Ladies and gentlemen, good day, and welcome to the Q2 FY ' 24 Post Results Conference Call of Fortis Healthcare Limited. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star and then zero on your touchtone telephone. 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, [Dorwin]. Very good evening, ladies and gentlemen, and thank you for joining us on our quarter two FY 2024 call. The call is being chaired by Dr. Ashutosh Raghuvanshi, our Managing Director and CEO. With him we have Mr. Vivek Goyal, our Chief Financial Officer, and I also have with me my colleagues from investor relations and M&A, Amit, as well as Avinash. Before we start the call, I would just like to state that, as you're all aware, we are a listed company, and our material subsidiary, Agilus Diagnostics, has filed a DRHP for a proposed IPO in September 2023.
In light of the publicity restrictions imposed on Agilus and the company, which is FHL, due to the proposed IPO, no further information other than that already contained in our investor presentation and press release can be shared. Given these restrictions, we would also not be in a position to clarify or answer any questions on the diagnostics business performance or on the proposed IPO at this point in time. We do appreciate your understanding on this. We shall begin the call with some opening comments by Dr. Raghuvanshi on the consolidated and the hospital business performance, and then we can open the floor for question and answers. Over to Dr. Raghuvanshi .
Thank you very much, Anurag. A very good evening to everyone. Thank you for joining us at this late hour for our Q2 2024 earnings call. I extend my warm greetings to you for this festive season. I would like to straightaway talk about the performance of the company in the quarter and the six months ended in September 30th, 2023. We have witnessed a strong set of earnings for the quarter. Our consolidated revenues have increased 10.1% versus Q2 of financial year 2023 to INR 1,770 crores. Our consolidated operating EBITDA for the quarter was at INR 330 crores compared to INR 303 crores in Q2 of financial year 2023, and INR 273 crores in Q1 of financial year 2024.
Consolidated operating EBITDA margin was at 18.6% versus 18.8% in Q2 of financial year 2023, and better than 16.5% in quarter one of financial year 2024. At the PAT level, we reported a profit after tax prior to exceptional items of INR 180 crore, compared to INR 167 crore in Q2 of financial year 2023. This is approximately 8% growth versus the corresponding quarter, and 47% growth versus Q1 of financial year 2024. Reported PAT stood at INR 184 crore, versus INR 218 crore in the corresponding previous year. On the balance sheet, we remain quite healthy, with a net debt to EBITDA ratio of 0.29x versus 0.44x at the end of quarter two of financial year 2023.
Our net debt stands at INR 393 crores as of September 30th, 2023, and our debt/equity mix allows us the flexibility to leverage our balance sheet to further our growth objectives. Let me now also briefly touch on the consolidated H1 financial year 2024 financial numbers of the company. For the H1, our consolidated revenue stood at INR 3,427 crores, a growth of 10.7% over the corresponding previous period. Operating EBITDA for the period was INR 603 crores, versus INR 554 crores for the H1 in financial year 2023, translating into a margin of 17.6% versus 17.9% in the corresponding previous period.
PAT, excluding exceptional items for the period, stood at INR 303 crore versus INR 301 crore for H1 of financial year 2023. It has been relatively flat year-on-year. Reported PAT stood at INR 308 crore versus INR 353 crores in the corresponding previous year. I'm very pleased with the way the hospital business has performed. Our hospital business revenue have grown 12% versus Q2 of financial year 2023, and 7.3% versus Q1 of financial year 2024. On the profitability metrics, our hospital business operating EBITDA stands at INR 268 crores, an increase of 13.1%, and reflecting margins of 18.4% versus 18.2% in Q2 of financial year 2023, and 15.2% in Q1 of financial year 2024.
The improvement in margin is attributed to a healthy performance of all the key hospital operating metrics, which I shall speak of in a while. To highlight the contributions of the hospital operating EBITDA to our total consolidated EBITDA increased to 81% in Q2 of financial year 2024, versus 78% in Q2 of financial year 2023. This indicates the positive momentum in our hospital business earnings, allowing us to sustain our overall profit margins. On the international patient business, we continue to witness strong traction. International patient revenue were at INR 127 crore, a growth of 15.6% over the corresponding quarter, and 10.6% over the trailing quarter.
International patient revenue during Q2 of financial year 2023 contributed 8.3% of total hospital revenue, versus 8% in Q2 of financial year 2023 and Q1 of financial year 2024. The revenue contribution from the company's key medical specialties, including oncology, orthopedics, renal sciences, cardiac sciences, neurosciences, and gastroenterology, to overall hospital revenues increased to 61.2% in Q2 of financial year 2024, from 60.5% in Q2 of financial year 2023. Revenue from gastro sciences, oncology, and renal sciences grew in excess of 20% versus the corresponding previous quarter. All of the above factors contributed to a healthy increase of 11.8% in ARPOB to INR 2.21 crores from INR 1.97 crores in Q2 of financial year 2023.
Our occupancy stood at 68.7% versus 69.6% in Q2 of financial year 2023, and 63.7% in Q1 of financial year 2024. On our brownfield expansions, which we have been discussing with you, we remain on track to add approximately 250 beds to our network in the current financial year across the facilities, such as Mulund, Anandapur in Kolkata, and BG Road in Bangalore and Ludhiana. With the total planned addition of close to 1,400 beds in the next three to four years, further augmenting our bed expansion plans in Delhi NCR, and Punjab clusters. We are also evaluating new opportunities, including optimizing the currently available space in our additional beds in Mohali and Shalimar Bagh, and we have, our Board has approved the extension of these projects as well.
So the beds which are going to come from Mohali are going to be another 400 beds in addition to the beds which we have said earlier. On the digital transformation front, we continue with our efforts to implement EMR solutions that will form a platform to integrate our HIS. The rollout of such a EMR system is currently underway. myFortis app and other applications are also being bolstered, and that this would enable us to digitize the patient journey and provide a personalized and a better experience for our patients. During the quarter, we commissioned several medical programs and further strengthened our medical facilities. FMRI, Gurgaon, launched state-of-the-art Digital PET/ CT for advanced imaging in cancer diagnostics. We are getting ready for our MR Linac, which is going to be the first of its kind in Northern India.
We have further augmented our medical infrastructure by commissioning high-value medical equipment, noticeably Linac, Cath Lab, neuro navigation system, and OrthoRobo in our key facilities. Commensurating with our medical program expansion, we continue to attract high-quality clinical talent. We have onboarded clinicians in the specialty of oncology, renal sciences, neurosciences, cardiology, and general surgery during this quarter. With that, I would like to conclude my remarks by reiterating to all of you that we remain steadfastly committed toward our growth path in order to further our operational performance and create long-term value for all our stakeholders. Thank you, and now I would like to hand over to Mr. Anurag Kalra for taking the session further.
Thank you, sir. Ladies and gentlemen, we shall now open the floor for question and answers. Can I request the moderator to begin, please? [Dorwin]?
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Saion Mukherjee from Nomura. Please go ahead.
Yeah, hi, good evening, and thanks for taking my question. So hospitals, you know, if I look at this quarter and also for the half year, you know, you've recorded 12-13% growth, but that has not translated into appropriate EBITDA growth. I mean, we have seen margin expansion of around 20 basis points year-on-year this quarter. You know, this is after Arcot Road divestment. So, I mean, and we have, you know, there's a strong ARPOB growth, the specialties that you're focusing are growing, but it seems that EBITDA growth is not coming through. Is there anything that's sort of hurting EBITDA? And how confident are we to sort of achieve 20% EBITDA for the hospital for the next financial year?
Yeah, sure. I can take this question, Saion. So this is, your observation is to some extent correct in terms of EBITDA margin, but in absolute term, if you see, the EBITDA in absolute term has gone up, compared to, corresponding quarter previous year, the EBITDA has gone up by almost INR 30 crore . Okay? And as regard, you know, the, despite, you know, the Arcot Road divestment, there is no much visibility in the EBITDA margin improvement. The, there are two couple of reasons for that. One is, of course, the legal and the professional cost.
As you know, company is engaged into this legal battle, and there is some amount of work has happened during this period, and because of that, the legal and the professional charges have gone up to some extent. And plus, you know, the revenue increase is mainly coming from the high-end specialty like onco and ortho, which is typically a low margin business. So that is lead to, you know, not much expansion in the margin, but overall in absolute term, the margin has gone up.
So, you know, are we sticking with our guidance of 20% for next fiscal?
Absolutely, Saion. Yeah, you know, there are several reasons why the margin has been at this level, but our guidance is absolutely intact for next year.
Okay. And, I don't know, sir, if you can talk about diagnostics, but, you know, the observation is that the growth and margins there are also, you know, weak versus, let's say, other peers in the industry. Will you be able to comment on any reason why, you know, the growth is lower?
No, Saion, I'm sorry. As we said in the beginning of the call, we can make no remarks about the diagnostic business, please.
Okay, no problem. Thank you.
Thank you. The next question is from the line of Madhav Marda from FIL. Please go ahead.
Hi, good evening. Thank you so much for your time once again. I just had two questions. The first one was, when you said that we have evaluated new opportunities at Mohali and Shalimar Bagh, does that mean these are additional brownfield expansion opportunities? And would that also mean that the 1,400-bed brownfield pipeline, which we spoke about earlier, does that mean we have a bigger brownfield pipeline now available for the company in the next sort of three to four years as we expand?
Yes, absolutely. As I said earlier, Madhav, these are in addition to the earlier brownfield, which we have already said. And these are both brownfield expansions. Shalimar Bagh is of course, the new block is going to be constructed, and we are in the stage of getting all the final permissions. All the plans are ready for that. Similarly, in Mohali also, we are in the process of getting all the permissions, but this would be additional to the 1,400 beds, which we have said earlier.
So, does that make up b rownfield pipeline now, that 1400 beds, which we had kind of highlighted, that number is how much now, in terms of for the company?
It will be around 1,800 beds now.
Okay. Okay, wonderful. Got that. And just the second question was, to Saion's point about the 20% margin guidance, what are the levers that can help us get there, in FY 2025, like versus, the current period?
Yeah, so there are a couple of lever we are continuously working on that. One is, of course, you know, the occupancy ramp- up. You can see in the current quarter also, the occupancy-wise, we are still not reached 70% occupancy level. So we want to achieve that 70% occupancy level on the enhanced bed capacity, and that will lead to increase in the EBITDA margin. And secondly, you know, there is a more focus on the cost side, which would lead to, you know, some margin improvement in the coming year.
So the, these brownfield beds, which are, which will be coming 2 50 beds this year and some more next year, typically, what is the break even like? I'm assuming, given it's a pure brownfield and they're adding in facilities with good occupancy, EBITDA break- even and this thing should be much faster. Is that the right understanding?
Yes, absolutely. And that's why we are focusing more on the brownfield expansion. And your assessment is absolutely correct, because all these expenses are coming in the facilities where occupancy level is already very high. So we are not expecting some much challenge in filling those beds. And that will lead to, you know, some earlier break-even time .
Got it. Got it. And sir, could you just, just highlight, like, this additional legal and professional costs which went up this quarter? How much is that amount?
It is, I think, in the range of INR 6 crore-INR 7 crore in the quarter.
Incremental cost, just on the quarter?
Yeah.
This should come down or this should stay the same level, like, are we expect it to come down a bit?
It is very difficult to predict this very early, because it will all depend on how quick this court proceeding happen, and, you know, how much time these lawyers will invest into that.
Okay. Got it. Okay.
Madhav, does that answer your question?
Yeah. Thanks.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Yeah, thanks for taking my question. Sir, first, on the Delhi High Court, do we have any update there or, you know, any timelines when we can look at, you know, that, you know, a closure to that litigation and the forensic audit?
The hearings are going on, Neha, but there is no sort of, you know, we cannot really predict how much time it will take. There are a couple of dates which have been given during the month of November.
Mm-hmm.
I believe that we should have some clarity after these two dates, but then, possibly the winter vacations will come. So I expect that it should take at least three, four months before an absolute clarity emerges.
Understood, sir. And the second question is again on the hospital margins. You know, the 20% margin guidance that you know, we're still building. While I understand occupancy and all of the reasons that you mentioned, but you know, how essentially are we getting to that number? You know, the higher occupancy, because we are also adding, you know, brownfield beds, while the break-even time might be shorter, there is still some amount of, you know, ramp-up that will be required. So, you know, how exactly are we getting to that 20% margins, especially with the beds that we are adding, even if they are brownfield beds?
Yeah. So, Neha, as we have mentioned earlier, we are quite confident that next year onward, we will be having 20% EBITDA margin on a yearly basis. Okay? So this year, there is some improvement in the margin, but the improvement may be higher if we able to, you know, achieve, so reduce this legal cost. So, I think next year we are quite hopeful because of the reason I have told you, one is, you know, the ramp-up of the existing occupancy. As regard your question on, you know, the brownfield expansion and the initial losses, we are not feeling that type of hit in the wherever we could have achieved the brownfield expansion.
Reason being, these are our existing hospitals, and they are already facing bed challenge actually. Most of them are operating at 75% + occupancy. So, I will say, they will start contributing within the very early, as we start this service.
Yeah.
Understood.
And just to add to that, is there's couple of hospitals where the occupancy figures are low is, Bangalore and, our BG Road in Bangalore and,
Mm-hmm.
Mulund in Mumbai. So we are focusing on, you know, enhancing the clinical programs, etc., in these two places. That is one of the ways by how we will be able to increase the occupancy. And then, as Vivek said, that in some of the other hospitals, already they are working at a good occupancy of 70+ or 75+ rather.
Got it, sir. And sir, you know, in terms of capital allocation, you know, strategy, incrementally, are we, you know, looking more, more assets, you know, for bolt-on, like the Manesar asset that we took over? Or, you know, do you think this 1,800 is what we are okay with and, you know, we'd want to execute on that before looking at more addition?
Yeah. Neha, so see, as we said that, you know, that this is our preferred way of growing, but then-
Mm.
This is our aspiration is much beyond this. As we were talking about our balance sheet status and the debt position.
Mm-hmm.
We are not leveraged at all.
Right.
So we have a huge capacity, plus most of the CapEx, which is going to come for the brownfield expansion, 50% of it is from internal accruals and only 50% is on debt. S o this would mean that we would have a further capacity to do smaller projects like the bolt-on which we did in Manesar. 1,800 beds also, mind you, does not include the Manesar beds.
Yes.
Manesar will have 350 beds. Over the next two and a half to three years, we will commission them, and we will be starting with 150 beds sometime in by the end of this financial year.
Mm-hmm.
150 beds we will commission, and then the rest will be commissioned in phases. So it actually makes the brownfield plus Manesar put together itself it becomes close to about 2,300, 2,200, sorry. And then we will continuously look for other opportunities as well. And we believe that we are in a position to consider some larger assets as well.
These would be in the existing markets that we are still meaning, you know, Delhi, Mumbai? You know, those would be the markets you are. Are you also open because historically we've, you know, we've moved out of a lot of Tier Two markets, which, you know, seems to be growing much faster than Tier One? So, you know, are we still focused on our existing markets from a growth strategy point of view?
Yes, we will remain focused on the clusters. Our cluster strategy is what we are firmly with, and we will continue with that approach.
Understood. Thank you so much, sir.
Thank you. The next question is from the line of Aneesh Deora from Nomura. Please go ahead.
Yeah, thanks for the opportunity. So my question is around ALOS numbers. So if I look at the ALOS numbers, you know, till the last quarter, they were in the range of 3.5, 3.6 odd days. But in this quarter, I think, all the historical numbers have also been, you know, revised upwards to 4.2 days and, something like that. So would you just, you know, tell what has exactly happened? Has there been any, you know, change in the methodology or what exactly has happened there?
ALOS number.
Yes. So, essentially, you know, I think we will have to get back to you specifically on this.
I can-
Yeah. Oh, okay.
So, Aneesh, the ALOS number is basically the way we were calculating earlier and the way now we are calculating. We have recently implemented a IT tool - BI tool for our data analysis and MIS purpose and analysis purpose. In that, we have tried to standardize our, you know, the way we were reporting, ALOS. So, you know, some units were taking day care, some were not taking day care. Those type of things were happening, and because of that, this number deviation is there. There is no change as such in the, you know, the business metrics as such. But the way it was calculated, that's why there is a difference. Now this thing has been right, and going forward, we could track according to this metric, the number which is coming now.
So, essentially, if I look at the ALOS numbers of this quarter versus the quarter of the last year, there has been a reduction of about 5% in the ALOS on the new methodology that you have put out in this quarter. So just wanted to understand what is, you know, driving the ALOS reduction.
Yeah. One is, you know, our oncology work is going up, and especially the medical oncology, that has been growing at a very fast pace. Similarly, the cardiology also has done well. So both these typically have lower average length of stay.
Okay. And, do we, is there a particular focus on, reducing the ALOS further? Any particular focus there?
The hospitals which work on high occupancy, we always try to achieve lower and lower ARPOB. And even in the hospitals, it does not make sense for a patient to be in the hospital if they don't need to be. But the nature of the work we do is a lot of quaternary work, high-end neurosurgeries, orthopedic surgeries, etc. So though the orthopedic surgery and other areas, the length of stay is not long, but in case of complex neuro procedures, it is typically much longer. So I think being at a blended basis, we don't expect it to dramatically come down from the current level.
Understood. Thanks.
Thank you. The next question is from the line of Dhara Patwa from SMIFS Limited. Please go ahead.
Thank you for the opportunity, sir. One question, just one question. In the last call, you guided for 70+ occupancy for FY 2024. So are we still maintaining that guidance? And if yes, then it means that Q2 would be much better, H2 would be much better than H1, and we need to have occupancy of 75% in the next two quarters to achieve that 70% occupancy.
Yeah. So that was, we were talking about the exit, occupancy. And, this quarter, the occupancy level should be higher, but we should be mindful about, this quarter means the current quarter, December quarter, but there is a, you know, festival season, as we know, and, the, we generally-
Lead to, you know, lower occupancy in certain parts of the month, but our target is 70%.
Okay, that's it, sir, t hat's the questions.
Thank you.
Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Yeah, good evening, and thank you for taking my question. Dr. Ashutosh, just a question on HR, human resources, doctors. So we've, we onboarded many clinicians in different medical specialties. I think we have been doing it in the first half as well. One of your peers earlier today also mentioned that the guaranteed payouts for their doctors, they're trying to get more people on guaranteed payouts. So, is this the time when, you know, costs are now starting to go up on medical personnel and maybe also non-medical personnel? And is this one of the risks that could potentially put a question mark around our next year's margin number? What do you think is the biggest risk for achieving, say, a 20% EBITDA margin?
Yeah. So currently, the situation is, Shyam, that there are new beds and the new facilities which are coming up in many parts of the country. So we do expect that there will be some movement of clinicians across various networks, etc., which happens from time to time. And as a result of that, definitely some of the guaranteed payments or the minimum guarantees which we offer, that would also go upwards. But I do not see this as a very high risk situation, nor is it a very concerning situation, for the simple reason that the availability of talent is also slightly different now compared to what it used to be few years back.
And the larger groups, and not only us, but I would say the others as well, find it easier to attract clinical talent. So yes, we would definitely see a little bit of churn in coming times, but I don't see this as a risk. Now, if I to think that, what other risks could happen, that could be partly because some delays may happen in commissioning of some of the beds which we have, which are getting ready. So that could be the only risk in my mind, which could delay some of the progress which we are expecting in the next year. Other than that, I think all other factors are operational and cyclical in nature, and those can be very easily managed.
Got it. So when I look at your professional charges to doctors, would that be a way to kind of gauge what's happening on that particular line item, especially on doctor compensation? Would that give me the full picture, or is it? It could also be in, say, employee benefits. So how should we track that wage inflation, especially for doctors?
Yeah. So, our doctor cost typically is slightly higher. That is partly because our facility sizes are slightly smaller compared to a larger hospital. So, we probably don't have that kind of productivity because of that. But I think we should not factor a very large increase in this cost. I think the majority of the cost enhancements which had to happen have already happened during this year.
Got it.
So, what 'd be helpful?
Currently is a kind of a baseline for new baseline. Yeah.
Great. My last question is on the margin matrix, which you gave on slide 7. Just if you can look at it and say in fiscal 2025, let's see, how will this [audio distortion].
Sir, sorry to interrupt, but the line for you is breaking up in between. You are not clearly audible.
Yeah. Yeah. Am I audible now?
Sir, I would... Okay, yes, please go ahead.
Yeah. So I'm just looking at the margin matrix that you put out for the individual hospitals, and I'm just trying to project hypothetically how this margin matrix will look in fiscal 2025. When we look at the four cohorts that you have, will they all be like, occupancy is the one number in the last column that will all go up the same? I'm assuming everything doesn't go to 70, but would that be the driver? And I know I'm repeating this question other participants asked, but just want to figure out how, which of these columns is the one that's more important, or is there an element of payer mix that we are not talking about yet?
So if I can answer that, Shyam, so it is a mixture of both. In some units it is a question of better utilization of the facility and the man, you know, the manpower, because the occupancy is low. We have discussed about Mohali, BG Road, to some extent, Vapi, fall in that category. Okay? And there are other hospitals where, you know, where we have expansion going on. For example, the Faridabad and Noida, where, you know, the expansion is going on. Faridabad, we will be completing the expansion by this time. So then, you know, once, the disturbance because of the expansion will go away, and that will lead to the better patient experience, better, better revenue.
And secondly, is the more bed will be coming, and Faridabad, by the way, we are operating at almost 80% + occupancy level. So, so those type of things will play. It will not be a straight answer, I will let you say. But having said that, most of the hospital, barring, you know, four, five, which we have we discuss every time, are should be moving above 15% EBITDA margin category.
Yeah, just to add to your second part of the question as to, you know, whether the payer mix is something. So payer mix wise, I think we have approximately about 20% of-
20%.
Around 20% of the schemes patients, which is the CGHS, ECHS, etc., we are doing. So we do aim to try and reduce that, but we want to do it in a calibrated manner because it is also important for us to ensure that the occupancy remains high. So that will go in tandem. So some of the units we will accept a higher proportion of these patients, and some of the units we will not accept such patients.
Got it, sir. Thank you, and all the best.
Thank you. The next question is from the line of Naman Bhansali from Perpetuity Ventures. Please go ahead.
Thank you for the opportunity, sir. First question is on the oncology side. So you had mentioned this in the previous call, too, that onco is a lower margin business for you. But I was just wondering from the industry-wide perspective, and majorly from the northern region perspective, that there are a lot of different hospital players who are trying to more and more enter into the oncology therapy as a to the patients. So there are certain peers who are reporting certain numbers which are incrementally giving them north of 35% margin on their oncology business. And there are certain players who are trying to enter into oncology business incrementally because it is a higher margin business, and these are not present totally into Delhi NCR, but Noida, Greater Noida, etc.
Just want to understand that why, from an industry perspective, is oncology a higher margin or a lower margin business for us?
No, no. Oncology is not a lower- margin business. But when we look at the oncology business in totality, it is important to understand that if an institution's contribution from medical oncology is slightly higher, then the contribution margin becomes lower. And as a result of that, in the percentage terms, it may not be as high as an institution which is doing more of surgical work or an equal proportion of surgical versus medical oncology. So the reason why in medical oncology the contribution margins are lower is because the price of drugs is higher and the service charges are also low. So that is precisely the point we were trying to make. We strongly believe that oncology is a growth area.
We have seen a growth of about almost close to 27%, I think, in oncology.
Yeah.
We have committed a huge CapEx to enhance our oncology services in the entire region. We also strongly believe that oncology is the business of future. But in absolute terms, though, we would have a high, more EBITDA being generated, but in terms of profitability, I do not believe that it can go on a very high percentage because of the reasons I mentioned. But one thing which we are doing is we are enhancing our surgical oncology load. As that keeps on building, we will see a better margin from this segment.
Got it. Got it, my question. And as you said, you are trying to increase the surgical mix, so as an overall business, we usually see that Q2 is a lower surgical revenue business for us. So going forward, we maintain our aim to keep the surgical mix above or north of 60%, or would it fluctuate lower than 60%?
Yeah. Yeah, there are some bit of seasonal variations happen, and also, you know, sometimes we don't have a choice how this is, a kind of a number in hindsight, you know, we cannot really choose which patients get sick at what time. So because of that, what we typically will see is difficult to predict, but I expect the ratios to remain similar.
Got it, sir. And lastly, we usually mention about rationalizing our portfolio in terms of the hospitals which are performing good and which are performing bad. Today, if you would have to say, what are, what would be the top hospitals which have been underperforming since last couple of years and are on the pecking order on the top for rationalization?
Yeah.
So, yeah.
Yeah.
So, this is a continuous process, and, you know, as we are giving this metrics, so we continuously evaluate, and our first endeavor is, you know, to make the hospital more profitable. And, after exhausting all our resources, and if we feel that we are not able to add value, then only we try to rationalize by divesting, divesting those assets. Currently, we have done one. As we are aware, Arcot Road, we have divested. We are working couple of more. And, you know, as things progress, we will be able to tell you more about that.
Okay, got it. And lastly, on the occupancy side, so, if we are seeing, we are going to add another 250 beds by the second half of the year, and, so are we aiming that 70% + occupancy? Can we see that number in the second half, despite the 250 bed addition, what, what would be your take on it?
Yeah, this year we will be having every [inaudible] with 70% occupancy. The overall occupancy for the year may not be 70%, it may be slightly lower, but next year, we are, we are hoping of 70% [inaudible].
Got it. Thanks a lot, sir. Happy Diwali!
Thank you.
Thank you. The next question is from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi, good evening. Actually, just a request. You know, we are adding 1,800 beds on a base of about 4,400 or 4,500, which is a large number. It'd be great if you give a little more color in your presentation about where these beds are coming up and, you know, a rough timeline in terms of which year each group of beds come up. That would be great and help us understand more.
Certainly, yeah, we can directly share with you. You can connect with Anurag Kalra, and he, our team will be happy to give you the further details.
Perfect. Thank you very much.
Thank you. The next question is from the line of Madhav Marda from FIL. Please go ahead.
Yeah, thank you for the follow-up. I just wanted to check on the brownfield expansions, when these beds come in, basically, is how much is the incremental EBITDA margin on these beds, you know, given some of the fixed costs are already in place? I don't want the exact number, but if you could give us some qualitative or broad sense, that will be very helpful to understand the kind of operating budgets which will come through.
Yeah, obviously, the EBITDA margin of the brownfield expansion will be higher as you rightly mentioned, the fixed cost will be allocated on the higher, larger base. Having said that, the basic, there will be some cost which will go directly with the occupancy, that will anyway go away. So I am expecting EBITDA margin of at least 30%-35% on this revenue brownfield expansion.
Got it. Because EBITDA for Fortis on 4,000 beds, 1,800 beds is like a very large number for brownfield, right? So it's like a—I mean, it should drive, like, from a three-five-year view, maybe margins should be quite well- supported, right? Because it's mix of brownfield beds is very large in our existing base.
Yeah, once we achieve particular ramp-up on this 1,800 beds, definitely it should give us higher EBITDA.
Got it. Understood. Thank you so much. Happy Diwali.
Thank you.
Great. Thank you. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.
Yes, thanks for the follow-up. Just this 12%-13% top line growth in hospitals, can you split it up between volume growth and realization per patient? And within realization per patient, which is an important driver, whether it is pricing of the procedures or case mix and payer mix, if you can, you know, sort of, you know, give some granular detail around the growth profile?
Yeah. So I will say it is around the price increase, increase of around 3%. And 7%-8% is on account of volume increase, and rest is on the effectivity and, you know, the mix impact.
This 3% price increase, is it like a normal trend? Because sort of this is below inflation, right? I mean, all your cost items would be sort of, inflating at a higher rate.
Yeah, you are right. So this is basically on the overall revenue. And as you know, we are having government payer also, TPA is phasing down . So we are, you know, we don't have liberty to increase price like that. And plus, you know, there are a major proportion of drugs and consumables on the realistic price control. So I will say, in the industry, this may be in line with the industry norm.
Okay. I mean, so there is no sort of increase in pricing, right? I mean, like one of your peers were mentioning that, you know, there's greater demand for, let's say, private rooms, or people are willing to spend more. So is that not a lever for you to sort of, drive pricing?
No, no, that will, that will go into the ARPOB. That is, you know, will come into the mix. When we say price, means for, for the same bed, what price we were charging earlier, and for, for the same procedure, what price we were charging earlier and what price we have increased. Suppose somebody earlier wanted double bed, and now he, he wanted single bed, that will go in the mix.
Okay. So this trend is something which you... You know, you know, this is something which you think would sustain, I mean, for next year, 7%-8% volume growth and 3% price increase?
Yes, yes, we are expecting the same.
Okay. Okay, thank you.
Thank you.
Thank you. We have no further questions. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Yeah, yeah, thanks, [Dorwin]. Ladies and gentlemen, thank you very much for joining us on this call at this late hour. If there are any further queries, clarifications, please do feel free to reach out to us, and we'll be able to help you as best as possible. Thank you, and good night.
Thank you. On behalf of Fortis Healthcare, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.