Apollo Hospitals Enterprise Limited (APOLLOHOSP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Apollo Hospitals Limited Q3 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mayank Vaswani from CDR India. Thank you and over to you, sir.

Thank you, Tanvi. Good afternoon, everyone and thank you for joining us on this call to discuss the financial results of Apollo Hospitals for the third quarter and 9 months of financial year '22, which were announced yesterday. We have with us on the call today the senior management team represented by Ms. Suneeta Reddy, Managing Director; Dr. Hariprasad, President of the Hospital Division; Mr. A. Krishnan, Group CFO; Mr. C. Chandra Sekhar, CEO of Apollo Health and Lifestyle; Mr. Obul Reddy, CFO of the Pharmacy Division; and Mr. Sanjiv Gupta, CFO of Apollo 24/7. Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Please note the disclaimer mentioning these risks and uncertainties on Slide 2 of the Investor Presentation shared with all of you earlier. Documents relating to our financial performance have been circulated earlier and they have also been posted on our corporate website. I would now like to turn the call over to Ms. Suneeta Reddy for her opening remarks. Thank you, and over to you, ma'am.

Good afternoon, everyone and thank you for taking time to join us on a Saturday afternoon. I trust that you've all received the earnings document that we shared yesterday. The third quarter of FY '22, which is a very strong revival of non-COVID business, with volumes reaching pre-COVID levels despite holiday season seasonality and without significant contribution from international patients. Our efforts on garnering local market share continued and we saw a healthy uptick in local patients. We saw payer mix shifts on 2 counts, first our deep engagement efforts with self-pay and insurance segment, as well as the revenue increase in patient slot for quality health care providers like us help the cash and insurance segments grow approximately 10% on volume and over 25% in revenues compared to pre-COVID quarters. Secondly, we rationalized our lower-paying patients across the network, leading to an improvement in ARPOB of INR 46,062 in quarter 3 FY '22 versus INR 36,868 in quarter 3 FY '20. ARPOB improved on the back of focus on high-end centers of excellence and evolving case mix. We believe that this is a result of our conscious investment and prioritization that is sustainable in the long-term and is founded on our specialties that will continue to drive our business going forward. New hospitals continued to ramp up and we have seen a good traction in volumes, revenues, case mix and ARPOB in these hospitals. Volumes grew by 17% over quarter 3 FY '20. Revenues grew by 46%. Inpatient revenues witnessed a 30% revenue growth versus quarter 3 '22 where in quarter 3 '22 versus quarter 3 '20. This included a growth of 31% in cardiac, 44% in onco, 21% in neurosciences, 31% in orthopedic, 27% in gastro. At the same time, we continued to keep a small number of beds allocated for COVID patients with a strong iron curtain between COVID and non-COVID patients in place. However, the percentage of COVID patients treated was much lower than quarter 2. The COVID occupied beds in quarter 3 was only 203 beds versus 348 beds in quarter 2 '22. Overall, inpatient volume grew 28% over quarter 3 FY '21 and 2% over quarter 3 FY '20. Vaccination volumes continue, but at a much lower scale than quarter 3. We inoculated 5.7 lakh people, including AHLL. Quarter 3 included vaccination revenues of INR 50 crores as compared to INR 246 crores from the previous quarter of FY '22. Against this backdrop, let me walk you through the financials for the quarter. On a year-on-year basis, standalone health care services revenue grew by 24%. Combined pharmacy revenues year-to-date grew 20%, while quarter 3 revenues grew over 15% year-on-year as compared to a muted previous quarter both our new hospitals, as well as mature hospitals recorded a revenue growth of 23% on a year-on-year basis. Margins in the mature hospitals are the strong 26.5% and I am happy to state that our margins in new hospitals continue to witness improvement moving to 19.5% for the quarter, registering a 357 basis points improvement on a year-on-year basis. The pharmacy business overall is demonstrating good momentum despite the uncertainty of demand and stocking and uneven quarterly pattern that we have had to deal with since the first wave of COVID. Our current focus is on accelerating the overall pharmacy revenues through a combination of both offline and online channels. Standalone post Ind-AS 116 EBITDA was at INR 424 crores, registering a year-on-year growth of 32%, Healthcare Services EBITDA was at INR 383 crores, a year-on-year growth of 55%. Pharmacy Distribution EBITDA stood at INR 96 crores, with an EBITDA margin of 7.4%. Apollo 24/7 costs were at INR 55 crores. The Pharmacy division also accounted for its annual salary increment from October 21 on -- 2021 onwards and awarded a onetime incentive payout to staff of INR 10 crores, which is reflected in the financials. Standalone PAT was at INR 175 crores compared to INR 106 crores in quarter 3 FY '21. Net debt as of 31st December 2021 was INR 1,030 crores with a debt equity ratio of 0.04. Our consolidated revenues were at INR 3,639 crore against INR 2,760 crore in quarter 3 FY '21. On a year-on-year basis, Healthcare Services revenue grew 41% to INR 2,018 crores. Mature Healthcare grew 40% to INR 1,412 crore, while new hospitals grew by 40% to INR 559 crores. Group occupancy was at 65%. The consolidated Post Ind-AS 116 for quarter 3 FY '22 was at INR 587 crores compared to INR 390 crores in quarter 3 FY '21, a growth of 50%. Within this, Healthcare Services EBITDA was at INR 496 crores compared to INR 288 crores in quarter 3 FY '21, a growth of 72%. Our retail business Apollo Health and Lifestyle has recorded an impressive revenue growth of [Technical Difficulty] [ 59% ] compared to quarter 3 FY '21. AHLL's EBITDA post Ind-AS stood at INR 50 crores as compared to INR 28 crores in quarter 3 FY '21. The Diagnostics business continued to grow at a pace of 55% over quarter 3 FY '21. Our network and phlebotomy expansion plan continued. The consolidated PAT is at INR 228 crores. Over the calendar year 2021, we have strengthened all business -- our businesses across all aspects, [ mainly ] from infrastructure, medical teams, protocols, processes and of course the transformation of our healthcare delivery model. About 2 weeks ago, we shared an update regarding our plans to list our pharmacy products on the Amazon platform in India. This we believe will accelerate the momentum that we are witnessing in pharmacies and Apollo 24/7, which has scaled rapidly and has emerged as a distinct offering, enable us to elevate the consumer experience for the Apollo consumer. While our transition into quarter 4 has been characterized by the emergence of the third wave of COVID, we are confident the fundamentals of our business continue to remain strong and we have developed the flexibility to adapt to COVID needs very quickly and have institutionalized our focus on areas that will deliver long-term sustainable value. On that note, I would like to hand it over to the moderator. And then I have Dr. Hariprasad from the Hospital division, our CFO Krishnan, Obul Reddy from the Pharmacy division, Chandra from AHLL and Sanjiv from 24/7 to take all your questions. Thank you.

[Operator Instructions] The first question is from the line of Prakash from Axis Capital.

First question is on the while we've seen COVID improvement in hospital business margins, wanted to understand the pharmacy margins a tad lower versus last quarter. Is there a particular reason, is the private label sales has gone down? Or what has led to some EBITDA margin decline in the pharmacies?

The private label sales remain at about [ 11.8% ] in Q3 current year against last year 9.8%. We are growing on that front. There is no issue on that. But as explained in the table, there is onetime cost because our increments on employee costs falls in Q3 and we have considered a onetime incentive for employees because of the challenging hard work they have done in the challenging COVID time. So if you look at the INR 10 crores cost, then the EBITDA difference between the 2 quarters is about INR 7 crores to adjust that and when we are in line with other quarters on the EBITDA number and we are confident we'll continue that in the coming quarters. And there is no margin erosion at all at gross profit level because of the private label growth.

Okay. And this is you're saying onetime or this is an annual event?

This is onetime and the incentive -- onetime inventory is one time, our annual increment get absorbed in a normal system. The onetime FX is about INR 10 crores.

Okay, understood. And just for understanding, this 24/7, you've still not given the numbers, but where is the service fee and the related cost sitting currently?

We have disclosed that at the bottom of the back end in the last 3 quarters, the expenses relating to the product development. Last quarter, it was about INR 48 crores, this year is about INR 55 crores. This is a [ separate ] line in the presentation. And the revenue sits at the entire health digital health platform, which separately Sanjiv will explain when the number is required.

Where is it captured? Is it in hospital line? Is it in pharmacy line or is it like distributed over?

The health, it is in the hospital line partly, but it is in the not in AHLL, it is in the APL and the Pharmacy side. So that will get segregated and get reported from this quarter as we are expecting soon to effect the back-end slump sale and then have a separate number disclosed from next quarter.

From Q4?

From Q1.

Okay. And cost-wise you said there is a separate cost item you are giving, in the overall P&L, it is sitting where in other expenses?

It is in the back end other expenses yes and we made a disclosure of what the account is quarter-on-quarter from for the last 3 quarters.

So INR 55 crores is for the third quarter?

Entire platform.

Yes, it is for the third quarter?

Yes, third quarter.

Okay. And just last one, the outpatient number seems to have come down dramatically, is it due to lower vaccination run rate? Or we've seen -- what is the other reason?

Vaccination.

Okay. So this is the normal run rate that we will see going forward, if there is no major COVID outbreak?

There is still vaccines in this quarter actual. So there is -- as I see, there is still 70,000 to 80,000 numbers of vaccine in this quarter as well.

The next question is from the line of Anubhav Aggarwal from Credit Suisse.

First, just taking from Prakashs' question further. If you -- the bulk of 24/7 revenues is coming from the medicines. And if you adjust that from the pharmacy segment, would you say that against the 16% growth which is reported, our adjusted growth will be less than 10%?

No, it's about 13%, 14%.

Why would that be because I'm assuming that you will be doing at least INR 60 crore, INR 70 crore or thereabout in 24/7 at least right revenues and bulk of that coming from pharmacy.

The INR 60 crore translate to 3% -- 4% on INR 600 crores. So if you adjust it is about 12% to 13%, exactly not 16, slightly a different number, but if you adjust that, yes.

And you want to talk about what Ma'am talked about initially, what is the problem which is happening in the pharmacy segment because you have added about 10% additional stores. So the same-store sales growth is turning out to be much lower. So after the first wave, why are, let's say, your retail partners not -- let's say, what's the exact issue that why Pharmacy segment is not growing well.

Yes, what we are seeing last 2 quarter is uneven quarterly growth. If you look 9 months YTD, we have last 9 months about 21% and this 9 months, it is about say 20% growth. So at an overall level, growth is maintained. Now you have a Q1 where a quarter-on-quarter growth of 30% over last quarter and then followed by a 16% de-growth in Q2 over Q1. So there is some growth per se, there is some odd rust of the COVID item when powered by -- we have to adjust to the normal item, these are all happening. Even if you see last year, you have a quarter rate quarter-on-quarter growth of 16% versus 3% in Q3. Followed by the COVID, there is one or 2 quarters this adjustment is happening. If you see Q1, we have degrown 16% and have then come back strongly quarter-on-quarter growth of about 8.5%.

Q2 you've taken?

Yes. So, hopefully, this is happening in the system across.

Okay, sure. Just a second set of question was on the Amazon deal. Just a clarity, when you refer also a $1 billion revenue number in year 3, was this a cumulative number that you plan to do over year one, 2 and 3? Or what you're referring to this number as a year 3 potential revenue from year 3 onward as annual revenue?

Sanjiv?

Yes, so, Hi, this is Sanjiv, right? So, I think this is little futuristic and forward-looking statement. But for sure, what we're looking at it's that third to fourth year, we should have a total cumulative $1 billion. And so I think the guidance should be that cumulative 3 to 4 year should be $1 billion.

Cumulative, okay? And the...

[indiscernible] was the overall target that we have given yes and that's the cumulative as we said.

Sure, sure. That is clear. And the second question is on the Amazon deal is that, is there any minimum commitment from Amazon in terms of promotion spend, et cetera? Or can you talk about little bit of the length of the contract with them, et cetera? I appreciate last time you mentioned this is not exclusive.

So I think at this point of time, what we can say is that it's a 10-year contract and specific questions that you asked. So I think sir at this point, we would like to defer it for a subsequent period.

No, Sanjiv, I'm not asking for that amount, but I'm just trying to say when you have a 10-year contract, what is like -- so that both the parties benefit, is there a minimum commitment because the commitment may not be on the business front whether you reach $1 billion cumulative or not, but is a minimum commitment on what each party needs to do?

So, there are bid arrangements, so Sanjiv I'm not sure whether you can give this [indiscernible] right?

No, I think there are rules and responsibilities which both the parties have it. And depending upon the rules and responsibility, I think those are the committed 2 new items or activities performed by each one of us, so which is Apollo and Amazon. And yet there is a commercial arrangement. At this stage I think this is all what we can share.

Sure. I appreciate that. If I can ask one just clarity on the hospital business. This quarter, Tamil Nadu segment had a very strong utilization of [ 66% ] maybe one of the highest you have ever done, whereas Karnataka was really low. So can you just talk about what happened in the 2 geographies? The ARPOB's are pretty decent in both the geographies, but utilizations are very, very sharp, one was Tamil Nadu was a very sharp increase and Karnataka was a very sharp decline.

So in Karnataka and AP, Telengana, there was more vaccine revenues in Q2 than any of the other regions. So the highest incidentally the highest vaccine usage was in Bombay, followed by Karnataka and then AP, Telangana. So this is the reason that the lumpiness was there in the overall revenues, but the Karnataka numbers from an overall revenue and EBITDA perspective remains, in fact, they've done well and the insurance benefit that we spoke of where we said that versus last year, you have 3 COVID levels, we are seeing 35% growth in insurance, which -- Bangalore has also got the benefit of that. So the numbers that you're seeing for Q3 because of the lumpiness in volumes because of vaccine.

And Tamil Nadu?

Tamil Nadu, we didn't have any vaccine -- we didn't have so much of vaccine revenue in Q2. Q3 has been good because we saw over -- we saw some of the patients coming from out of station that are coming back slowly. Tamil Nadu, as you know, has the highest dependency on out of station patients because of the fact that it is one of best hospitals in our system and people from east, Northeast et cetera have started coming back. Medical value treatment has not yet seen any uplift in this quarter versus last quarter. Hopefully, going forward, we will get that benefit as well.

Thank you very much. I asked too many question, but a clarity on this Karnataka one, vaccine revenue should not [ be due to ] a high utilization rate, the utilization has dropped for us. So that was the question.

So, I'm just saying, first, I'm saying about the revenues, okay. You are saying the utilization, bed occupancy rate is what you're saying, is it?

Significantly declined in Karnataka, so for example your data shows that it was 70% plus utilization in second quarter, now it's about 55% utilization.

No, it is 60...

It is actually...

64% for this quarter, I don't know if the data how you arrived at the data, you can take it off-line with Krishnakumar, that 70 that you are seeing is -- 64% for the quarter as we have the numbers with us.

Sure, I will check that.

You can check [indiscernible] yes, thanks.

The next question is from the line of Shaleen Kumar from UBS.

Congrats to the management on a good set of numbers. So if management can provide -- possible to provide a time line for the fund raise because that could be a key trigger to accelerate our 24/7 growth. So any time line possible to share that when you're expecting it to close?

I'll take this Sanjiv. So I think the important thing to remember is that for 24/7 that we had 3 phases that we envisaged. The first was doing this construct with Amazon, so that the volumes on the digital growth. The second part of it is the slump sale of Apollo Health Co. which we hope to complete by March. And when that happens, I think the investments will fall in place, so we'll be able to announce the investors. So we're close to completing second phase and soon after that we will quickly come to you with the names of the investors.

So, ma'am right to assume maybe in the next 2 to 3 months we should be -- all the 3 phases should be done?

Yes, you're right. Yes.

Okay. Okay. Thank you. I have another question on AHLL. So very impressive growth happening over here on the top line basis and obviously the margin also improved. So I just want to understand what exactly is happening, is it the pricing are going up or driven by footfall because I believe vaccination revenue would be lower. So what exactly is happening if management can provide [ a fix ] over it?

Ma'am, I'll take that, yes. The -- I think it is a concerted effort, there are 2 things that have changed from quarter 2 to quarter 3. We continue to grow our catered strategy on diagnostics. We have added lot many more collection centers which are starting to contribute. We also have deepened our home collection capabilities and they are contributing significantly more than in the past. Similarly, primary care and secondary care both saw the revival and bounce back of elective and footfall and significant amount. You are right, actually this is net of actually a lower vaccine number in Q3, far lower than Q2. However, shows interest of growth because of systemic improvements in diagnostics and elective as well as primary care footfall.

Right, right. And then and just one question on the hospital segment. Again, there is a remarkable improvement in margin, both in Mature and new hospital. Now obviously, there is a pent-up demand and there's a change in payer mix. So it's difficult for us to -- for me at least to ascertain that how much of it is sustainable in terms of margin, if let's say there's a lot of pent-up demand of critical high-end surgery, which may moderate and then margins can come down. So what kind of margin should we assume once this pent-up demand comes down a bit?

I think that this is a sustainable margin trajectory. We've showed that even quarter-on-quarter we've improved our margins in Mature hospitals by 1.3%. So I think this is a sustainable trajectory. We are looking at 25%. And on a blended basis over a period of time to bring it to that level. And this is done because of case mix, payer mix and focus on -- I think we're all -- and the focus on cutting costs.

Okay. Okay. So a part of this margin improvement is led by cost cutting and that's you think is sustainable. So we can...

Yes, going through this quarter also, we started last year.

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

Just for your core hospital business from 64%, 65% occupancy, I mean, how much room do you think you have to grow this? And second also on ARPOB, where we are INR 46,000, INR 47,000, do you think you can grow this by whatever 8%, 10% per annum for next 2, 3 years?

So Sameer, with regard to occupancy, we have -- we grow hospitals trending at about 68% -- 67% to 68% occupancy. New hospitals is 61% occupancy. if you look at both the headroom of at least 15% which will be our focus for the next 24 months to improve occupancy, moving to 75% occupancy blended. That is one part of it. The second part of it is that as we reduce our loss, like for example, our occupancy was very high during COVID because the loss was 5%. Now we've come back to less than 4% at about 3.9%. So again, there's headroom to grow. So while we are focusing on asset utilization, I think you can see that without investing too much we can really grow 15% in terms of occupancy. Your second question on ARPOB being at 48,000, I think this is a really good ARPOB because what we've done is we've rationalized some of the schemes, but it's something that in Tier 1 where we're in excess of -- close to INR 60,000. But if you take the fact that we have to blend it with Tier 2 where we cannot expect to reach anything more than INR 40,000. I think that around INR 50,000 is a good ARPOB and we will continue to focus on the quality of revenue. Let me just add this that this is without international patients. So hopeful that when the international patients open up next year, we could see some improvement in ARPOB.

Yes, that's great. Suneeta, I'm just trying to understand whether the whole hospital network has sort of reached some sort of upward threshold and so the growth can be challenging overall growth, all these points put together, do you think you can grow at early teens, mid-teens per annum for next couple of years for the hospital business?

Of course. I think in -- built in the system, we can operationalize another 500 beds. The fact is that we're at asset utilization of 65% where beds are concerned. So just looking at that, yes and beyond that, we are focusing on the surgical work, which actually improves ARPOB. And apart from medical discharges which we saw in the first quarter then and whole of last year, I think this improvement in surgical is really going to lead to superior ARPOB.

Yes, thanks for this, Suneeta. The second question I have is with regard to balance sheet, I think it's a great job done on cutting down leverage. After the slump sale proceeds, my guess is you'll be net cash company or net debt zero company after INR 1,200 crore comes in, plus you will be generating a good, I don't know what, INR 1,000 crores, INR 1,200 crores of free cash flow, if not more. So how do you see this deployment of capital over next 2, 3 years?

You're absolutely right. So the way that we see deployment of this is that we're expanding our presence in Bangalore, where we're coming up with a new facility. In terms of brownfield, we are adding 4 because we have the land, we're adding around 400, 500 beds in the next 2 years, plus a greenfield of 300 beds. So that is capital deployment for Karnataka itself will be about INR 600 crores, INR 700 crores. We believe that, that region has high potential. The second area that we're looking at, we will very quickly close out Bombay, where we have -- we're working with a trust and we hope to put up 400 beds in, so I'd say the center of Bombay, it's about 15 in Byculla. So that we should close out at a cost of INR 600 crores, plus 2% revenue share. And that will happen within -- the facility will come up within the next 3 years. The third area that we're looking at very closely is the northern area where we're looking at Gurgaon. There's a potential for a brownfield in Gurgaon. We're looking at North Delhi where we are looking at both land and a brownfield and we're looking at Noida. So once we consolidate our presence in these markets and if you look at Delhi and Bombay, they are like INR 50,000 crore markets and still a shortage of beds. 5,000 bed short in Delhi and about 15,000 bed shortage in Bombay. And Bangalore continue to grow. I think these are the 3 markets where we want to consolidate our presence. And by doing so I think by improving market share, we're quite sure we'll attract the best clinical talent and also move to better ARPOB.

Yes, thanks and just to conclude on this point. So in 3 years' time, in these 3 markets, you think you can add about 2,000 beds here?

Yes.

The next question is from the line of Lavanya Tottala from UBS.

So I just want to understand if there is any disruption in non-COVID business in the current quarter as in the Q4 because of third wave?

In Q4, you said for Q4?

Yes, yes, Q4.

Yes, I think there is a slight because January was -- I think the peak of the Omicron wave, things are looking better now.

Okay. Okay. Got it. And in hospital business, so in Q3, if I -- is it fair to assume the whole domestic medical tourism everything is normal, everything is back except the international patients?

Yes, I think that the medical value travel has not happened and that was 10% of our business. So clearly, quarter 3 is reflecting a strong India growth story.

Okay. Okay. Got it. And there is a -- okay. And in Apollo Diagnostics, so more or less in Q3 everything is from the non-COVID business and we can expect it to grow from here, right? So there is no COVID business in Q3?

Q3 is very low COVID business, majority of the business in Q3 is non-COVID. And yes, we expect to grow on the current base of non-COVID.

Okay. So I mean any broad estimate like med teams that we expect to grow and most largely through organic inorganic opportunities that we are looking in this space?

So we're focused on organic with market saturation, efficiency and productivity increase, home collection by a larger ability to expand our stable network. Besides the collection it isn't saturating the existing markets in South and East where we are strong, but also -- we also want to look at an overall mix of bidding into some new markets. Inorganic is opportunistic and it has to -- it is something that we are mindful about the price we pay for inorganic as well. But we are watching it closely and at right time such opportunities, we will grab opportunistically. We would like to target upward of 50% growth on the Diagnostics business, on a non-COVID and a mix, which could keep altering, this is a revival of COVID or any future [ risk ]. But definitely, overall, 50% plus private growth.

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Just on quarter-on-quarter basis for the new hospitals, the revenues are down and the occupancy is more or less intact, which does imply that ARPOB has fallen at least to 40,000 if my calculation is right. Can you explain this?

So again this was the vaccine revenues. As I said, when we said Bangalore, the highest revenues in Bangalore came from Jaynagar, Malleswaram et cetera in the new hospitals. And again, indoor, there was vaccination, there was vaccination of new Bombay, Navi Mumbai was the highest vaccination as I said across the company. So it is all due to significant vaccine revenues, almost INR 50 crores, INR 60 crores of -- on higher revenues which was actually coming from the new hospitals itself.

So this INR 40,000 is what the base ARPOB to consider going forward, at least in the new hospitals?

Yes, this current quarter -- yes, INR 40,000, yes, that is correct.

Also if you could just help me with the patient mix as in the comp -- percentage contribution from the different class of patients for the quarter or for the 9 months, whichever is convenient?

So I think we can take that offline, broadly we are self-pay and insurance itself is over 75% of our overall revenue between self-pay and insurance.

Okay, okay.

All our focus.

Sure, sure. And just lastly, while just taking as trajectory from Q3 to Q4, given that Jan had relatively less of -- I mean if you could just throw some light on how the occupancy was in January and accordingly how the hospital business would be? While February, March, I mean February onwards things are getting bit normalized, but particularly Jan would have impacted our hospital business?

I think it's just closing because -- I think some of this will be forward-looking, wouldn't want to give that now and I guess Jan was a bit low, but we are seeing the bounce back again in Feb, so let's see it.

The next question is from the line of Prakash from Axis Capital.

My questions have been answered.

The next question is from the line of Anubhav Aggarwal from Credit Suisse.

So couple of questions. One is, right now, as you mentioned in the last call on the 24/7, on the customer acquisition cost you guys are spending roughly about INR 150. Post the capital rates, where do you think this number can be? And I'm just trying to understand it because I see some of your peers are spending north of INR 600, INR 700 customer acquisition cost. So do you think you will gradually reach there for INR 150 is a very low number for you, it will be INR 300, INR 500, some idea can you give -- talk about?

Sanjiv?

Yes. So I think it is a mix of many things that you need to think about because you've got couple of strengths within the Apollo ecosystem, one is that we've got the Apollo brand which is a 40-year-old brand trusted and that is one pool. And the second pool is that we also have organic growth coming into the platform and the acquisition is at no cost. Third, we've got relationships with some of the big corporates for their employees and for their customers. All these 3 buckets actually we view the customers at almost nil cost. And as far as the other areas are concerned, which are paid marketing areas to get the customers, obviously, their cost is little on the higher side. We strongly believe that we are looking for chronic customers and those are the customers which give you a good LTV. And I think at this stage, INR 150 I think for the next 6 months to 9 months it should be in the range of INR 150 to INR 200, it shouldn't go beyond that. Maybe after 2 quarters or 3 quarters, we'll be in a better position to talk about maybe after 2 years, 3 years we would that [ direction maybe ].

So Sanjiv the idea of the question was that today, you guys, for example, in terms of print ads or on the TV ads, et cetera, I am not sure whether you guys are very aggressive today. But post the fund raise, let's say, once the money comes in, what will change in terms of promotion to the -- I'm just looking at your labor in the sense would the discounts go more aggressive over the marketing and the promotion efforts that is the advertisement portion goes up dramatic, what changed in the system so that you can significantly reach closer your target of 100 million users, which you have over till next 3, 4 years?

Yes, so I think directionally what we're looking at it is post infusion of capital. I think there would be a bit of more marketing advertisement and those activities to acquire customers. So I think that, that is something which is clear, and we'll do it. And obviously, there will be some inorganic stuff also happening into the system. So I think, yes, but as for the discount side is concerned, I think couple of calls this has been answered that you are not going to be [ race ] of giving high discounts. And at the end of the day, we want -- what we have understood is that users are expecting a continuum of care. They -- what they expect is that a quality trusted brand and wherein the entire offerings of our omni channel could be given to them. So there are a set of users, we have set of physicians who are looking for that side of offering versus just a discount play. But obviously, we are not going to be a discount play, we will not play that game for sure.

So I think just to add to Sanjiv's remark, the important thing to realize and I think that everyone who spoke to us about Apollo going online is really that we need to build momentum. So Amazon is part of our play to build that momentum and we're quite confident it will happen. Meanwhile, we're strengthened by an omnichannel presence which is the stores that we've opened and we've added 200 stores this quarter. So we continue to play in that space with a very, very strong pharmacy presence, added to which we have the teleconsults, we have the diagnostics and very soon we're adding the condition management.

So ma'am one question over there and to both of you that Sanjiv talked about some inorganic acquisitions. So are you talking about this on the capability side adding to the 24/7? Or are you talking more on the logistics side of fulfilling services there? And what capabilities it's down through on the capability side.

I think it is too early to talk about this. Give us some time and once we have earmarked those set of companies, then probably we'll talk about this, little too early in the game to talk about that.

Sure. Thanks, Sanjiv. And just...

And just add to Sanjiv, I think when we talk about 24/7, we said that it will add a whole suite of services. This was not just a contractional business for pharmacy online. And as part of that, we are -- we will be looking at adding additional services through inorganic growth.

Okay. Sure. And just a clarity from the presentation. So there was 2 different numbers, so I got confused. So when you mention about online consultations in the quarter. So the Slide 7 mentions that on the 24/7 platform, there were more than 1 lakh considerations in the quarter. The Slide 22, where we talk about all the metrics of Apollo 24/7 that mentions that the cumulative number changed by INR 3.5 lakhs in this quarter. So which is the correct number? On the 24/7 platform, how many consults you had in this quarter?

Yes, so we had about 100,000 consultations during the quarter. So that's the right number and then 40,000 [ uberized ], yes.

So roughly, we're doing about 1,000 to 1,200 consultations a day right now?

Yes, but I mean, the way to look at this is that the only side of it. One is that the way we look at it is that customer has got the convenience to do -- take any offerings either to the platform or through platform can be offline also. So I think this is the way we look at it. So if you look at it Q-o-Q 24/7 app-related consultations, you would come to that number. And then if you look at the customers of 24/7 might as we would have gone to the offline and then got the consultations plan, so that is another angle that we always look at it. So we look at it from the only point of view, just a clarification there.

So those 2 numbers, we should read like this 1 lakh consultation happen only on 20% platform, the 3.5 lakh number that you have, those 2.5 lakhs were basically customers went to the app, but took offline appointment in the hospital side.

So 3.5 lakh would be the cumulative since inception.

Okay. I'll take that number, actually the cumulative is 11 lakhs what you mentioned in the presentation, but I'll take it off that.

The next question is from the line of Nitin Agarwal from DAM Capital.

You talked about your plans for North and West India about the hospital business for Bombay and Delhi to be precise. Now in Bombay, barring putting up this new hospital in Navi, Bombay, is there any other plan to beef up our presence any barring Navi Mumbai hospital in this location?

Yes, but Suneeta told you about South Bombay, so what we are focusing on is, I don't think they still announced it because we're still working on getting it closed. And the Byculla facility is something that we had earlier as you know with the Masina plus and we have -- so we are quite hopeful now that in the next 6 months we should be able to conclude the deal and take it farther.

So and I think added to that is the fact that Apollo Health and Diagnostic, we will continue to look at growing data centers, clinics, diagnostic centers and as well as working centers in Bombay.

Ma'am is it fair to say that from a -- when you talk about next 2, 3 year plan, but even when you take a slightly long term view because Mumbai and Delhi are probably the most premium markets from a [indiscernible] perspective in the country, there is going to be a lot more focus on these 2 markets from investment perspective on the hospital side as we go along?

Yes, yes, lot more focus on these 2 markets. And through both AHLL, a combination of both the hospital division AHLL, as well as 24/7.

Okay. And secondly, on the AAHL business, the diagnostics piece currently at about 20% EBITDA margins, when you talk about a 50% growth, organic growth in this business, so I mean till how long, so 2 things. One is a, where do you see peak profitability for this business? And 2, given there has been a very sharp increase in competitive pressures in this business with not many new players entering. Does that in any way change our own outlook or how we're looking at the business from a profitability and growth perspective on a 3 year period?

Chandra?

Yes, ma'am, I'll answer that. So I think we have still a lot of headroom in terms of the fact that we are relatively a more newer entrant into the market. This opportunity comes on the back of the fact that we have an extremely strong brand salience in many markets and most of, if not all of India. And our market saturation journey is something that we have begun robustly and this will continue. Opportunity is not just from competing with organized, but actually the shift of customer preference from unorganized to organized is auguring well for the entire bucket of organized [ itself ]. So that shift is going to happen more rapidly. I think COVID is a clear pointer as to where people are preferring that shift more so than in the past. So we believe that the combination of our own market saturation and the shifts are organized, this is one bucket. The second area in our own journey and why we believe our growth rates can be faster, margins are an outcome of the fact that we are also not in [ true ] steady state. We will continue to grow, which will -- there will be new shops, there will be new CapEx new investment in new market, so there will be -- what you're seeing is a cumulative. So we would have -- we would continue to add some bit of losses in the early stages of expansion of our network. The journey on moving from higher component on B2C, deeper component on higher-end super-specialized and semi-specialized testing will -- is another headroom that we are hoping and we are concentrating on not just hoping, but we are dedicated to increasing our capabilities there. And that is going to only help us improve our ticket size, our overall network and our gross margin and profitability.

So then what is the share of B2C versus B2B in a diagnostic business today?

At this point of time, we are nearly equal on -- actually slightly higher 55-odd percent of B2C.

And where do you see the numbers tending in 2, 3 years?

Sorry?

Where do you see this number the B2C number ending up in 3 years?

So we are growing both B2C and B2B, as you know. So I think from an industry average and amongst the top players, the numbers are more like 60/40. And I do not see us to be very different, 60 on B2C.

[Technical Difficulty] B2B you need [Technical Difficulty]?

Sorry, B2B when I mean to say, third-party labs.

Yes, it's not any bulky hospital...

For offices, sorry?

Yes, if it's not -- it's not bulky hospital revenue what we are -- I would like to say [ technical ].

Yes, third-party labs are in third-party hospitals.

Smaller ones?

Yes, smaller ones in our case, yes.

Okay. Okay. And sir just fair to say given the growth that you sort of you highlighted, so we can probably look like INR 1,000 crore revenue for this business, 20% profit, EBITDA margin in 3 years, that's a fair number to do it?

So we are approaching this with the same intent. But again this is a forward-looking statement, but since we are consistently committed to rapidly grow our diagnostics, I'm inclined to mention that we have had conversations in the past calls on when are we going to do the 300, when are we going to do the 500. I think 500 looks more easily possible and definitely within our reach in the coming year itself. And we'll definitely breach that and we want to maintain that CAGR of growth consistently for the 3 years. And that should evolve to a number which should be directionally there what you're suggesting.

And if I can squeeze a last one, on the AAHL business, so there is a new platform which you introduced around the Nephrology, the Dialysis business and the IVF. What is the thought process behind these businesses? And what kind of opportunities do you see in these spaces?

So Dialysis, barring one organized player who again has a very early start, a pure-play dialysis player, I think the rest of the next round of players are not as systematic as what we approached. I believe that Nephro and chronic kidney disease market is something that is definitely going to continuously grow and our abilities to offer the stand-alone and also the second focus is on shop-in-shop within hospitals. And that's something which we are focused on as a major area. The third element of growth is on the fact that National Health Mission has pledged a significant support to state governments for PPPs that they are wanting to do in dialysis. We are cognizant of the fact that PPP is -- will be an area of outlook for us, but then we are wanting us to at least be a 60% private third-party shop-in-shop hospital, that's an area of growth. In terms of our growth, we are hoping to add significant volumes in FY '23 and we have shops lined up for starting activity. We are going to add beds and sessions there. Dialysis market we are bullish about and hence that's endeavor and there is clear space from the fact that the leader to the next rung is a wide gap. And we want to creep up and bridge the gap on to the leader in the pure play dialysis play. On IVF, we've -- we are again, we had 2 things that are happening, one is a very clear indicator of the fact that IVF as a play is going to be far more regulated than ever before with the introduction and of the ARP and the Surrogacy bill. Very clearly, the requirements on infra, quality as well as the fact that we will have a national agency, which is going to monitor outcomes and quality indicators and it will become mandatory for the players to participate in the repository. The fertility play is going to become extremely good and tailwinds for organized players like us. So we are focused on growing the network.

And Chandra on these 2 segments by what within the size of the fertility business today, by when do you...

Sorry, there's a lot of echo, I'm unable to hear the question from you.

I think someone else's phone is on.

Hello, can I go now? Yes, so in on these 2 pieces, given the size where AHLL piece today is, diagnostics growing very rapidly, and then you've got a [ spectrum ] which are reasonable size, by when do you see businesses on their own independent right start to become meaningful businesses which is a 3 year journey and then a 5 year journey to you.

Yes, I think it's a 3, 5 year journey and both these have the potential to become meaningful businesses, it's in our portfolio. As you're aware the intent of AHLL is to, a, serve customers closer to communities and also provide them a continuum of care to the large-format AHEL hospitals. And that is a remarkably different value offering that we will give, while we play similar to individual players within each of these sub formats within AHLL, we also are cognitive of the fact that we are best placed to offer the continuum of care. So hence, IVF, for example leads up to the cradles and the large hospitals for deliveries and this is a journey that I think we can uniquely offer. And this is something that hence we are focused on. Similar on Dialysis, the onward journey of CKD play into nephro and transplant play is something that is something which is very close to us. So these are likely to become meaningful, but yes it does take time because these have been more recent entries for us.

The next question is from the line of Shyam Srinivasan from Goldman Sachs.

Apologize for the background noise, I'm outside. But first question is on the key metrics for Apollo 24/7. I see the presentation slide, but you also share stuff like online deliveries per day, total omnichannel deliveries per day. So have you seen a Q-o-Q improvement in that number?

Sanjiv?

Yes, so we are seeing good traction. So there was a -- there is a growth quarter-by-quarter. And obviously, Q4 is also witnessing a bit more momentum because of Omicron and all those things. But yes, Q3 versus Q2 numbers are increasing and Q3 was also a period wherein we focus more on ensuring then the operational part or all the capacities that we have across the [ server ] network through AHLL, as well as the pharmacy shops, as well as the doctors, Apollo doctors on the platform. There was a high focus management focus on ensuring that all that operational part gets stitched up well before we enter into Q4 because we all knew it and we all had some information right, that Omicron is also fastly coming to the country. So I think Q3 focus more was on the operations side of it, but yes, on the financial metrics, we were still better versus Q2.

So, is it INR 10,000 if you can share the numbers please because we shared that in the last call which is what I'm asking to continue?

Yes, so I think as far as the pharmacy side of it is concerned, I think if we look at omnichannel play, we continue to do in the range of about 45,000 deliveries a day. And as far as the other 2 segments are concerned it should be in the range of about 5,000 a day.

Okay. Got it. Very helpful. Second question is on the start-up losses in 24/7, they have gone up. I missed the comment that why it had gone from INR 40 crore per quarter to now INR 55 crore. What is driving it?

It's not INR 40 crores to INR 55 crore from INR 48 crore to INR 55 crore. We have some added employees and the system is increasing on the man power. So there is no significant other changes and slight increases in marketing from just from INR 48 crores to INR 55 crores in the quarter.

Yes, got it. So is -- can you share what is the discounting level that we are now giving for on a blended basis, I remember it was 12% or 13%?

We are in the range of 12% to 13% as of now.

Okay. Very helpful. Second question is on the economics for the...

Just add that, sorry to add that, then for a particular value of the bill and above 200 we don't give any discount. So we manage it below 200 value of the bill no discount, so we have some averages coming in differently.

Very helpful. Second question is on the economics for SAP, when we did the announcement, we were talking about an 80% back end to front end profit share. I can see that number in revenue for sure, there is no doubt, but in EBITDA, do you now give for the platform business, EBITDA post Ind-AS, you also give us what you assume in your numbers and that number is 63%. So why is there the discrepancy between revenue recognition versus EBITDA?

You're probably looking at the post Ind-AS numbers. If you look at the pre Ind-AS numbers that is aligned to that because that is the way looking at it post after the lease rent. Look at the pre-Ind-AS numbers, which is -- which includes the lease rent also which is the cost for the front-end. Though if you consider the basis that you would realize that it is the entire economics is captured in the -- in AHEL.

We are in the range of 78% to 82% in the last 3 quarters.

Okay. So since you don't share that other number, which is where I'm trying to compare with the number on the platform pharmacy, which you give is, so but you...

Maybe offline.

The next question is from the line of [ Christine Durshah ] from Quantum AMC.

Yes, can you hear me?

Yes, we can hear you.

Yes, yes. Just a similar question. For the 24/7, what would be the GMV number be for the quarter?

Can you repeat that question?

What would be the GMV number for the quarter be?

GMV for 24/7 for the -- for us or AHEL?

At this stage, we would like to start putting up the numbers from the next quarter and I would request just to bear with us for some more time, but from next quarter onwards we should be able to provide you the GMV and the related numbers also.

Understood. Understood. Another classification, a gentlemen asked before, if the -- does the expansion in Delhi, Gurgaon and Noida depend on the stake sale? Or is it that we're going ahead even in spite the fact that we don't get the full amount or you get part of the amount or part of the phase still goes through for 24/7?

No, I think we have a very strong balance sheet that will support this expansion.

I see, I see. Could you just...

So that is definitely happening.

So the 24/7 will also happen.

So it is not subject to the 24/7 deal?

It is not but we are saying it will also happen that's all. Sure. And just could you just run me through the CapEx spend and for the hospital business for the next 2 years, when we're going to add around 2,000 beds for the next 2, 3 years? Could you just give me that please? Can we get back to you on that, so if you look at as Ms. Suneeta said, we have a plan for Bangalore that will be almost around in the range of INR 700 crores, INR 800 crores overall between the expansion and the new hospital, which will be there in [ Halo ]. So we have to look at -- we're still closing some of this in north Bangalore. So I guess once we have those -- and the other thing in the South Bombay also it will be project which is a INR 400 crore project, which will include between INR 600 crores to INR 750 crores of CapEx, that is the second, which will be there. The other one, which we're looking at between the 2 sides of Delhi, clearly those are again potentially another INR 1,500 crores at least between the 2 hospitals. So we will come back to you with more details as we are...

Clear time frame, so at this time, we have about INR 700 crores in mutual funds, so combined with free cash flows and the fact that the 24/7 money will come, I think we will be adequately enabled to fund this growth.

Sure. And the last clarification, did I hear correctly because of the COVID footfalls or vaccination footfalls being low, the outpatient was low?

That's correct.

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

My question have been asked, just couple of things. When I think about 24/7, Apollo has been traditionally very strong in offline capabilities. And online is something that's pretty new both from the tech side and last-mile delivery side. So when you think about building this platform out next one year, one and half a year, which are the main capability gaps? And what are the area that you want to focus on?

So I think, first of all, from the infrastructure point of view, I think we are well sorted out, given the fact that we've got 4,400 stores to light up onto the platform, plus we've got a large network of doctors, as well as we've got the [indiscernible] and the lab network, plus various other things that we are doing on the condition management, on the clinical side, we've got the -- again a good knowledge in all those fronts. I think if I'm honest to this question, I think from the technology side, the challenge that I see is that, this is an ever-evolving kind of a thing, customer or the patient requirements keep changing and the dynamics keep changing. So I think from the technology side we continue to see that there is lot more to do all the time in spite of what we thought initially that this is how the exact said platform has to look like. But I think and that is continuing evolving. So I guess the challenge is, we expect to value kind of put the boundaries with respect to the expectations comes from the customers or the physicians versus what we as a company would like to deliver. So I think that is what I would see is one of the challenge could be in the next 6 to 12 months that we need to kind of overpass.

Okay. That's very helpful. And is there a milestone? Or is there a proof of pudding sort of a thing that when you get to that, you say, okay, fine, now our tech printout is satisfactory.

Yes, so I think everything is outside in approach. Once we start -- so it's all customer driven and once we -- voice of the customer suggest or we've got our own internal milestones that these are the same vis-a-vis developments that are required for the condition management for the CDSS and so many things. And so I think one is that we'll get more assurance once we reach to those milestones. And secondly, I think voice of the customer continuously help us understand that what more is ready to be done. Yes, so I think one year from here, we should be in a much better position to say that from the technology side, we have developed what we wanted to develop.

Thanks, Sanjiv. Are you doing this in-house or you're getting this done outsourced?

Yes, so we have set of engineers build out of Mundhwa, out of Bangalore and pretty much this entire development -- developers team and engineers. They're all in-house. And this is all done internally.

Okay. Great. Thanks, just final, you mentioned about JMK MOU for 250 beds. Can you talk a bit more about this?

It's still an MOU for now because it's an MOU where we are working with the government, the government has to identify a land and give it to us. We are working with them. We have committed for the hospital there because it was something that the government wanted to do and we are happy to put something there.

Okay, fair.

That -- it's a huge unserved population. So I think even the biggest case for it is a very strong business.

Yes, we did that, that's correct, lot of people from Jammu come to Delhi today for care.

That was the last question. I now hand the conference over to management for closing comments.

So, thank you, ladies and gentlemen for taking time off on Sunday on a Saturday afternoon. As you have seen, Apollo has demonstrated not only resilient which was remarkable during COVID and the pandemic. But more importantly, we have been very agile in creating an institution that moves closer to the customer without losing focus on our clinical DNA. I believe that each one of the vertical, Apollo Hospital, Apollo Health & Lifestyle and Apollo Health Co have demonstrated not only our agility, but value creation for all of Apollo and for all of its stakeholders. So thank you, ladies and gentlemen.

Thank you very much. On behalf of Apollo Hospitals, that concludes this conference. Thank you for joining us and you may now disconnect.