Ladies and gentlemen, good day and welcome to the Q4 and FY 2022 Post-Results Conference Call 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. 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, Richa. Very good morning and good afternoon, ladies and gentlemen, and welcome to Fortis Healthcare's quarter four and FY 2022 earnings 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. From SRL, Mr. Anand K joins us as the CEO of SRL, and with him is Mangesh, the Chief Financial Officer of SRL. I'm also joined by my colleague, Gaurav, over here. We will begin with some opening comments by Dr. Raghuvanshi on the performance of the quarter and the year, followed by which Anand K will take you through some key highlights of the diagnostics business and then we shall open the floor for question and answers. Over to Dr. Raghuvanshi.
Thank you, Anurag. Good morning and good afternoon, everyone. Thank you for taking time to join us for our Q4 financial year 2022 earnings call. I hope all of you are in the aftermath of Omicron wave. We were all relatively fortunate that this time around the wave was less severe and saw fewer hospitalizations, allowing us to resume to normal in a shorter span of time. Nonetheless, cases are still being diagnosed, and hence, we should all continue to be careful. Coming to the performance of the company, I shall comment on the year as a whole and then move to quarter four. As you're aware, fiscal 2022 was sort of a mixed bag, with COVID impacting us in Q1 of the year. Despite this, we ensured business continuity and sustainability and quickly augmented our efforts to scale up operations once business normalized.
This enabled us a healthy performance with a consolidated top-line growth of 42% and an all-time high EBITDA of INR 1,000+ crores. This is indeed heartening and reflects the efforts of all my colleagues, employees, and clinicians to ensure that the company has clearly moved on from the challenges of the past. Consolidated revenues for the company stood at INR 5,718 crores, with profit after tax at a robust INR 790 crores versus a loss of INR 56 crore in financial year 2021. Our hospital business revenue for the year have grown 37% to INR 4,264 crores, with margins improving 740 basis points to touch 15.8%.
Our diagnostic business has been aided by COVID volumes and has recorded a robust growth of 55% in revenues to reach INR 1,605 crores in financial year 2022. Margins in the business were at a robust 26.5% versus 19.3% in financial year 2021. Just to put the diagnostic business in perspective, high COVID volumes are unlikely to continue in the current fiscal unless there is a second, another wave, which is extremely unlikely. Our balance sheet remains healthy with a net debt to EBITDA of 0.6x versus 1.04x over the corresponding previous year. We have reduced our debt by approximately INR 300 crores and have a net debt of INR 549 crores as of 31st March 2022.
Our finance costs are lower by 12%, both as a result of debt reduction and lower rate of borrowing. In fact, in financial year 2022, we've missed a rating upgrade by CRISIL for both our long-term and short-term borrowing programs. As I mentioned above, our Q4 performance was impacted by COVID through the first half of the quarter. This being less severe and seeing lower hospitalizations, we were able to quickly recover towards the end of February and saw normal business in the month of March. While January witnessed a downturn with occupancy going down to 54%, the month of March we saw the occupancy recovering to about 63%. Overall, for the quarter, we were at 59% occupancy.
We did better than the corresponding previous quarter on most parameters, but were lower when you compare the performance to the trailing quarter since this had negligible COVID revenues. We recorded a consolidated top line of INR 1,378 crores, a growth of 10% over Q4 of financial year 2021. Our EBITDA margins were better at 16.5% versus 16.3%, and our profit after tax also increased 40% to INR 87 crores for the quarter. Our hospital business revenues grew 6% with EBITDA margins at 13.8%, while the diagnostic business revenue grew 22% with EBITDA margins marginally better than the corresponding previous quarter at 22.5%. I shall now share with you some qualitative aspects and operating metrics of both our businesses for financial year 2022. Firstly, the hospital business.
I'm quite pleased with the way the business is evolving. Our occupancy in financial year 2022 was 63% versus 55% in financial year 2021. ARPO has increased 14% to reach INR 1.80 crores. We have grown our revenues from key focus specialties such as oncology, cardiac sciences, neurosciences, renal sciences, gastroenterology, and orthopedics, which contributed 55% to overall hospital revenue versus 53% in financial year 2021. These have shown a robust 43% increase in revenue versus last year. Most of our hospitals have done well in the fiscal. What is also encouraging is the turnaround we are seeing in some of our underperforming facilities such as FEHI. We continue to invest in state-of-the-art medical equipment and infrastructure, and expand beds in select facilities in our focus clusters.
We have commissioned cath lab, neuro navigation systems, PET-CTs, BMT units, and the like in select facilities. Supplementing them by onboarding recruited clinicians in order to significantly strengthen our clinical offering and medical programs. We remain focused both on revenue and cost levers to improve our profitability. Leveraging digital channels such as mobile app, websites, online campaigns, coupled with our sales and marketing effort on large payer mix segments should drive the top line. Cost has and continues to be a priority area as we look at optimizing both direct and indirect spends. We continue to evaluate our drugs and consumable metrics, including substitution and consumption optimization. We have also largely in-housed our outpatient pharmacy business and radiology services in our facilities, which we believe would add incrementally to our margins.
All in all, cost continues to be reviewed across expense lines, functions, and facilities, and we remain cognizant of the criticality to our performance. We continue that our portfolio rationalization program, aligning this with our focus cluster approach to grow both organically via brownfield expansion and inorganically in geographies of Delhi NCR, Maharashtra, Bangalore, and Kolkata. This will not only help us channelize our resources more effectively, but also help us gain from economies of scale efficiencies and benefits of cross-leveraging clinical and non-clinical resources. Our plans to add 1,200 beds in the existing facilities over the next few years are well underway. Moving ahead, I expect that our hospital business will continue to grow steadily, led by the investments we have made and continue to make, and with our efforts both from a strategic and operational perspective.
Now on the diagnostic business, I shall be brief in my comments on this, as Anand shall take you through it in detail. SRL saw significant turnaround, aided both by the higher volumes of COVID tests in Q1 and Q4 of financial year 2022, and its acquisition of DDRC SRL joint venture in April 2021. SRL conducted a total of 44.2 million tests in financial year 2022 versus 23.5 million in financial year 2021. More importantly, SRL in financial year 2022 has significantly strengthened its channel mix with the B2C versus B2B component at 55% versus 45%. It has aggressively expanded its network, adding close to 750 net customer touch points and 400 direct clients in financial year 2022, the highest ever annual addition so far.
While this business has done exceedingly well in the last fiscal, it would also be important to highlight the current market environment, where we are witnessing an increasing level of competition from new incumbents, both online and offline. In addition, we also do not expect the high COVID test volume seen in financial year 2022 to witness the same trend in the current fiscal. This could result in short-term abrasions, but I do believe that given SRL's size, scale and spread, we should be able to mitigate this as best possible. I'll let Anand speak more on this in his comments. As I sum up, I believe financial year 2022 has made us more resilient and adaptable in our business. We have emerged much stronger in the aftermath of COVID, and have the building blocks in place to maintain our growth momentum.
All this, of course, begins within our framework and pursuit of excellence in patient care and clinical outcomes. These have and will continue to drive our performance in the future for all stakeholders. Thank you once again, and please stay safe and well. I shall now hand over to Anand for his thoughts on SRL. Thank you.
Thank you, Dr. Raghuvanshi. A very good morning to everyone on the call. Personally, I hope that you are all safe and keeping well. On behalf of SRL Diagnostics, I warmly welcome you all to our Q4 FY 2022 results conference call. Firstly, I would like to thank you for your confidence and trust in SRL Diagnostics. I am pleased to report that we have ended the year in a strong position. This is a testament to the commitment and perseverance exhibited by our teams across the country. It has been reassuring to note that SRL's ability to consistently deliver high standard diagnostic reports has once again been on display during the pandemic. Our 7,000-member strong SRL family takes immense satisfaction in having delivered the absolute best to the citizens amidst the most challenging circumstances. The diagnostics industry has come a long way since the pandemic.
It was first announced in the country in March 2020. With growing awareness on importance of laboratory testing and reliable reports, coupled with an increasing health consciousness among the young population, we are witnessing an uptick in our preventive packages as well as non-COVID testings, chronic diseases categories, and specialized portfolio. Our numbers reflect this as we registered the highest ever non-COVID revenue in March 2022, and our non-COVID revenue in Q4 2022 has grown by 24% when compared to Q4 of 2021. At the beginning of the fiscal year, we envisaged a full recovery of non-COVID testing by end of FY 2022, and we are pleased to confirm that Q4 2022 has been promising on this front.
In Q4 2022, the first six weeks were affected by the Omicron wave of the pandemic, which had an impact on revenues, while there was a corresponding surge in COVID testing. The non-COVID revenues recovered significantly by March 2022. During the quarter, we reported revenue of INR 332 crores compared to INR 306 crores in Q4 2021, a growth of 22%. The company EBITDA for the quarter stood at INR 84 crores, representing a margin of 22.5% compared to 22% margin reported in Q4 of 2021. SRL conducted 10 million+ tests in Q4 2022 and serviced over five million patients. SRL added 270 net new collection centers to its network in Q4 of FY 2022, taking the total number of touch points to 2,502.
SRL's B2C, B2B revenue mix strengthened to 54:46 in the quarter compared to 49:51 in Q4 of FY 2021. SRL continues to witness a healthy traction in its walk-in patients revenue, which grew by 77% in Q4 FY 2022 versus Q4 of FY 2021. For the financial year 2021-22, SRL reported net revenues of INR 1,605 crores compared to INR 1,035 crores reported during the financial year 2021, a growth of 55%. The company operating EBITDA for the year stood at INR 425 crores, representing a margin of 26.5% compared to a margin of 19.3% recorded during the previous financial year. The business served a total of over 21 million patients during the year, compared to 11 million during FY 2021.
We completed 44 million tests during the year, compared to 23 million tests performed in FY 2021. SRL has been aggressively expanding its network and have added over 750 customer touch points in FY 2022. We are now present in 28 states and eight union territories and across 6,000+ cities. The B2C, B2B revenue mix for the year was at 55% to 45% compared to 48% to 52% in FY 2021. The business continued to have a well-diversified geographical mix with no overdependence on any particular region, allowing it to capitalize on a pan-India network optimally. Regional Q4 2022 revenue contributions were 30% from the North and Central India, 23% from West, 29% from South, 13% from East, and 5% from international territories. Digital has been one of our priority areas in FY 2022.
Our app install numbers have grown by INR 8.9 lakhs in FY 2022, and our website is visited 2 million times each quarter. Our digital revenues doubled in FY 2022 compared to FY 2021. As part of the digital drive, we are also collaborating with online platforms to reach out to new customers. We have taken a slew of measures to improve our customer experience. From live specimen tracking to introducing smart health reports and being available on demand on messaging platforms like WhatsApp, we are continually taking steps to offer the best in customer service. The WhatsApp chatbot especially enables customers now to book tests, get a status on their reports, get reports delivered securely, inquire on tests, and also search for nearest centers. Our goal always has been to launch diagnostic solutions that not only meets the challenges of today but also anticipates future needs.
We have added close to 100 tests to our test menu this year, with a special focus on genomics in the field of cancer, reproductive disorders, rare diseases, and inherited disorders. Our workforce of over 10,000 plus employees across our network are the pillars of our strength. Training continues to remain one of the company's key focus areas.
In the last few years, SRL has progressed to bring many tailor-made competency enhancement programs. In FY 2021-22, the company clocked approximately 5,000 man days of learning and development programs. I am proud of what we have achieved and optimistic about what we can accomplish in FY 2023. I would just like to once again thank all my colleagues at SRL Diagnostics for incredible effort. We are committed to improve customer experience through data-driven actionable insights and by enabling a convenient one-stop shop for all our customers' diagnostic needs. We are well positioned to continue our momentum in delivering profitable and sustainable growth in the coming years. Thank you very much for your attention. I would like to hand over the call now to Mr. Anurag Kalra, our Head of Investor Relations.
Thank you. Thank you, Anand. Ladies and gentlemen, we shall now open the floor for question answers. Our moderators, I can request you, please.
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 the touchtone telephone. An operator will take your name and announce your turn in the question queue. Participants are requested to only use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. Anyone who wishes to ask a question may press star and one at this time. We take the first question from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Hi. Good morning, and thank you for taking my question. The first one is on the hospital business. You said I think March we have reached 60%+ occupancy, if I recollect the number right. Just Dr. Ashutosh, just the outlook for fiscal 2023 in terms of where utilizations can actually improve. You know, maybe you can make an assumption that there is no, like you said, no subsequent COVID wave. How should we look at hospital occupancy? We have had about 4% growth for the full year, but I think fourth quarter was 6%. Just wanna understand occupancy plus what is the revenue growth outlook for the hospital business. I also noticed that the ARPOB is whatever, right, 1.88 for the quarter.
This quarter, I believe there is no COVID. I think 5%-6% occupancy only for COVID. What are some of the drivers if I work the other way around per day? I think we have reached INR 50,000 ARPOB per day. Just wanna understand the dynamics on ARPOB and utilization and how that will drive revenue growth for next, for fiscal 2023. That's my first question. Thank you.
Sure. Shyam, as far as the occupancy levels are concerned, we are currently tracking at about 65%, and more in some hospitals. We should aim to go towards 70% by the end of this year. This may happen in the next quarter itself because we are seeing a recovery happening on the international segment as well. Certainly that is the target which we are working towards. As far as ARPOB is concerned and the factors which influenced that was essentially a larger mix of the procedural cases and complex cases which have higher yield. We have had some marginal benefit happening from some of the rate revisions in the GIPSA category.
Other than that, plenty rate corrections. This ARPOB is quite sustainable in our view. Though with a little bit of case mix change happening towards medical patients, it may get moderated a little bit downwards, but it is likely to sustain at this level. What was the other part of the question?
Just the outlook, revenue outlook for fiscal 2023.
If I can take Shyam's question, Vivek here. The revenue, as Dr. Raghuvanshi has mentioned, we are covering around 65% occupancy, and this will result in the increase in the revenue side also. Definitely from the last quarter, means quarter four of the last financial year, we are targeting around 10% growth in the revenue.
Okay. Vivek, 10% growth in revenue. Let me be greedy. Can you also share margin guidance for fiscal 2023 ex for the hospital business?
If you see our previous quarter means last quarter was affected because of Omicron. Previous quarter we able to achieve margins of 16%+. We are targeting that same number this quarter also.
Sorry, Vivek. I missed that. Can you repeat that last bit?
16%, I said. We have achieved 16% pre-COVID, previous wave.
In the third quarter, Shyam, our EBITDA was about 16% plus.
Correct.
We expect to remain at that level or go higher than that.
Okay. The long-term guidance of us reaching 18%-20%, is that over a two-year that we think we can reach there?
Yeah, that remains. You know, we are targeting that, and we are moving quite okay on those targets.
Got it. I'll not hog more questions. Last one on diagnostics. Just, Anand , just on the non-COVID revenues, INR 305 crores for the quarter, but, I know you've not called out the DDRC number in that. It used to do INR 50-60 crore per quarter. If I strip that out, it's declined non-COVID revenues. Just your outlook around non-COVID revenues. I think Dr. Ashutosh called out that this year 18% of revenues will be at risk given that there is no wave so far. How should we look at growth for diagnostics?
The non-COVID revenues, Shyam, is almost similar to the Q4 of 2021. If you look at like-for-like kind of a thing, so if you remove DDRC. Including DDRC, then you are seeing this growth of about 24%. Excluding DDRC, you will see that it's almost like-for-like, so there is no dip.
Yeah. Thanks for that data point. Outlook, Anand, just for fiscal 2023?
The outlook would be that, you know, we have to understand that we have about this year, I mean, FY 2022 revenues, we have about 20% of the revenue coming from COVID tests. You know, considering that this year we have also had a lot of COVID-aligned tests also happening, especially during the Q1 of FY 2021, I mean FY 2022. It will have a significant impact going forward in terms of overall revenue contribution for this year. What we see is a healthy growth in non-COVID revenues. If you are to see on overall revenues, they will tend to remain, you know, in the same range and, you know, the growth may not be very significant on the overall basis.
Thank you, and all the best.
Thank you.
Thank you. We take the next question from the line of Mr. Praveen Sahay from Edelweiss. Please go ahead. Mr. Praveen, your line is unmuted. I request you to please go ahead.
Yeah. Thank you for taking my question. The first question, just for clarification on the diagnostics. Non-COVID revenue have some and that is also related to COVID and which will be not there. We will see, there is some dip in the non-COVID or the normal revenue for the year 2023?
No, I didn't get the last part of your question.
For 2023, as you had mentioned that in 2022 there is a COVID testing as well as some COVID-aligned tests happened. In 2023, definitely these, what the non-COVID revenue we had reported for 2022, we will see some dip in that because of that?
See, currently we have reported INR 1,605 crore of revenue in FY 2022, out of which 20% is from COVID.
Mm-hmm.
There is about 4%-5% contribution from non I mean, COVID-aligned tests as well to this.
Okay.
Overall you can take about 25% is coming from COVID. This year we expect that the COVID contribution will range from somewhere around 3%-4% or 4%-5% kind of range. If you take that, the revenues may be similar or around those range of what we have this year.
Okay. Great.
In FY 2022 numbers similar to FY 2023.
Yeah. Thank you. Thank you for this clarification. Helpful. The next question is, as you had mentioned about the guidance related to the hospital business of a 10%, but you are also expecting your occupancy level to reach to around 70%. Is it, what you had said? With this, like
Sorry, not on the next quarter, if I can answer that. Occupancy level, what Dr. Raghuvanshi was mentioning, by the year end.
Okay. This 65% by year end reach to 70%.
Yeah.
One on this ARPOB that as you have reached to some specialized testing contribution to around 55%, is there any further room for improvement from, you know, clinical mix?
Yeah, there is room, but at the same time, you know, it also depend, you know, the specialty mix which we are bringing. Sometimes, some of the specialty the ARPOB is higher, but margin may not be that higher. For example, oncology and transplant, yeah. From that angle, I feel that this ARPOB increase is sustainable more or less because one important thing we could have achieved in last year is the payer mix, where we able to shift towards TPA and capped business, and which we expect to grow further. That will help to improve the ARPOB further. Plus, you know, the international business coming back, that will also help in improving the ARPOB.
Overall, we are confident that we will be able to achieve this type of number on the ARPOB side.
Okay. How much is currently the international overall mix, what are you expecting to go further?
Yeah, it is around 7% right now, and our expectation is to move it toward 12%.
Okay. Any color on the operational bed? Is there any chances to increase the operational bed from the current level?
Yeah, definitely. Because in the current financial year, we are expecting to increase our operational bed around 250 beds. Okay? There is one contract where we have come out, Dehradun, so there will be a reduction of bed by 50. There is overall around 200 beds increase should be there by the year end.
Around 200 beds in the operating bed improvement we will see by FY 2023.
You are right.
Okay, okay. Thank you, sir. Thank you for taking my questions. I'll come in queue.
Thank you. We take the next question from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Good morning, sir, and thanks for taking my question. Sir, two questions. One on the, you know, pertaining to the previous participant's question also. I think, you know, the plans for the increase in the hospital beds have been really sort of tepid. From maybe not this year, but from a three years perspective, you know, what is the plan for Fortis in terms of increasing the number of facilities or number of beds from where we are? Because earlier we were of the assumption that there's a lot of brownfield capacity which can be undertaken within the overall system, which will cause a good increase in the number of beds.
We are just talking about 200, 300 beds, which is really low compared to the size of operations that we run. That is number one. Second is on the operating margins. Now, you know, again, the company has been run under the new management for a while now, we are still very much behind, despite a very high ARPOB numbers. We are still very much behind some of our peers in terms of where we have been able to reach in terms of EBITDA margins. Are there, you know, levers that you see, you know, which are still present for catching up with some of the other peers?
Are there any, you know, problems structural in our business model which is causing us to be, you know, at a distance compared to our peers in terms of the margins? These are my two questions.
First of all, on the expansion side, we are right on our plan for expansion, which is the guidance we have given earlier. On execution side we are on the top of it. Last year also we able to achieve 120 beds and current year there is a plan to increase another 250 beds. The bed which we are saying which will be shut down is a nonprofit making thing in Dehradun and which, as we planned to exit and we exited. Having said that, the 1,300-1,500 beds, brownfield bed expansion is online. Out of this 1,500, 600 beds is the ramp up of the existing facility.
That we will be doing means, you know, the bed capacity we have built, but we have not operationalized the bed because we are opening up the bed as per the market condition. Balance is a sort of brownfield, but there we are building a new tower where, you know, approval kind of structurals and everything need to be designed and need to sync with the existing operations of the hospital. As a result, initially it takes some time and once it is designed properly and then the execution may not take much time. Designing part is a very critical part here because overall hospital need to be taken care of. From that angle it was planned like this also and we are well on target on that.
As regards your other question on, you know, margins. Margins, we tend to not compare ourselves with others first of all and, because all business models are different, they are operating different geographies and, you know, the business dynamic and the company dynamics are different. For example, in our case, as I mentioned in several calls, we are having some legacy costs still coming on because of this ongoing legal battle we are having because of the fraud conducted on this entity by ex-promoters. Secondly, you know, there are certain new hospitals, like this Arcot Road we have started new and which is at the stabilization phase. Initially, this hospital is incurring loss.
There are three or four hospitals which we have highlighted earlier also, which are, you know, on the revival path and we are making very good progress. Earlier these hospitals were in EBITDA-negative and we have now moved to the almost double-digit EBITDA number on these hospitals. There is a scope for going forward, but it is a gradual process. It will not happen immediate. Most of our hospitals, operating hospitals are at a 20%+ EBITDA margin. That is, you know, quite assuring, which you know will be compared with other industry players.
Sir, on the first question, you know, if we are at around INR 3,500 right now, what is the target to reach, let's say from a three-year perspective? On the second question, again the same thing. You know, if we are talking about achieving 60-odd% next year, where do we want to reach in the next two, three years?
We right now actually, and we are targeting to reach it to, as I said, in next five years to 1,500 beds, and probably next three years to 4,000-5,000 beds.
Okay. On margins?
Margin side, as I mentioned earlier, from 16%, in next two years, if you're asking, we will be reaching around 18%. If you're talking about five years, we will be above 20%.
Understood, sir. Sir, any update on the legal case? If you can provide us any update on that case which is going on?
Yeah, we haven't received the verdict on the Supreme Court case. Currently, again, the court has gone into recess. We expect that after this it should come because more than a year has passed. We will certainly be making a mention before the bench once the court is back from its recess.
Understood, sir. Thank you, and all the best for the coming quarters.
Thanks.
Thank you. We take the next question from the line of Sandip Singh from Sunidhi Securities. Please go ahead.
Thank you for taking my question. The question was related to for this FY 2022, how much operational bed we have increased?
120 beds.
At which location?
One is in Shalimar Bagh, and other is in B, you know, Arcot Road we have. Little bit, you know, like in Ludhiana we have operationalized bed, Jaipur we have operationalized bed. As I mentioned earlier, we have around 600 beds in our system which are, you know, ready to be operationalized, but we are operationalizing depending upon the market condition, occupancy level on those hospitals and things like that.
Now, hospitals at Chennai that in Vadapalani, that was 250-bedded hospital was supposed to get consolidated, so that has been consolidated, no?
That has been operationalized. We have operationalized the 250 beds we have not opened immediately. We are operationalizing as this hospital is ramping up the bed you know occupancy level. Right now around 75 beds are operationalized.
Contribution of 75 beds are there in Q4 numbers, right?
You are right. It is, EBITDA side is still negative. That is what I was telling in the earlier questions.
Okay, fine. Going forward, what we are guiding 200 beds roughly to be added in 2023, that is related to Dehradun. In addition to that, the part of that 600 beds which is in line, you know, to be operationalized, that will also come up in the system, right?
Yes. Yes.
Any idea what would be the total operational bed by end of 2023, including this out of existing bed which is going to be operationalized?
Around 200 beds.
Oh, okay. Secondly, that litigation related to that, you know, Emqore. What is the status there that has sued the promoter for, you know, challenging acquisition. What is your status there? What is your stand?
That is a litigation, you know, somebody has filed outside India. Our legal counsel has represented that. It is the claim has no merits because the matter is outstanding. In fact, we have filed case against that entity in Delhi High Court. We have a very strong case and we feel there is no merit in that litigation.
Okay, earlier, the SEBI had disposed of that case against the statutory auditor. Any part of litigation is pertaining to promoters of Fortis also?
Yeah. You are talking about the SEBI investigation and order after that?
Yes. Yes. Yes.
SEBI has come out with this final order actually, and they have imposed penalties on ex-promoters and their entity, and they have also imposed penalty on Fortis and two of its subsidiary, FHsL and Escorts. The total penalty amount is INR 2 crore.
2.5.
INR 2.5 crore. The main thing SEBI has mentioned in its order, the main thing is because there was a sort of misrepresentation in the account in the during that period when promoter was controlling this entity. They have used this. They have understood that they have used this entity for their benefit, but as a separate legal entity because company was used for this fraud. The accounts of the company was giving misleading representation in the form of, you know, not showing the related party transactions, things like that. They have imposed this penalty. We are planning to maybe litigate this. We are evaluating the legal course of action. In all probability we will be litigating that.
Litigation will continue from Fortis' side on this issue, or this issue has been resolved now?
The penalty amount has been a sort of fixed now, INR 2.5 crores. We are litigating that there should not be any penalty because we are the victim of this case and the company and the management, there is new management, new promoter, new shareholder. Why the new shareholder should be punished? In the interest of shareholder we are, you know, fighting the case.
Okay, okay. Just a clarity here, because the case, one case was related to improper payment to erstwhile promoter. That statutory auditor, the investigation and the statutory auditor was related to that payment or this is a separate set of litigation?
Yeah, this is the same thing. Actually, you know, the statutory auditor has refused to sign the accounts in 2017. Post that the same thing has started. The new directors have been appointed by the shareholder. They have done a thorough investigation, and based on the investigation and the findings of EY and S&R Associates company, we have filed a criminal complaint also against the ex-promoter and their entity, and we have filed a civil suit also. That recovery proceeding is going on.
Litigation is from company against erstwhile promoter, right?
Yeah. Erstwhile promoter and their entities.
Thank you. Sir, there are no further questions. Ladies and gentlemen, anyone who wishes to ask a question will press star and one at this time. We'll wait for a moment while the questions assemble. We take the next question from the line of Saion Mukherjee from Nomura. Please go ahead.
Yeah, thank you for taking my question. Sir, you know, one question I was thinking, you know, what kind of cost pressures in general you are seeing for both your hospital and diagnostic business? Are you in a position to pass that and net-net, you know, these inflationary pressures, is it like positive, negative or neutral for both these businesses?
In general, there is a cost pressure because of the inflation. As we see, you know, the inflation is going up, and so is the salary wages and other costs, transportation costs also. For the expansion, some of our equipment are imported, so the import because of rupee depreciation, that cost is also going up. We are able to absorb some of this cost through, you know, price increase and, you know, the mix increase in the ARPOB, as I mentioned in going towards, you know, higher paying payers. Having said that, we feel this pressure will continue going forward also, and we have to figure out way how to absorb this cost.
You would say at the margin this is negative for both the businesses.
When I mean I was giving the guidance, I have taken care of this inflationary thing. That is the reason I was not very bullish about, you know, the margins when the other gentleman was pushing.
Yeah, yeah. Sir, you mentioned about the diagnostic industry, you know, with the new entrants coming, setting up some large targets. What is your view about the industry's competitive dynamics, and how is, you know, SRL planning to respond to that? If you can just, you know, take us through, you know, you have done some significant expansion in touchpoints, et cetera. How should we think about, let's say, organic expansion of touchpoints, labs, or even acquisition? Anything, you know, that you want to share, from a strategic perspective, given that the, you know, segment is seeing, I think, a lot of changes it seems are happening here.
Thank you. Actually we are, as we all know, SRL is a full-service laboratory, so we operate across all segments. We do, we have collection centers, we have home collection, we have digital networks for reaching out, and we also have hospitals, labs we operate. I think, to expand across these segments, we have been aggressively working on improving our network expansion strategies across geographies. That is why, you know, across the last six months, if you see, every month we have been adding close to 100 customer touchpoints into our network. Apart from that, we are also working on, you know, how we can improve our, you know, relationships with hospitals and smaller labs.
We are working on hospital standalone lab management projects also to expand in that space. While at the same time we also revamp and improve our capabilities on the digital front so that we can give a complete digital experience for our customers. That thing is also going on. In parallel we also work with the digital aggregators. The aggregators who operate in the preventative space. Basically the aggregators work mostly in the direct to consumer segment, which means where on those tests where the patients or the consumers take decisions by themselves. On those tests, based on their requirements, many of these aggregators tie up with labs like us. We provide the back-end services for them, just testing services.
These are the various activities that we do, on in which we expand across all these segments. Apart from this, we are still evaluating options for, you know, inorganic expansion as well across the geographies that we work in. We are evaluating some opportunities, and we'll be working on them as well.
Sir, on the pricing front, are prices coming down? What are you seeing on ground? Because, you know, we see a lot of competitive offers by new entrants. Are we set for a lower price, higher volume kind of a business? How should we think about, you know, what is your assessment as to where the margins are headed for this business over the next two, three years?
This business, as we have seen over the last so many years, is largely driven by doctors and their prescriptions. Almost you can say about 60%-70% of our work is driven by doctors. The direct-to-consumer segment, as I discussed earlier as well, works mostly in the wellness category. That too the wellness sort of budget wellness, as you can say, because, you know, the price points are much lesser, and where patients take decisions for themselves. In some of the chronic segments where patients do testing by themselves, like things like related to diabetes. Only those segments patients would be very price conscious and there would be opportunities for price reduction.
You know, what we have also realized that these price offers are limited for a period of time, and they are very geography specific. Even when we launch new labs into new territories, we also make offers, bundled offers to our customers so that it encourages them to experience our services.
Mm-hmm.
A laboratory service is not something that we are going to think about every day, so no amount of prodding is going to make you go and do a test even if I offer it free, so unless there is a specific requirement. This requirement today is largely driven by, you know, doctors and the acute and chronic portfolio we see is much higher. Even today for SRL, the preventive wellness only percent of our total revenue. If you take it that way, you know, there is a huge area of acute and chronic diseases which are our primary markets, which will continue to thrive in the way it is doing now.
Okay. This 20%-23% margin you think is sort of sustainable, I mean, given your business model and plans that you have?
Yes. Around that range.
Okay. Then just one question I had. You know, I remember, you know, initially when IHH came in, there was this thought of using the SRL platform for test volumes, you know, international test volumes, using the IHH network. Is there any plans on that front? Is that something, given all the infrastructure that you have, to sort of utilize it better?
Yeah, I think we are evaluating all options. We say making plans for that. We are discussing on that.
Okay. Sir, can you just share the CapEx number that we should factor in for FY 2023 and 2024?
FY 2023 we are targeting around INR 400 crore CapEx, which include maintenance and growth CapEx. You can allocate 50/50% for both.
Okay. Thank you.
Thank you. Before we take the next question, the participants are requested to restrict their questions to two per participant. The next question is from the line of Mr. Nitin Agarwal from DAM Capital. Please go ahead.
Hi. Thanks for taking the question. So my question is regarding the hospital profitability metrics that you've shared. You know, in this we have about 10 hospitals which are, you know, in the less than 50% range. In fact, 8 of them are below the 10% EBITDA margin range. That's a reasonable chunk of our operational beds as well as revenues. I mean, when you look through the next year or so, you know, where do you see some of these numbers really moving in terms of, you know, how many of these 10 hospitals will be actually seeing getting into the 15%-20% bracket range? Are there any specific hospitals where these kind of improvements look a lot more difficult than the other?
Yeah. I think we are working on this to be very honest. There are four or five hospitals which may remain in this category still because of you know, the problem these hospital are having. For example, the hospital in Chennai, Malar one , it is you know, having its own problem relating to infrastructure and the market related challenge there. We are not expecting it to be revived. Some of these hospital like right now there is one FEHI is there. FEHI in Jaipur is there. So both the hospital are showing very good sign, and we expect this to move, if not in the current year, maybe next year, to that double-digit margin type of things. EBITDA margin.
Sir, since you mentioned there are about four to five hospitals which seem to be struggling, is there any thought, I mean, to look at any sort of, you know, structured strategic options for these hospitals, or they'll continue to be part of a network, despite these challenges?
Yeah. We are evaluating all.
Yeah. Yeah. Nitin, of course, you know, there has to be adequate and fair effort to turn around the problem sort of assets. If that is not to be, then obviously the rationalization is something which we are very open to, and we would take those decisions at the right time, and we are evaluating how to go about it.
Okay. Thank you.
Thank you. We take the next question from the line of Neha Manpuria from Bank of America. Please go ahead.
Yeah, my questions have been answered. Thank you so much.
Thank you. We take the next question from the line of Pranav Tendolkar from Rare Enterprises. Please go ahead.
Hi, thanks a lot for the opportunity. Sir, currently we have around 3,900 beds. Is that right?
Yeah, around 4,000 beds.
Right. Total brownfield and greenfield expansion, so as you said that greenfield will expand by 200 beds, and then there will be a brownfield addition. Am I right or I heard it wrong?
No, not really. We are having only brownfield expansion program.
Okay.
Not any greenfield right now.
Okay. That is 200 beds for next year.
There is one O&M project which we are going to commission in this year, but that is the beds we don't count in.
Right. Sir, have you benchmarked on a hospital facility-wise, surrounding hospitals in the city or the vicinity and are there any key takeaways from that? Like to like basis if you see and if you just, remove the expenses from the corporate costs and legal expenses, et cetera. Have you benchmarked, existing portfolio vis-a-vis comparable facilities around?
Yeah, we do that exercise on regular basis at the hospital level and benchmark the competition also. As I mentioned in my earlier comment, that most of the facilities we are quite competitive when we compare ourselves with our competition. There are very few hospitals which are coming in the last thing, which we have discussed in the last question. Four to five hospitals where, you know, there are some other structural problem, maybe cost related, maybe infrastructure related, maybe market related. That is the only place where we are lagging. Most of the places we are doing quite okay, when we compare ourselves with our competition.
Right, sir. What is the strategy of greenfield expansion? Like, how would you select various cities or localities? Can you just highlight some parameters on selecting the same?
Yeah. Greenfield is not a preferred way of expanding for us. That's last option. The only situation or circumstances in which we would choose a greenfield would be that if there is a cluster where there is a very potential future site. If I have to give an example, for example, the North Bangalore area, it has less hospitals, so that would be one area where we could consider a greenfield hospital. It has to be a growth area, it has to be an area where, you know, the greenfield properties are available, and then only we will consider. Otherwise it will have to be a brownfield or inorganic model only.
Right, sir. Thanks a lot for the opportunity. Thanks.
Thank you. We take the next question from the line of Mr. Kunal from Edelweiss. Please go ahead.
Yeah, good morning, and thanks for this opportunity. Most of my questions are answered. Just one question. Several of your peers have very strong balance sheets now, you know, and you have also, you know, we have seen a lot of improvement in your balance sheet also. Are there enough acquisition opportunities available, or do we sort of run the risk of you overpaying for it? Or if you know, acquire hospitals that are maybe not most efficiently run, then there is a pressure on your margins going ahead. How should we look at things?
Obviously, any asset we evaluate, we would look at it for synergy and improving the performance from the base level, whatever is there today. That is a top prime concern. Though we are looking for expansion, we would definitely be very mindful of how these valuations are sitting. If there is an extremely competitive kind of situation where people are maybe willing to pay unreasonably high amount for an asset, we would not be in that game. Definitely there are many assets which will become available. For us, what is the most important criteria is, first, as I said, that we should be able to synergize it with our existing network.
Which means that it has to be in the main geographic clusters which we have identified, namely the NCR region, Punjab, and Mumbai and larger metropolitan region and Maharashtra, and then we would look at Bangalore and Kolkata where we have presence. Within these clusters, if there are opportunities where we can derive synergies on our human resources and all other systems, there only we will prefer to go.
Sure, sir. Just, maybe just pardon my ignorance here. I see that 21% of your revenues have come from digital channel of your hospital revenues. What constitutes digital revenues there? Is it mainly outpatient or what exactly or is it pharmacy revenues or what exactly is it?
No, the digital revenue is digital channel patients could come for procedures. They could come for admissions, etc. That is just we look at digital as only a channel of patient flow. Yes, there are outpatient consultations, but we don't have any pharmacy supplies or anything like that. If they are coming to the hospital and they're using our pharmacy, that revenue may be getting counted here as well. It is essentially the inpatient as well as outpatient revenue put together on the patients which are acquired through the digital channel. It's in the CRM. It is separated out as to which channels the patients are coming from, and those who access us through the website or the app or external apps, those are digital revenue.
Sure, sir. Just this one last one. It's been, I think, two months since the government has allowed all international flights in India. Where would you be now, you know, versus pre-COVID levels as far as medical tourism goes?
Yeah. We have almost recovered to about 70%-80% of pre-COVID levels in terms of international patients. We expect that to recover completely to the complete 10% level, which was pre-COVID, and then go ahead of that and settle somewhere around 12%-13% of our total revenues. Before pandemic, we used to have about 10% of our revenues coming from international.
Perfect, sir. Thank you very much, and all the best.
Thank you.
Thank you. We take the next question from the line of Amit Khetan from Laburnum Capital. Please go ahead.
Hi, good afternoon, and thank you for taking my question. Just one question on diagnostics. You mentioned about collaborating with online aggregators. Could you shed some light on what is the difference in the margin profile on the business that you see from these digital aggregators versus, you know, your normal business?
Thanks. We treat you know such opportunities as similar to how we handle our regular B2B clients. They'll be similar to that, the way we handle other B2B clients.
Got it. These would also come in the 20%-23% kind of range?
Just overall it will be similar, yes.
Sorry, what?
Overall, it will be similar to our B2B customers, so it will not be out of range.
Got it. You had earlier guided for, I think, for the last few quarters around 23%-25% kind of a range for the diagnostics business. Would you stand by that guidance right now, or would you like to revise that in the light of competition?
I think in the last year also during our previous calls, we have guided around 22%-23%. We will remain in that range.
All right. Thank you, and all the best.
Thank you.
Thank you. We take the next question from the line of Varun Khandelwal from Buoyant Capital. Please go ahead. Mr. Varun, your line is unmuted. Request you to please go ahead with your question.
Yeah. Hi. Good afternoon, everyone. One quick question. To what extent does the impending Supreme Court judgment have a bearing on existing expansion plans or fundraising plans? Also, is there any, you know, are there any thoughts on what the open offer price is likely to be? Is it going to remain at INR 170 or would IHH be compelled to revise it higher? Would you have any clarity on that?
This Supreme Court thing definitely has a bearing on our fundraising ability. Having said that, we are able to raise and attract a quality banker, and our ratings are, as mentioned by Dr. Raghuvanshi in the beginning, also upgraded. We are now enjoying the highest rating in the short term, and double-A rating, double-A minus rating in the long term. We expect, based on the rating, there is further scope to go up. With that, and this embargo of the Supreme Court going away, it will help in attracting some more quality bankers, and that will ultimately help us in reducing the cost. Having said that, our requirement is not much for fundraising for this brownfield expansion. The cash flow is quite strong.
With those cash flow and the support from the existing bank, we will able to manage all this cash flow. Regarding your second question, I think this is to be decided by IHH, and we are not supposed to be having any view about this.
Right. Just one more follow-up question. See, for some of the existing facilities, I believe there is more space available by, you know, as per the FAR ratios applicable to those areas. I think, for example, FMRI Gurgaon has some room for potentially additional beds. Is that still the case, or have you already expanded and consumed those potential beds that could have been?
Yeah, whenever we are doing the brownfield extension, we are keeping the existing available FSI and trying to optimize the FSI to the extent possible. All the brownfield is taking into account the available FSI.
Okay. Thanks. Thank you. We take the next question from the line of Mr. Tushar M. from Motilal Oswal Financial Services. Please go ahead.
Yeah. Thanks for the opportunity. Just on diagnostics side, given that the online guys are coming up with significantly lower prices, and at the same time there is a good amount of traction in terms of better service to the customers. Is that putting a question mark in terms of having a like physical front-end presence as a business model?
Thanks, Tushar. In fact, if you have seen my presentation, I mean the investor day thing which I was saying. We have actually grown on the walk-in front significantly compared to the previous quarter. The walk-in into the centers is also significantly improving, while home collection will also continue, and digital will be primarily driven through home collection. Otherwise walk-ins will continue. They will have a very good impact because the last mile connectivity is provided by these centers, and so these centers will have a very key role in the overall growth of the company.
Got it. Volume-wise, probably there's not too much of a difference, but at a pricing level?
At a pricing level also there is no difference.
Secondly on this, well, these online guys are also kind of trying to build up their own diagnostics lab. Of course, the network is currently not so strong as the existing company like you, but eventually even they are also kind of building it. Why would, you know, anyone kind of tie up with SRL Diagnostics going forward, not in the immediate term, but as a long term?
Tushar, the kind of test menu that large labs like us have, which is in the range of 4,000+ tests, it is not comparable and is built over a long period of time. We have been in existence for 26 years now, and it has been built over a long period of time. We have large referral laboratories across the country. Replicating this infrastructure is not possible in the short term. That is going to be a very important factor. These kind of focus on digital marketing will happen more on the routine tests which are, you know, more self-driven. It will not be more of a doctor-driven test.
For those tests you'll require larger infrastructure, which you'll have to build across different parts of the country to serve and compete and provide services as per the exact requirements of those customers in those areas.
Understood. Thanks. That helps. Thank you.
Thank you.
Thank you. As there are no further questions, I now hand the conference over to the management for the closing comments.
Thanks, Richa. Thank you, ladies and gentlemen, for taking the time to be with us on the call today. If there are any follow-up queries or questions, please feel free to reach out to, Gaurav or myself. We'll be more than happy to address those. Thank you once again, and have a good day.
Thank you. On behalf of Fortis Healthcare, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.