 24% YOY growth in inpatient volume. What explains that? And on the number three slide, we have 545 4,900 and some beds. But just a minute.
Yeah. Thanks, Krishnendu, for the question. If I understood the first question with respect to the slide thirty-five, where you're talking about the growth in inpatient, right?
Yeah.
More than 20%. It's very important to know that, you know, majorly the growth is coming from the Aster Whitefield Hospital. If you recall, we were only operational two or three years back, only the women children block, which is 50 beds, and balance three hundred beds came into operational only in October 2023, right?
Right.
That's where the growth which has come in the current year, which is not there in the H1 FY24.
Thanks.
Right? That is the major addition. Otherwise, we are still growing at a 11-12%, in the other than Whitefield Hospital.
Yeah. And on the revenue per bed side, if the insurance penetration increases, say, from 30 to 50%, do you see that revenue per bed being flattish, or you still be able to take a price increase? Because the rack rates for insurance will be a little bit lower. So what is your thought?
See, see, if you look at our IP ARPOB, right, not overall ARPOB, and we break into cash and TPA, we don't see much of a difference at all.
Right.
Even through our negotiations, right, we give a hardly single-digit discount to that, right?
Okay.
So even that in mind, ARPOB doesn't really showcase basically because your insurance patients come for a high-end case mix, and also they usually opt for a twin sharing or single room. So that's where your ARPOB is going to be always almost equal to your cash ARPOB. That is first thing. But even if you look at the year-on-year growth, right, we, as you also said, very correctly called out, 27% contribution has moved to 30%. And also from the growth point of view, added growth was almost a 34% year on year for the H1. But we don't expect the, you know, ARPOB to be flattish because, these insurance companies, yes, we don't do every year renewal, but every two year renewal, we do it.
Whenever we do a two-year renewal, we always get an inflation increase more than double digits, right? It's always set up for 10%. So as long as that is happening and case mix is improving and the bed mix is improving, specifically the TPA patients, we don't expect any degrowth in the ARPOB. It is going to be quite strong, even at least in the next three to four years timeline, which I could say.
You don't see or face any competition from, say, Telangana and other regions where there's a lot of hospitals. Do you see any pricing pressure out there, or it is comfortable for you to take a normal 3-5% price increase?
Yeah, we don't see any. See, if you look that way, every metro, you can see 4,000-5,000 beds getting added in the next 3-5 years, right? So even with that, always the, you know, price increase, because you're not taking a 10 or 12%, right? You're talking about a 5%-6% price increase, where ARPOB impact is only 3-3.5. So that will never be a real burden to the patient. And considering that, we don't see any pressure in not doing the price increase. And it's, as I said, we are not doing something where double-digit price increase, it's around 3-3%. It's a very decent price increase, which we can do, and we continue to do that.
Last two questions. Your capacity is 4,994 beds, but occupancy is 2,491. So I'm just wondering, but, the average occupancy on the slides are something else. What, what, am I getting something wrong out here?
No, no, no. Okay, let me explain that, right. See, 4,994 beds is the capacity beds.
Yeah.
This has got a combination of, census and non-census.
Yeah.
Okay? The census beds would be something like 3,800-3,900 beds.
Yeah. Yeah.
Balance one thousand, one hundred, two hundred are the non-operational, sorry, non-census.
Yeah.
Non-census means we're talking about emergency beds, daycare beds, right? These are all revenue generating beds-
Right.
but we don't take a midnight census.
Right.
So that is anyway op. In addition to the three thousand eight hundred beds, which I talked about, the census beds, out of that, only three thousand six eighty-nine is operational, right? Balance another one fifty, which is there. Basically, we have got another fifty, sixty beds in G Madegowda Hospital, another fifty, seventy beds in our, you know, Whitefield Hospital, another fifty beds in our Guntur Hospital. So these are the census beds we've yet to operationalize, which we will always do. But what you're seeing is very right. I hope that answers your question.
Yeah.
Occupancy is always calculated on the operational census beds.
I see. The two thousand, so whatever the number is, it's on-
Yeah.
census bed, and some of them are still not operational also.
Yes. Around 100 beds, 100-200 beds.
Last question from my side. So, your average LOS is like 2.3, right? And Kerala is 3.1. So we can... How low can we go? Do we go for 3.1 is the max, or is like 2.9 is what we can... Is there a path ahead that we can go to 2.9, 2.8? So that's stretching it a lot, but is it possible? Because we're already at 3.1 at Kerala. So is that the benchmark? What is the number out there?
Yeah, if you ask me, I think we are literally quite efficient in that ALOS, right? So 3.0 is what it is. See, if you're doing only tertiary care or secondary care, you can go up to 2.5, 2.6. But we are doing more quaternary care procedures, including the transplants, robotic surgeries-
Yeah, yeah.
high-end surgery. 3, 3.1 is a really good number to stay on.
Three point. That's why your ALOS also has a higher number.
Yeah.
Sorry, ARPOB has a higher number. Thank you for your time. Thank you very much.
Thank you.
Thanks, Krishnendu. The next question is from Mr. Sumit from Centrum. Sumit, can you please unmute yourself and ask the question?
Yeah. Am I audible?
Yes, you are audible.
Yeah. Thank you for the opportunity. Congrats on good set of numbers. So I just want to understand about the margin aspect from cluster point of view. So margins in Karnataka are better than like for the Kerala cluster. So what is driving this, and like how should we see it going forward over the short term to medium term?
See, now, if you look at the margins, I think Karnataka is very similar to Kerala, right? From the... If you look at, yeah, if you look at H1, yes, there is a hundred basis points difference. But, if you look at only Q2 performance, I think both clusters are at 25% margins, right? Now, one very important thing we all have to understand is that EBITDA margins are very much leveraged to your ARPOP. You know, if your ARPOP is higher, your margins always go up. For example, Kerala, which is ARPOP of average of 40,000, where you have a range from North Kerala to 30,000 to 50,000 plus in Aster Medcity, Kochi, you know, the 20% is a very good margin to be at a consolidated level, at the cluster level.
Now, when you look at Karnataka and Maharashtra, where ARPOPs are as high as near to 58-60 thousand, where some of the hospitals even do 70 thousand ARPOP, I think this has got a very good potential to further grow. If you ask me, 25%, which is there today, it has got potential to go even near to around 29-30%. But because that's a you know, leverage on the ARPOP. In addition to that, one of the limitation I see in Kerala, in addition to ARPOP, is the higher minimum wages. For example, nurses in Kerala cluster, we pay approximately 30-32 thousand staff nurse, where in Karnataka you pay somewhere between 18-20 thousand.
So it has got a dual, you know, issue in Kerala, where you've got ARPOP lower than Karnataka, at the same time, minimum wage is higher. So that limits the margin expansion with to the extent potential which Karnataka cluster can do.
Okay. So, like, going forward, let's say, Karnataka would be the major thing, major cluster which would be driving the margins, and how should we see AP, the cluster also faring in terms of margin expansion?
Yeah. Karnataka, as I said, it'll always have a 300-400 basis points higher margin than Kerala. At the same time, I'm not going to say that margins already peaked in Kerala. Margin expansion is still going to happen because we see still efficiencies in some of the cost lines which we can do it. Coming to Andhra, Telangana, because you know, the performance has been subdued for last couple of years, and now things are really picking up in the quarter two. We can see here also the margins can settle somewhere in the mid-twenties.
Okay. Okay. Understood, sir. Thank you.
Thanks, Sumit. The next question is from Mr. Kunal Randeria from Axis Securities. Kunal, can you please unmute yourself and ask the question?
Yeah. Hi, good morning. My first question is on the Kerala cluster. The occupancy is hovering around 78%-80%, and I think around 340-400 beds are coming next year. So, do you run the risk of a slowdown, potential slowdown in the coming quarters?
Thank you. Yeah, thank you, Kunal. Maybe, Ramesh, you want to take that question?
Yeah. Yeah. So it is pretty much as you see that it is. We are clocking around 77% occupancy. And I'm sure in the days to come I don't think so there is a slowdown, I would say. It has got to do with the seasonal fluctuation. If you can see especially the quarter two had a little bit of slack because of the seasonality and also the festival season across Kerala. So we have seen that slightly the occupancy has gone up. But in the days to come I'm sure there will definitely be a surge, is what we are expecting. And the season is back, and we would expect the occupancy to go up.
No, no, sorry. My question was, occupancy is already pretty high, and it's actually, you know, very difficult to breach the 80% mark, and new beds would be only coming next year. So you run the risk of not meeting the demand because you don't have the beds.
No, so right now with, there are two large facilities, if you look at Aster CMI and Aster Medcity. So Aster Medcity, we are in ten days time, we are opening another additional hundred beds. So there, I think it will ease out. And Kannur, we have which is already around a hundred beds, we have nearing a hundred beds we have opened now. So that is easing out. So I don't think so we should have, except in Calicut. There also, we are trying to shift few other facilities and trying to bring in some more additional beds in Aster MIMS Calicut as well. So these are the three large hospitals, and we are already taking action on that, and we are opening up these beds.
So Sumit, if I can also or Kunal, if I can just come in here as well. See, we've, while the sweet spot is 75%-80%, we've also been able to manage in Kerala because of the demand, like, exactly like you said, closer to 90% as well. So we don't think in the next couple of quarters there would be a slowdown, because operational efficiency that the team manages is quite good, so we should be able to kind of continue with a higher occupancy in Kerala. Anoop, I don't know if you want to add anything maybe to this.
I think, basically the question was whether we would have sufficient beds to meet the demand. I think, correct me, Kunal, if that's what you're trying to ask.
Yeah, that was my question, because-
Yeah.
340 beds are only coming next year, right? And you're already at close to 80. Yeah.
So see, basically, when we are running at this capacity, so, you know, when there is a gap, we open up for the scheme patients and, you know, try to fill up the gap. And when we are running at full levels, we try to focus more on other areas where, you know, we would reduce on the scheme and more on cash patients and things. So that's how we balance the, you know, the occupancy levels and our performance.
Got it. Got it. That, that's helpful. Second question, again, actually is to Alisha. Alisha, now, you know, several family members are on the board, so I'm just wondering if you could share what the roles and responsibilities, how are they divided?
Yes, sure. So Kunal, once the segregation actually happened, we were talking about how there needs to be a double-down efforts on scaling up our India business, of course. So the way we have kind of divided the, from a promoter family perspective, at least the involvement, is much more on a strategic level. I work a lot with the function heads, whereas Anoop is more focused on the Kerala cluster and Zeba is more focused on the Karnataka cluster, along with Ramesh. So the idea was, how can we make sure that we are deciding the best strategy for each of these regions? Anoop has spent a lot of time in Kerala, understands that market very closely.
Zeba, someone who studied in Karnataka, has worked there, understands that market, and again, is a doctor, so looking at the medical strategy, something which is her forte. Anoop is someone who's an engineer. Again, when we are looking at projects and looking at the expansion of the new project, that's something where he's definitely able to add his expertise. So we come in more as supportive roles. The performers are all the team that's on the ground full-time, dedicated to this. But we felt that with the segregation, it was important for us to kind of enhance the, you know, or sort of make the strategy a bit more laser sharp, and which is where both Anoop and Zeba have come in.
And of course, the IDs also, who have some of them who used to be with us, who have come back to sort of talk about what should be Aster's strategy to be sort of top three in the country, right? And we felt that we needed more, more inputs and more support to get to that pole position, which has been chairman's goal.
Sure. And so, Alisha, if I can ask you on this, you, as far as your bandwidth goes, is it more on the India business or you are, still heavily involved in the GCC business?
No, I'm very involved in the GCC business because I am the managing director for the GCC business. So yes, it's like I said, the business is run with the local team in place between Ramesh, the cluster heads, the CEOs, the function heads. We feel India is running on a very good trajectory with the teams that are there. We come in more from a strategic support perspective. How do we look at allocation between the different regions, which departments to focus on? So I think definitely having Zeba and Anoop join has been a great support system as well.
Perfect. That's helpful. Last question for Sunil. I've seen the balance sheet. I've seen the sharp increase in ROU assets and these liabilities. So what has led to this?
Yeah. Thanks, Kunal. So with respect to ROU and RO, you know, even the lease liabilities, right, it's both are interrelated. We were at something like INR 700 crores, I think, as on thirty-first March twenty twenty-four. And after that, if you recall, we added signed off two agreements, right? Lease projects. One is the Aster CMI. It's already a lease project, if you recall, which is 500-bed. We added-- we are adding another 350 beds, right? So, you know, that is a liability which will create, because you're going to pay additional rent to the 350 beds, and again, it's a 20-year lease, right? So to that extent, you have to create ROU. That itself, I think it came to around INR 350-INR 400 crores.
And balance, another INR 200-300 crore is coming from our women and children hospital. That is, I think, we signed off sometime in September, September twenty-second, if I'm right, and that is kicked in in the quarter closure of thirty September. That's again, you know, 300-bed hospital, again, with a 30- to 31-year lease. So that, lease payments have present values been created as an ROU and, lease liability. So these are the two major assets which we added in the H1, which has increased the lease liabilities and the ROU by almost INR 600-700 crore.
Got it. And if I can squeeze one more, sorry. The tax rate has gone up in the last couple of quarters, the PNL tax. So what has led to it, and what should we model going forward?
See, we had this, you know, 35AD benefit for quite long. Like, Medcity is where we had a huge carry forward losses, and we've been utilizing for last almost 10 years now and I think in the last year also, we moved from the tax regime from old to new, so considering most of the carry forward loss has been utilized until last year-
... Now we are, you know, gone back to the usual tax rate of between, based on the legal entity, right, either 25% or 22%, and that's where you can see a effective tax rate of near to 30% now, right? So I think that's expected to continue unless, you know, because also we are not adding new assets in the, listed entity. We're adding the new assets in the separate subsidiaries, to ensure that cash flow management is, quite efficient. Keeping that in mind, I think current tax rate should continue.
I got it. Thank you, and all the best.
Thank you.
Thanks, Kunal. We would like to highlight that we will be giving preference to attendees who have not asked a question before. So in that line, the next question is from Mr. Pratik Poddar. Mr. Pratik, if you can unmute yourself and ask the question, please. And can you please give your background as well?
Yeah, hi. This is Pratik from Bandhan AMC. A couple of questions. One is, on the women and children hospital, which is starting in Hyderabad. How should we think about this? Is it, is it this new practice area which you want to develop and scale this up from a medium-term perspective? And, from a payback period perspective, would this practice area be a faster payback period versus, let's say, a multi-specialty? That's question number one. Second is, when I read the press release, you talk about nine hospitals getting these digital standards published by NABH. Maybe you could just spend a bit of time and explain what is this. Does it result in better operational efficiency or better customer satisfaction? And lastly, on labs and pharmacies business, I think you called that out.
Just from a two, three-year perspective, how should we think about this business? These were the three questions, yeah.
Thank you.
Hello.
Thank you, Pratik. Ramesh, do you want to come in on the women and children as a specialty for Aster?
Yeah. So,
For the question as well, please.
This women and children hospital at Hyderabad, we are looking at as a state-of-the-art, you know, the first of its. We wanted to have the largest hospital of that center to, you know, make a presence felt. And we thought we should have it, all the specialty, subspecialty of pediatric in this center. And ensure that, you know, it becomes a B point, I mean, where people can adjust to all kinds of patients coming into the system, the pediatric patient. And also women, as far as the gynae part is concerned, we wanted to have one of the best experience as well as have the state-of-the-art good rooms and facilities to ensure that they have a good experience in this center.
So that's a thought process, we want to make it as the best center in Hyderabad.
Payback periods? And from a, let's say, medium-term perspective, would you want to scale this up? In the sense, would you want to add more of this practice of these hospitals in other clusters?
We would like to. We'll be adding assets. So, we have done this Women and Children Aster in Bangalore.
Yeah.
Aster Whitefield. So that itself is a big success for us, and which is almost running at 80% occupancy. From there to now, I think we are looking at Hyderabad and other centers also we'll be looking at this model.
The payback periods are faster, right?
Payback period, you know, it all depends on the ramp-up, but should be in the range of nine to eleven years.
Sure. The second question was on the nine hospitals which were accredited with the digital standards published by NABH. Maybe... What does it lead to? Does it lead to operational efficiency or customer satisfaction?
See, it leads mainly to operational efficiency. It gives us the kind of, it's a standardization, what we have achieved. So earlier, we didn't have any kind of, this kind of audit happening. So with the support of NABH, I think, we are able to come up with that, this kind of standardization across all the units.
Could you quantify the operational efficiency? I mean-
It can be as good as anything to do with the discharge summary, you know, visit. Are we able to monitor the discharge timing, where it leads to patient satisfaction? So we are able to even. You know, we are able to integrate all these factors together and see that, you know, we are able to deliver kind of a better patient satisfaction and operational efficiency.
Got it. Got it. And I think there was one question-
On-
Yeah.
Something like, this discharge that Ramesh was talking about, right? I think we've realized that's one of the biggest pain points-
Yeah, I agree with you.
After everyone is done with the-
Yeah
... with the surgery and all the postop discussions, right? So it's a bit hard to quantify exactly. We believe that we look at it from a customer experience point of view, so that's one part of it. But like what Ramesh said, in terms of standardizing care, standardizing protocols, there are big intangible benefits of that, right? From a quality, maintenance, and consistency perspective.
Got it. Got it. The last question was on labs and pharmacies business. A part of it was called out in terms of unit one, but just from a three, four years perspective, medium term, how should I think about this business unit? I know it's very small for you today.
Yeah, yeah. See, even when we envisioned lab and pharmacy, Pratik, the idea was never to create a chain out of it, right? But, our score for our core business is going to remain the hospitals. But, we are always looking from the continuity of care point of view. That's where, even you will see that in the current quarter, the quarter three, we've been launching the app also, wherein we are going to consolidate the OP consultations, OP to IP conversions, the IP, you know, patient journey, and the labs, post-discharge labs, you know, sample collections, reporting, then the acute and chronic care, you know, patient pharma delivery. That is the whole concept why we even got into labs and pharmacy.
And you'll see that labs and pharmacy both are in the states where majorly we are present, right? There's a hospital. Now, labs, you know, inherently it's a high-margin business, and that's one of the reasons why we were able to quickly break even in the last year.
Mm.
Now margins have scaled to double-digit in the quarter two.
...And again, this margin can go beyond 20%, provided the non-Aster business, because this Aster Labs, you know, pro, you know, provides services to our own hospitals by creating more efficiency, at the same time, does the third party business also, right? So today, last year it was 23% of our component of the lab business was from the non-Aster business. Now, this year, already in H1, we've gone to 28%. So the idea is that next 2 to 3 years' time, we want to move this 28% to near 50%. If we can achieve that, we are looking at a margin about 20%. And again, it doesn't require too much of capital infusion because already we have 14 satellite labs. We don't expect to add any more processing labs at all.
It's only the collection centers which we will be worried on, and once the app kicks in, we should be concentrating more on the home care business. Now, moving on to the pharmacy. Pharmacy, you know, it's inherently a low margin business.
Correct.
Right? So we don't expect to do a double-digit margin anyway. We're talking about, somewhere in the mid-single digit, right? So keeping that in mind, we are trying to break even there. That's what we've done. That's why you will see we are not expanding the, pharmacies and everything. We kept it around 200, or so. And now, the way we did the lab break even, expecting to break even to happen sometime in near FY 2026.
Very helpful. Very helpful. Thanks, thanks. Thanks so much.
Thanks, Pratik. The next question is from Mr. Nikhil. Mr. Nikhil, can you please unmute yourself and introduce yourself and ask the question? Nikhil, you are unmuted.
Am I audible?
Yes, you are audible.
Thank you for the opportunity. Most of my questions have been answered. So I would just like to ask you, update on acquisition, like, what are the acquisitions are we looking at? Are we still planning to expand in the UP side? And, that's pretty much it.
Hitesh, do you want to come in here?
Yeah, sure, Alisha. So regarding acquisition, you know, we keep evaluating opportunities. You know, I think the objective is to, you know, take the leadership position in the South India market, where we are already second largest. And, you know, there are certain states where we can expand more presence, you know, while we have strong presence in Karnataka, Tamil Nadu, Andhra, Telangana, there are states like Maharashtra and, Tamil Nadu, where we can expand ourselves, further. So I think these are geographies that we would like to kind of look at M&A opportunities, and we continue to explore those. But I think, you know, as of now, you know, there's nothing, you know, that we can really, talk about from, the kind of, you know, commitment perspective.
Okay, sir, and I would just like to ask you about the MVT business. Like, how are we planning to grow the MVT business? Are we, like, looking to increase our proportion in the revenue?
Yeah. So, so that's definitely something which we keep working on, right? Because MVT business for us, especially for Medcity and CMI, has been quite significant. So, Ramesh, do you want to just come in on how we are looking at enhancing some of the existing-
Yeah.
markets as well as new markets we are opening to?
Yeah, true. So, as far as MVT business, Kerala, is concerned, we have 90% of our business coming from Oman and Maldives. So that is continuing, and it will continue to grow, and a little bit of African markets. So we are also looking at, right now, Bangladesh is to also drain down into our Calicut and a little bit into our MedCity as well. So that has slowed down a bit, as we know that there are some issues which is prevailing in Bangladesh.
As far as Bangalore is concerned, or Karnataka, I would say more or less we have almost the GCC markets patients coming in, and mainly from few of the African markets also, we have a lot of patients coming in. Kurdistan and Iraq is another place where a few patients are flowing in for oncology and mainly for onco business and for our neuro business as well.
Okay, sir. Thank you for the details. Sir, I would just like to ask you, like, in our last call, like we said, that we are in talks with our promoters in Andhra Pradesh and Telangana. So those talks did materialize in this quarter, I guess. So are we still looking to, like, increase the efficiency there? And how can you just throw some light on that area? And can you provide a summarized outlook for each of the clusters, if it is possible?
So, Ramesh, you want to answer the first one? I can come on the second.
Can I, I didn't hear clearly the very first point at all.
I think he's referring to the Ramesh Hospitals. So, let me add to that. So, Nikhil, you are, so you're looking at how are we doing a turnaround, right? So, yes, you know, today, the SHA very clearly talks about you know, day-to-day operations run by the Ramesh Hospitals, and our investment is more strategic, and we control the board. And, and also, yes, we, we've been talking about strategically to discuss with them that how to improve the top line and how to improve more efficiencies. And if you can see, I would agree with your point that that's exactly working for us. That's where you can see the quarter two business, which is ramped up.
Again, when you look at the growth also, you can see across the board. You can see multi-specialty growing up, because that was not their strong suit, considering cardiac was capturing more than 35% to 40% of the business. Also, we're seeing the pediatric business increasing quite well there. So keeping all this growth expanding, yes, that's where with this, even the small increase in the top line, we are able to see a big movement in the EBITDA margin. And, if they continue to have the top line growth in the further quarters, Ramesh Hospitals have got the capacity to reach somewhere, you know, upwards of twenties as an EBITDA margin in next 2 to 3 years timeline.
... Yes, sir, and can you please provide a summarized outlook on each of the clusters, if it's possible?
On the margin bit of it?
Yes, like, on the margin bit of it.
Yeah. So I, I think, yeah, I tried to cover in the previous one. So, you know, look at the Kerala market. I told you that, that ARPOP is lower than the Karnataka cluster market, and also the manpower cost is, again, comparatively higher to the K&M cluster. Keeping that in mind, quarter two already they have achieved a 25% margin, and H1, it's almost near to 23% plus EBITDA margin. And we see that going forward, it can go upwards of 25% also because we're adding capacity across the board. As we said, we operationalized a hundred beds in Kannur. We are going to operationalize, a hundred beds in Medicity this quarter, and Trivandrum is going to kick in, and there's a Calicut expansion which we have planned.
So keeping that, we'll keep adding the beds, we are expanding, you know, we expect that EBITDA margins to be expanding there. Yeah, it may not reach to the Karnataka level, but at least, you know, it should go beyond 25%. Now, coming to Karnataka and Maharashtra cluster, considering it has got a higher ARPOP as compared to the Kerala cluster and also the lower minimum wages keeping in mind, we should currently, which is again at a quarter two at a 25%, specifically driven by a very good performance by Aster Whitefield Hospital, where their EBITDA margins have reached to near twenties there. So with that, we expect at least to go at least three hundred to four hundred points higher than the Kerala cluster.
Andhra, I have told you that it today, which is at quarter two at something like 15-16% EBITDA margin. It should go about 20% in couple of quarters or at least two years timeline.
Okay, sir. That's it from my side. Thank you. And, all the best for your future.
Thanks, Nikhil. The next question is from Mr. Alankar from Kotak.
Yeah, hi. Thank you for the opportunity. First question is, more of a follow-up to one of Pratik's questions. What is the current split between pediatrics and maternity at the Bangalore hospital? And do you expect a similar split at the upcoming Hyderabad one as well?
So, you're talking about the current occupancy and the trend in Bangalore?
No, no, the revenue split.
Yeah.
The revenue split between pediatrics-
Sorry.
and maternity at the Bangalore hospital.
Yeah. So, presently it is around, say, we can say around, of. We are doing approximately around five crores of, which is out, out of that, twenty-five crores in, thirty crores in Whitefield. So you can approximately say around 3%-4%, 4% of our, five percent of our business is, women and, yeah, and children put together, it should be around 8%-9% of the total revenue at both the hospitals. I mean, at what has happened at Whitefield and, of course, multi-specialty centers. In this Whitefield hospital, since the concept we have built on women and children, that is slightly, the concept is very well accepted, attached to a, that to next to a multi-specialty center.
We have a better traction there than compared to a complete multi-specialty center having women and children inbuilt into the system. With this successful concept is what we are looking at, Hyderabad, which is standalone center, which can give us a good revenue on standalone for mother and child.
So, Alankar, I mean, I'll also just come in here. So in Kottakkal, we had a multi-specialty hospital, and then we opened up a women and children wing. In Whitefield, what we have done is we started with a women and children because that was the availability of space, and then we've added other departments, like what Ramesh has said. You've got now 25 crores coming from the entire unit, which is oncology and all the other specialties. Hyderabad is slightly different in the sense that it is an independent women and children hospital. It is going to be the biggest in Hyderabad, you know, even bigger than the Rainbow one, which is there. And the focus is on maternity, on pediatrics, all the subspecialties, aesthetics, infertility.
So it is, in that sense, as being a fully independent unit, it would be our first. We started with that in Whitefield, but then, of course, Whitefield does have the full expansion that has come on board with all the other specialties. So I'm not sure if you were directly comparing that would make sense. But, Sunil, just to talk about the split between pediatrics and women in both of these existing facilities, would you be able to give that, or do we need to go back to Alankar?
Yeah, no, Alisha. Yeah, we can give that number. So if you look at, you know, the CMI hospital, we do around 7% of women's health and around 3-4% on the, children care. And, and I was taking the reverse. So children care is around 6-7%, and women's health around 3-4%. When you go to RV, 5% is the pediatric, care, what we do, and another 4% is the women care. And when you look at the Whitefield, the, child and adult health, and that the pediatric specialty does around 8.5%, and women's health, it does almost 7%. So that is the number.
But as you rightly called out, at India level, when you look at, we do up to 6% the women's health and 6% the pediatric bit of it. But, Hyderabad very clearly called it, it's an independent facility, where it's independent women and children hospital, where 70% of the revenue is expected to be driven by pediatric and only 30% from the women care. And we are going to have a super specialty and subspecialty mix in all the pediatric, whether it's a cardiac surgery or it's a gastro or ortho, and also state-of-the-art NICU and PICU also. So that's what we're expecting for in the Hyderabad.
Thank you. That's helpful. And just so this is through the build-to-suit model? Because the construction is, I mean, the hospital is opening pretty quickly. And it's leased, so-
The warm shell, Alankar. This is a warm shell. It was a building of almost three lakh sq ft. It was existing building. It was ready to be converted into an office space or alternative, you know, commercial. Considering that this really suited for our needs, we were able to convert that into a women and children hospital. Now, what we have to do, why it's going to be early, is that because already the whole structure, warm shell and the high side is completely ready. It's only going to take one or one year or even less than that, just to put interiors and equip with the medical equipments.
Understood. Thank you. The second question, Alisha, for you, in the first call, in the last call, rather, you had spoken about looking to merge with a platform to accelerate growth. Does this still remain a priority for us? And should we look at the CEO hiring, which you said could happen in the next few quarters, if required, in conjunction with any potential M&A?
So, Alankar, you know, we have been looking at various opportunities over the last six months. Still early for me to come back to you yet. Hopefully, in the next couple of quarters, we will have, we'll be more crystallized, and we'll have better clarity on that. So the point on the structure when looking at the CEO hiring will also depend on some of the transactions which, you know, we are exploring at this stage.
Understood, and are you still evaluating a potential entry in UP?
Specifically, not right now. No, we're not.
Okay, fair enough. And maybe one last question from my side. I mean, while our performance in this quarter has been very strong, and congratulations for that, we have seen some senior level attrition in Kerala and Karnataka. So just wanted to understand the attrition is in which functions, anything to be worried about, any impact you see in the future? Thank you.
No, Alankar, I think, I mean, as the system is growing and as people have been performing, of course, we expect some level of churn to happen. As I mentioned earlier also, we do have a very strong local team in most of the units. It's not specific to any function or any specific unit as such, even the attrition. We had a few attrition in Kerala, but they're split between some in MIMS, some in Medcity. We have been also hiring, so there are some senior level resources coming on board to Kerala soon. So you will hear about that also, hopefully in the next call, but nothing that we are worried about. Performance seems very strong, solid.
The team has been, our team, the brand, everything seems to be kind of moving in the right direction as far as we are concerned.
Great. Thank you, and all the best. That's it, that's it from my side.
Thank you.
Thanks, Alankar. The next question is from Mr. Harith from Avendus. Mr. Harith, can you please introduce yourself?
Hi. Good morning. Thanks for the opportunity. The first question is on the labs and pharmacies segment, where you've disclosed around INR 70 crore revenue for the quarter. So can you provide a breakup between the two verticals, the lab business and the wholesale pharmacy business, for the revenues?
Pharmacy business, you're referring to the Quarter Two or H1, Harit?
H1 is fine.
H1, maybe whatever the number is there, from that, 66 crores is related to the labs, with 5 crore EBITDA, that is, amounts to 7.5% margin, and balance is related to the wholesale pharmacy.
Okay, thanks a lot. And the operating margins that you reported this quarter for the hospital business of around 24% can you comment a bit about the sustainability of this number especially given that we are adding almost 300 beds in the second half? So what I'm trying to understand is whether there is a benefit of seasonality in this 24% number and we should expect some normalization in the second half.
See, Harit, if you know, you always follow the healthcare, right? So Quarter Two is always going to be the strongest, right? So again, Quarter One is the weakest, because in at least in our case, we have got the Ramadan and, what you call, you know, the school holidays and everything. Quarter One is always subdued, and Quarter Two, with the rains and everything coming in, multi-specialty does really well. But if you look at our growth, from the across the specialties, right, multi-specialty grew at 24%. Cardiac sciences has grown by 20%. Then the neurosciences has grown by 23%. Our oncology has grown by almost 27%. And even our pediatric care across the board has grown by 20%.
So you can see it's a mix of multi-specialty and the super specialty, which has grown. And now, whether that 24% is sustainable? Yes, it is sustainable. Because we are talking about only 24, not like I want to achieve just yet 30, but 24%, again, as I called out in the initial stage, a majority of it has come from the material cost. And material cost is one of the lowest today because we're able to drive a good compliance, you know, across the board, very good support from the business units, and that is able to leverage it to the restricted bands, and that has really further helped us to, you know, getting, you know, negotiating good procurement more.
So keeping all these benefits, I think, we got still expansion happen to in the further efficiency material cost of another 100 basis points. Manpower is a major thing because when you, you saw the CapEx slide, wherein on the bed addition, maybe almost more than 50% is coming from the brownfield addition. So these brownfield addition helps us in leveraging the manpower cost. That's a very big way, because today, we are ramped up in Kerala, very specifically, very quick, and you can't rationalize the or bring efficiency when you're ramping up in a very quick manner. But with brownfield expansion, you as I called out, you don't have to hire a leadership team, you don't have to hire the admin people.
You only have to need to ensure that the current existing capacity which utilize and wherever required, add the, bedside, you know, staff. That's it. So with that, happening, margin expansion is going to happen because I can see still another 200 or 300 basis points coming from the manpower cost. And as I said, in that over it, already we have done 100 basis points. And again, further, there is another, I would say, 50 to 100 basis points coming across. But yes, all these things will take time, right? That's how you can see in the last, few quarters how the efficiency slowly is kicking in. But yes, quarter two as a revenue jump was very quick, but quarterly, quarter four also, you don't expect anything, you know, major downfall or, you know, upside because festivals are there.
But we've got a very strong occupancy running, even in October. We expect the performance of quarter two to continue.
Thank you, Sunil. And last one, Alisha, just to follow up from Alankar Garude's question. The discussions you alluded to with private equity investors and then various platforms. Can you clarify if those discussions are still ongoing, or have we decided to focus on our organic growth plans for now?
Harit, discussions are still ongoing. I think I just don't have anything to disclose per se. We are continuing to explore the various options. The goal is to kind of scale up, so we're trying to see what's the best way for us to do that.
All right. Got it. Thanks, Alisha. That's all from my side.
Thanks, Harith.
Thanks, Harith. The next question is from Mr. Amrish. Mr. Amrish, can you please introduce yourself and ask the question?
Hi, I'm Amrish Kakar, individual investor. My first question is on Telangana again, on Hyderabad. So is it reasonable to assume that this hospital's margins and ARPOBs will be closer to Karnataka than it is to the Telangana Hyderabad cluster? So effectively, over a longer three, four-year period, we might even see the margins further enhanced compared to what Sunil mentioned.
Amrish, thanks for the question. If you're referring to our Aster Prime Hospital in Telangana?
No. So the new children, so where, where-
Okay.
Yeah, yeah. So the margins-
Again, see, that's again, inherently a very high margin business, right? You're using the peer groups to do more than 30% margin, right?
Yeah.
So it's very clearly a 30% margin business with, again, profile mix is very good. You got 50% cash, 50% TPA. And if you have a very good state-of-the-art NICU, PICU, IVF and a birthing center, we expect to have a very good margin, very similar to Bangalore.
And therefore, you'd mentioned that we're heading to 20% plus in the cluster. This will probably enhance that as and when the hospital matures, right?
Yes, because if you look at individually, yes, it should achieve it, but I was giving you guidance of two to three years, wherein hospital-
Okay.
Need to start sometime next year, right? And, with the Andhra cluster put together, I was giving that guidance.
Okay, okay. Thank you. Second one is just a minor comment on the O&M. I think we've taken out O&M, the asset-light O&M revenues and margins. I understand it's a very small part of our business. Is that sort of an indication we should take that this is probably not the big, big thing we want to swing for in the next few years? We've got bigger opportunities.
Let me put across on the numbers, then I can ask Ramesh or someone to come in. See, with respect to O&M business, we, for the quarter, for the, you know, quarter two, we achieved a business of around INR 40 crores and EBITDA margin of around 7.7%. So still our Tirupati hospital and PMF Kollam is a strong suit. They're really doing well. And our Madegowda Hospital in Mandya and Aster Mother Hospital in Areekode, almost near to breakeven, right? So they're not bleeding, but overall, we are at a 7.7% margin. And with respect to expansion, we also previously called out, considering the ARPOBs are lower and EBITDA margins will be lower, ROCEs are better, right? Double digits ROCE.
We continue, want to, stabilize this one before we look at expanding further. Ramesh, you want to add anything on the O&M asset light?
Yeah, yeah, rightly said. There are, so, there are. The good thing is, it's an asset-light model, and as Sunil has mentioned, if you really look at, I mean, assets are yet to, you know, go into the full throttle and the RPOP is slightly lower. A few challenges are there being a Tier two or Tier three city. Usually the challenges are retaining the, the clinicians, and then making them, perform. So high-end, high-end work, clinical work would not happen there. So it will take its time to really stabilize and then, show a very good growth. So we are just looking at the model now. Slowly, a few of them have started performing and, some of them are, it depends on the geography.
So, we are yet to decide on how the model would be taken off. But still we would be exploring, because that's a lot of opportunity happening in Tier two and Tier three cities.
... Thank you. Thank you, and, all the best.
Thanks, Amrish. So we have next person in line, Mr. Krishnendu again, who has joined back the queue. Krishnendu? You can unmute yourself and ask the question if you have any.
Yeah, yeah, just thanks. Just a clarification just to the numbers. So, we are adding another 630 beds, or spot beds next year, 639 beds. They're all on lease. So for FY 2026, what would be the increase in lease amount, ROU, which will be added? And opposed that, do you think that the addition to the ROU will go down? That's the first question. And if you could just-
Uh, see-
Sorry, go ahead.
Yes, go ahead. Continue, please.
The second question was, could you give a sense of what would be the, what you call, revenue per bed for government hospitals in the South Zone? What kind of... This is just from my knowledge.
Yeah. So with respect to your first question on the FY26, right, yes, 613 beds we are adding, that's specifically coming from the Kasaragod, which is leased. But in MIMS Kasaragod, we have not leased the warm shell, we have leased the land.
Okay.
That land is leased for almost sixty years from, right?
Yeah.
So you don't expect any major rental cost at all, because we are doing the complete building there. So it's only the rental what you're paying for the land. So you can expect a very low hit from the rent point of view. Calicut, again, it's a small capacity of 70 beds we are adding. Again, you don't expect any major amount coming in. But yes, women and children care, see, when we stabilize, usually, at a stabilized level, when you reach a very good optimum capacity utilization and a good revenue, you can expect a, you know, revenue share or... Year revenue share is not there, but lease amount or rental amount should be somewhere between 4%-5%, right?
But, you know, if you want a number directly, you're talking about, you know, you can take approximately INR 50 per sq ft, for three lakh sq ft, rental and, take an inflation for every three years at, 12%-15%. That will give you the number.
That's the cash flow. But how much could I add to the ROU, say, in effect?
ROU, almost, INR 250 crores, INR 250-INR 275 crores is what we added.
That's a good add.
That's already added, Krishnendu.
Yeah.
If you look at thirty-first March to thirtieth September, our lease level ROU has increased by double rate, from seven hundred-
Yeah
two thousand three hundred odd. So it has got two numbers. One is 250-300 crores coming from the Women and Children Hospital, Hyderabad. And second one is from the Aster CMI expansion from Bangalore.
So, and on top of that, we add another 250 next year?
No, there will be no, again, addition, because whatever is signed off, you're talking about.
Okay.
See, we are at 1,800-1,900 beds. We are giving a pipeline. Whatever is already agreement signed off, that's already kicks in into the balance sheet immediately.
Right.
There is no addition coming in unless we sign off a new agreement.
Okay. So for FY 26 or 27 onwards, the ROU just depreciates, that's it, and interest comes out from that. Last question about that, on top of the government hospitals in South and all, how are the numbers look like?
We do very less, right? We do only,
No, no, no, not about us. Not, not, not about us. I mean, just for government, which is such a large portion of the healthcare, the hospital, government hospitals, what is the output? Just, just from my knowledge, it's nothing. So just want to know. Any idea on that?
You're referring-
But maybe for us.
Maybe, I don't know.
Not-
Twenty thousand, maybe.
Okay.
Nothing more than that.
Sure, sure. Thanks.
Thanks, Krishnendu. If anyone of other attendees would like to ask a question, please pick up and raise your hands. Okay, so we have one more, Mr. Naman, could you please unmute yourself and ask the question?
Yeah, hi, sir, this is Naman from Nine Rivers Capital. Just two small questions. First, in the pledge, which we had alluded to the last quarter, and it would be gone by the end of the year. So any update on that? And second, on the tax rate, on the quarterly basis, the tax rate seems abnormally high. So what is the normalized tax rate we can expect for the full year or the next few years?
Naman, I didn't get the first question, but the second question with respect to effective tax rate, I called out for another question, which we got during the call. Till last year, we were able to get the benefit of the old regime and the carry forward losses. So that has been exhausted. So during that time, you know, we used to pay an effective rate of somewhere between 12%-14%. Considering this year, that whole, you know, carry forward loss has been completely exhausted, we need to end up paying the tax. That's where you can see it's jumped to almost 29%-30%, but future, you can look at somewhere between 25%-30% will be our effective rate.
Got it. And first question was on the pledge, which we have on our shareholding. So it seems around 90% of our shareholding is held by the promoters. So, on the last call, we had alluded that it would be gone by the end of the year. So is there any update on that?
Yeah. So, Naman, I think we mentioned last time also, it was just a high pledge because of a technical reasons where the company, I mean, where the promoter shareholding is based out of. It's sort of reduced significantly now. It was a bridge loan during the time of the transaction. We are refinancing it right now, so by the end of the year, like I said, we should this should be you know restructured.
Got it. Thank you.
Thank you.
Dear all, due to the time constraints, I would like to mention that we will conclude our earnings call for this quarter for Aster DM Healthcare now. I thank the management and all the attendees for joining us today. If you have any further questions or queries, please get in touch with us. Thank you.
Thank you.
Thank you. Bye-bye.
Thank you.