Ladies and gentlemen, good day and welcome to KIMS Hospitals Q2 FY25 Earnings Conference Call hosted by IIFL Securities. 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 a touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jeewani from IIFL Securities. Thank you, and over to you, sir.
Yeah, thanks. Good morning, everyone. This is Rahul Jeewani from IIFL Securities Limited. I welcome you all to the Q2 earnings conference call of KIMS Hospitals. From KIMS, we have with us Dr. Bhaskar Rao Bollineni, founder and managing director, Dr. Abhinay Bollineni, executive director and CEO, Mr. Sachin Salvi, CFO, Dr. Nitish Shetty, CEO for KIMS Bangalore Cluster, and Mr. Srinath Reddy, director, business strategy, and M&A. Over to you, sir, for your opening comments.
Good morning and a warm welcome to all of you. Just about one month back, that is on 9th October, we lost the crown jewel of Indian corporate world in the death of Ratan Tata. He was universally respected because he was the conscience keeper of Indian industry. He is known for his values, ethics, and standards. My heartfelt tribute to this towering legend. We have witnessed the fury of rains and floods in Telangana, Andhra Pradesh, and Kerala during August and September months, causing heavy damage. As a part of our corporate responsibility, KIMS donated INR 1 crore to each of these three states for aiding the victims. Let me now announce our financial and operational details of Q2 , 2024-2025.
It can be observed that there has been a growth under each and every parameter, both in quarter-on-quarter and year-on-year basis, reflecting the good work done by KIMS. Gross revenue of INR 782 crore, a growth of 19.4% on year-on-year and a 12.9% on a quarter-on-quarter basis. EBITDA of INR 223 crore, a growth of 23.8% on year-on-year and a 21.2% on quarter-on-quarter basis. EBITDA margin at 28.5% versus 27.5% in Q2 FY24 and 26.6% in Q1 in FY25. EBITDA margin, excluding other income, stands at 28.1% versus 27.2% in Q2 FY24 and 26.1% in Q1 FY25. That INR 120 crores in Q2 FY25 against 101 crores and 95 crores in Q2 FY24 and Q1 FY25, respectively. Operational results: average revenue per operating bed grew by 22.9% and marginally declined by 0.5% on year-on-year and quarter-on-quarter basis, respectively.
Average revenue per operation grew by 9.7% and 0.7% on year-on-year and quarter-on-quarter basis, respectively. IP volume 55,741 grew by 9.1% and 12.2% year-on-year and quarter-on-quarter basis, respectively. OP volume 473,989 grew by 12.2% and 12.5% on year-on-year and quarter-on-quarter basis, respectively. The other developments that happened in KIMS: in the last quarter, I apprised you about the acquisition of KIMS NRI Hospital in Vizag. I am pleased to inform that we have taken total control of the said hospital, and we will see good results soon. I am happy to inform that we are making our foray into Kerala also. We have taken our stake in the hospital in Kannur and are entering into a one-on-one contract with Westfort Hi-Tech Hospital in Thrissur.
The expansion blueprint includes setting up a fully equipped oncology and transplant centers in Kannur and a 350-bed hospital in Thrissur dedicated to advanced transplant services. These initiatives are intended to make high-quality healthcare available at Tier two and Tier three towns. Our launch in Kerala is preceded by a lot of immaculate preparatory work, particularly in identifying and recruiting best managerial and clinical talent, focusing on three C's: character, caliber, and commitment. Accordingly, we have inducted a band of highly experienced and accomplished professionals who are familiar with the terrain of Kerala and Karnataka. Their rich expertise and long experience are expected to yield good results. We had a press meet in Kerala, which was well attended and drew huge positive response. I am sure it will translate into good growth in the coming months.
We are also exploring further opportunities in Kerala and Karnataka so as to exploit the full potential of this new team. Let me give a brief introduction of these new executives joining KIMS family. Mr. Srinath Reddy joins us as a Group Director of Finance and Strategy, M&A of the Kerala and Karnataka clusters. He is a chartered accountant and a lawyer who held top positions in leading hospital groups and pharmacy chains for the past 25 years. Dr. Nitish Shetty joins us as the CEO of KIMS Bangalore Cluster. He brings with him 23 years of leadership experience in reputed healthcare groups. He had nurtured and helped institutions grow with his acumen and passion. Mr. Farhan Yasin joins as the CEO of KIMS Kerala Cluster.
He has two decades of experience in the fields of marketing and management in the healthcare sector and has a thorough knowledge of the Kerala healthcare landscape. Mr. Arjun Vijayakumar joins us as Head, Finance and Accounts for the Kerala Cluster. He is a chartered accountant with 16 years' experience and has worked in healthcare and financial sectors with global firms like Deloitte. Thus, these four professionals come with a collective experience of 85 years between them and are well familiar with the region. In all our expansion plans, we want to nourish the local talent flavor as they have a better understanding of the local needs and expectations. We are confident that the new stream of executives will strengthen our brands, advance further in our growth trajectory in general, and Kerala and Karnataka states in particular.
I am happy to add that now KIMS has a presence in Guntur, Andhra Pradesh, which is one of the important and densely populated towns in the state near to the upcoming new capital, Amaravati. We have entered into an agreement with Insignia Healthcare Private Limited, a brand name of Sri Chakra Hospitals, a multi-specialty. We have also entered into an MOU with VQ Healthcare Private Limited, Sri Chakra Hospitals, an exclusive oncology center. Already, we have a strong presence in Andhra Pradesh, and these initiatives will make our impact stronger. We are confident of good results. A good portion of these expansions will be met by internal accruals and also by prudent debt to the extent essential. Over the next two or three quarters, the debt to EBITDA will be, as we promised, around two in the wake of these expansions. KIMS always encouraged the doctors' equity.
Likewise, here also, the doctors and key personnel will be investing in the project, resulting in a sense of ownership and increased responsibility on their part besides impacting cost of funds. Our hospital at Nashik in Maharashtra is operational and poised for good growth. All other projects are running as scheduled. The acquisition of Vizag Clinic and the commencement of operation at Nashik result in adding 625 additional beds. Post-shipping of Sunshine to the new premises, there is a marked improvement in its performance. Few of the academic accomplishments: the annual conference of the Association of Neurospinal Surgeons of India was held in Hyderabad with the participation of 450 spine surgeons from all over the world. On this occasion, a special workshop was organized by KIMS Hospitals that received a lot of attention and appreciation.
Serbian Neurosurgical Society, along with International Society for Pediatric Neurosurgery and Southeast Europe Neurosurgical Society, recently held a conference at Belgrade with the participation of 37 countries, including India. Four of our doctors, Dr. Manas, Dr. Basavaraja, Dr. Shamanth, and Dr. Sandhya, presented their work done at KIMS to the forum, and it was widely appreciated and awarded. KIMS Hospitals signed an MOU with Intuitive Surgical, a global leader in minimally invasive care and robotic-assisted surgery. Through this collaboration, KIMS Hospitals seeks to enhance the availability of advanced surgical technology across geographies where access has been limited. It aims to improve the patient care in Tier two and Tier three cities. In addition, we plan to offer robotic-assisted surgical training programs to doctors in our associated colleges and institutes, further contributing to the future of healthcare in this region.
KIMS Hospitals' association with Arrhythmia Research and Training Center conducted an educational symposium with the participation of 300 cardiologists and electrophysiologists from Telangana, Andhra Pradesh, Chennai, Kolkata, Bangalore, and Delhi. The faculty included distinguished electrophysiologists from all over the country. The main objective was to highlight the importance of ECG in the interpretation-making of various cardiac disorders. We are pleased to convey that as many as 14 submissions from the Department of Rheumatology KIMS Secunderabad are accepted for the American College of Rheumatology Convergence in 2024. At the annual meeting of the International Urogynecological Association held in Singapore, our Urogynecology Department had the privilege of presenting nine papers and won a lot of appreciation. KIMS Foundation and Research Center are foreseeing collaboration with the Deaf Enabled Foundation. This Deaf Enabled Foundation started an exclusive telemedicine center with the video interpretation for deaf.
This initiative will make healthcare more accessible to the deaf people. Dr. P. Raghu Ram, our breast cancer expert, was bestowed an honorary fellowship of the International Surgical Society. He is the first and only surgeon from the Indian subcontinent in the 122-year history of this prestigious organization to receive this highest recognition. Two important clinical achievements I should mention here: Dr. Madhu Devarishetty, surgical oncologist and robotic surgeon, and his team completed 100 robotic removals for pancreatic and periampullary carcinoma. This is one of the largest series in India, probably the highest. KIMS Sunshine Hospital achieved a significant milestone by successfully performing first-ever Episealer knee implant surgery in Telangana and Andhra Pradesh states. This revolutionary procedure marks a new era in personalized joint care, offering hope to patients suffering from debilitating knee cartilage injuries.
KIMS Kondapur Hospital recently reached the landmark of having successfully done 300 robotic joint replacement surgeries within a short period of time. I conclude now, assuring that KIMS will continue to make its efforts to make healthcare more accessible and affordable with quality care. Thank you very much. Over to Rahul.
Sir, should we begin with the Q&A?
Please. W e can.
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 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 Ameya Karandikar from JM Financial. Please go ahead.
Thank you for taking my question, and congrats to the management and good set of numbers. The first question I have is on the Telangana part of the business, where the occupied beds have come down during the quarter. However, the revenues have grown sharply from 309 crores to 370 crores. Is there anything to call out in this? Is it a case mix which has changed so dramatically from year-on-year basis? And is it structural in nature? Thank you.
No, I don't think there are any structural changes. It could only be a case mix change or an ALOS dip. If you look at the H1 last year and H1 this year, the ALOS has significantly come down. Okay. So got it. So we should assume a partial seasonal impact in this case.
Correct. Got it. The second question I have is, how many months of operations for Nashik and Vizag have been taken into this quarter?
Nashik, nothing. In fact, less than 10 lakhs. Vizag is one month revenue.
Sure. And just one query. If we add the four revenues of four different segments of Telangana, Andhra, Sunshine, and Nagpur, it comes a bit higher than the overall group total. So is there any inter-segment revenue which is canceling it, or is there some mismatch?
I mean, there are variations on account of eliminations which have to be adjusted in the Telangana cluster in revenue as well as EBITDA.
Okay. And the Vizag revenue will not be significant during the quarter?
Yes.
Okay. Okay. And the last question I have is, you have announced this 3,000-bed ambition plan for Kerala cluster. Is it possible to give a timeline to achieve this target? How much of this will be achieved by organic or inorganic? And there are certain established chains in this region, in Kerala region. How do you see competitive intensity there? And is there sufficient scope for your hospital chain to come?
Thank you. Srinath, you want to take this?
So Srinath, so we are looking at the total beds of the 3,000 numbers over a period of time. It could be in the next five to six years. And the way we are looking at it, it's a mix of both satellite model as well as greenfield. Initially, it will be mostly asset-light. The two new facilities that we have talked about, the chairman had talked about, both Kannur as well as Thrissur, it's asset-light. Our focus is going to be because many of them are approaching us on asset-light models in Kerala.
Mostly, it could be asset-like. But having said that, in the big cities, that could be in Kochi and Calicut, we would like to go with greenfield projects. But that is sure. And your second question was a lot of other groups are present. D efinitely, there are groups. But if you look at, these are all local groups. We don't have the national players. So we'll be one player which will have a national presence. And Kerala is one important state for us being in the south. And because the team, the management team, and the doctors and others whom we have identified, they're all part of this earlier group. And we are pretty confident that we will be able to get good results both from the growth as well as in terms of the EBITDA from this geography.
Sure. So basically, in Tier two, Tier three cities, they will try to go or try to acquire or do the O&M kind of agreement with the existing hospital. So that will not add new beds basically in those cities. Is that the right understanding?
T hat is right. In Tier two, Tier three, if you look at the smaller cities, it's mostly asset-light. And the CapEx for that will be very, very minimal. Okay. Okay. And overall, CapEx plan, does it change because of this ambition, or is it still the same? No, I think we'll still continue to maintain the debt levels that we spoke about earlier.
And since all of these projects, at least the two projects that we spoke about, are asset-light O&M contracts, so it really doesn't have much impact on the debt position. It doesn't change much of the CapEx plan.
Sure. Sure. Thank you so much. I will join it.
Thank you. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi. Good morning, and thank you for the opportunity. My first question is on operating costs. So as multiple new units will be coming into your network in the next couple of quarters, how should we look at operating costs building up from here? And very broadly, what will be the broad impact on the operating margins? And extending it, since you have a big plan to extend into Kerala market, where we understand operating costs are generally higher than, say, Bangalore market, etc., so over a long period of time, how should we look at the margins from current levels?
I think the three new HSS that came into play this year are Vizag, Kannur, Guntur, and Nashik. And except for Nashik, the other three are running hospitals with some revenue. So there will not be much EBITDA loss from these companies. In fact, the EBITDA loss would be as low as 1-2 crores because they're already on the verge of getting on the verge of break-even. And as far as Nashik, we're still pretty confident. Within 12 months, we should be able to break even.
For the first 12 months, we could have an EBITDA loss of at best INR 10 crore, INR 5 crore to INR 10 crore. As far as the other hospitals that are coming up next financial year, which is Bangalore and Thane, like we had earlier indicated, INR 10 crore-INR 15 crore loss per site is what we're looking at. So cumulatively, a INR 30 crore-INR 40 crore drag on an EBITDA of the current scale and size, I don't think will impact the margin significantly.
So from these assets which you discussed, annual drag of, say, INR 30 crore to INR 50 crore, not more than that?
The new ones that are going to come up next year, the ones that have come up this year, we will not see any drag except for Nashik, which will be between 10 crores.
Okay. On a slightly longer-term basis, when you increase your presence in Kerala, in that way, how should we look at the margin?
Even if we do so. First of all, Kerala, we are pretty confident we should still be able to get to a 25% kind of a margin. That is what some of the best hospitals in that geography have been doing. Right now, we have these two facilities. We'll focus on these two. We're pretty confident these two will scale up to 25% margin in near coastals.
Okay. Good to hear that. Then I have a question on the promoter pledge. Earlier, I guess you mentioned that there will become reclassification of some promoter entities to public. That should be bringing down the pledge part. But I guess September number doesn't reflect that. How do you see that move?
Actually, we have been upright to that. So we asked some queries. We are answering those things. Definitely, maybe next one or two months, that should be done. And as far as after doing that, personally, from my side, there will not be any pledge.
Okay. So yours will be completely taken out once that process is done.
Yes. Correct. Correct.
Okay. Okay. And my last question is on margins in the AP cluster. I think we have seen notable improvement there. So obviously, I guess you talked about case mix, etc. And this quarter, I understand there is seasonal benefit also. So where do you see AP cluster margins settling in very broadly?
So like we had always indicated, AP, there are still one or two assets that are actually two assets that are still in their less than 20% margin. But over a period of time, once those two and the remaining hospitals scale up, because of the total beds in AP, 40% of the beds are still less than five years old. So as they scale up, we will be able to get to a 27%-28% kind of a margin there.
Okay. Okay. That's helpful. Thank you. Thank you very much. I'll get back in touch with you.
Thank you. A reminder to all the participants that you may press star and one to ask a question. The next question is from the line of Alankar Garude from Kotak Institutional Equities. Please go ahead.
Hi. Good morning, everyone. I'm Alankar, sir. Abhinay. Just wanted to understand your thought process in selecting Kerala as a focus market, especially given the plan to add 3,000 beds. Now, Kerala is also a slightly different market with maybe higher cost, etc.
So just wanted to understand whether this entry was it slightly opportunistic considering that we got a great team? Your insights will be really helpful. And maybe I have a follow-up there. But maybe your response here, and then I can ask that other question. Thanks.
Abhi, can I ask?
Go ahead. So if you take the healthcare in India, Kerala is the one which is matured more literally and understanding the healthcare. And the insurance penetration is more. And there will be a lot of procedures. And every small type to also do very well. And there is a lot more gaps that are available in Kerala. There is a need. So with the team that has been totally understand the geography much better than us. So that's why we are mentioning mostly we are going with an asset-light model. That's why we have selected that. Anything you want to add, Nitish, on this?
Thank you, sir. I have a little experience in Kerala. We know our previous organization has a dominant presence in Kerala. What we have seen is the last 10 years, Kerala previously has been a different market as it was dominated by the government hospitals and charitable institutions. Last 10 years, and especially post-COVID, there's a general acceptance of a large private hospital. And when I say large private hospital, that's much more among the organized players. My previous employer has leveraged on that opportunity and has grown well. But I see there is an opportunity for much more players to come in because there is a need in terms of the non-communicable disease prevalence is very high. Kerala is densely populated. The whole state is urbanized.
Then the most important thing is the clinical talent available is very high. Even in the Tier two, Tier three cities, you can get three super specialists in all specialties. Considering these opportunities, the lack of the organized players, large players in Kerala, and the incidence of disease, and also the acceptance of the general population to move away from the government hospitals, cross-hospital to private hospitals, especially for tertiary care work, earlier, patients from Kerala used to go out of Kerala state for tertiary care work. When I say tertiary care, high-end work like neuro, cardiac, organ transplant. But they have accepted that now that can be delivered in the state itself. So since KIMS comes with a vast experience in organ transplant, cardiac, neuro, and all the cutting-edge work, and has a very good high-end infrastructure model in other states, something similar can be emulated.
Add to that, KIMS has a unique model of partnering with the local talent, especially the doctors. That model can further the growth of KIMS in Kerala. In a nutshell, I see a huge opportunity in Kerala. I think when it comes to other states, it's in the metros and the Tier two, Tier one. But in Kerala, it is in Tier two, Tier three more, and also in large cities as well.
Thank you. I appreciate the response, sir. Maybe the context to ask this question was also, I mean, we had till about two, three years back, zeroed in on Maharashtra as the next AP Telangana equivalent for the company with a 5, 10-year view. Now, with the, I mean, the focus on Kerala as well as, I mean, the additions coming up in Bangalore, have we curtailed our expansion plans for Maharashtra beyond the plans which we already announced?
Alankar, sir, I don't think the plans for Maharashtra will slow down because of this. Whatever we announced, we are always committed to. We will also bring few more opportunities on board very soon as far as Maharashtra is concerned. It is that Kerala was a very unique opportunity. We had the right people who understand the market totally. There were a lot of opportunities to do asset-light hospitals. And being such a large state, we had multiple asset-light opportunities in that state. All we had to do is one or two greenfield over a period of time.
So it made very strategic sense for us to consolidate our position in the South with Andhra, Telangana, foray into Karnataka, Kerala. It makes us a very dominant and strong South Indian operator . But that does not derail any plans that we have for Maharashtra or how we want to expand in Maharashtra. Where capital required for Kerala is significantly low.
Understood. So basically, Maharashtra, that earlier plan of adding as many beds, maybe more, as what you have announced in Kerala stays over the next, say, five to 10 years.
Correct. Correct. That continues. That continues. It's just that Kerala, we have formalized it with a presence we didn't have it in any other state. Okay. Fair enough. The second question is, can you please take us through the progress in Sunshine and Nagpur?
Sunshine was quite impressive this quarter. Nagpur saw healthy growth, but margins came off sequentially. If you can help explain the dynamics in both these markets? Thank you. So as far as Sunshine, we were always pretty confident that it will do better than KIMS Telangana cluster in terms of its margin. And while it took us a year, year and a half for us to show turnaround because we had to move from the current facility to the new facility. And right after it moved, the revenues significantly improved. We were able to onboard good doctor talent.
In fact, the new hospital has almost reached a very high occupancy. Now, we'll probably have to look at expanding that facility as well. So I think now Sunshine as an acquisition has reached 30% EBITDA margins. From now on, whatever incremental revenue, 40%-50% will flow through to EBITDA. So we're pretty happy as far as that turnaround is concerned.
As far as Nagpur, again, the revenues have stabilized. EBITDA margins are also healthy at 25%, between 25%-30%. It's just that this quarter, we had a lot of renovation and one-time expenditure work. So if you actually normalize the EBITDA, it would have been in the range of INR 15-16 crore, which is around 25%-26%. So we are, again, pretty confident Nagpur will continue to deliver a 30% EBITDA margin as the revenue ramp-up happens. Understood. And maybe one final clarification.
When you said INR 10-15 crore EBITDA loss in Bangalore, does this include the second project as well?
So as a third center, we will incur a INR 15 crore EBITDA loss for the first 12 months of operations.
Okay. So then, I mean, you also said INR 30-40 crore drag from the newer assets. So okay. So that doesn't include Nashik then. So two hospitals in Bangalore and one in Thane would.
Correct. Correct. Okay. Fair enough. Thank you.
Thank you. A reminder to all participants that you may press star and one to ask a question. Participants who wish to ask a question may press star and one. The next question is from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi. Good morning and congratulations for a great set of numbers. Most of my questions are answered, just a couple of bookkeeping questions. In your presentation, the total number of beds at the end of the quarter is 4,610. But if I add up your four cluster beds, it comes to only 4,275. There is a difference of 335, of which I guess Kerala is 200. Could you explain the remaining difference, please?
Sachin, Rudra, could you?
So Rudra, this side. So if you see in the group, if you add these four clusters, it won't total up to the group because the Nashik beds have been added, which we have mentioned in the standalone, and 10 beds of Dr. Mehta, the Mehta Institute of Podiatry that we have taken, that has been added into the group. So what we thought is from the next quarter, because Nashik didn't have the significant revenue, from the next quarter, we will add up into the Maharashtra cluster. We will create a cluster, and we will show those things. Understood.
So is the 200-bed in Kerala part of this 4, 6, 1, 0?
No, no, no, no, no. Not in this quarter. It started from October.
Okay. That will also get added next quarter. Okay. And for Guntur and Kerala, which are like O&M, what would be the accounting treatment? Would you be fully consolidating the numbers, or would you recognize only the 5% revenue share income as income? Will we recognize only the 5%?
Go ahead, Sachin. Sachin, go ahead.
Will we recognize only the 5% revenue share since we are not having any equity in that company?
So we will not be doing any consolidation. Oh, okay. So the revenue numbers which you segment cluster-wise revenue numbers you report will not have their revenue?
Yes.
Okay. Understood. And that is for Guntur as well as for Kannur?
Wherever we are. Guntur and Thrissur. Kannur, we report the 100% revenue and EBITDA. There's a lease rental that goes out from that P&L for Kannur. For Thrissur and Guntur, we only report 5% as the operating income.
Understood. Thank you. And one last.
Sorry. Clean up here. I would like to clarify. I think there was one question earlier, I think, from JM or some. I'm not able to recollect. The thing is that, see, when we are talking about asset-light, at least in Kerala, we are talking about all the beds coming into our control, and the revenues, profit, or loss is going to be to our account. So that is the main asset-light and management model that we are talking about in Kerala. So just a clarification.
Okay. And can I just get an estimate of the full year CapEx for this year?
We don't have the numbers offhand, but can we share that it's part of the presentation, and we can share that with you separately?
Sure, sure. Okay. Thank you.
Thank you. A reminder to all participants that you may press star and one to ask a question. Participants who wish to ask a question may press star and one. The next question is from the line of Ankush Mahajan from Axis Securities. Please go ahead.
Sir, congrats for a good set of numbers. So my first question is, if we see from the last four quarters, earlier we have, on a consolidated basis, we have an ARPOB in the range of INR 30,000-INR 31,000. Now it is in the range of INR 38,000-INR 40,000. So what are the reasons behind it that the ARPOB has increased? First one. And the second one, if we see across the industry for Q2, the major growth is driven by the increase in occupancies. But in our cases, the growth is majorly increased by the ARPOB growth, and occupancies has come down. So would you throw some light on it?
That's something we should be happy about. It's not a seasonal impact, and it's an impact that it's going to sustain for the coming quarters as well. But as far as the ARPO growth, I think, as you indicated earlier, there has been some impact on price revision from GIPSA and some insurance renewals. And most of it is also because the ramp-up in Sunshine, ramp-up in Nagpur is coming largely from quaternary and tertiary care. So the ARPO contribution there is also implied.
And sir, last one is, what is the margins guidance for the full year? EBITDA margins?
I think what we have delivered for H1 will continue to. Something that we'll deliver for H2 as well. 27%-28%.
Thanks, sir.
Thank you. A reminder to all participants that you may press star and one to ask a question. The next question is from the line of Rahul Jeewani from IIFL Securities. Please go ahead.
Mr. Rahul, the line has been unmuted. Hope I'm audible?
Rahul. You're audible.
So sir, on these two assets, Thrissur and Guntur, where we would be getting just 5% revenue share, can you talk about your thought process in terms of taking on these assets? Because typically in O&M model, at least for some of the other O&M models which we have been having, we give out 5% rental revenue share. Whereas for these two assets, because the economics would just be 5% revenue share for us, do you think that given the economics, it made sense for us to take on these assets?
Sir, Rahul, the plan is, given the current debt situation in the company and we didn't want to exceed the net debt to EBITDA is 1:2. We found some opportunities, and we were able to structure some of these opportunities in such a way that the promoters were okay that we take full control of running the hospital and scaling up and ramping up the hospital. But eventually, maybe in a four- or five-year timeline or a three- to five-year timeline, we can bring these assets back into KIMS, either through a merger or through increasing 51% and getting to 51%-76%.
Sure, Dr. Abhinay. So would we have right of first refusal for acquiring these assets?
Correct. In fact, we have an option where we can exercise it at our discretion, at the discretion of KIMS, between the third to fifth year or even later, where we can bring this under KIMS. So when the debt situation is better and we are able to buy out these assets, we will start buying out these assets.
Sure, Dr. Abhinay. And have we had any, let's say, agreement in terms of the multiples which we would be paying for these assets going forward once we try to acquire them?
It will be on par with the, in any Tier two, Tier three markets, it will be less than a single I mean, less than sub-10 kind of a number. On EBITDA. On EBITDA. Sure. And the second question which I had, Dr. Abhinay, was on this expansion plan. Now, the expansion plan with the PPT talks about, their spend is going to be around INR 1,600 crore. But out of that INR 1,600 crore, Thane and the two Bangalore assets were there, which would now soon get commissioned in Q4. So of the INR 1,600 crore CapEx, how much have we already incurred so far? And then with the, let's say, the expansion which we are targeting in Kerala and the existing units, what kind of a CapEx spend do you expect in 2026 and 2027?
So Kerala as far as Kannur is concerned, we have already spent whatever you're seeing in the current data, it also includes the data for Kannur. So that is already taken care of. As far as Thrissur is concerned, the spend will not be more than 30-40 crores from the KIMS side for its scope of work. As far as the expansion plan of 1,600 beds, I'm not sure if I have the right number, but I think to the tune of 800-900 crores spent has already been done and is already factored in currently. But we can check the exact numbers and come back to you, Rahul. Sure.
Of the INR 1,600 crore you are seeing, INR 800-900 crore has already been incurred? Or maybe a little less than that. Rudra, do you have the numbers offhand?
So Rahul, we have already incurred to the tune of INR 800 crore on these projects, Bangalore and Thane, which are in pipeline. NASIC is already done and is still to be done on 30th September 2024.
Okay. So the remaining spend would essentially be for our existing units, which is, let's say, Kondapur, Anantapur, Srikakulam, and Ongole.
Yes. Sure, sir.
And sir, can you update us in terms of the Kondapur expansion, how that is progressing? So Kondapur, we were going to add 500 beds, and 100-150 beds were supposed to get commissioned or will get commissioned in the Q1 of FY27. So how has the progress been there?
It's on track, Rahul. We may commission it maybe a quarter early as well. We might be able to commission it a quarter early. But for now, things are on track for us to be able to commission in FY21, Q1, FY27.
Sure, Dr. Abhinay. And how many beds would you be commissioning in phase one, 100-150?
So given the traction and given how things are moving, I think an incremental 200-250 beds is what we will commission. So we'll move the current 250 and commission an additional 250, so 500-600 beds.
Okay. Sure. And that you are saying can get commissioned maybe a quarter earlier as well?
Correct.
Sure, sir. Thank you. I will join back with you.
Thank you. The next question is from the line of Anubhav Sahu from Macquarie Research. Please go ahead.
Hello. Thanks for this. So hold on a second. Since we have been exploring various types of hospital business models for the last few years, whether it's O&M, lease one, or doctor-partnership types, so for the inorganic initiatives, could you summarize what are the key parameters we are looking at when finalizing a target and what payback period, peak debt liquidity, etc., we are looking at? And if you can also define or redefine the catchment area and all we are looking at. Sorry, your first part of the question was not clear. Why is it not very audible? Once we understand what are the key parameters we are looking at, while finalizing a target for inorganic this thing, I mean, maybe in terms of payback period we are looking at for the target and what peak debt liquidity we are comfortable at the group level when we are looking at this kind of acquisition over here.
I think, like we had mentioned in the past, I don't think that changes anything. We will continue to look at 350-400 beds as the minimum size for us to set up a hospital. Anything that we don't see a visibility of INR 75-100 crore kind of an EBITDA potential, we may not continue to look at.
Even if to begin with it's just 150-200 beds, as long as there's opportunity to scale up to 400-500 beds or 350-400 beds, depending on which market we're operating in, I think we are pretty comfortable as long as we have that line of visibility to scale up. As far as net debt to EBITDA, I think we are very comfortable maintaining it at a net debt to EBITDA of 1:2 at a consolidated group level. We should, except for one or two quarters in between, be able to stick to that through the year.
Okay. Okay. In terms of ROI or payback period, are you looking at while investing in those assets? Anytime by five-seven years is what we typically look at.
But because these are now larger-format hospitals, we should take a much longer-term view on these hospitals because we are acquiring land for building hospital over the next 10 years' time. So we're building phase one over it, and then you build phase two. So you'll have to take a little longer view. As long as we are able to invest efficiently and the capital per bed is on par with the ARPOB per bed and the revenue growth is happening and EBITDA margins are happening, ROI should not be such a concerning factor.
Okay. Okay. Okay. And you may have mentioned before, could you just remind me, please, how much spend we have already done this year and how much is left for how much is planned for the rest of the year and next year?
So Anubhav, I will try to answer this question. As far as Bangalore is concerned, up to September 2024, we have spent almost like INR 260 crore. For another Bangalore project, we have spent about INR 10 crore. For Thane, we have spent about INR 350 crore. So Nashik, we have already spent about INR 155 crore. So this is the total spend which we have done up to September 2024.
For the remaining part of the year for Bangalore, both assets, since most of the medical equipment has to be deployed, we may have to spend up to about INR 100-INR 125 crore for each asset. For Thane, we will need about INR 125 crore for medical equipment. So this medical equipment spending will be spending. Otherwise, civil spending, most of the things have been done. And in fact, for the medical equipment spending also, we have paid some advances. So this is what the position as of 30th September 2024.
Okay. That's good. So what's lined up for next year in terms of spending? Sorry, your voice is sorry. Sorry for that. So in terms of CapEx, what is lined up for next year, next FY? So how much we are budgeting?
So next FY, I think, as Abhinay has also said, most of the assets which we are doing are on a satellite model. Most of the spending which is required for the existing Bangalore and Thane asset would be done by the end of this financial year. So next year, about some INR 500 crore or INR 600 crore. Abhinay, correct me if I'm wrong.
That's it.
Okay. No problem. Thank you. Very helpful.
Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Am I audible?
Yes.
So just from the Andhra Pradesh cluster, the occupancy sort of has lower year over year, or even if I compare it with FY24 number, while the beds are largely stable. So if you could just throw some light, maybe I'm not sure if you have already responded to this, but just to understand how do we think of improving the occupancy in first place at the existing sites, and then subsequently, we've been going to invest at Anantapur and other centers within Andhra Pradesh. So if you could give some idea in terms of at least the places where we are adding significant beds, where the occupancy stands at those sites. Thank you.
So as far as Andhra Pradesh is concerned, there are some hospitals where the occupancy is still low, and there are some hospitals where the occupancy is above 90%.
So Rajahmundry, Anantapur, and such hospitals, the occupancy is very, very high. And that's why we are adding more bed capacity there. A place in Nellore, for example, Ongole, for example, where the occupancy, there is still opportunity to only at 30%-40%, 40%-50%. We can still add the growth can happen. But when we acquired these hospitals, they were very large-format hospitals, and we knew it will take that much time for it to scale up. So that was and we're okay with it. And also, a part of the occupancy dip is because of acquiring Queen's NRI , which came in. That could be one of the reasons why there is a dip. I mean, this INR 90-110 crore investment for Anantapur for 250 beds.
So this is lower than, let's say, typical 1-1.5 or 2 crore per bed investment. So if you could just share why the investment per bed number looks lower as far as this investment is concerned?
I think in that market, it's difficult for us to get beyond that. The ARPO in that market is only around INR 70-80 lakhs per bed. So we'd have to play around within that ARPO range. Okay. In fact, just on conceptually, since you highlight both ARPO as well as ARPP in the presentation, at least this quarter, it seems that ARPO growth is quite 22%, while ARPP growth is just 9-10%. So I mean, while there's a dip in ALOS, right? So that is also going to reflect there.
And lastly, for Thane project and the other where the OPEX, as you highlighted in the earlier remarks of the OPEX drag-offs is INR 30-40 Cr. This is with the assumption of what kind of occupancy will be sort of end in 12 months of operation?
Sorry, could you repeat the question, please?
Sir, in the earlier comments, you highlighted OpEx drag of INR 30-40 crore that would happen on account of addition of new hospitals, including that of Thane.
Right. Right.
So those new centers, probably what kind of occupancy assumptions are we going by, let's say, in first year of operation?
We're assuming a 30% kind of an occupancy on the total bed capacity, 25%-30%.
Understood. Thank you, sir. Thank you.
Thank you. A reminder to all participants that you may press star and one to ask a question. The next question is from the line of Ameya Karandikar from JM Financial. Please go ahead.
Thank you for giving me the opportunity to ask a follow-up question.
First question I have is on the KIMS Cradle. Ameya, is it possible to tell how many hospitals currently have KIMS Cradle and what are the plans in other hospitals? When are we going to add that? And also, if we could give some color on the cost and the profitability of this KIMS Cradle unit. Thank you.
We don't track that separately. It's part of the adult hospital. It's just one more specialty within the hospitals. So we don't look at the profitability of that department separately. But right now, it is operational in seven hospitals. And as and when in Anantapur, we're adding extra additional infrastructure to start mother and child. As and when the infrastructure gaps are fulfilled, we will keep adding mother and child in all specialties. As well as Bangalore, Thane, and any other new project that's coming up, we're adding mother and child on day one.
Okay. But in terms of ARPOB and profitability, will it be more than the company average, or how should we look at it?
Is it going to improve our— ARPOB will be similar. Our ARPOB will be similar. Again, at a gross margin level, it is because the consumable cost is significantly low. The gross margin is better than the adult specialty. But because we don't look at it beyond gross margin, we don't track it at an EBITDA level.
Okay. So the second question I have is on the Wipro agreement, which we have done recently, INR 700 crore agreement. How is it going to help us operationally, and how much spend we have to do annually for this kind of agreement?
So this is a contract that is spread over the next three to five years. This takes into account the replacement of the current hospitals because most of them are 10-year-plus old and a new hospital. So it just gives us leverage to negotiate better because we're doing a group order. But there is no time pressure on this. We can execute this over the next three to five years.
Okay. But will it have any P&L impact, or is it not going to change materially?
No, no. The more we can leave whatever we have agreement which we have. Correct. It has no impact on P&L. All of this is captured in the overall capital numbers that we're talking about and the debt situation that we've already spoken about.
Okay. Sure. Thank you so much. I will join that. Thank you.
Thank you. The next question is from the line of Rahul Jeewani from IIFL Securities. Please go ahead.
So on the Kerala cluster, while we are targeting to add, let's say, 3,000 beds over the next five-to-six-year period, and that would be dependent on M&A. But realistically speaking, let's say over the next three-year period, what kind of a bed capacity can we factor in for the Kerala cluster? So would it be closer to 1,000 or 1,500 beds over the next three years?
At this point, Rahul, we have two assets, one in Kannur, one in Thrissur. So these are certain projects, and cumulatively, we'll have 400 beds in Kannur over a period of time and 350 beds in Thrissur, so 750 beds. So nothing else have we signed definitely. Definitely, we are exploring multiple opportunities in an asset-led model.
And if it does happen, then we could potentially look at adding another 500 beds next year in an asset-light model. But again, like I said, it's still in discussion. There is no definitive agreement there.
Sure, Dr. Abhinay. Let's say for the, let's say, Kannur, Thrissur, and another 500 beds next year, so we get to around 1,300, 1,400 beds. So for the 1,300, 1,400 beds, what would be our actual CapEx outflow? It would be very limited given the asset-light O&M model.
Correct. So for Kannur, it was only INR 40-50 crores, and for Thrissur, it will be around INR 20-30 crores, yes.
Okay. Okay. Sure. Sure. Sure. Thank you. Thank you. That's it from my side.
Thank you. A reminder to all participants that you may press star and one to ask a question. A reminder to all the participants that you may press star and one to ask a question. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Hello? Rahul?
Hello.
Hello? There's no more questions. Then we'll close. Do you have any closing comments?
Okay. See, what is happening now with all the questions that you people have been asked, and you have some good concerns. Our motto to go, whatever we have been identified in Maharashtra, we are not coming. We are going to exclude the entire Maharashtra. And as well as these O&M contracts, what happened, there are two doctors who built and not able to run it. So they were looking for it. Then we have some constraint on our balance sheet.
Then initially, we thought we'll take it on an O&M contract so that we'll be able to understand the culture, build the human resources, legal things, and everything. Whenever there is an opportunity, it is in our discretion. We can be able to acquire those things. And as Nitish pointed out, Kerala is having a good clinical talent. Mostly, they are looking mainly for the primary, secondary, and early tertiary care. And we are very experts in quaternary and high-end tertiary care with a lot of oncology, more and more complex cases that are coming. That is the purpose we want to explore these opportunities without putting a lot more funds, identifying it, and the discussion will be at our end to whether we should be able to acquire over a period of time.
The second important thing, what we have been negotiating with the Intuitive or the Wipro GE is, where when we are able to give it to one company, having been selected many of the companies, where we can be able to bring down the CapEx nearly INR 150-200 crores worth of financial cost. Otherwise, there will be another INR 200 crore you need to incur when you want to independently look into the different companies. Similarly, by putting all these into you over a period of time and good training, that will be able to give a lot more operational efficiency and at the same time more comfort towards the patients. Today, if we are able to look into that next two to three years with the robotic-assisted surgeries and operational efficiency, the ALOS may still come down drastically. That's what the world is looking in healthcare.
We are the pioneers in that. We do, being in healthcare, a lot of evidence-based and a lot of research-oriented. We look at all these things, and then we'll see that it will be good for the organization to grow very steadily without causing any burden on the balance sheet. Most of these O&Ms, what we are talking about, there are some of the local doctors and other people who want to practice. They are going to build the land and building and entire thing. Our CapEx will be very, very minimal. Over a period of time, our balance sheet strengthens, and if there is excess cash, it is our discretion that we can be able to keep increasing our share in those creeping acquisitions.
Thank you very much for your patient hearing and concerns and raised good questions that were able to enable the management to keep thinking and expanding the company. Thank you very much.
Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.