I welcome you to Aster DM Healthcare's earnings conference call for the second quarter of financial year 2023. The company declared the Q2 FY 2023 results last evening. I hope you have got a chance to review them along with the other materials which are posted on the stock exchanges and the company website. Today, to discuss the quarterly business performance and the future business outlook, we have the senior management team at Aster DM Healthcare available with us. It includes Dr. Azad Moopen, our Chairman and Managing Director. Ms. Alisha Moopen, Deputy Managing Director. Mr. T.J. Wilson, Non-Executive Director. Mr. Sreenath Reddy, Group CFO. Mr. Amitabh Johri, CFO for GCC. Mr. Sunil Kumar, Head of Finance for India. I would like to inform everyone about how we will conduct this call. All external attendees will be in the 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 the Zoom application at the bottom of the window. We'll call out your name, after which your line will be unmuted and you'll be able to ask your question. We request you to please limit your questions to two, but not more than three per participants at a time. Post the completion of your query being answered, you will lower your hand. I would also like to inform that certain statements that may be discussed in this meeting that are not historical facts and might be forward-looking statements.
Such forward-looking statements are subject to certain risks and uncertainties like government actions, local political or economic developments, technology risks, and many other factors that could cause actual results to differ materially from these contemplated by the relevant forward-looking statements. 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 of such circumstances. With this, I will ask our Chairman, Dr. Azad Moopen, to start opening remarks. Over to you, sir.
Thank you, Bala. Thank you very much. Good morning, everyone. Thank you all for joining us for our earnings call for the second quarter of financial year 2022-2023. I hope all is well with you and your families. The world is moving out of the dark clouds of COVID and business are slowly limping back to normalcy. However, with the very high inflation in many countries and the threat of recession in the horizon, central banks in many countries have been steadily increasing the interest rates. This has led to the tepid economic activity in the near future in most countries, resulting in lower growth forecasts by IMF across the globe. Couple of exceptions are India and U.A.E.
India predicted growth rate in the current financial year is 6.8% and that of U.A.E. Is 5.1%, which are relatively better when compared to major global economies. This will be one of the highest growth rates of U.A.E. compared to last several years, buoyed by the high oil prices and booming real estate sector. Given our geographical spread in India and GCC, we expect Aster to have a robust business performance in the coming quarters. Let me now discuss briefly the financial performance of Aster for the quarter two of financial year 2023. At a consolidated level, we posted a revenue of INR 2,816 crore, which is an increase of 12% when compared with the same period last financial year.
EBITDA was INR 319 crore when compared to INR 343 crore in quarter two financial year 2022. EBITDA growth was impacted due to the losses from commissioning of the new hospitals in GCC and India. Adjusted for this loss, EBITDA was INR 342 crore. Profit after tax post NCI stands at INR 46 crore when compared to INR 107 crore in financial year quarter two financial year 2022. Profit after tax post NCI, excluding impact of commissioning of new hospital, is INR 88 crore. With respect to the GCC business, revenue grew 19% year-over-year to INR 2,059 crore with EBITDA at INR 192 crore as compared to INR 241 crore in the same period last financial year.
The Aster India business continues to grow well, with revenue growing 24% to INR 757 crore and EBITDA increasing by 24% to INR 127 crore. Profit after tax post NCI stood at INR 50 crore as compared to INR 23 crore in quarter two financial year 2022, a growth of 119% in India. I would like to add few things about the EBITDA in GCC. Unlike in other businesses, the commissioning of hospitals is a time-consuming process in GCC, especially U.A.E., due to the stringent inspection as well as insurance empanelment. On an average, it takes six to eight months after building completion and equipment installation to get the authority approvals and empaneling of different insurance companies. The insurance companies insist on doctors and staff being onboarded for giving empanelment. This adds to huge cost which can't be capitalized.
This has led to the significant additional losses as there is salary and rental cost without any revenue. Apart from this, also in the GCC, we have, the quarter, the population usually come back after their holidays and during this period. This year, the large number of people due to the COVID earlier years have not come back, and many of them are just coming back after the second quarter only. This is something which we thought has really impacted the overall performance in GCC. Moving to the operational updates for the quarter. In India, Aster Hospitals Bangalore has started the Aster International Institute of Oncology with one of the very well-known onco and robotic surgeon, Dr. Somashekhar, and his team joining Aster.
A newly launched institute under his dynamic leadership will be the center of excellence for cancer care and robotic surgery, offering the entire range of oncology related services backed by experienced team of doctors, cutting-edge technologies and latest innovations in cancer care. We entered into a hospital operations and management agreement, O&M, with the Narayanadri Hospitals and Research Institute Private Limited, NHRI, Tirupati, Andhra Pradesh, recently. It's a 150-bed multi-specialty hospital situated in Tirupati, Andhra Pradesh. With this addition, we have added 290 beds on O&M as satellite model in the current financial year. We expect to add another two to three hospitals of around 300 beds-400 beds together before the end of the current financial year. This is a low margin business.
While it is so, it's also very low CapEx and shall help us increase our ROCE. It will also help to increase the referrals of the cases to our flagship hospitals. We have entered into a share purchase agreement to acquire the remaining 22.69% in Sri Sainatha multi-speciality hospital. Pursuant to this acquisition, the 158-bed hospital in Hyderabad has now become wholly owned by the company. We have also decided to acquire more stake in very profitable Malabar Institute of Medical Sciences, which operates four hospitals in North Kerala with a bed capacity of 1,449.
Aster already owns 74.14% stake in MIMS but have decided to acquire 5% stake at INR 100 per share, spending INR 50 crore for this, which will reduce number of small shareholders and increase the holding in this very profitable subsidiary with major expansion plans in pipeline. Coming to the Aster Pharmacy and branded retail stores operated by Alfaone Retail Pharmacies Private Limited, ARPPL, we had recently crossed the milestone of opening our 200th store in India. In our endeavor to bring omnichannel healthcare delivery to the doorsteps of the people, we are adding more pharmacies to our network of hospitals, clinics and online consultation platform. As of 30th September 2022, there are 214 pharmacies, 96 in Karnataka, 65 in Kerala and 53 in Telangana.
Aster Labs has its presence in Karnataka, Kerala, Maharashtra, Tamil Nadu and Andhra Pradesh and Telangana. As of 30th September 2022, there are two referral labs, 17 satellite labs and 140 patient experience centers. There has been a change in the overall structure of the labs business, where earlier it was being managed completely centrally. Now we have decided that this will be managed by the different clusters where the labs are situated for more efficiency. On the CSR front, Aster DM Healthcare completed the handover of 255 Aster homes to the victims of 2018 Kerala floods who lost everything to the devastating calamity. This was a project by Aster volunteers with support from philanthropists, partners and our employees of Aster.
In the GCC region, we have inaugurated 101-bed Aster Hospital, Sharjah in October 2022. The soft launch of which was done in May 2022. The hospital has a team of experienced doctors with proven clinical excellence and support staff to offer exceptional patient care and medical outcomes. The newest facility has all core specialties like obstetrics, gynecology, orthopedics, neurology, cardiology, pediatrics, general surgery and urology. The plan is to add many tertiary care treatments to the bouquet of services in future. In Oman, we had soft launch of 181-bedded multi-specialty hospital, Aster Royal Hospital in Muscat, located next to the Aster Al Raffah Hospital. This is being considered as the best private hospital in Oman and is already attracting a lot of attention.
Some of the special features of the new hospital include a dedicated floor for mother and child, cath- lab with interventional radiology, advanced tertiary treatment departments of gastroenterology, urology, orthopedics, obstetrics and a stroke unit. Status of restructuring. Just want to give you an update on this, the status of the restructuring of the company. The investment bankers have informed that they are in receipt of the interest and indicative terms from various potential investors and are in the process of evaluating the same. Upon submission of the evaluation of investment bankers, the board shall review the option for segregating the company business in the Gulf Cooperation Council region from the business in India. Thank you very much. Now I request, Deputy Managing Director, Alisha Moopen, to elaborate more on the GCC business and digital transformation and other strategic initiatives undertaken by Aster. Thank you very much.
Thank you, Chairman. Good morning, everyone. We are past the COVID travel restrictions, which is good news. Having said that, this has impacted the GCC in somewhat a couple of negative quarters. Quarter two saw some unprecedented travel out of the GCC region, given the first vacation time post the COVID restrictions, which has been lifted off. The impact also from the reduction of PCR revenue was very visible on the financial results. Additionally, the quarter also witnessed the delays in the insurance empanelment, as Chairman mentioned, for two of its new hospital, which is both Sharjah and the Aster Royal Hospital, Oman. This has delayed the ability of the hospital to start commercial operations fully. With regards to the GCC financial performance for Q2 FY 2023, the hospital revenues during the quarter has increased by 8% year-on-year.
The retail business is on increase of revenue by 34%, while the core revenue of the clinics business, which is excluding the PCR, saw an increase of 14%. The GCC business EBITDA, excluding operational losses from the new hospitals commissioned during this period, is INR 212 crore. Overall, the GCC revenue grew by 9% over last year, and EBITDA saw a reduction of 20% over last year. However, the core GCC business, excluding COVID testing, grew at a healthy rate of 21%. We do see better forecasted growth rates for U.A.E. in the coming months. October and then November so far has been very reflective of that. On a few of the business updates, we continue to feel very positive about the Saudi market. Our existing hospital has been showing a very steady and consistent performance for the last three quarters.
Aster DM Healthcare, we have launched our pharmacy operations in Saudi Arabia through a tie-up with Al Hokair Holding Group. The partners will create a network of 250+ Aster pharmacies in the Kingdom in the next five years. The partnership plans to open in high street locations, communities, and malls, beginning with Riyadh. As phase two, the aim is to set up a pharmaceutical manufacturing as well in the kingdom. We have re-christened our digital app as myAster from OneAster. This is symbolic of our affinity to our patient base. Our digital initiatives have set a new benchmark for digital healthcare delivery in the U.A.E. Following key tactical edits based on valuable consumer feedback, we have now released the full-fledged teleconsultation as well as e-pharmacy platform under the new myAster brand.
myAster is now ranked number two across the App Store and Play Store in the U.A.E. in the free medical apps category. In Q2, with non-prescription orders practically doubling month-on-month, we saw a 74% increase in patient registrations on the app, a 130% increase in the virtual consults, and 90% increase in physical appointments which are booked through the app. myAster continues to grow exponentially. It is currently scaling at 86,000 app downloads. We have 97,000 monthly active users. We've had more than 4,000 non-prescription and 700+ prescription orders per month, 3,000+ appointments booked, and 300 teleconsults per month. The pharmacy home delivery business, which pulls easily convertible population into their digital pharmacy orders, continues to scale at around AED 10 million per month in revenue.
We are actively promoting the movement of these customers over to the myAster platform in order to be able to serve them better with the real-time tracking technologies as well as improve their purchase frequency and increase the overall lifetime value. It's still very early days in the growth curve, given that we are yet to scale performance marketing. We continue to work agile to enable quick releases, incorporating engagement drivers for the U.A.E. while working to adapt the tech stack to suit Indian market and business. In line with Dubai's vision to become the world's metaverse hub, Medcare Women & Children Hospital, we partnered with BIOMETAVERSE, and we officially set up its virtual existence by going live on October 11th with the first metaverse hospital, which really gives a glimpse into the real-life experience at Medcare Women & Children.
The idea is to use it for medical tourism, given the potential patients, giving them a chance to have an immersive visual experience of the hospital facility. Medcare also announced its expansion into the premium wellness and beauty care segment with the acquisition of 60% of the shares in Skin111 Clinics. Skin111 Clinics is an award-winning premium chain of aesthetic and wellness centers. This acquisition will accelerate Medcare's plan to emerge as an international hub for beauty, aesthetic, wellness, and adding to its existing network in the U.A.E. With this agreement, Skin111's unique offering will be incorporated as well into the Medcare service portfolio, which will give us an edge in the aesthetic and wellness segment, which is a key driver in U.A.E.'s growing tourism sector. I will now request the Group CFO, Sreenath Reddy, to take us through the financial and segmental performance for the quarter. Thanks, everyone.
Thank you, Alisha. Good morning, everyone. On a consolidated basis, our revenue from operations for the quarter is INR 2,816 crore, an increase of 12% year-over-year. Consolidated EBITDA for the quarter was INR 319 crore. Excluding the losses of new hospitals not present in FY 2022 Q2, namely Aster Hospital Sharjah, Aster Hospital, Sonapur, Aster Royal Hospital at Muscat, and Aster Mother Hospital, Areekode, the EBITDA stands at INR 342 crore as against INR 343 crore during the same period last financial year. Consolidated PAT post NCI is at INR 46 crore as compared to INR 107 crore in Q2 FY 2022. Excluding losses from new hospitals, PAT post NCI stands at INR 88 crore.
Revenue from our GCC operations was INR 2,059 crore, an increase of 9% year-on-year, whereas the revenue growth excluding COVID testing was 21% year-on-year. EBITDA from GCC operations stands at INR 192 crore. Excluding losses of new hospitals in GCC, the EBITDA stands at INR 212 crore as against INR 241 crore in Q2 FY 2022. The decrease is mainly due to drastic reduction of high margin COVID testing, which affected our business, especially in our clinic segment. Contribution of COVID business has reduced to 2% of our GCC business as against 12% in the same period last year. India revenues have increased to INR 757 crore, up 24% year-on-year from INR 609 crore in Q2 FY 2022.
The main contributor for this growth is the increased occupancy, which stands at 72% in Q2 FY 2023, and the resulting 28% growth in inpatient volume. EBITDA from India operations was INR 127 crore compared to INR 102 crore during the same period last financial year. Coming to our yearly performance, the revenue from operations stood at INR 5,478 crore, a growth of 12% compared to same period last financial year. EBITDA was at INR 611 crore compared to INR 624 crore in FY 2022 H1. Excluding losses from new hospitals, the EBITDA was INR 654 crore, which is a growth of 5%. PAT post NCI was INR 115 crore compared to INR 151 crore in FY 2022 H1.
Excluding losses from new hospitals and one-time other income, PAT stood at INR 165 crore, which is a 9% growth. An important point to mention is that we are now going back to the pre-COVID scenario wherein the EBITDA for the first half of the year as per historical trends will be in the range of 35%-40% of the full year number, and H2 in the range of 60%-65%. Coming to the segmental performance for the quarter, GCC hospital revenue was at INR 950 crore, an increase of 8% year-on-year, and the EBITDA stands at INR 132 crore compared to INR 147 crore in FY22 Q2. Excluding losses from new hospitals, the hospital segment has an EBITDA of INR 152 crore.
The EBITDA margin adjusted for the losses from new hospitals was 16.2%. GCC Clinics revenue stands at INR 528 crore, a decrease of 11% year-on-year. As mentioned earlier, the decrease is mainly due to drastic reduction of COVID testing business. Contribution of COVID testing to clinics business has reduced to around 6%, as against 26% last year same period. Normalized for the COVID testing, the core business of the clinic segment grew by a healthy rate of 14%. EBITDA for GPC Clinic segment stands at INR 66 crore at 12.4% margin. GCC Pharmacies revenue increased 34% year-on-year from INR 520 - INR 695 crore. EBITDA increased from INR 57- INR 66 crore, an increase of 14%. EBITDA margin for this segment is at 9.4%.
India Hospitals and Clinic segment has grown to INR 723 crore when compared to INR 601 crore, an increase of 20% year-on-year. EBITDA has increased from INR 114 crore in Q2 FY 2022 to INR 142 crore in Q2 FY 2023, an increase of 24% year-on-year. We expect to see this positive trend to continue in the coming quarters. Consolidated net debt as at 30th September 2022 stands at INR 2,045 crore compared to INR 1,806 crore as at 31st March 2022. India net debt stands at INR 390 crore compared to INR 319 crore as at 31st March 2022.
GCC net debt stands at $203 million from $197 million as at 31 March 2022. Capital expenditure during the six months was INR 349 crore. On that note, I conclude my remarks. We would be happy to answer any questions that you may have. I now request Mr. Bala to open the Q&A session.
Thanks, Sreenath. We have now opened the question and answer session. Any of you who would like to ask a question, please press the raise hand icon, and we will open up your line queue in the order. Please go ahead. I think the first question is from Mr. Amrish Kacker. Please go ahead, Mr. Amrish.
Thank you for the opportunity and, congratulations on some very good progress, in India. I had one question on GCC and one on India. GCC, just to make sure I've understood the financials for Q2. I'm looking more from a steady state going forward. I understand the seasonality impact, and I understand the COVID issue. We've still got a PAT, a negative PAT. I think you've explained that there is perhaps an INR 19 crore impact just from the new hospital. I think this part is clear. Is there from steady state then, you know, Q2 going forward, generally we should not be seeing negative PAT? Is that reasonable? And is there any impact on the Clinic as well in GCC in Q2? Because the segment results show about, you know, just a INR 3 crore total for all clinics. That's the first question.
Yes. On the first part of the question, definitely, quarter three and quarter four, especially in the GCC, is the peak period. You will not find that negative PAT in quarter three and quarter four. In terms of clinics, during the quarter, we had that impact, right? Because mainly due to COVID, the testing business going down. That has significantly impacted the profitability of the clinic segment as well as the overall GCC business. Amitabh, would you like to add?
Thank you, Sreenath. If you look at the clinics segment of ours, the profitability for the same quarter last year, which is Q2 FY 2022, was 16.6%. The profitability for this quarter is around 12.4%. That's largely arising from the fact that if you were to talk of the PCR revenue, there was almost 26% of revenue coming from PCR in the last quarter, which was a high margin business. That has pretty much come down to 2%, which has led to a 20% reduction in the overall revenue base from 11% reduction year-on-year on the revenue base in the clinic side.
Mm-hmm.
That is adversely impacting the margins of the business.
Mm-hmm.
However, it is worthwhile to say that if you were to remove the PCR impact, the clinics business is showing a year-on-year growth of almost 14%. That is the core business coming back.
Okay. Thank you. Just as a very quick follow-up. I was looking also, you know, if we were to look out to FY 2024 Q2, then we seem to have the worst of a couple of things this year. One is the hospital, the new Sharjah Hospital, plus, perhaps a more active holiday season than we would have otherwise seen. Actually, we should not expect negative PAT in GCC from FY 2024 onwards Q2 FY 2024.
Yeah.
Is that a reasonable?
Yeah, you are right.
That's reasonable, right?
Yes, yes.
Thank you. Second question is on the India strategy. There's a lot of moving parts, and there's a lot of progress, so it's very interesting to see, especially on the pharmacies and the PEC side. I'm just trying to understand a little bit more on our O&M strategy. I think Chairman has already explained a little bit on the financial side, which is. This is regarding of course, our Tirupati acquisition. That, and we'll probably do two or three more partnerships before the year end. These will be likely slightly lower margin, but of course, they will not have the denominator, so ROCE should improve.
Just to understand a little bit strategically, what is it that the O&Ms are doing for our business? Is this a way for us to get bed space faster? Is it a way for us to be getting more specialization? Is it a way for us to consolidate some of the fragmentation in the market? If you could just qualitatively explain a little bit about on a longer term basis, what role does O&M play in our strategy, in the hospital side in India.
Chairman, you're on mute.
Yeah. Thank you very much, Amrish. I just wanted to highlight this was a strategy which we adopted, decided to adopt last year because we thought that there are multiple benefits by this. One, most importantly, we extend our services to people who are in the periphery rather than the main cities. This we didn't want to construct and invest into that, which is going to be very, very capital intensive. We thought that what is the best way in which we can do that, and we thought that the O&M will be the best way to do that. There are multiple benefits due to this. One, many of our hospitals, for example, in Kerala, we have the issue of almost full capacity in some of the hospitals.
This helps in having some of these patients who are not requiring our treatment to be kept in such places or even after discharge, they can be looked after. A little long-term care or medium-term care that can be done in the hospital so that the average, you know, ALOS in the hospital comes down, which will help a lot in increasing our ARPOB. Now the other important thing is the referrals which come from these hospitals. What we have seen is that when we manage such hospitals, while some of these cases can be managed, many of these will have to be referred to the hospitals. This acts like a hub-and-spoke, where the hospitals in which we are managing the case naturally will come to our own hospitals. That's another major benefit that we are finding.
For us, the advantage is that even managing something like a cath- lab, for example, which is required even 50 km away from a main city, we can have a doctor who is attached to our cardiology department going and doing that and coming back after one year, two year and doing in the main hospital. For us, it's easier to do that. We are getting people who can do the emergency medicine or in cardiology or neurology, wherever is required. It's much more easier when compared to other people who are just running it in the periphery. Apart from that, of course, the financial benefit, the investment, as Sunil will tell you, we are now, the hospitals where we have invested, it's very minuscule investment which has come in.
It is more of our knowledge which has come in, and that helps us to get a top line and bottom line. Like what I said, our EBITDA, we'll have to consider this separately because it will go down, but there'll be a significant increase in the ROCE. Regarding the investment, our India CFO, Sunil, will highlight. Sunil.
Thank you, Chairman. Thank you, Amrish, for your question. With respect to investments, we work on two different things. One is that we give our hospitals a refundable security deposit. You know, that ranges between, you know, somewhere between INR 5-INR 10 crore. This, again, this comes back because it's a hospital refundable. Second is from the investment point of view, because it's existing hospital and which is a running hospital, we look at investments less than INR 5 crore, you know. That means to say we are looking at an investment of INR 5-INR 10 lakh per bed, not more than that. We enter into a long-term contract here again between, you know, 15-20 years. It's less lock-in, you know, compared to the usual O&M what we enter into the metros. You know, these are the moving parts on the financial bits. Thank you.
Thank you. Very clear. If I may, just a very short follow-up to this. Just from a cash flow perspective, we should, you know, the INR 5 -INR 10 crore is an outflow. Then, I'm not comparing to a brownfield or a greenfield, but just from a cash flow for an O&M, we have a INR 5-INR 10 crore outflow up front, and then slowly we will make this back. Is that reasonable? Is that a reasonable understanding?
That's right, Amrish.
Thank you. Perfect. Thanks a lot and all the best to the team. Thank you very much.
Thank you. Thank you.
Thank you, Ambrish. The next question is from Shyam Srinivasan. Shyam, please go ahead.
Please go ahead, Shyam.
Good morning, and thank you for taking my question. Just the first one on the GCC hospitals, constant currency revenue growth of 0%. You know, I think you alluded to some of the things, but I'm just trying to get the qualitative color. Our beds are up, I think 14%, 15%, operational beds. Occupied beds are up 10%. Our visits are probably up 3% or 4%, in-patient visits. ARPOB is up. When I do all of that, why still we are having 0% constant currency growth?
Amitabh, you would like to answer that?
Sure, Chairman. I could do that. You know, thank you very much for your question, Shyam. Effectively, what we are looking at is this is quarter two, where we have increased the beds, but these are new hospitals, first of all. They are yet to go through the occupancy. If you look at the new hospital occupancy, we are looking at almost 3% kind of an occupancy on the new hospitals. Also, the fact is that the old hospitals, which are more than three years, that is where we are seeing higher occupancy up in the range of 60%-65%. Having said that, while the patient base has increased and everything, all of the factors are increasing, it's a factor of payables that has increased in this period.
Secondly, it's also a period where the patients, given the vacation period, have reduced the elective surgeries. If we were to look at our July and August specific months, the revenue for hospitals were fairly down as compared to what it was previous year, given the fact that the electives have gone down. It's only in the month of September, as the vacation period started to recede, that we saw the revenue was coming up, and as a result, which is why you see a little muted growth on the revenue side on this.
Got it. Amitabh, just following up here. When I look at, say, October or November, have you seen things reverse, or move more towards surgical / elective procedures?
I think that's a fair assessment of yours. As we have moved towards October and November, we are seeing more footfalls, we're seeing more elective procedures being conducted, and a reflection of that is there in the revenue side.
Got it. Helpful. My second question is on the India business and specifically, I think, the Andhra, Telangana cluster from a margin outlook perspective. It still remains lower. I think Q1 we had it lower, but Q2, no signs of improvement. If you can outline what's happening there.
Yeah. Sunil, you want to take that question, Sunil?
Sure, Chairman. Thank you. Thanks, Shyam, for the question. See, in Andhra, Telangana cluster from the occupancy point of view, right? From the Q1, we were somewhere between 44%-48%, you know, in the Q1. That has improved to almost 55%-56% in the Q2. That is one bit of in the moving part. Second is from the EBITDA margin, right? I think Q1, it was around 7% as a cluster, and it has moved to around 8.2%, you know, in the Q2. Margin has moved. What has happened is that this margin moved actually more than double digits, right? I'm talking about 12%-13% only in the end of September.
You will start seeing a jumping into a double-digit margin, you know, somewhere in the teens, in the Q3. Because one of the important part which we discussed in the last Analyst Call was that whether the margins and the occupancy which is lower, which will improve. We've seen a good amount of improvement happened in the August and September. We think October already, you know, we are doing really well. I think that, you know, we will, as I said, we'll move to a double-digit margins in Q3. That's very much possible .
Got it. Just the last couple of questions. One on India utilizations. So where are we? Is there any guidance that you're giving either for the second half or the full year in terms of utilization? Because clearly things have improved. I think Chairman mentioned about high occupancy in Kerala. So if you can just help us understand how the second half could likely pan out on a India hospital utilization perspective.
Yeah. Sure. Yeah.
Uh.
Yeah. Sunil?
Yes, Chairman. Thank you. Shyam, on the occupancy, we were at 63% in the Q1. Q1, we all know, you know, it's the quarter where the starting of the financial year, it's always the lowest. As expected, Q2 is always very good in India, and it has moved to almost 72% occupancy, right? Now Q3 is where we'll have festivals, because already you know that in October we have two festivals coming in again, December end is there. January, February, March also, it's a similar thing. We don't see a reduction in the occupancy from 70% to back to 60s, what we saw in the quarter one. It's a fair assessment that it'll be around 70% in the second half. Because October indicates that even with the festivals we are at 70%.
My expectation is that we'll be around 70% in Q3, Q4. Most importantly, we are seeing that Kerala is doing above 80% occupancy. You know, that is expected to continue with the patient flow there. Only movement which I see positively, that's why I said that above 74% even with the festivals is that, Kerala, Karnataka moved from 55% to almost 60% plus occupancy. We see that it's moving further forward. One of the important thing which you noted in the Chairman's speech, I, you know, we have, you know, I had Dr. Somashekhar who was onboarded into Bangalore cluster, and we are expecting oncology to do really well in Q3 and Q4 and going forward. Considering that, it will be upwards of 70%.
Great.
Shyam, I just wanted to add to what Sunil said. We have been looking at how now we can improve our income as well as our profits and all. The focus now is on quality of cases rather than quantity of cases. Because we know that in many places we are reaching that top level of occupancy. Even though we'll have the O&M hospitals and all for offloading a little, we are now trying to see how we can increase the conversion from OP to IP, more of referrals coming in.
As well as the complexity of cases going up, so that the ARPOB goes up in spite of the occupancy not going up. We want to increase the ARPOB and thus the profitability. That's the plan. In many of the places, we are bringing in lot of high-end tertiary, quaternary care, which will definitely increase our revenue as well as our reputation.
Got it. Thank you. Thank you so much, and all the best.
Thank you, Shyam. I think the next question is from Abdulkader Puranwala . Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity. Just one question from my end. When I check your profitability or your EBITDA margins in India, so would it be possible to just provide some color as to how would your India hospital EBITDA margins look like in Kerala versus what you're reporting over your other clusters?
Yeah, Sreenath, do you want to answer that or?
Cluster wise, margins. Sunil?
Yes. Thank you, sir. Mr. Abdul, I think we already put across in the, in this presentation. Overall, hospitals, you know, it's somewhere around in Q2 very specifically, we are at 19%, you know, EBITDA margin. Out of which 20% + is what we see in Kerala cluster. EBITDA at almost 15%-16% in Karnataka. If you go to EBITDA in Karnataka because in, we have a lot of O&M models in Karnataka specifically. If you go to EBITDA level, it will be upwards of 19%, and Andhra cluster is around 8%. I hope that answers your question.
Yes, sir. Secondly, on investments in clinics and the pharmacy business and labs business in India. Where do we see the overall count going on and sort of cash flow, what do we expect? Would these businesses, that is clinics and pharmacies largely break even in FY 2024 or 2025? Any roadmap on that?
Yeah. We have started looking at the rollout happening very well in the last year. We are now trying to consolidate whatever we have rolled out and bring it up to the levels which we want at the top line and bottom line. We hope that the labs with the restructuring which I mentioned, as it is aligned with the individual clusters. We hope that next financial year we will go into a breakeven. Pharmacy may take a bit more. The financial year after that, we'll be able to go into a breakeven. That's our expectation. The labs, it's going in that direction, and we hope that we'll be able to go into a breakeven.
Sure, sir. Thank you so much, and wish you all the best.
Thank you.
The next question is from Vishal Tiwari. Please go ahead, Vishal.
Good morning. Thanks for the opportunity. I had a question regarding the Ind AS 116 impact. What would be the Ind AS 116 impact on EBITDA in Q2 for India and GCC?
In terms of the margins, the India margins in terms of EBITDA hardly will there be any change in terms of the EBITDA as well as the margins, because many of our assets are owned by us. However in the GCC, there will be at least on a consolidated basis around 2.5% difference in terms of the pre-Ind AS 116 and post Ind AS 116.
2.5% is on GCC revenues or India-
On the GCC revenues. Yeah. On India business, it's very negligible.
It used to be around INR 6 crore.
Sorry?
Around INR 6 crore.
Voice is breaking, Amitabh.
Hello.
Your voice is breaking. Yeah.
Better now?
Yeah, yeah, yeah.
I'm saying it used to be around INR 6 crore when you used to report the numbers pre-Ind AS and post Ind AS. Is it closer to that number, or has it changed?
Yeah, it's closer to that number.
Okay.
To India.
Thank you.
Yeah. Yeah.
Thank you, Rishabh. The next question is from Mehul Sheth. Please go ahead, Mehul.
Yeah. Thank you, sir. First question around your India piece, India business, specifically on the hospital side. You've done this 19.6% kind of EBITDA margin with 20% kind of a growth. Q3, even it's a weak seasonality in Q4, there will be pick-up again. What are your overall growth as well as margin guidance for FY 2023, and how you see the margin trajectory beyond FY 2023 with the new hospital kicking in your revenues?
Yeah. We don't usually give any guidance on the margins and all, but what we see is that there has been, like what I said, the occupancy is ramping up. Some of the places it has already gone to that high level. Some of the geographies like Karnataka and all, we have significant, I mean, opportunities for growth. There is occupancy still remaining there. As well as in Andhra Pradesh and in Telangana also we have occupancy which is there.
There'll be a growth definitely coming from that. Regarding the margins also, we hope that with the strategy of having more of, I mean, high-end cases, our margins should go up, is what we feel. A specific number I'm not giving, but there could be some increase in our maybe 100 basis points. There could be a growth, even maybe up to 100 basis points-200 basis points increase in some of the overall, when you look at, we hope that there will be an increase in the overall margins.
Thank you. Sir, one more thing on GCC part of the business. What are your current status like your overall strategy of restructuring to separate out GCC and India piece? Also, some update on the Saudi Arabia-based asset where you are now looking for a minority partner. Is there any progress across all these restructuring plan?
The restructuring I already mentioned. The investment bankers have got expression of interest and that's being assessed and we'll be, I mean, informing the board as well as then the exchange. Regarding this Saudi, we had earlier thought of either selling it completely or going for a minority partner there. The business has significantly done well in the last six months, and it's actually going into a good profitable state.
What we thought is that as there'll be a new partner coming in when the restructuring happens and there'll be some opinion which we'll have to take from them, we shall take a call on that once the restructuring happens rather than doing anything now, because it's a major piece and we don't want this to be taken out or given out at all. The thought is that let us wait for that, see whether and how it happens, and then in that case, we'll do. Regarding the margin improvement, Amitabh, our CFO, GCC will give some color to that.
Thank you, Mr. Chairman. Good morning, Mehul. Mehul, on the business side, as Mr. Chairman called out, at least for the last three quarters, we've seen a steady growth on revenues as well as EBITDA. This business in quarter two of last year was perhaps a business in red. Today we talk of almost 12% EBITDA margin in that business. We've seen that trend line continuing, where a month-on-month revenue increase is happening on that. We are confident about the steady growth of the business. As Mr. Chairman called out, that's reflective of our strategy also that we want to continue invested in that.
Okay . It's one bookkeeping question kind of. This tax rate for this quarter is, it's like on a historically higher level, so what's your guidance on the tax outcome?
Sorry, I didn't hear it clearly. If you can just repeat that number.
Yeah, sure. It's about tax rate or tax outcome for the quarter. It was on a higher side for Q2. It's somewhere in range of around 23% of PBT. Why this tax rate was higher and what's your overall expectations?
It is expected to be in similar lines what is in the present quarter because of the improved performance in India. That is expected to still be somewhere similar.
Basically in the half year, your tax rate is something somewhere in the range of 14%. We can see further increase in the tax rate from you?
Maybe not. 14%, not as a percentage, but what I said is more in absolute terms because the profitability in India, in GCC in the coming quarters will grow. Therefore, maybe taking as a percentage may not be appropriate. Maybe if you look at a percentage, then it could be somewhere in the range of around 7%-8%.
Sure. Thank you, sir. That's all from my side. Thank you.
Thank you, Mehul. The next question is from Naman Bhansali. Please go ahead, Naman.
Hi.
Hi, sir. Congratulations on good numbers on the India business. I wanted to know just one thing. What is your key priorities area other than the India business which you have currently improved? What are the priority areas to focus on in the GCC business? And where do you look at the steady-state basis, the margins of overall GCC verticals of your pharmacies, clinics and hospitals? That is my first question.
The GCC business, as you know, the first and second quarter, we have had, I mean, struggle like all the other players, but it's usually we have seen that it improves in the third and fourth quarter. We definitely will see that the new hospitals which are being started, that goes into a decent occupancy level in the coming six months. That's one of the top priorities because these are fairly large hospitals in Oman as well as in Sharjah. Making those hospitals profitable is the most important single most important focus that we'll have. Of course, we also are now focusing on the pharmacy business.
Pharmacy earlier used to be a business which was focusing on pharma mainly, but non-pharma it was much less. What we have now done is that we have in the new pharmacies that we are opening, we are looking at locations where there could be more of non-pharma sale, where the margins are much better when compared to the pharma. Now, another thing which we are now looking at is that to look at the pharma expansion of the pharma into other geographies, like for example in Saudi Arabia, we already have entered into an agreement to start 250 pharmacies in association with a local, I mean, group there, where this will be rolled out in association with them.
That is another very important area which we are looking at, first in Saudi and if possible in other areas also. Apart from that, we are the most important if you ask me on a basis of business, I mean, in GCC first and then India, it is the digital transformation. See, we are on a digital transformation journey which is started about two years back. We have been as our consultants, and we have a big, I mean, large number of technology staff who have joined, which is one of the reasons our salaries have gone up and our margins to some extent taken a hit in the GCC. But the app is almost ready for the GCC. This is called the myAster app, like what Alisha mentioned.
That being rolled out, we'll be the first in GCC to do that. We hope that we'll be able to tie up the different pieces, the e-pharmacy first, and along with that the hospitals, clinics and our other offerings like home care and all, which will create that ecosystem which nobody else has here. That will produce significant improvement in our overall performance in all the verticals like, you know, the hospitals, clinics and pharmacies. Answering your question, yes, there are multiple pieces. One is a stabilization of the new hospitals which have started, which we are very confident within a short period we'll be able to make it into a break-even stage. Then the pharmacy expansion and also then this app which is being rolled out.
Okay. Yeah, that helps. My second question is relating to a recent number of acquisitions and partnerships you are recently doing. One of the thing you have done is in Bangladesh Pharmacy. Can you talk a little bit about that?
Yeah. In Bangladesh, actually, it is not an acquisition. We are trying out another model where we want to franchise the pharmacies because Aster Pharmacy are very well known and respected in the GCC, especially in U.A.E. We want to try out the franchisee model in other countries. What we are doing in Bangladesh is a franchisee arrangement with one of the good reputed groups there, where we are rolling out some pharmacies there. It is not actually an investment. It's a franchisee model.
Okay. Thank you. That's it on my end.
Thank you.
Thank you, Naman. The next question is from Ankeet Pandya. Please go ahead, Ankeet.
Yeah. Hi. Can I audible?
Yes, Ankeet, your audible. Please go ahead.
Yeah. Thank you for the opportunity. First question on the GCC business. I know that you have already mentioned that at the PAT level, because of the new hospital losses, it has been negative. Is there any other line item or any other reason for the negative EBITDA for the PAT? Or like any change in depreciation or finance costs or anything like that, if you can comment on that.
Amitabh, you would like to answer that?
Sure. Sure, Chairman . Yes, thank you very much for your question, Ankeet. Yes, the impact is largely because of the new hospitals, because if you look at year-on-year comparison for quarter two, there's almost an INR 28 crore increase on account of depreciation and right to use. Almost an INR 12 crore impact is coming from the lease liability and interest that is coming over there because of the asset financing. Overall, that kind of puts a INR 40-odd crore increased impact on the PAT from EBITDA.
By Q3 onwards, you expect that too, the new hospitals to improve and PAT become positive from Q3 onwards?
Ankeet, that's a fair assumption because once the occupancy of the hospital increase, the revenue and the profitability will allow us to absorb this depreciation and the associated costs.
Yeah. To add to what Amitabh said, see these new facilities will be under losses for some time. Like what I said earlier, Q3 and Q4 is the peak period. The rest of the other facilities will contribute significant profits. Therefore, after considering the losses of the new hospital at the net PAT level, it'll be a profit number.
Okay. Fair. On the cash flows. The payables have gone up significantly. They're almost INR 300 crore. Any particular reason for that?
Is this specific to GCC or India?
No, overall on the cash flow statement. From the balance sheet perspective.
INR 300 crore has gone up where?
Under payables , trade payables .
Yeah. These receivables as well as payables will be fluctuating. This is something which is not abnormal. It's in the normal course of business. Those numbers keeps fluctuating.
Okay. Fine. That's from my side. Thank you.
Thank you.
Thank you, Ankeet. The next question is from Harith. Harith, please go ahead and
Yes, sir.
Hi. Good morning. Thanks for the opportunity. On these hospitals under O&M contract that you talked about, will you consolidate the P&L of these hospitals? Or will it be some kind of management fee that you'll be booking?
No, no. It's. We'll all be consolidating all the O&M. We don't look at taking any management fee. We at least in India, we don't do that. Outside India, if it's supposed to be like, for example, if you're looking at, say, Africa or some other country, then maybe we can think of such kind of a model where we take a fee. Within India, it is all we consolidate all the revenues, profits and losses into our company.
Okay. You mentioned these contracts will come at lower margins. Is it because of the revenue share or rent that you will be paying the owners of these assets? Because of the nature of the markets that you expect these hospitals to be at lower margins?
Yeah. It is both. One is the nature of the markets, right? Just so because it is being entire two towns, so naturally, that the affordability is, slightly lower. That is one. Two is that because we are also paying a percentage of the revenue. Both these, factors will reduce the margins.
Any sense that you can give on the revenue share that you have typically in these kind of contracts?
Sunil, would you like to comment that?
Thank you. Yes, Harith. It will be somewhere around 5%-8%, somewhere in between that.
Okay. The second one is on the restructuring that you talked about for the GCC business. Can you help us understand if the promoters will continue to own a significant stake in the GCC business post the restructuring? Or will it be an outright sale of the GCC business? Some color on the structure that you're contemplating will be helpful.
Yes. One thing which I just want to tell is that the restructuring is something which the Board Sub-Committee is taking forward. There are various options, but the preferred option from the promoter side is to remain on both sides. That's what we have given as our preference. We'll be there on both sides is what as promoters we have mentioned.
Okay. This purchase of additional minority stake in the MIMS subsidiary that you talked about, how many assets are there or how many hospitals are there under this subsidiary? Does it include the Kannur Hospital?
Yeah, yeah. This includes all the hospitals in Malabar, which is the Kannur, Calicut. The largest is Calicut, then we have Kottakkal, and now we are also starting one in Kasaragod, where the work has just started. All these hospitals come under. I mean the Mother Hospital, which is one of the, I mean, operations management, which we have taken. All this together comes under the Malabar Institute of Medical Sciences, and that's the one where we are now increasing our stake.
Doctor, can you help me understand the rationale for setting up some of these newer hospitals under this subsidiary instead of under the parent company like the one in Kannur or the one you're now investing in Kasaragod? You know, the reasons for-
Yeah.
Setting this up under the subsidiary.
Yeah. The reason, main reason for this is that MIMS is recognized as a very prominent brand with a lot of confidence by people in the geography. In North Kerala, that's a brand which we started off and which is still having significant recall as well as confidence of the people. That's one of the reasons. Second, MIMS, as a business, has got a good strong balance sheet and it is easy for us to I mean, utilize that funding for this purpose. We thought that that will be good to have under the Aster MIMS I mean, brand rather than just going for Aster.
Understood. Thanks for taking my questions.
Thank you, Harith. The next question is from Niharika Jain. Niharika Jain, please go ahead and ask the question.
Hello. Hi, am I audible?
Yes, Niharika, you're audible.
Yes, yes.
Considering that we are already established players in GCC, I just want to understand the management's thought behind wanting to dilute our ownership there. Why are we even looking to restructure it? What do we plan to do with the funds which we raised from this restructuring?
Okay. This is a question which, we wouldn't like to answer now because there has been a lot of discussion on why we should restructure, and after a lot of thought, the board has decided that we should consider that. board has instructed the subcommittee, which is driving it. Like what I mentioned earlier, as promoters as we would like to be, in GCC as well as in India, we don't want to get into that, why this is being done, not being done. This will come into the public, once the Board Sub-Committee decide and the board approves that. There are reasons, strategic reasons why we are considering that.
We have earlier considered then postponed it, but at this point we are seriously going forward and the investment bankers have been appointed who have got a positive response from people who want to take it. This is a very thought out decision. Why is that? How is it being done? I don't want to now delve on that one.
What are we planning to do with the funds which we are like, raising from it? Has there been a proper planning yet or?
Yeah. That also again, the board has to decide. Now, once they decide to sell, first thing is to decide to sell. Next, they consider that the price which India is getting from that is something which is, I mean, acceptable or beneficial for the listed company. They will get that money. Once they get that money, they'll have to decide how to use that, what is the purpose of that.
Okay, okay. That was it from my side. Thank you.
Thank you.
Thank you, Niharika. If there's anybody else who would like to ask a question, please raise your hand. Okay. Since there are no more questions, this concludes the earnings call for today. I thank you all and the management for joining us today. If you have any further questions or queries, please do get in touch with us. Thank you all.
Thank you, Bala. Thank you very much. Thank you, everyone.
Thank you.