Ladies and gentlemen, good day, and welcome to the Q4 FY 2024 and full year FY 2024 financial results of Fortis Healthcare Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anurag Kalra, Senior Vice President, Investor Relations at Fortis Healthcare Limited. Thank you, and over to you, Mr. Kalra.
Thank you, Michelle. A very good morning and good afternoon, ladies and gentlemen. Welcome to Fortis Healthcare's quarter four FY 24 and FY 24 earnings call. The call is being chaired by Dr. Ashutosh Raghuvanshi, our Managing Director and CEO. With him we have Mr. Vivek Goel, our Chief Financial Officer. From Agilus Diagnostics side, we have Mr. Anand K, the Chief Executive Officer, and Mr. Mangesh Shirodkar, who is the CFO of Agilus Diagnostics. We will begin the session with some comments by Dr. Raghuvanshi on the performance for the quarter of the year, followed by which we will request Mr. Anand to give his comments on the Agilus business, and then we can open the floor for questions and answers. I hand over to Dr. Ashutosh Raghuvanshi now.
Thank you, Anurag. Good morning and good afternoon, everyone. Thank you for taking time to join us on our Q4 financial year 2024 earnings call today. I hope all of you are doing well. Before discussing our Q4 and full financial year results, I'm delighted to announce that our board has recommended a dividend of INR 1 per share, which is equivalent to 10% of the face value, for the second consecutive years, subject to shareholders' approval. This signifies the transformative path the company has embarked on over recent years, leading to the healthy operational and financial performance. This also underscores the strengthening fundamentals of the company and its ongoing potential for growth. Coming to the performance of company, I shall comment on the year as a whole and then move on to Q4.
Our performance in financial year 2024 has been commendable, demonstrating a marked improvement compared to the preceding years, and noticeably, this performance has been led by a strong performance from our hospital business. For the financial year 2024, consolidated revenues for the company stood at INR 6,893 crores, a growth of 9.5% over financial year 2023. Within this, our hospital business revenues have grown 11.3% to INR 5,686 crores, while the diagnostic business revenues have shown a marginal growth of 2% to INR 1,372 crores.
Our consolidated operating EBITDA increased 15.1% to INR 1,268 crores, which translates into a margin of 18.4% in financial year 2024, versus 17.5% in financial year 2023. Within this, the hospital business operating EBITDA margins have increased from 16.9% to 18.6% in financial year 2024, with an EBITDA of INR 1,058 crores. The hospital business EBITDA contributed to the total consolidated EBITDA has increased to 83%, as against 79% in financial year 2023, signifying the profitable growth witnessed in the business. Operating EBITDA margins in the diagnostic business basis gross revenues were at 15.3% versus 17.7% in financial year 2023.
However, after adjusting one-offs related primarily to the rebranding exercise undertaken by Agilus for the brand change and the provisioning related to the business with Directorate General of Health Services, New Delhi, the operating margins improved from 17.7% in financial year 2023 to 19.5% in financial year 2024. At the consolidated reported PAT level for the year, we reported a profit after tax of INR 645 crores for the year, as compared to 633 crores in financial year 2023. On the quarterly performance, we recorded a consolidated top line of INR 1,786 crores in Q4 of financial year 2024, a growth of 8.7%.
The hospital business revenues grew by 10.3% to INR 1,490 crores, while the diagnostic business gross revenues witnessed a marginal growth of 2% to INR 338 crores. Our consolidated operating EBITDA for the quarter was INR 380 crores, reflecting a margin of 21.3% versus 16.5% in Q4 of financial year 2023. The operating EBITDA of the hospital business grew 51% to reach at INR 333 crores, with the margin of 22.4% in Q4 of financial year 2024, versus 16.4% in Q4 of financial year 2023.
The quarter numbers also include certain year-end adjustments related to write-backs of excessive provisions, unclaimed balances, expected credit loss, and other adjustments which are accounted for in the quarter, but pertain to the full year. Operating margins in the diagnostic business were at 14% versus 14.9% in Q4 of financial year 2023. However, after adjusting the one-offs I had mentioned before, the operating margins improved to 15.9% in Q4, from 14.9% in Q4 of financial year 2023. Our consolidated reported profit after tax for the quarter increased 46.9% to INR 203 crore.
On the balance sheet side, we have further reduced our debt by INR 76 crores to INR 264 crores, representing a healthy net debt to EBITDA of 0.17x, as compared to 0.30 as on March 31, 2023. Before I start the operational highlights of the business, I would like to touch upon and share with you the good work that we do in our day-to-day lives. We have, in financial year 2024, undertaken more than 60,000 cardiac procedures, approximately 1,100 transplants, close to 28,000 joint replacements and ortho procedures, 7,800 neuro procedures and spine procedures, 11,000 radiation therapy for our patients. This speaks volumes of our expertise and the confidence that patients have in us.
Fortis facilities across the network continue to perform life-saving procedures and successfully undertake complex surgeries in various medical specialties, all backed by our dedicated clinicians and state-of-the-art medical infrastructure. It is continuing Care for Good motto that is resulting in the performance that you are seeing. Now, some metrics of our hospital business. For financial year 2024, our hospital business had an occupancy of 65%, compared to 67% in financial year 2023. We added 246 beds during the year in our various facilities, and hence our occupied beds have remained largely similar to last year. ARPOB for the hospital business witnessed a growth of 10.8% to INR 2.22 crores in the financial year 2024. This was primarily driven by a substantial uptick in revenue from our key focus specialties, including oncology, cardiac sciences, neurosciences, renal sciences, et cetera.
These specialties collectively experienced a 13% year-on-year growth in financial year 2024, accounting for 62% of the total hospital business revenue, up from 61% in the corresponding previous period. Higher complex surgical volumes in select medical specialties have contributed to the increase in ARPOB. For instance, volume in key procedures such as transplant grew 11%, while in robotic surgeries and radiation therapy, volume growth was in excess of 50%. In addition to the above, our revenue from medical travel grew 12% in financial year 2024 to reach INR 479 crore. Revenue contribution of international business stood at 8% in financial year 2024, similar to financial year 2023. Throughout the year, our commitment to enhancing clinical programs persisted across all facilities, marked by investment in advanced medical infrastructure, emphasizing growth in specialties like oncology, neurosciences, and cardiac sciences.
We expanded our clinical offerings, bolstered by high-quality talent. Noticeably, the year saw the addition of recruited clinicians in various specialties, including nephrology, neurology, cardiac sciences, oncology, gastroenterology, general surgery, and urology. Our pursuit of superior clinical outcomes and patient experience is augmented by digital initiatives like the implementation of Electronic Medical Record system across our network, ensuring excellence in care delivery. I'm pleased to share the company has made significant progress in advancing its strategic growth levers, including brownfield bed expansion, portfolio rationalization, and investing in the state-of-the-art medical equipment. In order to provide advanced treatment options to our patients, we have and continue to upgrade our medical infrastructure, having commissioned LINAC in Mohali and Noida, a cath lab and an MRI at Anandapur, ortho robots at FMRI, Shalimar Bagh, Noida, and digital PET-CT at FMRI...
Further launches of similar such medical equipment across four facilities is expected in the current fiscal year as well. We are progressing well on our brownfield bed expansion plans. We have added beds in financial year 2024 in facilities such as Mohali, Anandapur, Mulund, and BG Road. I am pleased to share that we have also launched a 70-bedded new facility in Ludhiana, making this our second facility in the city and fourth in the state of Punjab, giving a boost to our presence in the Punjab cluster. Our extension strategy continues to focus on deepening our cluster presence. Our plans to ramp up the brownfield bed capacity remains on track and would enable us to potentially close to 6,000 beds over the next few years.
When completed, we can also expect to see some of our key facilities, such as Shalimar Bagh, FMRI, Mohali and BG Road, becoming more than 450 beds each. As we have mentioned earlier, our growth would comprise not only of our brownfield expansion efforts, but also our effort towards expansion of our size and scale through inorganic foray. We have spoken with you previously on some of our underperforming assets and the need to rationalize our portfolio. Continuing with this, we have successfully divested two of our underperforming facilities in Chennai and have exited that market. In parallel, we also acquired a potential 450-bedded facility in Manesar, Gurgaon, that we expect to commission shortly, which would further strengthen our presence in the NCR cluster. Another critical aspect worth noting is the continuous success of our digitization efforts.
Our progress in digital transformation, notably through the implementation of EMR program, is moving forward positively. We have successfully implemented EMR for OP modules across four units in the first phase of EMR rollout. Revenue generated from digital channels continue to exhibit healthy growth. In financial year 2024, revenues from website, mobile apps, and digital campaigns increased 27% over the last year and contributed 25.2% to the overall hospital revenue, as compared to 22% in financial year 2023. In order to further improve our patient service experience, we have launched our new patient feedback management system, MyFeedback, this year. The platform will enable a more engaging experience, as a feedback through WhatsApp and QR codes would be collected. The application will enable collection of feedback and address immediate patient concerns through its service request feature.
On the cost side, emphasis in the year gone by has been on further improving our supply chain and procurement efficiencies, and also optimizing costs in respect, in aspects related substitution and formulary. We have also been focused on optimizing manpower costs and looking at means to increase productivity. While these are ongoing exercise, cost saving and optimization across select expense lines have also had a positive impact on our PNL in the year. Some thoughts on our diagnostic business. Our overall diagnostic business showed marginal growth, but our non-COVID business revenue grew 5% for the quarter, and 6% for the financial year 2024 over corresponding previous periods. The diagnostic business performance has been soft, primarily due to the change in the brand to Agilus, resulting in comprehensive rebranding exercise and related expenses on such rebranding and marketing.
In addition, there were certain provisions related to government business that have also impacted the performance. Having said that, and while Anand will take you through further details on diagnostic business, I firmly believe that this business has significant potential to scale up, both in terms of its revenue and margins. It has a sizable network presence, a balanced B2B, B2C mix of, and is increasing its focus on the wellness portfolio and specialized testing. The industry has also begun to show signs of improvement and lessening competitive pressures. We are undertaking all efforts to ensure that Agilus's performance is progressively better going forward, but I leave it to Anand to talk further on this. Before I end my comments, I will take a moment to thank all our stakeholders, employees, patients, and clinicians for their support in the year gone by. We strive for excellence in healthcare delivery.
We strive for good clinical outcomes and diagnosis for all our patients, and we work hard to ensure that all our stakeholders recognize and respect the organization for its patient-centric approach. This is, and would remain, cornerstone of our organization, an organization that each of us feel proud to be part of. I'm hopeful that the coming years would see company going from strength to strength and add value to all our stakeholders. Thank you. And with this, I will hand over to Anand for his comments on the Agilus business.
Thank you, Dr. Raghuvanshi. A very good morning to everyone on this call. Thank you for joining us today. On behalf of Agilus Diagnostics, I warmly welcome you all to our Q4 FY 2024 results conference call.
Agilus Diagnostics reported a revenue of INR 1,370 crores in FY 2024, versus INR 1,347 crores in FY 2023, representing a 2% increase. Non-COVID revenues increased by about 6% in FY 2024 against FY 2023. COVID testing contributed to 0.3% of the revenue for this year, down from 4.4% in FY 2023. We performed 40 million tests and served 16.4 million patients in the year. Operating EBITDA for the year is INR 209 crores, compared to INR 239 crores in FY 2023. EBITDA margins are 16.3% and 17.7% respectively. During the year, we incurred one-time expenses of INR 58 crores, primarily in relation to Agilus rebranding and the provisioning pertaining to agreements with Directorate General of Health Services, New Delhi.
One of the important highlights of the financial year is that we have successfully undertaken a brand transformation exercise and moved to a new brand, Agilus. We incurred one-time expenses for rebranding, post brand change in May 2023. Also, we have made one-time provision in relation to receivables of DGHS, Delhi government. Considering lack of clear timelines on payment of bills, the company has provided for the entire outstanding. Our operational EBITDA before one-time expenses of INR 58 crore is INR 268 crore, representing a margin of 19.5%. Our average realization per test for Q4 2024 is INR 352, and realization per patient is INR 869. Our average realization for FY 2024 is INR 342 per test and INR 836 per patient.
The business continued to have a well-diversified geographical mix, with no overdependence on any particular region, allowing it to capitalize on the pan-India network nationally. Regional FY 2023 to 2024, revenue contributions were 33% from north, 21% from west, 29% from south, and 14% from east, while we had a 3% contribution from international business. Our wellness portfolio also went up by 14% in FY 2024 compared to previous fiscal, and by 18% in Q4 FY 2024 compared to Q4 of FY 2023. From a product standpoint, the revenue contributions are 36% from specialized testing, 54% from routine testing, and 10% from our wellness portfolio for FY 2024. Quarterly contribution from specialized testing is 34%, from routine is 54%, and from wellness is 12%.
Genomics portfolio also went, grew, also grew by about 27% in FY 2024 compared to FY 2023. Our B2C, B2B ratio for FY 2024 is 53/47, compared to 54/46 in FY 2023. We are focused on building the new brand and delivering high-quality diagnostic care to patients and doctors. We have reinforced our test menu of 3,600+ tests, with 70 new additional tests and test panels this year. Some of the advanced next-generation diagnostic tests that we have added include pharmacogenomics testing, newborn screening by next-generation sequencing, fetal autopsy testing, cancer hotspot gene panel, comprehensive advanced HLA panel, allergy testing by component resolved diagnostics, and a few, few more. We will continue to deepen our network, drive further utilization of existing infrastructure, reinforce our test menu, and focus on technology to enhance customer experience.
Thank you all, and I now hand over the call to Anurag for further.
Thank you, Anand. Ladies and gentlemen, we shall now begin the question and answer session. Can I request the moderator to begin the session?
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on their touchtone phone. An operator will take your name and announce your turn in the question queue. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. You may please press star and one to ask questions. The first question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Yeah, thanks for taking my question. My first question is in the hospital business. You know, we've gotten to 22% margin in this quarter. I understand there's some one-off. First, if you could quantify what the one-off was. And second, given our exit margins in the, you know, quarter, is it fair to assume that we build on this, you know, margin in FY 25? Because initially we'd guided to getting to 22% margins probably in 26. So just want to understand the trajectory from here.
Yeah. Hi, Neha, good evening. Hi, good morning.
Hi, sir.
So, first of all, you know, one-off, one-off in the quarter, only, you know, some of the adjustment, accounting adjustments has arisen from the last quarter pertaining to the full year. So there's no one-off type of expenditure. The normal thing like, you know, expected credit losses, provision write-back, and things like that. So those, those type of thing, which is generally done at the year-end. So the EBITDA margin, excluding those entries also for the quarter, is around 21%.
... As regards your other question on build on the margins during this financial year, we could demonstrate around 2% EBITDA margin improvement over the last year. I am expecting similar type of slightly better than this in the next financial year. So we are maintaining our guidance which we have given earlier.
Which is, no, what I mean to say is, since we are already at 21% margin for Q4, I understand there is seasonality in the business. So should I assume we build on that 200 basis points on the 21, or I should assume because we have divested 2 assets through the year, so hence the question?
Yeah, yeah. No, I understand your point. So, as you know, there is a seasonality built in the, in the Q4. Generally, is the good quarter for everyone. And, there is, you know, two of the new unit has also been added while, you know, we have divested certain, you know, non-performing units. So looking all those things, our initial guidance, what we have given, improvement of-
Mm.
EBITDA margin by 2% will remain for the full year.
Understood.
year-over-year.
Understood. And how many beds are we adding in FY 2025? Will it be 300? I mean, just... And where exactly will these beds be added?
Yeah, yes, exactly. Yeah. So there is a one is the Faridabad unit, which we are adding the beds. The expansion is almost completed, 50 beds we will be adding. Kalyan also there is 50 beds we will be adding, and this will take us to 100 beds for the current financial year. The Manesar facility, we are expecting to open by Q2 of this financial year. And we will be opening initially 100 beds, and we will be seeing how the ramp-up goes on. Another facility in Kolkata also we are adding 100 beds. Where, you know, 2 floors we are operationalizing, and all the floors are in place. And in the Q1 itself, we should be starting those 100 beds.
Then, rest of the beds are at BG Road, which is in Bangalore, where we are expecting some OC to come, and that we are expecting by the Q2 end, sorry, for the current financial year.
Got it. And my second question is on diagnostics. You know, given the impact from the rebranding, I still see that volumes again were negative this quarter. How should we look at the improvement in volumes? You know, when do you think the rebranding impact on volumes phase, you know, phases out, not so much on margins, but, you know, purely on the-
Sir, the line for Miss Neha has got disconnected. We will move on to the next question, which is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Yeah, good morning. Thank you for taking my question. Just the first one, given, you know, the Supreme Court order or what about the NGO petition around, you know, standardized pricing, I just want to know what your take is in terms of how this could likely pan out. And, a related question is on the ARPOB. So we have again seen another 10% kind of ARPOB growth for the quarter, maybe for the full year is also similar. So how should we look at ARPOB growth? Looking ahead, is there any impact, or are you trying to see whether this standardization will likely have an impact on how you price your services into fiscal 2025? And also the split of ARPOB between price and mix, if you could highlight. That's my first question.
Yeah. So, you know, the first part related to the PILs and Supreme Court, et cetera, I think the tenor of the affidavit filed by the government is very positive according to us. So we do not expect too much of an impact of it. On the other hand, what we are hearing is that the CGHS and other rates are going likely to be revised upwards, so that would overall not have too much of an impact on that. Regarding the question on ARPOB, we definitely had a good growth in the ARPOB, and that was primarily led by the increase in the surgical volume by about 8% year-on-year.
And that also is the case mix, which led to that change. Now, going forward, I would request Vivek to add to this.
Yeah. So, hi, Shyam. Vivek this side. So there is a ARPOB in the ARPOB increase split, which is the last question you were having, around 3% is towards price increase, and balance is for the case mix and specialty mix, better case mix, this is basically. And going forward, because ARPOB has already set at a higher level, we are not expecting the double-digit growth rate will continue like this. I am expecting more like 5%-6%, ARPOB growth, mainly driven by the specialty and the peer mix improvement.
Mr. Vivek, we are not planning any price increase this year, is it? Or we are almost done, or when we benchmark with some of our competitors, our pricing is similar?
No, we will be increasing prices. Some price increase already factored in the Q1 itself. So we generally increase our price by 2-2.5%, depending upon other competition prices and, you know, the market forces.... So that will continue. So 2-2.5% you can safely assume price increase, and balance is towards case mix and other things. So total ARPOB increase will be 5.5%-6%.
Understood. Very helpful. Just the second question is on the Agilus. I know we had a DRHP out there. We had to withdraw it for whatever, you know, market conditions slash whatever the performance of the company. So what's the medium-term outlook for, you know, either a listing or when should we look at it? Also the related question is on the put option liability for the private equity. How are we gonna navigate it? October 2024 is the number, is the date I remember, but I may be wrong. But, in a case where some of them want to kind of exercise their put option, how will Fortis slash IHH respond to that? Thank you.
Yeah, Sam, I will take that question again. You know, you have rightly mentioned, we have withdrawn, as you know, the DRHP, and there is a put option live with the private equity investor. So we are working with the private equity investor to come out with a solution for this particular thing. So, one option is for the revival of the IPO, so that we are working with bankers along with the private equity investors for revival of the IPO. And parallelly, we are working on, you know, the various other options which may be possible in case, you know, the revival of IPO is not possible. So, from that angle, I think we have maybe a couple of months more to finalize this thing.
So we are working on all the options are still open, and we are working very closely with the private equity investors.
Yes, sir, what's the worst case here, that we have to take whatever the private equity offers us? I'm just trying to assess what could the worst case be?
Yeah. So, Sam, if suppose IPO does not happen, and, you know, we have to honor our obligation of this put option liability, and we are disclosing the value anyway, you know, recognize that as a liability in our books already. So we will honor that liability, and the means of funding we will be deciding in the depending upon the market situation. Looking at the balance sheet size and, you know, the other options, we may do entirely through debt, we may do entirely 50% debt, 50% equity, or entirely through equity. Those things we will be deciding maybe over a period of time. But funding may should not be an issue, looking at the financial position of the company right now.
If at all, you know, worst case scenario, we have to honor the put option, the funding is the last, is the only option for us, and for that, I'm saying there is various option available. Depending upon our fund position, our capital requirement, we will decide on the means of funding.
Sorry, sir, the timeline is correct, October 2024?
Yeah. So by August, we will be knowing which direction we are going. Means the next call for the Q1, we will be having clear idea which way we are going. And maybe another one month, we will... You are right, actually. September, October may be the time when this will be finalized.
Sorry, sir, last question. Equity means capital raise at the hold co, at Fortis? Sorry.
Yes, yes. That is the... Because Fortis is the having the put option, so Fortis may look for raising equity as well.
Understood. Thank you, sir, and all the best.
Thank you.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Yeah. Apologies for the last time. On diagnostic, just wanted to understand how we are looking at revival of the business. You know, we saw negative volume growth, you know, number of test growth this quarter. Given the rebranding, should we expect a more, you know, slower recovery in that business?
Thanks, Neha. This is Anand here. In fact, for the overall year, we have grown the volumes. Non-COVID volumes have actually grown to 6.4%. And, you know, the volumes for the quarter have grown by just 0.6%. We are seeing a recovery on the growth on the volume as well. And also we, if you see, we have taken a price increase around the end of February, and so we expect that also to kick in. So we have taken a price increase of about 5%-7% in the B2C, for the B2C business. So, that also will be kicking in for this financial year. So we are seeing recovery on the volumes as well.
How much volume should we expect... volume growth should we expect over the, let's say, next two years? Should it, you know, should over the next two years, we be, you know, Agilus be closer to the industry growth? Would that be a fair assumption, or you think that takes longer?
So we will be in line with the industry growth. So the industry is expected to grow at about 8%-10%, so it should be a combination of volume as well as value. So I think it is primarily volume and to some extent from the value as well.
This is for FY 25?
For the next 2-3 years.
Okay, got it. Got it. And, you know, just one other question on, you know, the entire Fortis business. What is an update on the High Court? What is the next timeline that we should look out for a possible hearing on the High Court case?
Yeah. So the hearings have been happening in the case. We expect the next hearing to happen on the fifteenth of next month. And that would probably be one of the final hearings, after which maybe some arguments will be made and-
... then we should see some resolution to the case, but we cannot really guess as to how much time that will take. But it appears now that things are coming towards a conclusion.
Okay, that's great. Thank you so much, sir.
Thank you. The next question is from the line of Hardik Doshi from White Whale Partners. Please go ahead.
Yeah, thanks for taking my question. I just wanted to kind of clarify a couple of things regarding margin. So I think you mentioned that the reported margin is a 22.8%, but adjusted for, you know, the through the year adjustments, it's about 21%. So I guess this happens every Q4. So what would be the, you know, like to like comparison for Q4 2023? I think you reported 17%, but if you were to make the adjustments, what would be the margin then?
Yeah, similar one, around 1% adjustment, you, you can earmark for the last quarter also. So last quarter margin, reported margin can be, should be brought down by 1% to compare this.
Got it. So 16% went to 21%? Yeah. So, is this largely driven by the ARPOB improvements, or are there any other factors that drove this 500 basis point year-on-year improvement?
Yeah, so there are a couple of things here. One is, of course, the ARPOB improvement, you rightly said it. Second is the volume growth. You know, the occupancy level has gone up for the quarter. And, thirdly, you know, there is an impact of divestment of Malar, Malar also. As you are knowing, Malar was incurring losses. And with the divestment, which happened in first week of February, so two months there were no losses, so that impact was also not there. So all this put together... And plus, you know, the facility mix improvement also, which is actually taken care of in the ARPOB. So that, these are the two, three main reasons for margin improvement.
Got it. Now, for FY 2024, our margins were around 19.2%. Did I understand the guidance correct, that you expecting a 200 basis point improvement year-on-year in margin, so FY 2025 would be about 21%?
Yeah, we will be around that level only because, you know, the reported margin should be around 22%. Operating margin is 18.5% for the current financial year, so that should also go up by 2%.
Okay. But you know, you are planning to open 700 beds in this financial year, and usually when you open all the greenfield expansion also, there is a near-term dip in occupancy, which obviously weighs on margins. So how do you expect, like, let's say, 18.5%, which is operating EBITDA, going to 20.5% for the full year in spite of such a large bed addition?
Yeah. So most of the bed additions are coming in the as a brownfield, which I have mentioned, like, Anandapur, the there's Faridabad, Shalimar Bagh. These are all brownfield expansion, and in the units which are already operating at around 75%+ occupancy level. So we are not seeing any challenge in filling those beds. Of course, you know, the Manesar one is a is a new facility because this hospital was not operational. So that is something which will, you know, we have estimated initial negative contribution from this unit in the current financial year. Apart from this, I don't see any other unit where we will be having any, you know, pre-margin impact. So that we have already captured taken care of while giving this guidance.
Got it. Got it. Okay, and, and then in the medium term, I mean, what are your aspirations from a margin perspective? Where do you think, you can go to, let's say, three to five years out?
Yeah. So we are maintaining the... We are moving very, you know, I will say, on the right track. We have given the guidance that the last quarter we should be touching 20% margin. We have exceeded that expectation, actually. And we expect that, you know, we will be around 25% margin in next 2-3 years' time.
Great. There's one last question for me is, you know, in terms of divestment, we've exited, Chennai now completely. Are there any other divestments that we can look for or, like, you know, look at maybe over the next 12 months?
So we have done two, actually. There is no immediate plan of any divestment which is having meaningful, meaningful impact on the financials. There is one small unit which we are looking at, but it is not having any meaningful impact on the financials.
Okay. All right. Thank you so much.
Thank you. The next question is from the line of Sanjay Shah from KSA Securities Private Limited. Please go ahead.
Yeah. Thank you for opportunity. Doctor, my question was regarding our CapEx plan, which we have planned for next few years on brownfield side. I need to understand, do we have any the scope of growing brownfield in Faridabad and Anandapur and Shalimar? So is there limitations, or after that, how we plan to go ahead from there? And this CapEx is going for treasury treatment or secondary treatment facility?
Yeah. So all these hospitals you mentioned, both Faridabad as well as Anandapur, are currently working at a high occupancy rate.
... So this capacity will easily get absorbed over there. Brownfield expansion is being done selectively in the units where the occupancy levels are already significantly higher. This is probably the most efficient way to have a significant growth. Vivek, would you like to add?
Yes, sure, sir. So, you know, these two units, there is a further capacity for capacity expansion. Like in Faridabad, there is a space available, and we have planned to further expand and add certain more facilities there. But we will see how this 50 beds then will happen. As regard Anandapur, we have acquired a company with the adjacent land parcel, so we want to operationalize that also. So post extension of this 100 beds, we will be adding maybe another 50 beds in the next financial year for in that unit. So both are having those type of growth prospect available.
Shalimar Bagh, we are building another tower in the adjacent plot, and that should give us another 200+ beds in Shalimar Bagh. So, this is already included in our overall plan of expansion of 2,200 beds, which we have shared earlier.
2,200 bed totally three years, yeah. So what CapEx will be required for that brownfield, total 2 and 2,000 beds addition?
Yeah. So some of the CapEx has already been incurred in that, so additional CapEx will be somewhere around INR 1,200 crore, INR 1,200-INR 1,300 crore, which include equipment also, everything.
Okay. Their focus will be more of a tertiary one or it will be a mix of secondary, primary and tertiary one?
It is tertiary only. So it will be, all our hospital are, multi-specialty hospital, and secondary is where the Brownfield expansion is coming. So we'll strengthen the, strengthen our position there, and we may add certain more facilities there.
Great. Sir, how we did last year on international patient demand, and what was the occupancy on that side, and how you see that future going ahead?
So, international business is contributing around 8%+ to our total revenue. We expect this percentage to slightly go up going forward. And, this is a good profitable segment for us and focus area for us to further grow in this segment.
My last question was regarding any update on brand rebranding our Fortis to Parkway. Any highlight on that? Any progress on that side?
So we are.
Yeah. So Sanjay, we are not immediately considering anything. Our preference is to retain the brand, and since it's a kind of a court-related matter and legal issue, so we are waiting for that to get resolved. Once that is resolved and we have clarity on the brand, then only we will take a decision on actually making a change if necessary.
That's really helpful. Thank you, doctor. Thank you, gentlemen.
Thank you. We'll take the next question from the line of Bino P from Elara. Please go ahead.
Hi. Good morning to all. Dr. Raghuvanshi, in response to an earlier question, you had mentioned about CGHS rates being revised up. Could you please put that in context for us, please? Because I think a few months back or a year back, we had a revision, and I, as I understand, it's once in five years that it typically happens. So are you referring to some out-of-turn increase that is likely?
Yeah. So in 2014 was when the last rate revision happened. Last year, some of the diagnostic rates were revised upwards. However, the rest of the packages which formed the bulk of CGHS work was not revised at that time. But what we believe we have been made to understand by the health secretary is that the work is in progress and that is likely to be revised sometime in near future.
Sir, does it happen in tandem for the entire industry, or is it group by group or hospital by hospital?
No, no, it happens for the entire industry.
Okay. Since it is after 10 years, are you expecting a very big jump, in maybe 20%, 30%, 40%?
It's difficult to predict with government. I think I would leave and wait and watch this space.
Understood. Second, earlier you had a target of 6,000 beds by FY 2028. Is that the valid target as of date?
Yeah. So we are moving, you know, at pace to achieve the target. We are on target.
Great. And so last question, regarding this, Agilus private equity exit. Even if we had to, pay that money to the PE and buy out their portion, still it would be only a cash flow entry, right? There won't be any PNL, loss or provision that's required, right? Is my understanding correct?
Yeah. So there will not be any P&L impact. And cash flow, I have already explained that we have enough resources right now to honor that liability if at all it will come on us.
Got it. Perfect. Thank you very much.
Thank you. The next question is from the line of Amit Ashok Thawani from Clear Blue Capital Advisors LLP. Please go ahead.
Hi. Thank you for taking my question, and congratulations on a good set of numbers. My first question is, on the last call, we had mentioned that we are running at about 70% capacity occupancy, and I think we had the call somewhere mid-February, if I'm not mistaken. And we had mentioned that we'll exit the quarter at that rate, but our occupancy has come lower than that. I just want to understand what happened out there.
Yeah. So, you are absolutely right. So our, our target level was 70% only. But a couple of our hospitals, well, three of our hospitals, the occupancy level was not at the desired level. One of them is, two of them in Bengal, Bombay. Mulund is the big one, and, another, BG Road, also is operating at around 60% only. And Jaipur is also, there is a capacity shortfall. So we are working on these units, and because of these three units only, you know, we- our overall occupancy level could not achieve, 70%. So we are working on the plan. Hopefully, will, for the Q1 of the current financial year, Mulund and the BG Road will start showing very good, results.
Okay. So we are actually now almost end of May, so what kind of occupancy have we seen in April and May?
Right now we are at around 70%.
For the overall company?
Yeah, overall company.
This quarter, we should report 70%?
Let us wait for another one and a half months.
Okay. Okay. Fair. Can I... I'll come back in line. I'll come back in line for my next question. Thank you.
Thank you. Thank you, sir. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Hi, thank you very much. So Vivek, sir, on the hospital matrix, margin matrix that we provide, we've got still about eight hospitals which are below 15% margins. You know, when you look through the next two, three years, how many hospitals do you see actually moving away from, moving out from this margin range, you know, with the initiatives that you have in mind?
Yeah, so we actually, you know, the hospitals which are not on good margin metrics are improving. Okay? And so we've seen that out of eight, Faridabad definitely will should move out because of this expansion, because the economy of scale it, this hospital will be getting. And PKU and Jaipur is also moving in the right direction. So I will say two to three hospitals we can easily target that they will be moving up. Other hospitals are either very small, or there are some issues like, Seshadripuram is a very small hospital, so CH Road, they, it is a rental rental model, so that's why, you know, the margin is below 15%.
Ludhiana is the new unit, so, we have to give some time for this unit to improve.
So is it fair to say that, you know, these hospitals right now, that you mentioned, about 20% of our revenues, a good chunk of this 20% of the revenues will see meaningful margin expansion over the next 2-3 years, or rather, 2, couple of years, with some of these initiatives playing out? About 20% of the revenue will have a meaningful margin delta.
Yes, that will also continue to, you know, the achieving the overall EBITDA margin, which I have guided earlier.
Right, sir. And sir, lastly, on the top end of the EBITDA, where we've got eight hospitals in 20%-25%, so is 25% the upper range for our sort of best performing hospitals, or are there hospitals which have gone much beyond that also?
Yeah. So I think, it is not the range. I think there is, the possibility is there that we can achieve even higher margin on these hospitals. And these hospitals are also expanding, so we will be getting economies of scale and, you know, the manpower productivity, which Dr. Raghuvanshi mentioned earlier. So all those things would play, and in my view, there is a scope to improve in at least some of the hospital EBITDA margin higher than 25%.
Okay, sir. The last one, sir: What is our share of CGHS revenue? I probably missed that number for the year.
Overall government revenue is around 20%. It has slightly gone up in the financial year as, as we compare with the previous year, and that is one lever which we, we will be exploring in the current financial year to improve.
Sir, how much of that will be CGHS?
CGHS is 4%.
Of your overall revenues?
Yeah.
Sir, when the CGHS rate changes happen, does it have impact on the other part of your government revenue also?
Yes, yes. Well, a lot of rates, like CGHS, et cetera, are linked to the CGHS rates. CGHS is sort of like the mother scheme, and most of the rates are equal to that.
So then fair to assume that a fair chunk of, or a reasonable proportion of this 20% will also get, will probably get better rates once, as and when the CGHS rate gets revised?
Yeah, but overall, you know, then still we would aim to bring this percentage from 20%, we'll bring, aim to bring this slightly lower. Though we expect that, you know, that the realizations here might improve in future, but at the same time, our objective is to keep this around 15%, which we may not be able to achieve immediately, but over the next one and a half years or so, we should try to bring this down to below 15%.
Okay. Thank you so much.
Thank you. The next question is from the line of Nancy Yadav from Allegro Capital. Please go ahead.
Hi, sir. Thanks for taking my question. I wanted to understand the impact on our financials for both the quarter and the financial year, and it would be great if you could provide the numbers for the hospital and diagnostic business separately.
Which Ind AS here? You mean lease rental or leasing?
Yes, 1, 1, 6.
Yeah, maybe Angad may give you separately, send the numbers separately. Right now, it is not readily available to us.
Angad, we'll connect, and we can provide those numbers to you.
So our second question is regarding the margin improvement again in the hospitals. I was looking at the operating EBITDA numbers. We have gone up on YOY, we have gone up 16.4%-22.3% for the quarter. If you could provide some color, even accounting for divestment, how much of this is coming from the divestment of facilities, the margin improvement, and how much is coming from, let's say, the surgical mix improvement?
Yeah. So, I think around 1% you can assume, from the divestment and, other initiatives we have taken, and rest is all from the improvement in the occupancy level as well as on the, improvement in the payer mix. Sorry, facility mix.
So, from the know key, from when are the divestment have been excluded from the financials? Is it for the whole quarter or from the February?
From February only, from the date when we have divested.
So only 2 months of exclusion has given us 10%,
I was telling on an annualized basis.
Okay. Okay. So if I compare with, let's say, Q3 previous quarter, 18%-22%, so 1% is coming from the divestment and 3% is coming from the occupancy and surgical. Is that the right understanding?
Yeah, annualized basis, it will be around 0.6%, because Malar divestment only happened in February, though Arcot Road has happened in July, in July. So it is around 0.6% in, in the year, the bene-, you know, the margin improvement may be attributed to prior to this divestment. And plus some, cost, measures we, which we have taken during the financial year, and plus, you know, this facility mix, lead to this, margin improvement.
Sorry, I could not understand. If you can, please repeat.
Yeah. What I said, around 0.6% on an annualized, from when you're comparing last year with the current year-
Yeah.
0.6% may be attributable toward the portfolio rationalization initiatives. The balance is towards the cost optimization, mainly in the manpower cost and some of the, you know, procurement-related improvement, which we have done formerly, and procurement-related initiative, which the company has done, and rest is all attributed towards a better case mix and better facility mix.
Okay. Okay. Thanks. That helps.
Thank you.
Thank you. We'll take the next question from the line of Sayan Mukherjee from Nomura Securities. Please go ahead.
Yeah, hi. Thanks for taking my question. So just, one question on, you know, the, the way you think about ARPOB going forward. You know, just slowing down from 10% to 5%. Now, if you have 2%-3%, let's say, price growth, is it that the case mix is, you know, kind of, the change or the favorable change in the case mix is slowing down? Or and because, you know, a lot of the growth and expansion is also likely to come in facilities which have relatively higher ARPOB. So I'm just wondering why, you know, the growth expectations on ARPOB is, you know, on a lower side.
Yes, Sayan. So I think the reason for predicting 5%-6% ARPOB increase, compared to double-digit ARPOB increase we are seeing in the last two years, is the base is already reached a level, particular level. Plus, if you see our facility mix also, there is a good growth we could have demonstrated in the onco business, which is, you know, our high ARPOB business. Having said that, we still feel there will be some further improvement in the ARPOB, and two to three percent may be attributable towards the price increase. Balance is from the case mix and the facility mix. And you rightly mentioned, in some of our facility we have added good equipment.
Especially in our Gurgaon facility, we have the Gamma Knife and the MR Linac will the benefit of that we should be getting, and that has been factored into this ARPOB increase.
You think, slightly medium term, like, you know, next 2, 3 years, you think 5-6% is what should sustain?
Yeah, I will say around 4%-5% in the medium term.
Okay. Just one question on pricing, because this year also, you know, you talk about, you know, talked about 2-3%, kind of a price, price increase. I think that's some commentary, similar commentary we hear from most companies. I'm just wondering, you know, because in the healthcare system, we have seen, like, pharma companies or even diagnostic companies take, say, you know, price hikes, which are even higher. Given the, you know, the nature of the business, where you're today, you know, sort of providing high-end services, I'm just wondering why, you know, your price growth is even below the general inflation?
Yeah, that's a million-dollar question, actually. You see, the problem is that, you know, the healthcare industry remains so much under the glare of media and public interest groups, that the industry has to calibrate the price changes very, very carefully. It is true that the, you know, inflation rate doesn't cover the price hikes which are taken generally. However, that is being covered by building in efficiencies and and usual case mix change, et cetera. I won't say that the pace of, you know, the tertiary, quaternary care coming to the organized sector, I would say not only us, but the other groups as well. We, that will continue to happen.
As more and more business starts getting organized, then, you know, the smaller nursing homes and smaller setups will find it difficult with the penetration of insurance to do that kind of administrative activity. But prices will remain under a little bit of pressure simply because of the sentiment around it.
Understood, sir. And just one last question. You know, the guidance of improvement in margin, 200 basis point, that you have provided, does that factor in the rate revision for CGHS? Or if that happens, that's over and above any benefit we get there?
No, see, that rate revision of CGHS may happen. What time it may happen, we don't know, so we haven't really factored that in our calculation.
Okay, that's helpful. Thank you.
Thank you. We'll take the next question from the line of Dhawal Khut from Jefferies. Please go ahead.
Hi. Thank you, sir, for taking my question. I just wanted to know what was the branding expense in the quarter, and do you expect some branding expenses to continue in next, you know, Q2, Q3?
I think you're asking about the branding expense for Agilus, right?
Yeah.
We have done about INR 31 crore of branding, branding expense last year, and this will continue over this year as well. We will have additional spending on branding this year.
Okay. And what was the figure for the quarter?
Sorry, sorry, we couldn't hear you clearly.
What was the expense for the quarter, Q4 ?
For the quarter. INR 6 crore. INR 6 crore.
Okay. And secondly, my understanding was that, you know, Supreme Court had ordered status quo, in terms of, you know, the promoter shareholding in Fortis. So for our put option liability, it was, you know, answered that you could look at a mix of debt plus equity. So can that litigation become a hindrance to our ability to raise funds?
Yes. So Supreme Court stay thing, that petition was finally dismissed in Supreme Court, so that doesn't exist anymore. We have, you know, consulted our legal advisors as well as we have had an informal discussion with some bankers in SEBI as well. We are pretty confident that there should not be any challenge in that direction.
Okay, thank you. Thank you for taking my question.
Thank you. The next question is from the line of Madhav Marda from FIN. Please go ahead.
Hi, good afternoon. Thank you so much for your time. I had 2 questions. The first one was, given that we have a good, interesting brownfield pipeline which will unfold for us over the next 3-4 years, could you give us some sense in terms of how much could be the IP volume growth or the occupied beds growth that we could see, if we could build in some reasonable occupancy assumptions over the next 3-4 years? If you could give us some sense in terms of the overall top line guidance, given that, let's say, ARPOB grows at 5%-6%, how much could the volumes of the patient inflow part add to that?
Yeah, we expect around 7%-8%, you know, from the volume side. And it is, it will be mainly driven by, you know, better occupancy growth as well as, you know, this Brownfield expansion kicking in.
Understood. So it could be like low to mid-teens kind of revenue growth, basically, right? With volume and, ARPOB coming through together for us broadly.
Okay. Yes.
Understood. Got it. That's, that's helpful. And my second question was that, you know, fingers crossed, if the legal case gets resolved, in the next few months or quarters, whenever that happens, would that mean that, you know, I think we have been incurring, a decent amount of legal costs, towards this case, for some time now. So could you just help us understand that if this, you know, legal case gets resolved, how much, legal cost saving could we have, for the company? Thank you.
... Yeah, so we, as this case are finalized, we expect, you know, the legal costs would come down, but it will all depend how quickly this could be taken care of. Right now we are incurring almost INR 30 crore-INR 50 crore in the legal costs, which is relating to these legacy type of issues. So once, as we able to resolve all these issues, this cost will definitely go away.
Got it. So INR 30 crore-INR 50 crore, just this particular legal case, right? The one which is. So it goes away, that should almost completely go away, that's how we should think?
No, I think the total, legal costs relating to all the legacies. So, you know, there is a, brand-related litigation, there is this forensic audit-related litigation, then there is a, you know, RHT also we are trying to wind up, where, you know, we are incurring some costs. All this put together I have put this number.
Yes, sir. All right, sir. Thank you so much. Thank you.
Thank you. The next question is from the line of Atul Mitra from United Healthcare. Please go ahead.
Hello, Dr. Raghuvanshi. First of all, congratulations for a wonderful quarter. My question is, with respect to, you know, inorganic growth. Are you looking to acquire some valuable assets in existing clusters? That's my question.
Yes. Yes, yes. Thank you so much. Definitely, we have been looking for assets within the given clusters, five different clusters where we are present, and where there are some possible opportunities, we would look for that.
Any immediate pipeline visibility on that front?
No, nothing we can comment on at the moment.
Okay. Thank you.
Thank you. The next question is from the line of Prashant Nair from Ambit Capital. Please go ahead.
Thanks. Hello, everyone. Just a couple of questions. The first question is on your current network. I mean, would you still expect some more rationalization of, you know, the network or, you know, hospitals either being sold or discontinued, or are you largely done with that?
So we would definitely consider an option which is value accretive to our company. But some of the kind of, you know, ideas we have around that is that it should be within the given cluster, or there should be some attractive reason why we would go to a new geography, then that asset should be of that nature. So that is why we are not close to going out of our clusters. However, the focus would be to be in the existing clusters so that we can take the advantage of synergies, manpower, costs, et cetera. So we will continue to do that.
Yeah, and from the current hospitals that you have, are there still any which are not, you know, doing as well as you want them to do, and where you could look at options similar to, you know, what you did with the Chennai hospital? Or do you think that this set of hospitals you will continue with and work on to improve them?
Yeah. So there, there are, you know, there are about 4, 5 hospitals, which fall in that bucket. Two of them are strategic in nature, and we believe that we can turn them around. So there, the focus is to do that. But there are certain smaller setups which we may consider. As Vivek said earlier, they are not very significant in size, but there are a couple of small ones which we would certainly be looking to rationalize them in the future.
Thanks. And, last question, you know, this is related to the put option, on, you know, on Agilus. So, if you—I mean, you mentioned you have, you know, adequate capacity to pay if that put option gets exercised. Would that have any bearing on your bed addition plans, the 2,000-odd beds that you have, you know, that you have mentioned? Or do you think you'll be, you'll have enough funding to execute on that as well?
No, our Brownfield expenses will not be affected at all with this, if we have to acquire this, even good debt. The answer is no. There will not be any impact on our Brownfield expansion if we acquire this put option.
Okay. Thank you. That's it for now.
Thank you. The next question is from the line of Amit Ashok Thawani from Clear Blue Capital Advisors LLP. Please go ahead.
Thank you for taking my follow-up question. I'm not sure if I missed the answer to this question. I wanted to know what our average realization per test and our average realization per patient has jumped this quarter. Can you explain what has happened exactly in the quarter?
So, see, our average revenue per patient has grown by about 2.7%, and our average realization per test has jumped by about 4.2% in this quarter. This is primarily due to two reasons. We have done a price increase around middle of February, so which has a higher impact on our March numbers. As well as, you know, in the last previous year same quarter, we had a high contribution from our, you know, Delhi government project, so which has been reduced in this quarter.
Okay. Okay. But is it fair to say there is some kind of pricing power that is returning to this industry as a whole?
We have, we have taken a price increase very recently, and, as we know that, you know, we are now, most of the diagnostic companies have taken a price increase during this financial year, in the previous financial year. And, the online players have all now settled, and, they are also taking price increases. So I think overall, there is no, big pressure on pricing.
Thank you. Thank you, sir. Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I would now hand the conference over to Mr. Anurag Kalra for closing comments. Over to you, sir.
Thank you, Michelle. Ladies and gentlemen, thank you very much for taking the time to be with us on the call today. I hope we've been able to answer your questions as best as possible. In case of any follow-up questions and data, please feel free to reach out to Amit, my colleague, or myself, and we'll be happy to help you. Thank you once again, and have a good day.
Thank you, members of the management. Ladies and gentlemen, on behalf of Fortis Healthcare Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.