Apollo Hospitals Enterprise Limited ($APOLLOHOSP)

Ladies and gentlemen, good day, and welcome to Apollo Hospitals Limited 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, Rutuja. Good afternoon, everyone, and thank you for joining us on this call hosted by Apollo Hospitals to discuss the financial results for the fourth quarter and full year of financial year 2026, which were announced yesterday. . We have with us today the senior management team represented by Mrs. Suneeta Reddy, Managing Director; Mr. A. Krishnan, Group CFO; Dr. Madhu Sasidhar, President and CEO, Hospitals Division; Mr. Madhivanan Balakrishnan, CEO of Apollo HealthCo; Mr. Sriram Iyer, CEO of AHLL; Mr. Sanjiv Gupta, CFO of Apollo HealthCo., and Mr. Obul Reddy, CFO of the Pharmacy business. 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, which is on Slide 2 of the investor presentation shared with all of you earlier. Documents relating to our financial performance have been circulated earlier, and these have also been posted on the corporate website. I would now like to turn the call over to Mrs. Suneeta Reddy for her opening remarks. Thank you, and over to you, ma'am.

Good afternoon, everyone, and thank you for joining us for today's earnings call. I trust you have had the opportunity to review the earnings material that we had circulated yesterday. FY '26 has been a strong year for Apollo, marked by healthy growth across all 3 verticals, Healthcare Services, Apollo HealthCo, and AHLL, alongside steady progress in our expansion agenda. During the year, we also announced the strategic restructuring of the omnichannel pharmacy and digital health business, an important step towards sharpening focus on unlocking long-term value across our integrated health care platform. The NCLT convened meeting of the shareholders is now being called for on June 24 to obtain the requisite shareholder approval, consequent to which we are hopeful the demerger process is completed by quarter 4 FY '27 as planned earlier. In terms of financial milestones, I'm pleased to share that our consolidated revenues crossed INR 25,000 crores for the first time, reaching INR 25,229 crores. Apollo HealthCo. also surpassed INR 10,000 crores in annual revenues for the first time following a similar milestone achieved by our Healthcare Services business in FY '25. These achievements underscore the scale, the relevance and the growing strength of Apollo's integrated health care ecosystem. Turning to our performance for the fourth quarter. Consolidated revenue grew by 18% year-on-year to INR 2,605 crores (sic) [ INR 6,605 crores ] in quarter 4 FY '26. Within this, the Healthcare Services business reported revenues of INR 3,268 crores, up 16% was driven by a balanced mix of 7% volume growth, 5% case mix and the remaining 4% from price revisions. Surgical volumes grew by 7%, supported by a continued focus on combo specialties, cardiac, oncology, neurosciences, gastro and orthopedics. These specialties remain key growth drivers for the business, delivering strong revenue growth of 22% year-on-year in quarter 4 FY '26. Group-wide occupancy stood at 68% during the quarter with established hospitals now at 69% and hospitals in metro at 71% occupancy. This performance should also be viewed in the context of continued improvements in clinical productivity and operating efficiencies. The average length of stay reduced to 3.19 days from 3.3 days in the corresponding quarter, a decline of 3.3%. The reduction was driven by significant adoption of robotics, minimally invasive surgeries, enhanced recovery and discharge protocols and stronger clinical pathway standardization across the network. Importantly, the improvement in ALOS has been achieved by contributing to manage higher acuity and complex case mix, reflecting Apollo's alignment with global benchmarks in tertiary and quarter health care delivery, where shorter hospital stays are enabled through technology-led interventions, evidence care-based protocols and superior postoperative outcomes. Insurance and self-pay patients continue to account for 83% of inpatient revenues in quarter 4 FY '26. Insurance revenues grew by 21% year-on-year, while self-pay revenues registered a growth of 13%, reflecting sustained demand across both segments. Average revenue per patient stood at INR 1,87,208 in quarter 4 FY '26, an increase of 9% year-on-year, driven by an improvement in underlying clinical mix. Within the Healthcare Services business, we delivered an ROCE of 25.4% for the year, supported by balanced performance across our network spanning metro, Tier 1 and Tier 2. Apollo HealthCo reported revenues of INR 2,848 crores in quarter 4 FY '26, representing a strong year-on-year growth of 20%. Revenues from Apollo Health & Lifestyle grew 24% to INR 489 crores. Consolidated EBITDA for the quarter stood at INR 1,011 crores, registering a robust growth of 31% year-on-year. Within this, Healthcare Services EBITDA was at INR 781 crores, reflecting a 14% growth, while margins remained strong at 23.9%. Established hospitals, however, grew the EBITDA margin to 20.5% and EBITDA losses from new units in quarter 4 FY '26 came in at INR 41 crores. Within the Apollo HealthCo, the pharmacy distribution business reported EBITDA of INR 195 crores, an increase of 20% year-on-year. Within the online business, cash losses declined sharply to INR 16 crores compared to the INR 80 crores in quarter 4 FY '25. Consequently, Apollo HealthCo reported EBITDA of INR 156 crores in quarter 4 FY '26 versus INR 36 crores in quarter 4 FY '25, a significant improvement in operating leverage and business efficiency. AHLL delivered a margin of INR 75 crores, representing a strong 58% year-on-year growth with margins improving to 15.3% from 12% in quarter 4 last year. Platform GMV of Apollo 24/7 was at INR 528 crores in quarter 4 FY '26, a growth of 20% year-on-year. Digital revenues grew by 29% during the quarter on a like-for-like basis after excluding the closure of the Amazon corporate partnership. We reported consolidated PAT of INR 529 crores, higher by 36% year-on-year with significant improvements in PAT across all 3 verticals. For the full year FY '26 performance, our consolidated revenue was at INR 2,229 crores representing a 16% year-on-year growth. Consolidated EBITDA was at INR 3,769 crores, reflecting a 25% year-on-year growth, while consolidated PAT grew 34% year-on-year to INR 1,942 crores. This strong performance for FY '26 is despite the lower seasonal medical admissions alongside moderation in international patient volumes, particularly from Bangladesh. Performance reinforces our ability to sustain growth momentum while maintaining financial discipline and operating. As an important development, we announced yesterday that Apollo Cradle and Fertility and Cloudnine would combine to create one of India's largest integrated mother maternity and fertility care platform. AHLL's mother and child fertility business are valued at INR 1,550 crores through a combination of cash and 9.9% equity stake in the combined entity. AHLL will become the largest nonfinancial shareholder in the combined platform and will have Board representation in the combined entity through a nominee director. Revenue of the Cradle and fertility verticals was at INR 450 crores in FY '26 with an IGAAP EBITDA of INR 45 crores. The transaction has therefore been concluded at a multiple of 35x EBITDA. Spectra and the other assets of AHLL are not part of this transaction and will continue to remain in Apollo Health & Lifestyle. This collaboration will accelerate access to premium maternity, fertility neonatal and pediatric care while raising the bar on outcomes experience and continuity of care. Apollo will bring its deep experience in this space to the combined entity to contribute to its growth. Apollo remains deeply committed to expanding end-to-end... [Technical Difficulty]

Ladies and gentlemen, thank you for patiently holding. We have Ms. Reddy connected. Please go ahead, sir (sic) [ ma'am ].

Apollo remains deeply committed to expanding the end-to-end women and child health care platform from prevention to high-risk pregnancy, neonatal intensive care, pediatrics and lifelong wellness through its own integrated health care ecosystem across geographies. During FY '26, our expansion initiatives progressed well. We operationalized 4 new hospitals, Apollo Athena in NCR, Pune Financial District in Hyderabad and Narendapur in Kolkata with a combined potential operational capacity of 855 beds, which we are commissioning in a phased way with 185 beds now operationalized, remaining 670 beds planned over the next 12 months. As these hospitals continue to ramp up operations and scale specialties and clinical programs, we are also poised to commission 2 more hospitals, one in Sarjapur and the other in Gurgaon in the next 2 quarters. In total, these additions are approximately 1,400 operating beds, all in key metro markets. This will position us strongly as we move into FY '27. And later, they represent nearly 25% capacity addition in these markets. Alongside capacity expansion, we continue to deepen our clinical leadership through investments in high acuity specialties, oncology, robotics and advanced care pathways. Consumer engagement and technology adoption across physical and digital formats has also continued to improve with increasing integration across hospitals, pharmacies, diagnostics and digital platforms, reinforcing the strength of the One Apollo ecosystem. On this note, I would like to hand it over to Krishnan, our CFO; Dr. Madhu Sasidhar, CEO of the Hospitals; Madhivanan, CEO of Apollo HealthCo; Obul Reddy and Sanjiv from Apollo HealthCo, and Sriram Iyer from Apollo Health and Lifestyle. Thank you.

[Operator Instructions] The first question is from the line of Binay Singh from Morgan Stanley.

Congrats on good set of numbers. My first question is just the 2 points...

Sorry to interrupt you, Mr. Singh. May I request you to please speak a little bit louder?

Yes. My 2 questions are firstly, on the hospital losses that we had talked about, INR 150 crores, if you could update us on -- are we tracking on to that number, which is the quarter where we see the most hit? And the second question is on the digital breakeven. Are we on track to deliver that in Q1?

So on the first one, yes, I think we are sticking to our assumption that we will have INR 140 crores loss. Most of this will actually happen in the fourth quarter, where we would have opened out all of the facilities. For the second question, let me pass it on to Madhivanan.

Thank you, ma'am. Good afternoon, everyone. Yes, as we speak, we finished this quarter pretty well. And we believe that our growth story when it comes to GMV will continue, both on the pharma side of the business and the diagnostics side. On the hospital consults also, the trends have been positive. While Q1 would be a slightly more seasonal quarter for us, we expect that we should be very close to breakeven or breakeven very, very soon, so in Q1 itself. So we are on course.

Secondly, in the opening remarks, we talked about 1,400 beds, 185 already operational. Could you give us a little bit of a road map that by mid of this year, by end of this year, how many beds will start adding to the revenue bit?

Yes. Krishnan, take that.

So Binay, as we speak, you know that this will be ramped up over the next 12 to 18 months, as we have said. It will be -- as of now, it's 185. We are hoping that by mid of this year, we will at least get this to 500, 600 beds before we even start Gurugram and which will then be a higher number. So the way you should look at it is because Gurugram will start more towards the end of Q2 and the hospital in Bangalore will actually start in Q1 as well. So we will be operationalizing most of this in the next 12 to 18 months, as we have said. By mid of next year, think of it as at least around 500, 600 beds operationalized.

The next question is from the line of Neha Manpuria from BoFA Securities.

My first question is on the hospital growth. I mean the established hospital growth has improved to about 13%, 14%, if I were to strip off the new hospitals. Should we assume that this growth improves given that we had low seasonality, the Bangladesh impact in FY '22? And post the margin expansion that we've seen in the established hospitals, is there scope for more improvement from the 25%, 25.5% that we have done in the last 2 quarters?

Yes, I think for the established hospital, so let me just come in. In terms of seasonality, you will -- there was a little bit of seasonality. But moving on to the next quarter, you will see an increase in occupancy. And in terms of -- I think just moving forward, you will -- there will be an improvement in established hospitals margin. This will come from higher utilization -- asset utilization as well as some cost reduction. Madhu, you can add to that.

Thank you, Ms. Suneeta. So as Ms. Suneeta has indicated, the lack of dependence on seasonality is the fact that a lot of the growth has come from our investments in clinical program building and recruitment. And this has been geographically across the board. So every one of our broad markets has performed very well. And it has been a very strong performance, especially in our Tamil Nadu market for Chennai and the rest of Tamil Nadu. As an example of the high complexity work and the program building that we have done, -- in the fourth quarter, Cardiac Sciences grew by 19% and so did Orthopedics by almost 20%, 19.9%. So I think this is a strong flywheel. It gives us momentum, and these are not one-offs or seasonal. We also had some improvement in Bangladesh revenue compared to last year as well as some diversified income from some new markets in Africa as well as in Asia. I think to your question regarding EBITDA, the strong performance in Tamil Nadu is very, very helpful. Those are hospitals with very strong performance when it comes to EBITDA. While we have improved EBITDA margins in our established hospitals, we think there is scope for continued improvement. We have improved our operating leverage, especially when it comes to some of the big cost.

Would you like to quantify how much more improvement we can bring through in established hospitals?

So we don't guide, but I think there is an opportunity. I'll hand it over back to Ms. Suneeta.

I think, A.K., do you want to comment on that?

So we have been saying that at least INR 100 crores to INR 125 crores impact is further possible. And that is going to be something that we are working on, on both costs as well as operating leverage. So we think that the margins can sustainably get to -- as of now, if you look at the Q4 margins, it is at 25.5%, and we are hoping that we should be able to sustain that for the year.

Understood, sir. That's very helpful. My second question is on HealthCo. So we exited, I think FY '26 margins are at 4.3%. And I see the slide now mentioned 6.5% to 7% as the exit margin for '27. Other than the digital breaking even and possibly having positive EBITDA, could you just help us understand how we get to that? I mean what would be the key drivers to get to the 6.5%, 7% margin for fourth quarter?

Madhi, you want to take that?

Sanjiv will take that. Yes.

Thanks, Madhi. Good afternoon, everyone. So I think this is what we have been discussing in the last couple of earnings call. We have a growth potential in private label coming out of the store front, which is the Pro pharmacy stores. So we strongly believe that further headroom is available on the private label, and that would be EBITDA accretive. Similarly, in the on the expenses side, also, you would see that digital also has started coming down on the losses. We continue to believe that Q1, we would be very close to the breaking even. And apart from this, the growth itself would accrue -- would provide a decent flow-through to EBITDA -- so we strongly believe that all these things put together and various other initiatives to increase sales and other things should help us to achieve what we have been guiding the street since last 2, 3 quarters.

So Sanjiv, sir, out of the 250 basis points margin improvement that we are expecting, bulk of it would be from the digital losses and the rest would be private label and climate cost, the integrated costs coming down. That's a fair assumption?

That's a fair assumption.

Sorry to interrupt you, Ms. Manpuria, we request you to please rejoin the queue. The next question is from the line of Kunal Dhamesha from Macquarie.

First one on the hospital business. So we continue to guide around INR 140 crore drag from the new hospital. And we are also suggesting that the drag is like the most in this quarter. with almost INR 41 crores. So if most of the operating expenses are already there in our number, then why -- what is keeping us from commissioning the rest of the 670 beds and why are we kind of waiting till the next 12 to 18 months?

So 2 points. I think it's important that we're not saying that this INR 40 crores is the maximum. Please let's appreciate that the peak can go up a bit, especially in Q2, et cetera, and then it can come down. And then Gurugram will also get open. So we have guided for the full year at INR 150 crores. After all, we'll have to see how each of the hospitals ramp up, and we are quite aligned to that -- the fact that for the full year, we should still be around that INR 150 crore number. But the peak in a quarter can go up. And we will operationalize some of these as we see ramp-up, some of these have only been soft commissioned. Let's appreciate while we have done 185 beds, barring Pune, which is 75 beds, which we have already commissioned, Kolkata has just got soft commissioned. It's going to be fully commissioned in Q1. The Hyderabad was only recently commissioned and so is Delhi just around a quarter back. So we will have to wait for some of them to commission fully because these are all preoperative costs that you're also seeing and the business will ramp up over the next Q1 and Q2 period.

Sure. And the second question for ma'am on the deal that we have announced for Apollo Cradle. My understanding was that we were doing quite well given that in this format, we had presence in our key market. So beyond, let's say, merging and achieving the #1 scale, what do you see in this deal? Is it the valuation that we are getting? Was it noncore for us? We didn't see a lot of value. How have you looked at this?

I think it's a combination of factors. One is the valuation, which is clearly key to get a valuation of INR 1,500 for an EBITDA at a multiple of 35 in this market is something that you cannot ignore. Second, the format that fits Apollo is the deeply integrated mother and child platform, which we will continue to grow in key markets. That is the format that we will grow. And... [Technical Difficulty]

Ma'am, you may please go ahead.

Ma'am, we lost you at the format thing.

So what is our format, the mother and child format like we have in Chennai, which is -- which looks after the entire requirements of the mother as well as the child and is deeply clinical in terms of -- we look after the child up to the age of 16. So there is a huge difference in terms of value that you get from that, the revenues, the margins, there's a huge difference in all of these parameters. So we will continue with that approach to mother and child. The third is that, of course, that cash that we get. INR 750 crores will be deployed in primary care. We will -- we have already built out a primary care platform that has clinics and diagnostics. But we believe that we have to be leaders in this platform because this will be the funnel to Apollo, and it will look after patients who are currently not in our system and who are not very sick. So it is part of our strategy for preventive for looking after all the requirements of all of our customers.

And just lastly, ma'am, will our clinics will still continue to carry Apollo brand name or their brand name will change?

Yes, yes. So the clinics, everything else is Apollo brand name. Only the Cradle will carry that for 1 year, and then it will become Cloudnine.

So to be on the same page, the AHLL business, as you know, is an INR 1,865 crores revenue business for this year. INR 450 crores is the Cradle number that has got Cradle plus fertility number. Out of this INR 1,865 crores, this is what has got transferred and combined into Cloudnine. So it's only the Cradle and IVF business. All others continue. We are going to be doubly focusing on Apollo primary care and diagnostics as well as other specialty care, as Ms. Suneeta already said, which is the Spectra, dialysis and the others.

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

Karan here. So first question is with respect to the pharmacy business. So is it fair to assume that -- I think we've mentioned this, but just double checking, the private label contribution going up is the primary or the sole reason why our offline pharmacy margins have been as strong? That's one. And the second subpart would be for the Apollo 24/7 reported breakeven, right? While cash breakeven, we are on track. Any color on reported breakeven time lines will be helpful.

So maybe let me just take the digital question first, ma'am, and then Obul sir can talk about the offline business. So in the last earnings call also, we guided that the first milestone would be to have Q1 breaking even without ESOP costs. So that should happen in Q1. And we also suggested that by Q3, we should be able to breaking even, including the ESOP cost. That's the second milestone we are looking at it. And from there upon, the journey is to make sure that we increase our EBITDA in absolute terms quarter-on-quarter. So I think with that in mind, I think we should wait for these 2 milestones to hit first. And then there upon, we can further discuss about to what an extent digital business will add on to the absolute EBITDA on the AHLL.

Yes. The pharmacy offline business, as we have been seeing continuously margin expansion driven by the higher private label. And we are also working on the entire spectrum of purchase level margins and cost management, and we could see that improvement continues going forward.

Okay. And also, where does this settle? What could the normalized or the more steady-state margin look like? Like is it 8%? Is it 9%, 10%? Any color there?

At a more mature stage with high level of private label, we could see somewhere between 8 and 9.

Okay. Got it. And do we have any GLP-1 related benefit in our pharmacy business or any.

We are working on some 2, 3 focus areas, and that will be one area to work now. We have some specific focus on those areas. We will update you later.

The next question is from the line of Bansi Desai from JPMorgan.

So firstly, just reconfirming in terms of beds that will get commissioned over the next 2 years, should we assume most of the 1,400 beds which are yet to get operationalized, all of those will get operationalized by fiscal '28?

Yes, that will fully get operationalized by FY '28. All of these are -- let me reemphasize that the structure is all getting constructed, and it will all be ready as we commission it. Some of them other than the Phase 2 of Pune where the construction is on, all of these construction will also be ready by Q2 or beginning Q3 of this coming fiscal. So there is no reason for us to not open all these up by FY '27 -- FY '28.

And therefore, if one has to think about losses, fair to assume then by fiscal '28, your cumulative losses, I mean, you could actually see breakeven or probably much lower number of loss?

Yes, at least a breakeven to begin with by FY '28.

All right. And then secondly, when I look at AHLL performance, obviously, it has been very, very strong. So within that, diagnostics particularly has done very well. So if you could tell us what has driven this very strong growth? And is this sustainable? And secondly, also on margins of AHLL. So 15% margins that we've seen, it's a very strong up move. So any one-off element here? Or is this the new base?

Sriram, are you on the call? No? AK? You take that, AK.

So I think this is -- we have seen that there has been a structural shift that has been -- that we have seen in the overall diagnostics because they are looking at increased lab utilization as we speak. And also within each of the markets, they are seeing how they can work on B2B business also along with the B2C that they are focusing on, which is why the growth is something that they have been able to show, and it will be sustainable.

We had alluded in the past that we've been reinvesting in this business. So fair to assume that we are towards the end of it? Or do you still see us reinvesting or growing the diagnostics business?

We definitely plan to grow the diagnostics business. We are amongst the top 4 players now in the country. The potential on diagnostics is significantly higher, having bought out IFC first stage and now with combining the Cradle business with Cloudnine, there is a strong intent to double down on the primary care and diagnostics in each of the metro markets and the non-metro markets as well because it's also a strong outreach for the Apollo brand, and you will see us accelerating on this front.

Mr. Sriram is reconnected back, sir. The next question is from the line of Damayanti Kerai from HSBC.

Two questions. First, in your new hospitals, which you have started in the last few months or so, what has been your experience in terms of onboarding insurance partners? And then I think what we have heard from a few of your peers are the negotiations, et cetera, are taking longer. So what has been your experience there?

So just to answer that, I think we've been quite fortunate in onboarding insurance partners. We have -- which is why we are seeing some traction. Of course, with the way that things are, it takes -- it takes a little bit more time, but Apollo Athena has 6 high-volume insurers already supporting it. Our Pune Hospital has 3 of them, and we've just closed out Star Health. In Kolkata also, we've got 6 high-volume insurers. Hyderabad has 4 high volume, and we're just closing out Care and Star, so it will be 6. And including Bangalore, we have 3 of the top 8. So we're all set in terms of partnership with insurance companies.

So there has been no issue, right, unlike faced by some of other players, you said you have been very successful in onboarding these insurance companies in...

I believe we have good partnerships, and we will continue to strengthen them.

Okay. That's good to hear. My second question is on your Apollo 24/7 business. So while digital losses continue to reduce and you will likely achieve breakeven very soon. But if you can comment on the gross merchandise value trends, I think on a quarter-on-quarter basis, again, it's more or less similar to what we saw last quarter. And then if you can share some updates on the recent services there like Hospital Connect, insurance, et cetera, that will be helpful.

Madhi, please take this.

Yes, ma'am. Yes. So this particular current year was driven primarily on an operating model change, which was effectively not to depend on sales marketing from a customer acquisition perspective. And I think we have been able to establish that engine wherein we are able to get new customers between 20% and 30% without actually spending too much of marketing money. So that's an area which has got established on the pharma side of the business, which is our primary main stake. On the diagnostics side, again, I think both from a cross-pollination perspective as well as our ability to use what we call as an omni asset has helped our diagnostic business, what we do through AHLL, again, grew at around 25% to 30%, which was -- and we believe both these engines are sustainable without spending too much of the marketing money, we will continue. While we might not grow at 80% and 90%, between 25% to 35% is a growth in terms of new business we are confident of. On the consult, doctor consult business, we have a much stronger framework within which we work with the hospitals and the clinics, and that's also an engine which is building up slowly. While this year, the growth was not very huge, we have reset it and that should also play out in the coming year. On the cost front, while we have almost hit the base, we still feel there is a certain amount of efficiency, which we will lean out -- and as we go towards the -- as a combined entity by the end of this year, there will be some more cost elements which we'll bring in. So both in terms of growth and in terms of EBITDA to the bottom line level, it would be what I would call as a calibrated business. That is one area, actually 2 areas in which we continue to invest and that they could be a bit of a drain because we treat all of them more as OpEx. One is the insurance business, which we have started off with on a good footing on the health care. But like I told last quarter, there was a bit of a change in the way the numbers figure out. So some of our revenue has got staggered to the back end. We believe in the next 2 quarters, that model will also stabilize. And second area is we continue to invest in our technological assets, PHR as Apollo, which is integrating with multiple partners. So that also remains the cost, but both of them are costs which will help us in the long run. So that's the broad commentary in the way we expect FY '27 to happen. Happy to clarify that.

Yes. That's very helpful. Just I think a follow-up. How do you -- how much more investment you look for these areas? You mentioned insurance and technology. So any number that you can share?

Understood. Sanjiv, if you can just say what has been our cost structure that we have been investing on and whether it's continuously coming down, but there is still a little bit of investment that is. Sanjiv, if you can just throw some light on it, please?

Yes. I think if you're referring to our investment into AI technology as well as on the insurance side of it is concerned, we estimate about -- yes, sorry?

Yes, that was the question.

Okay. No problem. Yes. So we are expecting roughly between INR 6 crores to INR 7 crores on a quarterly basis. And with the help of -- and that also is helping us a lot in reducing our costs. By the way, AI tools in the customer call center helps us to improve the productivity and reduce our expenses. Broadly speaking, I think that is the level of expenses that we are looking into these 2 sides of the business. And you also checked on one point related to the margins to what an extent margins can go up in digital. I think the way -- it's too early to specify a particular percentile, but I think the way insurance business is increasing more of diagnostic business, we saw a very high growth in diagnostic business last year, and we continue to do with that, a better diagnostic mix, high insurance -- and more circle programs and app monetization will only strengthen the existing margin profile. A little too early to say that how we end up current fiscal year, but I think where we are standing today, we should be in a better place as you see quarter-on-quarter with respect to our numbers.

The next question is from the line of Amey Chalke from JM Financial.

Congrats on good numbers. The first question I have on Tamil Nadu region. This quarter also for full year, it has performed well. Going into next year, there is a limited bed addition or no bed addition basically. So occupancy is already at 68% for the region, plus the volume growth for this year has been pretty tepid. So the average revenue per patient will remain the sole growth driver for this region going ahead? Is there a scope for the asset mix -- case mix to improve?

Madhu, let me take this first. First, in terms of headroom for growth, there is definitely an additional 6% to 7% headroom for growth in No, I said in terms of headroom for growth, there is definitely additional capacity, not just in our main hospitals, but in the other hospitals in the Chennai region. There's another 7% uplift that can come from pure occupancy. With regard to case intensity and improving ARPP, we will continue to focus on that. We have very high-end clinicians and probably the finest technology in the world in this region. So we -- you could see an improvement in ARPP and case mix. So I think both on asset utilization, headroom for growth and ARPP, there will be continuous improvement.

Sure, ma'am. And the second question I have, if we can provide the OCF and FCF generation for Hospital Services segment for FY '26? And also the CapEx, which we have given INR 1,980 crores for 1,000 beds for FY '27, should we assume that the entire CapEx for FY '27 or some of it has already been spent?

A.K. take that, please.

So the operating cash flow before dividend that we have generated this year is before the dividend is approximately around at the consolidated HCS level alone, it would be in the region of INR 1,850 crores. That is before the dividends. After the dividends, it will come in the range of INR 1,550 crores, which means that is the fully deployed -- that's after our recurring CapEx, which is used for hospitals, which continues at around INR 550 crores -- this also includes our taxes paid during the year as well as the working capital. So it's after all of this, which means the entire INR 1,550-odd crores is really redeployable for growth CapEx fully. And this is the number that we are quite comfortable continuing into the coming year also. We don't think that our number would be significantly higher than this number in the coming year for growth CapEx.

The next question is from the line of Kunal Randeria from Axis Capital.

So first question on the financials. So on a quarter-on-quarter basis, I see that you moved from around from net cash to net debt. So the difference is almost INR 1,200 crores. So I guess INR 400 crores would be a new CapEx. So what would account for the remaining INR 800 crores?

So we also paid off IFC this quarter. This was the INR 1,250 crores payout that we had in this quarter, just to remind you, this came out from -- out of the Healthcare Services balance sheet. So we did pay INR 1,250 crores to buy out IFC at AHLL, just to remind you. So that was one of the reasons for the spike in this quarter. Otherwise, now it will get normalized to the projects.

Got it. And just one clarification. So you said you will break even in FY '28 on the new beds that have been commissioned. So -- but the remaining 670 beds will be spread over a period of 18 months. So I'm just wondering when 855 more beds will be commissioned or could be commissioned sometime in the next couple of years. So just want to understand the assumptions behind this.

So typically, at a 50% occupancy level is what, 50% to 55% occupancy level, the entire stock of 1,500 beds is what we would be breaking even. In each of the hospitals at that levels of occupancy, we expect to breakeven as we speak. And we are quite -- given that each of these hospitals are going to be staggered in their expansions and there are certain hospitals which will get mature by Q4, not mature. I'm saying they will probably become breakeven by Q4 of the coming fiscal and some will be in the -- still in that burn mode. In FY '28, as of now, we believe that all the hospitals put together should be breakeven. There will be positives and negatives in that, a few negatives and a few positives. But then overall, as a new hospital cluster, we would expect FY '28 to be breakeven.

So that includes Gurugram or Sarjapur all these hospitals that are going to be commissioned in FY '27?

Yes, which includes that. As I said, Gurugram itself may probably be in a bit of a loss position, but some of the others will become positive soon. Let's also appreciate that Sarjapur and all are good markets for us, existing markets in Bangalore, Gurugram and a market that we know of with good doctors. Hyderabad also is a market that we have already hired the right set of doctors, and we are quite confident that the overall ramp-up should be good over the next 2, 3 quarters.

Ladies and gentlemen, if you could excuse me, I have a bit of an emergency. And I will hand over this call to AK to answer any remaining questions. We commit to stay connected with you. Feel free to reach us either by e-mail or Zoom. But the team remains committed to answering all of your questions. Thank you for your patience, and I look forward to our next call. AK, I'm handing it over to you.

Sure. We will take it forward. Thank you so much. Operator, carry on, please.

We'll move to the next question, which is from the line of Kunal Dhamesha from Macquarie.

AK sir, can you kind of consolidate all the outlook that we have provided business segment-wise for FY '27 in terms of revenue growth and profitability?

That will be offline because clearly, each of the businesses are on different growth rates. As we said, at least at the highest level, we have said that the hospital business is we should look at a mid-teen growth into FY '27. We have shown a good quarter end. And into the coming year, you should see a gradual acceleration of the revenue with all the new hospitals contributing as we said. We have guided that the overall Healthcare Services margin should still improve from the current levels by at least 100 basis points into next year, which is the established units. We have guided you that INR 150 crores is what we would for now look at for the overall hospitals business next year as the EBITDA loss. And AHLL, we are continuing on the growth momentum and Apollo HealthCo, we have already given an overall guidance on the pro forma basis, which Madhi can reaffirm that we have said that by -- in the pro forma basis, which we have seen a INR 19,000 crores of revenue for the pro forma basis, including distribution, we have said that we would be getting to a INR 25,000 crores run rate by Q4 of FY '27 with a 6.5% to 7% EBITDA margin. And Madhi, you can confirm that as well.

Yes, I think we'll reconfirm that. We are very much on the task. Like last year, we grew between 19.5%, reasonably constant of growing at 21%. And with the integrated -- so on the top line, we are on course to be going to INR 25,000 crores, whether it be opening new outlets in our distribution side, some of our new stores maturing -- so the trend is visible. But I think the biggest lift will come the moment the digital business breaks even and then starts contributing to the EBITDA story because if we have to look at the cost structure, that is something which is reasonable and this growth should be able to sustain that. So we are -- we would be sort of very confident that we are on course on the pro forma side that we have published.

And sir, a follow-up. Can you update us on the time line for this entire transaction on AHL and when will the new company will come into existence and when will the separation or the demerger will happen?

So as we said already that the shareholders, this is scheduled for June 24, where we should be -- which is the NCLT process, convened process, where once we get the shareholder approval of AHEL, we would go back to NCLT and then the NCLT process should take it some 3, 4 months to close. And hopefully, by end of -- by Q4 FY '27, end of December or early Q4 FY '27 is when Apollo HealthTech should then -- should get demerged and listed. That's the plan. And that company, when it gets listed, you should be in a position to see that INR 25,000 crores of revenue by that quarter, annualized revenue.

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

Just a clarification on 24/7, when you mentioned Q1, Q2 reported profit, including and excluding lease up, what is the run rate of ESOP expense that we are looking at for next 1 year? .

I can take that. Yes, I'll give the answer. So roughly in the range of about INR 50 crores is what we're looking at the overall ESOP cost for the current fiscal year. You might experience about INR 22 crores, INR 23 crores for Q1, but after that, you will start tapering down. Overall for the year should be in the range of about INR 50 crores.

Okay. Got that. So sorry if I missed, but I just wanted to check on this Cloudnine transaction, when are we expecting it to be completed? And in terms of reporting, when should it be reflected in our AHLL numbers?

Sorry, what was that question? We didn't quite hear it here. Was it for 24/7?

So it was for AHLL and the Cloudnine transaction. So post this transaction, when are we expecting it to be reflected in AHLL numbers?

It should be consummated. Sriram, are you there?

Yes, I'm here. So as the deal has just got concluded yesterday, I think as next steps, we'll have to go and apply it. And once we get the approvals, which we expect to come in next couple of months, after that, the formal commercial transaction will happen.

So maybe by end of one more quarter. So we expect the CCI approval to come in place and then the whole transaction should get consummated. By Q2, we should have that reflected sometime in Q2.

Yes. Yes, sometime between August, I believe, August or September, yes.

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

Sir, on the 24/7 platform, can you give us a sense of some of the operating metrics which are there on user metrics? How does this compare with some of the other larger digital platforms, right, in the number of online transactions, number of users on a daily basis?

So let me take the question. So typically, there are 2 peers that we compare ourselves with. One is the quick commerce, especially when it comes to the medical power, right?

I'm sorry to interrupt you, sir, but your voice is breaking.

Can you hear me now better?

Yes, please go ahead.

Okay. No. So the most important thing that we look at is the new customers that we are acquiring on a month-on-month basis, and we compare it vis-a-vis our peers like Tata Energy and PharmEasy. And again, like I told you earlier, what is important is not just the growth which is coming through new customers, but the CAC at which we are acquiring it. We are in a good position. We are able to do around 200,000 to 220,000 on a month-on-month basis. We expect this number to go up as we are building some very strong synergies with our 7,500 outlets, both in terms of originating the customer as well as building the proposition of delivery. The second big -- so first is the number of customers that -- the second big thing is our ability to deliver at least 90% of our orders in the same day. We follow 2 metrics: one, which is called the same-day delivery, which is 90% and the insta delivery, which runs between 19 minutes to, let's say, an hour, that's another metric we try to bring it down. We try to target bringing it in the range of around 50% to 55%. All this needs to happen with the cost of delivery on a constant downward trend. Again, we are reasonably on par with some of the peers. It's been showing a downward trend, and that's our unit economics as becoming more and more positive. The final thing that we usually track is also the number of markets in which we have been able to provide our business. Suffice it to say, the 30% growth that we have been establishing is primarily coming from our top 5 markets. So the top 6 metros minus Mumbai. So these are the numbers. Once this model gets established, we have enough potential to roll it out into new markets and then play it out as we go along. In all this, unlike growth at any cost, we are very much focused on a sustainable model wherein we will be able to justify. So these are some of the broad metrics that we look at. Our AOVs, which is average order value, et cetera, are on par with the industry, sometimes even better, given the fact that a big base of our customers is chronic customers. I'll stop here. There are enough other metrics which we track, but these are the ones which would be fair enough to give a directional position.

And just to sort of build on that, on the daily concentration that you talked about of 15,000 thereabouts, how has this number trended? And how do you see this playing out? And how much of a -- how big a funnel is it for your medicine orders and sample collections?

That's what I was highlighting. So 2 things. One, the digital consult has been what we -- where the customer -- where we compare ourselves with people like tractor, that business has been growing at a reasonable speed, say, around 15%, 20% growth. The -- I think the bigger story will play out as we go along for the physical appointments that we help facilitate for the hospitals and clinics. That number has started showing some very positive trend in the last 1 to 2 months. We expect that engine to drive further. The diagnostic business, however, derives more from our pharma business cross-pollination. So people who are already very core customers of ours on the pharma business, we try to track them on the basis of the cross-pollination between pharma and digital. And both on the omni side, which is both digital and offline, that number is also showing a trajectory. So in fact, last year, we had a very big jump. We expect a similar jump along with AHLL to build that agenda as we go along.

And sir, on the point on diagnostics, what is our -- is there a number -- we give a gross sales number, but how much would that be captive sales to the Apollo Hospital Group and how much would be net sales to third parties? I mean, outside of the hospital...

We don't do third party at all. Our business is primarily most of our business, 100% of the business is exclusively delivered through AHLL on the diagnostic side and the hospital cons through both clinics of AHLL and the hospital. So we don't have any third-party business. So the entire core business is driven by the Apollo ecosystem.

The next question is from the line of Mitesh from Aditya Equity.

I had a question regarding the associated company, Indus Medic. There is a legal case which is going on with the company, with the Delhi government. So does it have any implication on our holding in Indus Medi, whether the case goes in our favor or goes against?

No, we have taken this up with the government as well because given whatever they have said, we are quite confident that we should be in a position to take this to a logical conclusion because the lease is automatically renewable there. And the free bid obligation is also being done by the company also. But as the shareholding anyway continues.

Okay. But any possibility of increasing -- taking Delhi government stake of 26%...

No, nothing as of now.

Nothing for now.

The next question is from the line of Meghna Agarwal from Mountain Drug. Ms. Agarwal, please go ahead with the question. Your line is unmuted.

Yes, my questions are answered.

Ladies and gentlemen, this was the last question for today. I now hand the conference over to management for closing comments.

Thank you so much, everyone, for the call. As we come we believe we are entering the next phase of growth with very strong fundamentals across all the 3 lines of businesses, a visible expansion pipeline and continued progress in clinical excellence, technology and digital health. Our focus remains on keeping the consumer at the center, delivering superior clinical outcomes improving access to quality health care across formats and creating sustainable long-term value for all stakeholders. If you have any questions, please reach out to us, and we're happy to answer any of them. Thank you again. .

Thank you. Ladies and gentlemen, on behalf of Apollo Hospitals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.