Ladies and gentlemen, good day, welcome to the HealthCare Global Enterprises Limited Q4 FY 2023 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements do not guarantee the future performance of the company. It may involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Dr. B.S. Ajai Kumar, Executive Chairman of HealthCare Global Enterprises Limited.
Thank you. Over to you, sir.
Thank you very much, good morning to everyone, and a very warm welcome to all present on the Q4 FY 2023 earning conference call for HealthCare Global Enterprises Limited. Today, I'm joined by Mr. Raj Gore, our Chief Executive Officer, Mr. Srinivasa Raghavan, Chief Financial Officers, besides a few members of the HCG senior management team, to share our operation and financial highlights for the quarter ended and year ended March 2023. HCG is a leading chain of hospitals focused on oncology care, which is patient-centric, technology-oriented, and focused on quality outcomes for its patients. Our focus is to provide the best-in-class cancer treatment on a pan-India basis, with superior outcomes, with quality of life for our patients.
HCG is not only focusing on providing patient-centric outcome-based cancer care treatment, but is equally focused on and has taken a lead role in the field of research and academia. Given the quality of our innovation, research, and patient centricity, HCG ensures access to world-class cancer treatment and services for our patients. At HCG, we actively participate in clinical trials, invest in groundbreaking research to advance the frontiers of cancer treatment. Our Tumor Board initiative is a potent platform that brings together a multidisciplinary team of oncology experts to discuss complex cancer cases, share insights, and develop personalized treatment plans. Employing breakthrough technology, including advanced adaptive AI therapy, robotics, and genomics, coupled with our pay-per-use model for Linac, enable us to provide best-in-class treatment at effective and cost-effective prices.
Our relentless fight against cancer is founded on our continuous research and technological innovation towards exploring new therapeutic avenues to move up the value chain of clinical excellence and lasting outcome. HCG is first in Asia to complete 105 clinical runs for over 1,000 patients of comprehensive genomic profiling. The results are encouraging, and with the wealth of data emerging from cancer genome studies and data we created, we feel this is just the beginning of our journey in the precision medicine and to win war on cancer, not only in early cases, but also in advanced cases to convert cancer to chronic disease. We are also first in India to launch CELLSEARCH circulating tumor cell testing, where just by a blood test, we can detect circulating cancer cells.
CELLSEARCH is the first and only system which has received FDA approval for precise enumeration of circulating tumor cells in the patient's blood for diagnostic procedure. CELLSEARCH helps in early detection and screening and also in detecting the response to therapy, inform patient care decisions, real-time treatment, and monitoring. At HCG, we always believe in raising the bar and staying ahead of the curve. We strive to provide the best possible treatment to our patients. I now hand over to Raj, Mr. Raj Gore, to take you through the strategic initiatives and financial highlights. Over to you, Raj.
Thank you so much, Dr. Ajay. a very good morning to all the participants on the call. We are extremely happy to announce our stellar performance for FY 2023. We've ended FY 2023 with revenues of INR 1,691 crores, a very robust growth of 21% with increased profitability. Our Adjusted EBITDA for FY 2023 has increased by over 31% on YOY basis and stood at INR 321 crores. Our efforts on operational efficiency, coupled with operating leverage, has resulted into expansion of Adjusted EBITDA margin by 139 basis points, which stands at 18.9% for the year FY 2023, compared to 17.6% in the previous year, FY 2022.
We ended FY 2023 on a strong note with our consolidated revenue for Q4 FY 2023, standing at INR 442 crores, year-on-year growth of 21%, and our Adjusted EBITDA margin standing at 18.8%. We've been able to create a strong foothold in our mature geographies and have been able to make inroads into our emerging markets. In Q4 FY 2023, our revenues from mature centers have increased by 19% year-on-year, and revenues from our emerging centers have increased by 32% over the same period. The Adjusted EBITDA margin is lower by 30 BPS in FY 2023 Q4 compared to the previous quarter, primarily due to up-gradation or replacement of radiation machines at three of our locations, Ongole, Ranchi, and Shimoga, which has resulted in reduction of margin by 40 BPS. These machines are under installation and are expected to be operational during Q1.
In addition to driving higher utilization of existing capacity, we continue to invest in superior clinical expertise, capacity creation, and brand building to fuel future growth and further fortify our leadership position in the industry. To ensure our growth momentum going forward, we have increased our sales and marketing spend, which we think is an investment in our future, in Q4 FY 2023 by 0.5% of top line over the previous quarter and by 1.2% of top line over the same quarter previous year. Especially in our emerging geographies, our operating investment in engaging quality clinicians and our go-to-market activities are showing good results. We are happy to report that our one-time value creation cost will end from this quarter, and there will be no further adjustment for the same on EBITDA going forward.
These transformational activities done over the last six quarters have started adding value and have set us up very well on a path of profitable growth going forward. Our revenue through digital channels has grown by more than three times in FY 2023 over FY 2022, crossing 6% of total revenue in Q4 FY 2023. We've also recorded our highest-ever annual revenue from medical value travel, with a year-on-year growth of 91% and reaching to 1.5x of pre-COVID highest level. We've been consistently delivering growth across our network and have grown faster than the industry over the last eight quarters. Our track record of consistent performance reflected in highest-ever revenue and highest-ever EBITDA over last nine and eight quarters in a row, respectively, is a testimony of meticulous planning and rigor in execution we have shown as a team.
This unparalleled growth journey over many years is primarily due to HCG's pan-India network, specialized and differentiated cancer care model, and local market leadership across locations, which we have established over past several years. To conclude, I would like to say that HCG remains to be the trusted healthcare partner for every individual battling cancer. We are honored to have earned the trust of our patients and the communities we serve, and are committed to upholding that trust every day. Through our relentless endeavor, we assure our patients the best of the treatment available across the globe and live up to promise of adding life to years. With this, I hand over to our CFO, Srini, for financial highlights.
Thank you, Raj, and very good morning to everyone. We have uploaded our Q4 FY 2023 results and updated investor presentation on the stock exchanges and company's website, and I do hope everybody had an opportunity to go through the same. We are delighted to share that we have been able to grow our revenues ahead of the industry growth due to the trust and brand created for HCG. On the revenue front, our consolidated revenues for Q4 FY 2023 stood at INR 442 crores, as compared to INR 365 crores in Q4 FY 2022, a growth of 21%. Our revenues for FY 2023 stood at INR 1,694 crores, again registering a growth of 21% year-over-year. Revenue split between HCG and Milann stood at 97% and 3%, respectively, for Q4 FY 2023.
Revenue growth for HCG stood at 22% year-over-year, whereas Milann witnessed flat revenues. As mentioned in slide nine, revenues from the mature centers stood at INR 317 crores, a growth of 19% on a YOY basis for Q4 FY 2023. Revenues for emerging centers stood at INR 109 crores, a growth of 32% on year-on-year for Q4 FY 2023. We are delighted to state that our emerging centers are inching towards maturity and are seeing good traction across geographies. Moving to slide 10, there are key operational KPIs for our company. New registrations form 51% of our revenues. Number of new registrations grew by 18% at 80,000 in FY 2023 versus 68,000 in FY 2022.
37% of revenues came from chemo sessions, and volume-wise, the figures stood at 133,000 in FY 2023 versus 104,000 in FY 2022, registering a growth of 28%. Radiation from 18% of our revenues and capacity utilization stood at 66% for FY 2023, that is 59% for FY 2022. Total radiation patients treated stood at 5,100 in Q4 FY 2023, as compared to 4,700 in Q4 FY 2022, a growth of 9%, and 21,000 in FY 2023 as compared to 18,000 in FY 2022, a growth of 17% year-over-year. Intention bed occupancy stood at 60% for FY 2023, compared to 53% for FY 2022. I now request your attention to slide 11, where we have disclosed our operational parameters across our mature network and emerging centers for Q4 FY 2023.
Our company-wide AOR stood at 65.1%, and AOR for mature versus emerging centers stood at 64.8% and 65.7% respectively. Our ARPOB on company level stood at INR 39.8 K, and our ARPOB for mature centers stood at INR 41.4 K, and for emerging centers stood at INR 36 K. Coming to the next slide for full year, our AOR stood at 65.3%, and for mature centers, it stood at 64.3%, and for emerging centers, it stood at 68.5%. On ARPOB, we did an ARPOB of INR 38 K for mature centers and ARPOB of INR 14.5 K, and for emerging centers, the ARPOB stood at which is INR 32.2 K. Across geographies, we have given our revenue break up in slide 13. Kolkata grew by 142%.
Revenues from Rajkot grew by 58%, and Ranchi grew by 51%. Bangalore Center of Excellence grew by 24% year-over-year for Q4 FY 2023. For our Milann business, revenues for FY 2023 witnessed a growth of 6.8%, and new registrations increased by 13.6%. On the EBITDA front, Adjusted EBITDA for Q4 FY 2023, that is after adjusting the one-time value creation cost and adjustment of ESOP expenses, stood at INR 83.1 crores as compared to INR 67.6 crores in Q4 FY 2022, a growth of 23%. Adjusted EBITDA margin stood at 18.8% as compared to 18.5% in Q4 FY 2022, a growth of 26 basis.
Adjusted EBITDA for FY 2023 stood at INR 321 crores, a growth of 31% year-over-year, with margins at 18.9%, a growth in margins of 138 basis. We have also given bifurcation of our EBITDA across mature and emerging centers, and I would request the participants to view slide nine for further details. Our consolidated reported EBITDA stood at INR 76.3 crores for Q4 FY 2023, as compared to INR 63.2 crores in Q4 FY 2022, a growth of 21%. Reported EBITDA for FY 2023 stood at INR 299 crores, a growth of 26% year-over-year. On PACC for this quarter stood at INR 8.3 crores as compared to a profit of INR 5.9 crores in Q4 FY 2022.
Full year 2023 PACC stood at INR 29.3 crores as compared to PACC loss of INR 3 crores in FY 2022, adjusted for one-time exceptional gains or losses in FY 2022. Our PACC pre-Ind AS adjustments for Q4 FY 2023 stood at INR 11.2 crores as compared to INR 9.4 crores in Q4 FY 2022. PACC for FY 2023, pre-Ind AS adjusted, stood at INR 42 crores as compared to net profit of INR 11 crores in FY 2022. ROCE for mature network stood at 22.9% annualized for Q4 FY 2023, as compared to 18.7% in Q4 FY 2022, an improvement of 420 basis. ROCE before corporate allocations for mature centers stood at 25.2%.
ROCE for emerging centers stood at -3.6% for Q4 FY 2023, as compared to -8.3% in Q4 FY 2022. This is again an improvement of 470 basis. ROCE before corporate allocations for emerging centers stood at -2.2%. Our net cash position, excluding capital leases, as on 31st March 2023, stood at INR 198 crores as compared to INR 190 crores on 31st December 2022. Our expansion of existing facilities in Ahmedabad, phase two, and Whitefield extension of Bangalore COE is on track. Total planned CapEx for Ahmedabad is INR 85 crores, expected date of operation being Q1 FY 2025, and for Bangalore COE is, it is INR 25 crores, expected date of operation being Q3 FY 2025. With this, I would like to open the floor for Q&A.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from Dhara Patwa with SMIFS Limited. Please go ahead.
Thanks for the opportunity, sir. I have two questions. First is, we are seeing increased significant growth in, you know, Africa and East India. What are the reasons for this? Will the traction continue going forward for these two regions?
Yeah. Hi, thank you. Thank you for that question. In East India, our newest or, you know, youngest emerging center, Kolkata, had shown 142% year-on-year growth in Q4. We are really happy how it's progressing in the right direction. In addition, our mature centers, Ranchi and Cuttack. Ranchi is showing 51% year-on-year growth last quarter. Cuttack, which is a very mature center, large center, it's showing 32% on year. Both emerging, mature, our centers are showing high double-digit growth, which is contributing east to show such a good growth. In Ranchi, now, as I said earlier, we are also putting upgrading the LINAC machine with higher capabilities, will further help us to do more high-end, higher realization radiation treatments.
Africa, you know, we have commissioned a new linear accelerator, which is first of its kind in East Africa. I think as a result, you know, we are seeing good growth momentum in our Nairobi center. Of course, I mean, all this is sustainable. You will continue to see it going forward.
Okay, yeah, sir, I understood. Sir, in North India, which are the locations that we are covering? Like, which are the hospitals, there we are covering?
It's only Jaipur.
Okay. Only Jaipur.
Which is our emerging centers, yeah.
Sir, in earlier concall, you highlighted that, you know, once we reach an optimum occupancy level in the emerging markets, we will see improved ARPOB growth. I guess our emerging markets are already at a good occupancy level of 68%. Should we expect an ARPOB increase from here on?
Yes, absolutely. Look, emerging centers, we are at 68.5%. Again, you know, we have not operationalized all our beds in emerging centers. As we keep reaching higher capacity utilization on beds, we'll keep operationalizing more and more beds. Yes, directionally, that's what we had, that's the guidance we had given. If you look at, you know, our annual ARPOB for emerging centers, it looks like it's decreased over last year. Look at how we've ended the year. If you look at Q4, we have, you know, gone back and at INR 36,000 level. It's what we said, that as the occupancy group keeps going up, we'll start optimizing our payer mix and our procedure mix, business mix, and therefore, the ARPOB will continue to grow going forward.
Yeah, sir. That's it. One last question on slide number 10, where you have highlighted the capacity utilization for LINAC. Just wanted to say, what is the peak utilization for LINAC in any hospital, cancer hospital? We are at already 65%.
Look, you want to look at, on...
Yeah, doctor.
Yeah. Doctor, you can go ahead.
On the linear accelerator capacity utilization, depending on the type of fractions we give, we can go up to 120 to 130 patients. Nowadays, with the different modalities of treatment, like hypofractionation and all, we can even treat up to 140 new patients per month on the linear accelerator. It again depends on the type of linear accelerator and the technology we use. Some of the linear accelerator, when we use complicated technology like IMRT, IGRT, we may take a little bit more time, so the number of patients may be less. It always depends on the mix of 3DCRT, but now we are moving towards more high-end, like IMRT, IGRT.
With that, and the hypofractionation, we are very comfortable with the high-end linear accelerators we have, treating up to 120 patients on the machine per day.
Yeah. Thank you, Dr. Ajai. Just to add to that, from a capacity utilization perspective, we can go to 90%-95% easily, you know, including downtime, holidays, lesser load on weekends, et cetera. 90%-95%, we've consistently done in our mature centers.
Yeah, that answered my question. That's it from my side. Thank you.
Thank you. Our next question comes from the line of Kunal Randeria with Nuvama. Please go ahead.
Hi, good morning. My first question is actually related to slide nine. When I see the slide, it seems, you know, the company has two different growth trajectories. Your mature centers are actually doing fairly well, growing at a very steady, consistent pace, you know, at both revenue as well as the, you know, your EBITDA trajectory. The emerging centers, you know, the EBITDA trajectory seems to be all over the place. I just want to understand, you know, what is the growth for these emerging centers? See, because your occupancy, your RPOBs, in Q4 are not too far away from the mature ones. I'm just wondering where the profitability from these emerging centers will come from.
Yeah. Thank you, Kunal, for that question. See the, you know, with any new hospital, the way you do it is, you know, you may have 100% built capacity, but you don't operationalize total capacity, right? You will open up part capacity. You will staff, you will add clinical talent, you will get to a, you know, optimum utilization on that operational capacity. Then you will again release additional built capacity to operationalize it. Then you will have to again, add clinicians, again, you know, start your go-to-market. That's the nature. It's a step-by-step, you know, growth. What we have done is, you know, our, you know, as you know, we kept hiring clinicians, and that's a upfront cost.
The cost comes first, and then the revenue growth comes later. That's one factor. Second, our investment in brand and our go-to-market comes first, and then the, you know, the growth comes. Because of the nature of this stepwise upfront investment and then the subsequent lagging revenue growth, this trending looks little different from hospital to hospital in that bucket, and that's the result, you know, you see on the slide.
Just to add one point. On the capacity front or the utilization front, 65.7% occupancy is on our operational beds, and we have given a note in our presentation that only 75% of our capacity beds are operational right now. On, on capacity beds, our utilization is only 50%, so we still have a lot of headroom there.
Right. Okay, but then, you know, on your, at least on your, capacity beds, you are at optimum level, right, at around 65%. You know, I mean, my question is more I'm not too worried about the revenue side of things, but more in terms of the profit, because, see, as you operationalize some of the other beds also, there will be some increase in cost, right? Some clinician costs, some staffing costs, you know, utilities, so on and so forth. So it just seems that, you know, you're now stuck in the 7%-10% kind of margin band for the moment.
There are some costs which probably would be not increasing commensurate with the increase in operational beds. Like, for example, as Raj mentioned, that clinicians primarily in our emerging centers at Mumbai and Kolkata, the focus having to invest on clinical expertise and sales and marketing upfront. Now, these costs, first cost is in our clinician. The clinician cost, I don't think would go up as the number of beds gets more operational, and we will start seeing operating leverage on that. Secondly, the sales and marketing, which is like since the company has been doing really well, we have been investing on sales and marketing costs disproportionately in our emerging centers to attract future growth. The results of the revenue growth in these two markets would come.
Within the emerging centers, its primary focus is on our Mumbai and Kolkata region, and the other locations, which is like our other locations, their margins have been pretty good.
All right. Okay, fine. Sure. Okay, now, my second question is, I would like to understand a bit more about your CapEx. Now, the way I look at it is it can be divided in three buckets. One would be your normal maintenance CapEx on all the centers that you have now. Second, would be like, you know, adding new tech to the existing centers, you know, something like the CELLSEARCH, you know, which you mentioned. Third would be what you would spend on expansion. If I were to take a slightly longer-term view, right, let's say between FY 2025 to FY 2027 or something like that, could you highlight your plans and how would you be allocating the resources across these three buckets that I spoke?
See, I mean, the current year CapEx is about INR 135 crore, and, I mean, we have been saying our maintenance CapEx is in the range of INR 55 crore-INR 60 crore. INR 60 crore is what our maintenance CapEx is. We have also spent incremental CapEx in the current year, in the year FY 2023, towards technology upgrade. We have got the highest radiation equipment, which is adaptive therapy, because in our center of excellence at here. We have invested on solar, which probably should help us in reducing our operating costs. We have other investments may have been done in upgradation renovation of our other existing centers. Having said that, the company has laid out two greenfield projects, which the company is right now executing.
One is in Ahmedabad, phase II, and second is in Bangalore, at Whitefield. We have also laid out the capital outlay towards these two projects. Towards for Ahmedabad, we have 85 crores, whereas Bangalore, we have 35 crores. This is our current capital visibility, yes. However, as Raj has spoken during his speech, that we would continue to invest in upgrading both technology as well as adding capacity on our existing centers going forward, as the capacity is coming close to its near liquidity.
Maybe just to simplify it a bit more for me, let's say if you're going to spend INR 100, you know, in a year on CapEx, how much would be maintenance? How much would be maybe, not, you know, some of the new technologies that you are investing in your existing centers?
I mean, while we have not given guidance per se on the growth CapEx, however, our maintenance CapEx remains in the range of 55%-60%.
Okay.
However, you may want to add here, that the growth CapEx nowadays with high-end CapEx equipment, we are doing pay-per-use models. Because of that, our actual CapEx requirement has drastically come down. Going forward, we see this as a new way of even replacement CapEx, which we have done for high-end linear accelerators. Right now, we have done very successfully for high-end linear accelerators. In future, we may also do for other equipments. Right now, but based on what Ashutosh said, our replacement CapEx will be the most requirement, and even that, if it comes under pay-per-use, our requirement become less and less as we go forward.
Sure, sir, that's very interesting. Then would it be fair to assume that the CapEx would be lower in the outer year, than maybe at the cost of compromising on some margin somewhere? Pay-per-use, I'm sure that will go through the P&L.
Yes, it could be.
Okay, perfect, sir. Thank you very much, and all the best.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star then one. A reminder, we request each participant to restrict to two questions. Our next question comes from the line of Sabyasachi Mukerji with Bajaj Finserv. Please go ahead.
Yeah, hi. Thanks for the opportunity. Good morning, Dr. Ajai. Good morning, Raj and Ashutosh and team. Thanks for the opportunity. First question is a clarification on the margin front. If I look at, you know, your mature center revenue trajectory and the absolute EBITDA trajectory, the revenues have gone up sequentially, and it has been a phenomenon for last probably eight, nine quarters. That is very commendable. From Q3 to Q4, the absolute EBITDA has dropped, and I think you have mentioned this because of some, you know, upgradation of LINACs, I missed that point. Is this structural? Because we are going for a pay-per-use model, and hence the rental will keep in the PNL and margin will look lower. Any color on that?
No, no, it's not structural. As I said earlier, we have certain radiation machines in our mature centers, which are going through replacements. We, you know, in this entire digital transformation journey, we are also increasing incremental cost about, you know, additional cost for IT applications licenses. That's the reason there is no structural, you know, issue in this. Radiation, see, radiation is a high contribution business in all our modalities between surgical and medical radiation. Radiation has the highest margin, and therefore, you know, any drop in radiation affects the total contribution margin that much more.
As you know, what we are doing is in all these three centers, we are putting in a, you know, high-end machine, which will give us capability to do high-end modalities, which have a higher realization, therefore there will be improvement in your realization of radiation revenue in all these three locations.
It will be margin accretive, more margin accretive going forward.
Okay, got it. How many LINACs you have now, total, and how many of them are in pay-per-use model?
Yeah. We have five, which are pay-per-use model out of 32 LINACs. Most of these LINACs have been, you know, installed years ago. It's only last couple of years, we started moving towards pay-per-use model. We expect going forward that all our replacements will start moving into pay-per-use model.
Okay, a follow-up.
What Dr . Ajai was saying, that our CapEx requirement will go down.
Understood. Follow-up to the margin question. Basically, if I look at a full year basis, you know, the operating metrics that you have shown in the slide 10, that has improved, you know, strongly every aspect of the operating margin in the operating matrices. You know, if I look at the overall margins, overall EBITDA margins of the company, it is, you know, adjusted somewhere around 18.8%, 18.9%, and, you know, strongly refuses to go beyond 20%. Perhaps the missing piece of the puzzle here is your financing centers still operate at a 7%, 8% kind of a EBITDA margin the, you know, mature centers at 24%, 25%. My question is, you know, when can we see these emerging centers move up the ladder.
See, as a bucket, I think it will be about 18 months, but let me give you more details. Jaipur is already in mid-20s%, Borivali is in mid-20s%. Some of the emerging centers are already at that margin level. As a bucket, in another 18 months, we should get to the mature level.
Thank you. Our next question comes from Nitin Agarwal with DAM Capital. Please go ahead.
Hi, thanks for taking the question. Two questions, sir. On this pay-per-use LINAC model versus an outright buyout, in your assessment, what's the difference in ROC between the two, you know, how did the financial, the economics really work out for you in both the models?
Yeah. I mean, theoretically, it is like a single patient on pay-per-use machine is ROC accredited because there's no capital involved. Now, how does it play out when it comes to profitability? Is that now almost about around 20% to 25% of what we generate from patient goes to the manufacturer. However, what we have also done and observed is that due to upgrade of these machines from the previous versions, we are able to give high-end therapies to our patients. A lot of costs, which is going to the manufacturer, is also traded off due to higher profitability from the base.
The good part of our deal is that now, in fact, the PFC and AFC cost is also being borne by the manufacturer. We don't have additional operating costs towards that.
Nitin, what Ashutosh is trying to say is that the pay-per-use model is also good for a few things. One is, when the beginning, you may have a low volume of patients, you are not really investing in the CapEx. Even with a lower volume, you're okay, because it is per patient you're paying, you're not invested, and you're not, your debt is not increasing, and you are not paying any debt payment is not happening. Point number two is because of the high-end units we are getting, we are able to do more of IGRT, IMRT, in even tier two, tier three cities, where the revenue model is The patient pay model is higher. Of that, our contribution factor will be high.
Essentially, that usually whatever we charge, it will also be paying off what extra, paying off what we may have to pay to the manufacturer. Essentially, it makes us a win-win situation for us, working with the manufacturer, with no investment from our part, and no, like, no CMC, no custom duty. Everything comes. We believe it comes in our favor when you look at it. We have done deep study on this. That is the conclusion we have come to. Long term, it really works out well. After so many years, like eight years or so, it essentially becomes our own unit.
Okay. Doctor, you know, broadly speaking, in your assessment over the next two to three years, how much CapEx would be saving on in terms of cash outlay, based upon our expansion plans?
Yeah, if you look at, if you look at replacement CapEx, Linacs, we may have to replace another, you know, 7-8 linear accelerators. Am I right, Ashutosh? Close to that, at least, I think we need to.
Yeah.
Not only replacement, new installments, when you look at second linear accelerator, we may be in the region of 10-12. You are talking about each unit, about $2 million. You are looking at approximately, you know, $20 million-$25 million.
Okay. Okay, that's helpful. Secondly, on the mature centers, while we did this talk about the fact that Q4 had some one-offs because of which numbers are little down, but the EBITDA for these centers has been in the 74, 70, 77% range, INR 70 crore range for the last three or four quarters, all through FY 2023. Raj, you know, where do we see this number? I mean, is there a scope for a meaningful delta on this number, or this is where we're probably starting a bit of a plateauing situation in this, in the mature centers on the EBITDA front?
Before Raj takes up, just on the numbers, when you said INR 74 crore, INR 35 crore, those are reported numbers. If you look at the adjusted numbers, it has moved up from INR 75 crore, INR 76 crore to INR 83 crore. There is a data of INR 6 crore, INR 7 crore from quarter one to quarter four.
I think the numbers are there. As I explained, see, this is not, this quarter is not the end goal for us. It's not the last quarter, right? As I mentioned earlier, we are continuing to invest in our sales marketing expenses. Our sales marketing expenses are almost 1% more than last year, this year. You know, that's the right thing to do, because I believe that we not only have expertise, we have spare capacity. There is enough demand and supply.
It's important that we create visibility of HCG brand so that we grow footfalls going forward. That's the right thing to do for the business on an ongoing basis.
Raj, this is the last one on the INR 14-15 crores that you spent on the consulting expenses this year. What kind of payoff do you see on that, and when do you start see it coming through?
We had already guided the market that we were expecting our margin to go up in the range of 150 basis points. Of that, we have sort of like now, at least 60-70% of that benefit we have already seen in the current year. Some of the benefits, like now, would come in as we go forward in next few quarters.
Okay, thank you. If I squeeze in a last one, on, what is the way forward for us on the fertility clinic business? How are we seeing the business, is a strategic business for us? Is it core? Are we looking to invest in this business incrementally?
Yeah, as we have said, we are, we are now, because of the COVID and post-recovery, took us some time. We have reorganized the fertility, and we are also not going to do any of the merger we have planned with Ovum. We feel there is a significant upside for us to focus on the fertility only. With this, we are looking at good improvement this year, and we have put a lot of systems in place, and we want to be definitely dominant in Bangalore. Our focus going forward will be in Bangalore. Going forward in the next few quarters, we'll definitely update how we are doing. We do see significantly quite a few positive signs for our growth.
As you know, we have made it very clear at some point we want to divest, so we will decide at what points to, what point to divest.
Okay. Okay, sir. Thank you very much.
Thank you. Our next question comes from Shyam Srinivasan with Goldman Sachs. Please go ahead.
Hi, good morning, and thank you for taking my question. Just one on the outlook for fiscal 2021, so 2024. Raj, Dr. Ajai, how should we look at revenue growth? Firstly, we have done 21% this year, and if you could help us disaggregate into either changes in RPOP that you foresee, we have about 4% increase RPOP overall. Just want to see how we should look at RPOP versus, say, utilization improvements.
Yeah. As you said, 21%, 4% is RPOP, rest is volumes. If you see our even NPR, which is the most new patient registration, which is the most important, you know, matrix for us, because, you know, one patient coming in, getting treated for multiple modalities, and the lifetime value. We have had a very good 18% growth on a year-on-year in NPR. Largely it's led by volume. As I mentioned earlier, first, we want to drive capacity utilization before we start optimizing all other financial metrics. We'll continue to do that.
On going forward, we don't actually give forward-looking guidance. If you look at our track record for years and including, you know, last several quarters, we have outpaced the industry growth. Our endeavor is to continue on that journey and grow at a higher rate than the industry growth.
Yeah, that's helpful. What is the industry growth, you think? 15%, 14%?
Cancer market is growing at 11%-12% annually, CAGR over a few years. I mean, last five years, it's grown about 11%-12%. It's expected to grow at the same rate going forward, about 12%. That's the cancer market growth in India right now.
Shyam, I want to just add one thing. When we look at the growth for us historically, for HCG, we have been very strong in radiation oncology.
Right.
Even now, our radiation oncology is our big strength, where the contribution factor is very high. When we look at the places like even Mumbai, Jaipur, we are adding more units, and similarly in Vizag. A lot of our centers, including mature centers and those who are growing, we are adding more units. We feel our growth in terms of our radiation, chemo administration, will excel quite a bit in the coming year. That is where we are going to see a significant growth happening.
Got it, sir.
Yeah. Thank you, Dr. Ajay. Shyam, I think we have shared this in the past also. While we continue to grow organically, we are also looking at inorganic opportunities. We had several targets that we were evaluating. We have made good progress, and hopefully, we'll be able to, you know, share more details in coming months on that front.
Understood. If I were to look at slide 13 and just looking at your regional cluster breakup, where do you think there is scope for further improvement? I'm just looking at headline numbers, like Maharashtra has only grown 6%, let's assume, right? Just the ones where growth has been slower for the full year, or Andhra Pradesh for the quarter, let's assume. Is there something regional-specific, cluster-specific strategy that we have in the next 12 months?
While the mature centers continue to grow at a steady state, steady rate, the growth will come from emerging centers. Emerging centers, we have two in Mumbai, Maharashtra, one in Kolkata, you have Rajkot, Jaipur, which are showing very good traction. You mentioned Maharashtra, it's showing, you know, 6%. If you look at, I think that's largely because in Maharashtra, in Nashik, in both Mumbai hospitals, we had large, you know, COVID and vaccination revenue last. If you look at our oncology revenue growth year-on-year in Maharashtra, that 6% will become 15%. If you look at, if I can draw your attention to year-on-year growth in Q4, it's reflecting 19%, because by Q4 last year, COVID and vaccination was not there.
That is a real reflection of our oncology business growth there. If you look at Mumbai, we are in Mumbai, in Q4, we have grown about 24%. For the year in Mumbai, for oncology business, like-to-like, we have grown 41% over the previous year. Mumbai is growing very well. Mumbai, Kolkata, emerging center as a bucket will be the, you know, future growth drivers going forward. As we have been mentioning, that two of our top centers of excellence, Bangalore and Ahmedabad, we are adding capacity in terms of new facilities. We are adding one in Whitefield to, you know, continue to grow our market share in Bangalore.
Ahmedabad, we are shifting to a newly modern built 200 bedded facility by beginning of next financial year, and that will ensure that these two centers will continue to, you know, play a major role in our growth going forward.
Got it. My last question is just I remember 12, 18 months back, we did a price benchmarking exercise of our prices with competition, we took some price increases up. Do you foresee, you know, that will likely come back again? Is there pricing power, you think, where you can take prices up? The RPOP growth, like you said, has been 4% only. You know, is there an element of price increases we can take in 2024 or 2025, let's say?
12 months ago, we had done it, actually 15 months ago, we started doing that exercise in Bangalore. During this last financial year, we have taken it to the rest of 10, 12 major facilities. That's been rolled out recently. We don't see it happening, you know, again soon, but we continue to do our inflationary price increase every year effective from 1st April, which we have already done. I think, you know, as I stated before, we do have capacity in many of our centers. We do want to go for, you know, driving volumes first. In the meantime, we are upgrading technology, we are upgrading our clinical strength, and we are investing in building brand.
Combination of all three, when the capacity starts reaching to optimum level, should give us, you know, our pricing ability to charge premium. Considering that anyway, in two-third of our locations, we have a market leadership position locally in oncology market. We are working towards that. As of now, the focus is on volume, volume, driving capacity utilization, naturally it will move in that direction as we start reaching optimum utilization.
Got it, sir. Thank you and all the best.
Thank you. Our next question comes from Aditya Jhawar, from Investec. Please go ahead.
Yeah, good morning, team. I have a question on the cash-
Good morning.
Good morning. I have a question on the cash flow statement. I see there is a receivables write-off of INR 31 odd crores, and there are again doubtful debts for, I think, 2-3 years, INR 11 odd crores. Could you throw some light on this part?
Yeah. Hi, Aditya. The thing is, we have a receivables policy, provisioning. Based on that, you know, on the credit customers, we will make provisions based on the receivables and based on the collection trends. The write-off that you see in the books of accounts is basically the provisions that we have created in the past, and, you know, over a period of time, we realized it's not collectible. That's what we have cleared it up as part of this exercise. Having said that, it's not that, you know, we cleaned it up and, you know, that's the end of the story. We will keep monitoring this, and as and when there is an opportunity to push these collections, we will continue to do so.
It's more a financial discipline exercise and our efforts to kind of, you know, drive the receivables, ensure that we are behind this and collect as much as possible continues to be on.
Just to add to what Srini said, since you picked up on the cash flow, the net impact because some of these bad debts and the provision is a write back to the PBT because it's not a cash outflow. Just making it clear.
Yeah. In the business, I am still not able to understand the receivables, how it got stuck, like, INR 31 odd crores is a very big amount. Could you again briefly explain here?
Yeah, Aditya, it's just not a one-year phenomenon, it's over a period of time. We are looking at last five to six years. As I said, on all our credit customers, we have been creating provisions based on the aging of those customers, and based on that, the provisions have got accumulated over a period of five, six years. That certified cost we are looking at is a provision that has been created over a period of time, that we have realized is not collectible at this point in time. Based on a good financial discipline, we decided to write off this amount.
Okay, thanks for that. My second question is on the margins trend. If I see the post-rental margins, we have coming around 10%-11%, which has been for the past two years. As we know that in the hospital sector, generally, when the CapEx comes over, we see that the margin should tend upward. From the last 6-8 quarters, we are sitting near 10%-11% on margin. When we can see that bump up in the margin, you can give in maybe two or three years perspective, like, emerging centers should contribute, how do you see this going forward?
Aditya, I mean, we are not able to relate to your 11% margin, because our reported adjusted, sorry, our adjusted margin is 18.8%.
I am taking out rental also here. If you calculate post-indebted.
Pre-indebtedness.
Pre-indebtedness, yeah.
Pre-indebtedness?
Yeah.
Pre-indebtedness is 10%-15%, no?
It's around 11%.
Pre-indebtedness cannot be 11%, Aditya, it should be a higher percentage. The larger question is: How do we.
Yeah.
margins across the emerging center, Raj?
Yeah. Yeah.
Yes, yes.
Aditya Jhawar, I mean, if you look at last two years, you know, eight quarters, we've grown from 13% to almost 19% in terms of margin, post-indebtedness. Our existing centers have gone from 18% to almost 22%, right? It's the new center bucket that was dragging it down. Earlier, it was negative, now it's coming positive. We've been explaining that when we reached to a certain level of margins three, four quarters ago, we decided that we want to go for scale, and therefore, we started blending our clinical talent and investing in go-to-market, building brand, to make sure that we ramp up our, you know, hospitals faster than what we've done historically. Our emerging markets are new markets to us.
We have to grab market share for from someone else. We decided to go on a front foot aggressively to grow this volume. I think that what is happening, the margin trend is a reflection of these decisions, which we feel are the right decisions for those businesses, right? Now, fundamentally, we've shown again and again that the model delivers good margins in mid-20s, whether it's irrespective of the location that they are in, whether it's new, whether it's metro, whether it's non-metro, tier 3, tier 4. We've proven it multiple times. It's a matter of fact, when all cylinders start firing in the emerging bucket, that it starts moving in the right direction towards the mature center margin.
I think, the Raj has given a timeframe of about 18 months to kind of for the emerging centers to fall in line with the mature centers, and I think, I think that's a good starting point.
As I said, you know, Jaipur in last two years have gone to mid, you know, early 20s. Borivali is gone to 20s, right? Even in the emerging center bucket, there are hospitals which are already reaching that that level.
Okay, that helps, that helps. Thanks. The last question I have is on the LINAC machines. Currently, we have 31 old LINAC machines, right? Just correct me if I'm wrong.
Yeah.
Correct. Okay. We have current capacity utilization as 68 odd %, but you said that we can move up to 90+%. How do we increase your capacity utilization, and how fast we can ramp up here? Or it depends on the mode of. I see the number of patients are also going up, which is good amount. How do the dynamics change here, the increasing capacity utilization of LINAC? For the 2-3 years, how much more we are trying to add that also in LINAC, how many machines? You said we are going for pay-per-use model and this one.
Yes, yes. Aditya , if you look at the page on operating metrics, it shows that year-over-year, our utilization has grown from 59% to 66%. On quarter-over-quarter, it's moved from 60% to 64%, 65% for in Q4. This is a average utilization for the entire bucket. We have many hospitals where we are already 90%, 100% utilization. For example, Borivali. Borivali, we've been clocking 95%, 100% utilization. We had a bunker, we want to add one machine. The machine is commissioned as we speak. This month, we have commissioned the second machine. The answer lies hospital by hospital. We have identified hospitals where we already are hitting utilization, right? Ranchi is one more example. Jaipur, we have two machines.
The utilization is at higher eighties. What we've learned from our, some of the past experiences, that we don't need to wait for it to reach 90, 95, because there is a long lead time to order machine and install it. It takes 6-9 months for that. Therefore, as we start hitting 80, 85 in respective hospitals, and wherever we have bunkers, we'll start ordering machines and deploying it. Where we don't have bunkers, we'll start creating bunkers. At, you know, as we speak right now, we have about five machines that are getting installed in various places, Borivali, Ranchi, Bangalore, and Jaipur. That's what is happening right now, as, you know, and these machines will get commissioned in, you know, these 2-3 months period, current period.
We have also identified some of the other hospitals where we would like to add machines. For example, Nagpur, for example, Kolkata. We have a list of units where we would like to now increase capacity by adding a LINAC. We have plans for this year and the subsequent years. This pay-per-use model, to deploy it at the right time without incurring CapEx in a margin-accretive and a ROCE-accretive manner going forward.
Okay. Okay, that helps. Thank you so much. All the best.
Thank you.
Thank you. Our next question comes from Rishabh Tiwari with Allegro Capital Advisors. Please go ahead.
Hi. Thanks for taking the question. My question was regarding the pre-Ind AS numbers, which was being discussed in the last question as well. Earlier, we used to report it used to be around INR 65 crores of number in Ind AS impact, annually. What would be the ballpark number for this FY 2023 year?
Pre-Ind AS numbers?
So
About the right number.
Actually, how is it right?
This is the Ind AS impact, right? INR 70 crore annually. If you are looking at INR 321 crores for the full year, our pre-Ind AS number predicted will be about INR 250 crores.
About? Sorry, sir, I lost you.
INR 250 .
Okay, sir. pre-Ind AS would be higher than the post-Ind AS number, is it?
No, no, no. Our post-Ind AS EBITDA number for last year is INR 321 crore. If you want a pre-Ind AS like-to-like number, as we do report earlier, you'll have to remove about roughly INR 70 crore from it, which takes it to about INR 251 crore.
Yeah. Okay. That helps, sir. That helps. Thank you.
Yeah.
Thank you. Our next question comes from Yogesh Tiwari with Aryan Capital. Please go ahead.
Thank you, sir. My question is basically on right of use assets, basically related to balance sheet. Your right of use assets has declined in FY 2023. Also, your other intangible assets has also declined. What are the drivers for it, sir?
Yogesh, can you repeat your question? There is a lot of disturbances in the background.
Yeah. My question is, the right of use assets, it has declined in FY 2023 from about INR 400 crores in FY 2022. What would be the driver for the decline? Also, there is a decline in other intangible assets. If you can share some thoughts on it.
Remember last time when we, for the year-end call, we had explained the same that we revised our policy of capitalization of right of use assets. We had taken only the locking period of most of the assets, which were only 8-10 years. We wrote back or we reduced the ROE assets of the impact of 10 years capitalization. That's why you saw INR 2,300 crore reduction last year on account of this. Plus, as we keep paying the rent, as you know, ROE is nothing but the capitalization of the future rentals. As you keep paying rent, this will also organically come down. That is the reason why you are seeing a decrease in the current year also.
Sir, this declining rental would be related to which facility?
No, it's not. It relates to all the facilities where we are paying rent. Which is across all the locations. As Venkatesh rightly explained, as the year goes by, the capitalization would keep coming down, and that's the reason for the reduction.
Sure, sir. sir-
We capitalize rent.
Okay, sir. Sure. Sir, one last question on the upcoming CapEx. At Whitefield and at Ahmedabad. As you told earlier, it takes about 18 months for a emerging asset, you know, to become mature. Can we assume that the two upcoming, you know, assets at, like, Whitefield and Ahmedabad, it will start giving the targeted ROCE by the second half of FY 26?
Let's put it this way. Ahmedabad is a new center as I said. We are just lifting the existing hospital and putting it in a because we have enough and the Ahmedabad center. Given that, you know, we should be able to maintain the momentum, rather improve the momentum as well as this center is concerned. As far as Whitefield center is concerned, it's an addition to our existing center of excellence. We are optimistic that, you know, we should be able to pick up volumes very quickly from the induction stage itself.
Sure. Just on the timeline, like, we expect that to know, for example, Whitefield to complete in the first quarter of 2025. We can, we can expect like FY 2026 to be the major, contributor for this, keeping in mind the timelines?
It's one of the contributors. It will be one of the contributor, as Raj and Ashish explained, there are many activities that are happening besides the expansion. We are also looking at M&A activities. We are also looking at emerging centers, kind of, you know, coming up with new centers. All this will be a major driver to propel the overall growth of the organization. Just to add to what Vinny said, since you know, our center in Whitefield is a niche center, primarily from the perspective that we want to consolidate and improve our market leadership in Bangalore. It's going to be a small center compared to what we already have in Bangalore, and it is more aimed towards, like increasing our market share in Bangalore.
It's going to be primarily data, radiation and medical oncology center, and we do have some surgical and medical OTs and beds as well. It is going to be an add-on center to our center office. It's not going to drive us as far as profitability is concerned. It will add to the incremental revenue. As Vinny said, Ahmedabad is going to be a shift of the hospital, and it's not going to change the economics of the business.
Okay, sure, sir. That's, that's all from my side. Thank you.
Thank you.
Thank you. Ladies and gentlemen, we have reached to the end of the question and answer session. I would now like to hand the conference over to Mr. Raj Gore for closing comments.
Thank you. Once again, I take this opportunity to thank everyone for joining your call. Having this interest in our organization, our growth story. We'll keep you updating on regular basis for any incremental updates we have on the company. I hope we've been able to address all your queries. If there is more queries, please get in touch with us or our investor relations advisors, Strategic Growth Advisors. Thank you once again, you know, talk to you next time again. Thank you.
Thank you. On behalf of HealthCare Global Enterprises Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.