Good day, ladies and gentlemen, and a very warm welcome to the Q1 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anurag Kalra, Senior Vice President of Investor Relations at Fortis Healthcare Limited. Thank you, and over to you, Mr. Kalra.
Thank you, Ali. A very good morning, ladies and gentlemen, welcome to Fortis Healthcare's Quarter One FY 2022 Earnings Call. The call is being Chaired by Dr. Ashutosh Raghuvanshi, our MD and CEO. With him, we have Mr. Vivek Kumar Goyal, our Chief Financial Officer. From SRL, the CEO of SRL, Mr. Anand joins us, he's accompanied by Mr. Mangesh, who is the Chief Financial Officer of SRL. I hope everyone's got the press release and investor presentation that we had released on Friday evening. I'm going to request Dr. Raghuvanshi to start with some comments on the business, followed by Anand, who will take you through the highlights of the diagnostics business. Then we can open the floor for question and answers. Over to Dr. Raghuvanshi.
Thank you, Anurag. Good morning, everyone, welcome to our Q1 Financial Year 2022 Earnings Call. Thank you for joining us on the call today. I hope you and your families are safe and well in the aftermath of second wave, which has now significantly declined. Before I move on to the performance for the quarter, a word again of thanks to the endless service provided by our doctors, medical staff, and non-medical staff during the second wave. It has been over a year now, COVID has seen peaks and troughs. This time around, given the intensity of the pandemic, we faced severe challenges in terms of some medical resources like oxygen. Despite these, our workforce made all efforts to ensure that COVID patients were treated and cared for as best as possible.
We are also actively supporting the government to accelerate vaccination effort across the country, with 24 of our facilities providing COVID vaccinations. I would also advise a word of caution on a possible third wave, which is currently being seen in some nations globally. While we are relatively better prepared, having augmented our medical resources, the impact, if any, on the third wave would also depend on its intensity and the spread of transmission. Let me begin by providing you an update on the Supreme Court matter. As you know, all hearings concluded in the first half of May, and the courts were on a summer vacation post that. They have reopened towards the month of July, and we eagerly await judgment by the Honorable Court, which is expected sometime soon, probably before the end of next month.
With this, let me straight away go to the performance for the quarter. I'm pleased to state that despite the first half of the quarter witnessing a severe second wave of the pandemic, the later half has witnessed a speedy recovery, with the non-COVID revenues showing great traction. This is in contrast to the first wave, wherein despite the fall in COVID cases, elective procedures were slow to begin and took a while to catch. The performance for the quarter in both the hospitals and the diagnostic business has been aided both by the volume of tests and patients related to COVID, as well as the faster bounce back of the non-COVID business. Coming to the financial performance for the quarter. At a consolidated level, we have recorded healthy revenues of INR 1,410 crores, with 70% coming from hospital business and 30% from diagnostics.
The revenue for the quarter are significantly higher than Q1 FY 2021, and also better by 13% versus Q4 FY 2021. Our overall EBITDA margins for the quarter are approximately 20% versus negative margin in Q1 FY 2021 at around 16% margins in Q4 FY 2021. Our profit before tax prior to exceptional item is a robust INR 180 crore versus a loss of INR 209 crore in the Q1 of last fiscal. This is also a 64% increase over Q4 FY 2021. At the PAT level, we have reported a PAT of INR 431 crore versus a loss of INR 188 crore in the Q1 of last fiscal. We continue to maintain a healthy balance sheet with a net debt to EBITDA ratio of 0.9 x versus 1.04 x at the end of Q4 FY 2021.
Our net debt to equity ratio is also similar to Q4 of 2021 at around 0.14 x. A few comments on the hospital business. Revenues were at INR 1,006 crore versus INR 488 crore in Q1 last fiscal, and versus INR 982 crore in Q4 of financial year 2021. EBITDA margins were at 15% at INR 50 crore versus a loss of INR 85 crore in Q1 of financial year 2021. We saw an overall occupancy of 65% as compared to 37% in Q1 financial year 2021, and 64% in Q4 of financial year 2021. More importantly, non-COVID occupancy improved from 30% in May to 47% in June, and continues to become stronger in the month of July, and the trend continues in this month as well. This shows that return to normal is rather quick compared to the first wave.
Our ARPOB has also shown a steady improvement with the overall ARPOB at INR 1.62 crore versus INR 1.51 crore in Q1 of financial year 2021, and INR 1.7 in Q4 of financial year 2021. Despite the high COVID volumes, the ARPOB has been robust with the non-COVID ARPOB growing 8.5% to INR 1.97 crore versus Q4 of financial year 2021. Our overall COVID revenue contribution to the hospital revenue stood at 27%. In addition to the above, we have maintained our focus on various cost optimization levers and continue to look at a host of metrics, including amongst other things, pharmacy procurement costs, medical consumables, consumption metrics, and other costs related to general administrative expenses. Cost has continued to be a perennial area of focus and value addition for the team.
With the speedy recovery witnessed in the later half of the quarter, we have maintained traction on our growth and investment plans. Our bed expansion plans are underway with the current plan to add 1,200 to 1,300 beds over the next couple of years. These would all be brownfield expansions. We have initiated investments in a host of medical equipment including cath labs, neuro microscopes, new bone oxygen generator plants in selected facilities. In addition to the above, we continue to strengthen our clinical workforce by adding eminent doctors in the specialties of pulmonology, oncology, cardiology, and orthopedics. I'm also quite pleased to share with you that our diagnostic business is now on a firm footing.
The business recorded robust revenues of INR 441 crores, aided by both COVID and non-COVID test volumes, and the consolidation of our SRL-DDRC joint venture, in which we have now acquired the balance 50% stake of the joint venture. Diagnostic business EBITDA margin for the quarter were at a robust 31% versus negative margin in the corresponding previous quarter, and margins of 22% in the fourth quarter of financial year 2021. While Anand will take through the performance of the business for Q1, I think our diagnostic business is now well-poised to further accelerate its growth and profitability. The DDRC-SRL JV acquisition has fortified our presence in Kerala as a market leader and also helped SRL consolidate its pan-India position as the second-largest diagnostic chain in the country by revenue.
With this acquisition, we have also significantly strengthened our B2C business contribution, which is now at a healthy 56% versus 45% in Q4 financial year 2021. More for Anand to elaborate on later. Just some concluding thoughts before I wrap up. I think we have seen a challenging start to financial year 2022, but have seen the business rebound quickly, and I expect the recovery momentum to continue, allowing us to show progressively better quarters going forward. The industry has further evolved with the new healthcare delivery models, a heightened focus on digitalization, and increasing opportunities for growth and consolidation. We remain acutely aware of all these and believe are well-placed in terms of our infrastructure and capabilities to partake in these, keeping in mind our long-term strategic direction. I would now hand over to Anand to take you through the diagnostic business. Thank you. Over to you, Anand.
Thank you. Thank you, Ashutosh Raghuvanshi, and a very good morning to everyone on the call. Thank you for joining us today. On behalf of SRL Diagnostics, I warmly welcome you all to our Q1 FY 2022 results conference call. Some of you may be experiencing new cases of coronavirus around you, or would be coming out of a very difficult period due to the rising cases in some parts of the country. I wish you all well. With all humility and hope, I believe the future holds better days for everyone around the country. Looking at our Q1 numbers, I can only say that we are coming off a very strong first quarter, where our revenues grew by 204% versus the same quarter last year to reach INR 441 crore, which is our highest ever recorded quarterly revenue.
Our EBITDA stood at INR 135 crores in absolute sum, and in terms of margin at 30.6% for the quarter, which is also the highest ever achieved so far. I am also particularly happy to let you know that we recorded our highest ever non-COVID revenues this quarter. These were primarily driven by higher volumes. Pandemic has made the world realize the importance of diagnostics, not just in terms of advances in technology, but more in terms of public perception of diagnostics as a critical vertical in healthcare. This has resulted in a growth spurt in preventive packages. We have seen an increase of 2.5x in our preventive care portfolio versus Q1 of FY 2021. Being a true pan-India player with equitable geographical distribution, we were able to serve patients across the country and conducted 1.6 million COVID-19 RT-PCR tests, the highest in the private sector.
At the same time, SRL recorded the highest ever B2C contribution of 54% in this quarter, driven by digital initiatives and home collections. Throughout the pandemic, SRL also supported its channel partners to grow their businesses by promoting their services via our digital initiatives. On the M&A and partnership front, in Q1 FY 2022, we completed the acquisition of our balanced 50% stake in DDRC SRL Diagnostics Private Limited. This was in line with our strategy to increase our market share in the diagnostic space, especially in the southern part of the country. Operationally, DDRC has been fully integrated into SRL. This acquisition has made SRL a leader in the South amongst national players and a lab chain with the highest number of pathology labs across the country. We also became the official lab diagnostics partner of the Indian Olympic Association for the Tokyo 2020 and Paris 2024 games.
As a part of our collaboration, we conducted pathology tests of all players representing India, coaches, media, and government officials traveling to Tokyo for the Olympics. The COVID-19 pandemic has no doubt accelerated the adoption of digital efforts industry-wide, making it essential for healthcare organizations to adopt new technologies. Technology and innovation, however, is not new for SRL. We have always been early adopters of technology in our category. Now we have seen its adoption has increased significantly across the board, and that can be a major growth driver in the coming years. To improve our customer experience, we took some digital initiatives, which resulted in significant growth in home collection. We generated approximately INR 30 crores of revenue through home collection channel and conducted 2.35 lakhs home visits in Q1 FY 2022, which is also our highest ever quarterly number.
We took multiple initiatives to expand our home collection reach and continue to do so. Currently, we are providing home collection services in 140 cities across the country. Recently, we also revamped our website into an e-commerce mSite with PWA for a seamless user experience. Our new website comes with features like chatting with experts, searching SRL center near you, booking multiple tests, booking home visits, tracking phlebotomist real time, to name a few. We have enrolled ourselves for National Digital Health Mission and are collaborating with them as a health information partner to collect and verify unique health IDs, link pathology reports with health ID, and digitally share pathology reports with other health information users based on patient's consent.
All these initiatives around customer centricity and digital transformation will help us build an organization that is technologically future ready and able to meet the changing expectations of our patients, clinicians, and employees in the post-COVID era. All along, we have also worked on improving and retooling our doctor engagement programs, which have helped us forge stronger ties with clinicians. The pandemic has no doubt highlighted the need for extensive RT-PCR testing to contain the virus, and when during the second wave, diagnostic facilities were under severe stress, it only affirmed our confidence that we need to continue our investments in workforce and technology. To cater to the growing demand and prepare ourselves for the third wave, we expanded our existing testing capacity and opened more centers and drive-through sites to collect samples across the length and breadth of the country.
We have engaged with corporates in the travel and entertainment sector this quarter to support their safe return to work. As of date, we have built a network of 16 RT-PCR labs across the country, and in Q1, we commenced 111 new customer touchpoints across the country. To support our government in the National COVID Vaccination Program, we have now started vaccinations for general public in four of our centers. Over the last decade, genomics has acquired a prominent position within clinical medicine. We have established an advanced center for genomics at our Mumbai reference laboratory that can provide solutions to clinicians through precision diagnostics in the areas of oncology, reproductive health, infectious diseases, and inherited disorders. In Q1, we also launched several new tests like CoviGnost, GastroPanel, Mucorales Real-time PCR, FungiReal, clinical exomes, gene rearrangement studies, to name a few.
Looking back at the quarter, I'm happy that we continued to deliver on our mission to contribute to the well-being of the communities we serve by ensuring the continuity of our operations during the COVID-19 second wave. I would like to sincerely thank my colleagues at SRL Diagnostics for their incredible efforts and commitment during these tough times. We also continue to make good progress on our strategy execution by enhancing our development pipelines of both routine and specialized segments, launching new tests, making inroads into newer set of markets, driving productivity, and accelerating our innovation agenda. We are committed to improve customer experience through data-driven, actionable insights, enabling a convenient one-stop shop for all our customers' diagnostic needs. We are well positioned to continue our momentum, delivering profitable and sustainable growth in the coming months.
With that, I would like to hand over the call to Mr. Anurag Kalra, head of our investor relations. Thank you for your attention.
Thank you, Anand. Ladies and gentlemen, we will now open the floor for question and answers. Moderator, if you could please take that.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touchtone phone. 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. First question is from the line of Priyank Gupta from Guardian Advisors. Please go ahead.
Congratulations to the team for turning around the business and handling this COVID wave for the whole country. My heartiest congratulations. My short question is regarding the diagnostic business. If the Management can help us understand if the diagnostic businesses are getting very good valuations now. Any of the investors or the company is looking at monetizing any of its stake in that business?
For us, it remain a very strategic business. The other private equity investors are there, they may be doing their own strategy. From the company perspective, Fortis side, this will remain as a very strategic asset for us, and there's no plan for divestment.
Thank you. Thank you so much.
Thank you. The next question is from the line of Amit Khetan from Laburnum Capital. Please go ahead.
Hi. Good morning, and thank you for the opportunity. Can you share a little more granular details on your bed addition plans over the next couple of years? How many beds are going to be operational in which facilities, and what is the growth and the maintenance CapEx for the next couple of years?
Yeah, I will take this question. We have mentioned that we have chalked out around 1,300 beds, which we will be adding to the facilities in the next three to four years' time. Okay? Majority part of this beds extension is coming in the NCR region, in all our major facilities in NCR, where the adjacent land parcel is available and the units are operating at 70% + occupancy, and we are planning to expand it. Apart from that, there will be couple of other unit like in Mumbai and Kolkata, where there are certain building which was under completion, which we are getting completed and making the bed operationalized. As regard your other question of maintenance CapEx every year, we planned around INR 150 crore every year as a maintenance CapEx.
It is slightly on higher side because the company was not able to spend much prior to 2019, and there is lot of accumulated maintenance CapEx, and this we are rationalizing based on the priority of the particular unit. I hope I answered your question.
Yeah. What is the growth CapEx for the next 2 years?
Growth CapEx will be in the range of INR 200 crore every year.
Got it. Can you share the occupancy levels for the month of June and July as well as the non-COVID occupancy for July?
Yeah. The occupancy for the quarter was 65%. For July it is 61% because of COVID occupancy has come down. We are occupancy level from 61% will go up further because of the surgical and non-COVID work is has start coming and we expect a very good growth in that.
Got it. Lastly, your payer mix has improved significantly in the quarter-on-quarter, with scheme patients contributing only 16%. How sustainable is this, and would this be the major contributor to the higher non-COVID ARPOB?
Our endeavor from beginning was to increase the cash and TPA business. We are successful to some extent, and we continue on that line. Mind you, this is after taking into account the decline in the international business, which has substantially come down because of the travel restriction and flight restriction in India. We expect and despite that, we'll be able to achieve this, so there's no reason to doubt that in future we'll not be achieving this.
Sure. This 16% scheme patients is sustainable?
Yeah, 15%-17%. As I said, there is a growth plan also. Some of the units where we are expanding the capacity, there initially we may have to take the certain scheme patient.
Understood. Thank you, and all the best.
Thank you.
The next question is from the line of Rushabh Dalal from Pravin Ratilal Share and Stock Brokers . Please go ahead.
Yeah, thanks for the opportunity. Just one question on this exceptional gain of INR 306 crores that you've booked in this quarter. What is this exactly, if you can explain it in a little bit of details?
Yeah. We can explain this. As you might be aware that our subsidiary, SRL Limited, was having a joint venture in Kerala in the name of DDRC. Okay, this entity, we were owning 50%, and 50% was owned by our JV partner. In April 5th, 2021, we have acquired the balance 50% stake from the JV partner. As per accounting standard, we need to revalue our investment when we are changing JV to the wholly-owned subsidiary. As a result of which, we have to value our existing investment, 50% investment in the DDRC at the fair value, which comes to around INR 350 crore fair value. The difference is the carrying value and the fair value is coming in the P&L.
Okay. It means that the cost of our acquisition for this 50% we have acquired at less than INR 300 crore. That difference is the INR 300 crore, right?
Yeah. What I said, for 50% acquisition, we have paid INR 350 crore. Okay. The additional 50% stake, we have paid INR 350 crore. The existing investment, our existing 50% was carrying in the books at around INR 43 crore, which includes the initial investment plus accumulated reserves. Okay, that value we need to revalue it as per accounting standard. The difference in the value was recorded as an exceptional gain in the P&L.
Okay. 100% of the revenues of DDRC would now be included in our consolidated financial statement, right?
Yes. This quarter include the DDRC revenue also.
What exactly is that number and what is the PAT number, if you can share that for DDRC particularly?
Yeah. The revenues for DDRC in the quarter are about INR 69 crores. Their margins at the EBITDA level are more or less in tune with the SRL margins.
Okay. Thank you.
Thank you. The next question is from the line of Ayush Bansal from Allegro Capital. Please go ahead.
Hi. Thank you. I have a question on the same DDRC acquisition. What I understand was 50% was held by Fortis Hospitals, right? Additional 50% which has been acquired, has it been acquired by SRL or has it been acquired by Fortis?
No, the 50% was owned by the subsidiary of SRL. Existing 50% was also owned by the existing subsidiary of SRL, DEAL. That subsidiary only has acquired the balance 50% stake.
Okay. The entire DDRC acquisition has been made by SRL.
Yes. Entire DDRC is through SRL.
Okay. One more question is, what is the additional Ind AS impact, Ind AS 116 impact because of DDRC? Like I understand total impact was INR 60 crores, INR 25 crores was hospital and INR 25 crores was diagnostics broadly. What would be the additional impact because of DDRC consolidation?
Yeah, that will be mainly because of Except this one-off item, which I have explained in detail, there are certain leases which need to be having the 116 impact. Mangesh will be able to comment on this.
We are just evaluating that. This is a preliminary PPA that we have done right now. We'll be coming up with the exact impact by, I mean, three quarters. This was the primary impact because of the acquisition, as per the studies done on PPA. Estimate. Estimate, we don't have estimate right now. It will be a very small amount. It won't be a bigger amount.
Okay. No major impact on EBITDA because of DDRC.
No.
Okay. Thank you.
Thank you. The next question is from the line of Adi Desai from York Capital. Please go ahead.
Hi, everyone. Congrats again on the excellent quarter and historic highs in EBITDA across both segments. My question is on the SRL. I just wanted to get a sense on organic revenue and EBITDA growth. If we exclude the impact of the acquisition, what was the real organic growth we saw both from a year-on-year and a quarter-on-quarter basis, excluding the DDRC acquisition over here?
Without DDRC, we have actually grown by about 21%.
Is that on a QOQ or a year-on-year basis?
This is actually o n the sequential. QOQ by 164%. If you compare it, I was saying more like, if you compare it with the Q1 of FY 2020, then it will be a 20%-21%.
Got it. Okay. That's useful. On that, one more follow-up question was on the non-COVID volumes, which as you highlighted have increased significantly QOQ. What was the non-COVID volumes excluding DDRC over here, sorry, DDRC over here?
Non-COVID revenues excluding DDRC.
Non-COVID volumes last quarter was 6.9 million in terms of test volumes, and non-COVID volumes for this quarter is 9 million. If I exclude the DDRC volumes, what were the volumes for non-COVID that we saw this quarter? Happy to take this offline as well. I just wanted to get a sense on organic growth and profitability and revenues and volumes.
Right. It's INR 284. INR 284 crores without DDRC.
284 crores. Got it. Okay, that's all the questions I have. Thanks so much.
Thank you. The next question is from the line of Pratik Mandhana from Nomura. Please go ahead.
Thanks for the opportunity, sir. Sir, one question on the DDRC that you told the revenue is INR 69 crores. Is that the gross revenue or the net revenue there?
Yeah. It's the gross revenue.
Sir, what would be the net revenue number for DDRC? Could you share that?
From the Fortis point of view, there is no specific net revenue there because it is not part of that revenue generated from Fortis. We will only have a net and gross only for Fortis-generated revenues.
What would be the COVID and non-COVID split in the DDRC revenue?
40% of the revenue is from COVID, but now this is specifically if you see the pricing of COVID in Kerala was at a very high in the month of April. In May and June, it has significantly come down. I think going forward also, it will be much lesser compared to what it is now in terms of percentage of revenue.
Okay. Sir, on the margin bit, what should be the sustainable margin? Because this quarter we have seen the margin has expanded mainly because of operating leverage. It has gone about 30% odd. What should be the sustainable margins for the SRL business?
The sustainable steady state margins would be somewhere around 22%-24%.
Okay. Some of our peers are having margins somewhere between 25%-30%. Can we reach those kind of margins maybe some years down the line?
Yes. We are moving forward in that direction. I think in the next two years, we'll be reaching those kind of margins.
Okay. Thank you. Sir, one question on the vaccine bit. How much revenue was generated in the hospital from the vaccine, vaccination?
The total vaccine revenue for this quarter was INR 45 crores.
Okay. Thank you, sir. That will be all from my side. Thank you.
Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Hi. Good afternoon. Thanks for taking my question. Just the first one on the hospital business. I think in the opening remarks, Dr. Ashutosh Raghuvanshi said that July, August, we're starting to see non-COVID come back, more surgical work come back. What's the outlook in terms of, one, occupancy and revenue mix as we look forward? I know you also cautioned us about a potential third wave, but if you were to look at over the next nine months, what should we be keeping in mind? I had a related question on the hospital business on the margins. As per your presentation, if I were to strip out even the Chennai part, margins came off QoQ between 4Q and 1Q, so 14.7%. Does it have an element of vaccine?
You called out INR 45 crores. Is the EBITDA lower there from a margin perspective? Also, COVID in the mix, has it also diluted margins?
As far as the occupancy levels currently are concerned, are in the ranges of between 60% and 70% fluctuating. I expect that to stabilize to 65% + within this month, and certainly from next month over. As compared to the previous wave, it was very different this time, and it is likely to remain different even if there was to be a third wave. We believe that the occupancy levels should remain generally within those ranges. With that in mind, and I think from the numbers we've been able to achieve during this quarter, our belief is that even though there may be a third wave, but it will not have too much impact on our business unless until there is something which is totally unusual. That is regards to the possibility for the next few months.
Also we should see the gradual resumption of the international business, which should also give a upside during the third quarter for sure. If there is no third wave, then the fourth quarter should make it even better. As far as the profitability from COVID is concerned, it's certainly lower because of the fact that there are price controls, et cetera, and ARPOB typically are lower in the COVID business. However, if we were to take out just the vaccine part of it-Within that, the profitability is about to the tune of about 28%-30%. That itself is not a bad business. However, there is lot of problems in terms of supply of vaccines to the private sector now, and demand in private sector for vaccines has also come down.
That is why it may not be a significant number going forward both either in terms of top line or bottom line, as far as the COVID is concerned.
Thank you, Dr. Ashutosh. Just want to get the margin outlook on a longer-term basis. I request in the past we had talked about it moving towards 16%-18%. Can you highlight us whether that trajectory can still come through, and what could be some of the drivers for that?
Yeah. No, absolutely. You see, if we compare with the, say, sequential quarters or from quarter four to quarter one, because of the COVID wave, we have seen that our profitability has not grown. In spite of the fact that 27%-28% business came from COVID, the profitability has remained more or less in the same range. We believe that this is the only, as the things normalize, the profitability profile will only improve from here on. As far as the triggers for that are concerned, one of them was mentioned earlier, which is the favorable patient mix and kept our scheme business always limited below 17%. We aim to keep it between 15% and 17%, except when we are having some hospitals where the new capacities may be created. At a blended basis, we always like to keep it at that level.
That is one of the things. The second thing is for last 1 and a half years, because of the uncertainties, there were no pricing levers used at all. There would be some bit of pricing initiatives which we will be doing. Other than that, we are working on some of the supply chain initiatives that would bring in some things on the savings side.
Thank you, Dr. Shish. One last question on the SRL piece. If you look at the COVID contribution, about 25%, 26%, about INR 115 crores, we just back it out. How are we seeing this quarter? Maybe while cases may have come down, testing still continues. Just to understand, 2Q, 3Q, at least 3Q, how should we think about COVID contribution? When you guide from, say, 50% today to, say, 22% on a longer term or a more sustainable basis, where is the thing that comes off? I'm just curious. Is it the COVID revenues have significantly higher margins, and that is where you're trying to now strip out?
The two parts to your question, Shyam Srinivasan. First is on whether the COVID as a percentage of total revenue contribution will come down. Yes, it's definitely coming down and keep coming down. We think that it will be somewhere in the range of 14%-15% of our total revenues. In terms of, as you rightly said, there is an operating leverage that has taken our EBITDA to higher levels in this quarter. We hope this, on a steady state basis, we'll be able to be somewhere between 22%-24% for the rest of the months. This is primarily not just driven by COVID-related stuff because what happens in COVID is that COVID also has the operating leverage. The volumes are high, so we get a higher EBITDA from there.
We also have to understand that we are going back to our original ways of how many centers that we have and all these centers coming up to their optimal performance.
Got it. Thank you and all the best. Thank you.
Thank you. The next question is from the line of Rakesh Jhunjhunwala from Rare Enterprises. Please go ahead.
Yeah. Congrats on the fine results. I want to know after these kind of normalized circumstances, what kind of occupancy we aim for? Suppose there is no COVID.
Yes.
Foreign travel is allowed kind of occupancy we can target, 75%, 80%, 85%? What would be reasonable?
Absolutely. We are targeting anything around 75% as an optimal occupancy level. Beyond that, I think the hospitals get overcrowded. 75% is what we are targeting in next three quarters.
In your bed addition that you have two main CapEx. One is you're adding beds and you're adding equipment. How many beds expansion have you planned for the next two, three years?
The total bed expansion we have planned is about 1,300 beds, which will come over a period of 2 to 3 years. Some of that may go into the 3rd year, and some of it if we get any delays on the project side, might go up to the 4th year. All this should conclude within next 3 years. This has spread across some of our hospitals, namely a few hospitals where significant capacities are coming. Like for example, in FMRI Hospital in Gurgaon, we will have about 50 beds added in our Noida facility, we would have about 160 beds added. We would have in Mulund about 80 beds and about 90 beds in Anandpur in Kolkata. These are some of the larger capacities, and in some of the other hospitals like Shalimar Bagh etc., also there will be beds.
Now, as far as the major equipment is concerned, it is primarily focused towards oncology specialty. We are looking for some newer technologies as well, which we intend to do within this year. We want to develop our FMRI center as a destination oncology center. So we are looking at focusing on cellular therapies as well as advanced radiation therapies, which are relatively new.
That means oncology is a very profitable field. Out of these 1,300 beds, how many beds are going to be in existing premises?
All these are in existing premises, sir.
That's what will allow you to expand at lower cost and in faster time. Because the hospital-
That is correct.
How much is the medical inflation a year? Last quarter, I think average inflation was INR 162 lakhs per bed, occupied bed.
Yes, sir. Yes.
It is going by about five a year.
For the non-COVID segment, our ARPOB actually improved by about 8.5%. In the fourth quarter, our non-COVID.
Forget about COVID. COVID is not there. Forget about COVID.
Yeah. If COVID is not there, we should expect an ARPOB of about INR 1.9 approximately.
In what time?
We are already running at that rate, sir.
One last question that I have. How many beds do you have as we talk?
3,800.
3,800.
P&L beds, 3,800.
You can go to INR 5,100 in two to three years.
That's right.
Sir, what happened to the Escorts matter?
One of the case is there, still under litigation, and we have to wait for the High Court level, sir.
What about the income tax matter?
Yeah, that has not been resolved yet.
I have a very big.
We have won in the lower court.
Department has gone for appeal.
Department has gone for an appeal, so that's why it is not resolved.
Even if we lose, we don't pay anything, and we win, we don't get anything. It's all Escorts liability.
Yeah. For this income tax case, sir, you might be knowing it is disclosed in the balance sheet also. We kept the deposit from the consideration paid to Escorts earlier. We will not get out for that.
Escorts has paid the bank consideration to department.
That's correct, sir. At the time of transaction, monies were paid from Escorts, which have been kept as escrow deposits.
Technically, yes.
If we win the case in the higher courts, Escorts will get the refund.
Yes, sir.
That's right.
Yes.
My last question, sir. It is my deep wish as a shareholder that you please buy the 43% of the other investors in the diagnostic business, and you please demerge it. Have arm's length relationship with Fortis and the diagnostic business. I'm also ready. If you buy that 43%, I can also make a contribution to buy it. It's my wish as a shareholder. I don't want that IHH buys those shares and then IHH becomes a major partner in the diagnostic business. I, as a shareholder, also would like to participate. I can also participate either by participating in the buying process, or you buy them out, merge them into the company, and demerge it. That's my wish as a shareholder. Convey to your board.
Yes, sir. All the possible point of views will be conveyed to our board. We will evaluate all these issues and certainly will take the right step for all the stakeholders.
I hope then we take the right step with the right corporate governance.
Yes, sir.
Thank you, sir. Really congratulations on fine performance. I think you're going to do really, really, really well. I've bought Fortis shares for every member of my family.
Thank you.
Thank you, sir. Sir, you're not expanding in that S. L. Raheja in Mumbai?
There is no space there, but we are modifying a couple of floors and making some deluxe rooms, et cetera, available over there.
Very well located and a big hospital. Now all second jobs go there. I've been telling you that for a long time can really increase the ARPOB and all that. Thank you so much.
Thank you.
Thank you. The next question is from the line of Ritesh Rathod from Nippon India Mutual Fund. Please go ahead.
Hi, everyone. First of all, heartfelt thanks for your support in the second COVID wave. Most of your team members were available. A very heartfelt thanks. My question is more on the long-term margin profitability, which you spoke about 16%-18%. You spoke about payer mix, pricing mix, cost optimization. Surprisingly, you have not spoken about your hospital margin metrics. Your 900 beds are below 15% margins with 52% occupancy, and within that 900, 670 beds are below 10% EBITDA margin with 52% occupancy. This is, I'm talking from your Q4 FY 2021 presentation where you have given your hospital margin metrics. Can this be a big lever on a long-term basis, and your long-term margin profitability target can have further upside because a decent chunk of your hospital beds are at a very low occupancy and at a very low profitability?
Yeah, there are two sides of this, and you have correctly pointed out that there are certain assets which are underperforming assets at the moment. Now they are both an opportunity as well as we need to evaluate continuously, as a portfolio, whether those assets make sense for us. We will always be evaluating every business for its performance and what are the various steps we can take in order to bring it to the desired profitability profile. Certain assets would go towards that, and we can see lot of progress happening in few of our hospitals, like for example, in Jaipur, where there has been a real turnaround, and we have good hope for making it even better. However, our Chennai Malar facility has underperformed consistently for some time, and we are taking the necessary steps to improve that.
We will be open to considering other alternatives in case we do not see a proper progress there.
In that case, is that possibility there that your long-term profitability can have further upside from 16%-18% range because, assuming you divest those underperforming assets, two or three assets which you are pointing at.
That is absolutely would be the assumption at the moment because you see, the idea is to make the entire portfolio as possible. Every hospital should have a viability on its own. That is extremely important. Other than that, important that overall the group is not dragged by the underperformers. Certainly that possibility is there.
Your decision-making on this would get accelerated post the Supreme Court verdict, which may be out in whatever time period, if you can give more color over there.
Yes, absolutely. Supreme Court verdict, though, does not affect us operationally, but many such decisions will become easier for us post the verdict. That time we can think of both the growth as well as realigning some of the assets is something which we can consider very actively and in an accelerated manner post Supreme Court verdict.
Any timeline for Supreme Court verdict?
We expect it to, because as I said earlier that it was over in May, the hearings were over in the first half of May. We expect that the verdict should come certainly before the end of this month.
Just 1 last link. Since you mentioned about the brownfield expansion of 1,300 beds, I presume those are not happening in this underperforming assets which you highlighted or in this 900 beds which has a very low occupancy.
No. They are not those, yes.
Thanks. Thanks a lot. That's from my side.
Thank you. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.
Thanks for taking my question. Sir, any comments you have on M&A? I think you mentioned some time back you are looking at assets. How is the market looking, possibilities of adding beds inorganically at this point?
Management it is very much supportive of any acquisition. Having said that, we have ample opportunity available within our network itself. We are first want to utilize that, if some opportunity come, we are open to it.
The second question was on the SRL. One question is on the pricing environment in general. Now you have some of the e-pharmacy players getting aggressive in that space. What is your sense as to what could be the pricing environment going forward? Anything you'd like to comment on? Also secondly, on the test mix, you mentioned about certain innovation programs that you're running. So-called esoteric tests contribute to your revenues, and how should we think about that going forward?
Right. On the pricing pressures, what I feel is except for the few tests which have been controlled by government through price capping. Other tests don't fall under this. When you talk about competition from the digital players, they play mostly in the wellness segment, which is directly consumed by the customer. What is being prescribed by the doctor and the specialized tests and other packages, which are not coming under the purview of these players. We will not be under pressure from those kind of tests. It will be a very limited play on competition from the digital side.
Yeah, the test mix?
On the test mix, currently we are at What is our adjusted service mixes. Our test mix is currently on about 26% is from COVID, and the balance, 74% is from non-COVID. Out of this, almost about 50% is from routine, and the rest is from specialized. The specialized non-COVID is primarily will have the growth which is happening there because of our renewed focus on esoteric testing as well as next generation diagnostics.
50% you said is routine, right?
Yes.
Okay, thank you.
Thank you. The next question is from the line of Neelam Punjabi from Perpetuity Ventures. Please go ahead.
Thanks for taking my question. My question pertains to the hospital business. You mentioned that the non-COVID ARPOB is at around INR 1.97 crore. If you can, please comment on your long-term sustainable ARPOB.
Yes. As I said earlier, the ARPOB is approximately INR 1.9 crore is what we can expect to be a sustainable number. We have already achieved it, and in the first quarter, it's typically higher because maybe the procedures were more complicated during this phase, but this is a sustainable number. Other thing, in fact, which I mentioned is that there has been no pricing intervention for almost more than a year or so. Some of that intervention is also likely to happen. This is a sustainable number.
Thanks. That's all from my side.
Thank you.
As there are no further questions in queue, I now hand the conference over to Mr. Kalra for closing comments.
Thanks, Ali. Ladies and gentlemen, thank you for taking the time to be with us on the call today. I hope we've been able to provide you all the answers. If there's anything more, Gaurav, my colleague, and myself are available over the phone or by email, do let us know. Thank you again, and have a good day.
Thank you very much. Ladies and gentlemen, on behalf of Fortis Healthcare Limited, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.