Aster DM Healthcare Limited (ASTERDM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Aster DM Healthcare's earnings conference call for investors and analysts. The call has been hosted to discuss the Q4 and FY '20 financial performance, to share the operating highlights and outlook. On the call, we have Dr. Azad Moopen, Chairman and Managing Director of the company; Alisha Moopen, Deputy Managing Director; Mr. T.J. Wilson, Executive Director and Group Head, Governance and Corporate Affairs; Mr. Sreenath Reddy, Group CFO; Dr. Harish Pillai, CEO, Aster India; and Mr. Sumanta Bajpayee, Head, IR and M&A. We will commence the call with opening comments from the management team, post which, we shall open the call for an introductory question-and-answer session. At this point, I would like to highlight that some statements made in today's discussion may be forward-looking in nature, and the actual results may vary significantly from the statements made. The detailed statement in this regard is now in the company's earnings presentation, which has been circulated earlier. I would now like to invite Dr. Moopen to commence by sharing his thoughts. Over to you, sir.

Thank you. Thank you. Good morning, everyone, and thank you for joining us today on our earnings call. This call is, as you all know, during unprecedented times in the history of mankind due to the COVID-19 pandemic. While it is relieving that the last financial year, we didn't have too much of an impact due to COVID, we have seen significant changes across the business and geographies in Q1 of 2-0-2-1, 2021. I'm happy to report that we did not witness significant impact of COVID-19 in '20, except for the last 2 weeks of March. But I should add that the last 2 weeks of March are extremely important for the business because this is the time when we have maximum revenues coming in. We have posted a revenue growth of 10% for the whole year as compared to last financial year, with an EBITDA of INR 958 crores. This is pre-Ind AS 116, which is an increase of 12% compared to last financial year. We have improved our EBITDA margin by 25 basis points to 11.1% the current year. We also have a 3% growth in PAT on a pre-Ind AS 116 basis for the financial year '20. During the year, India revenues have grown by 24% to INR 1,631 crores, and in GCC by 7% to INR 7,108 crores. Mr. Sreenath Reddy, Group CFO, will take you through the details of the financial performance for Q4 and for the whole year '19/'20. Coming to the quarter of the financial year 2021, we observed approximately 35% reduction of revenue for both our GCC and India business in the month of April 2020 as compared to April 2019. We started witnessing some recovery in May and for the -- in the first 3 weeks of June looks encouraging, as a drop in revenue for the month of June is less with signs towards recovery. We hope of achieving level [ pre ] of previous year by next quarter if there is no further waves of COVID-19 in countries we operate. On a consolidated basis, for the financial year 2019, 2020, our occupancy level for hospital segment was 60%, which is in line with historical trends. However, lockdown restrictions in India and GCC, along with restrictions to undertake elective procedures, has impacted occupancy level for the month of April '20. The occupancy rate for GCC hospitals and India hospitals were 52% and 38%, respectively, for April. But now most of the GCC countries and in most parts of India, lockdown has been lifted and elective cases are being performed, resulting in increase for PODS and occupancy level. Let me now give you some insight into the COVID situation and how we are tackling it. During COVID-19 period, patients were reluctant to come to healthcare facilities, especially to the clinics. Due to this, the negative impact of COVID-19 on clinics business was higher as compared to hospital or pharmacy business. In GCC where we have majority of our facility, there has been an overflow from the government to private sectors in the hospital, with some of our facilities being converted into COVID-specific hospitals. We manage large number of patients, including some of them requiring advanced care with ventilation support. In Dubai, we have also taken some portals on short-term basis to accommodate and cater to the needs of COVID-19 patients. In India, apart from disruption to inpatient footfalls in hospital, shutdown of international travel has also impacted medical value travel business. Medical travel contributes around 6% of consolidated India revenue, which primarily comes from CMI Hospital in Bangalore, Medcity in Kochi and MIMS Hospital, Calicut. International travel restrictions have not been lifted, but in some of the countries, it is lifted now. We expect medical value tourism to -- tourism business to start returning to normalcy in the second half of 2020. We are highly focused on safety of our staff during the COVID period. And we, all due to questions for safety at the workplace, have been adapted, which includes compulsory wearing of masks for everyone entering our facilities, mandatory temperature screening for all staff and visitors, social distancing measures and most importantly, the usage of PPEs and chemical sanitizers. Management have encouraged employees to work from home and frequently use video conferencing tools to reduce contamination with -- mainly enhanced level of services. At the beginning of the outbreak, we had also observed disruptions in the supply chain, which then led to shortage of medical devices, PPEs, medicines and other essential supply. Material costs have gone up due to higher consumption of PPE kits, sanitizers, gloves, masks, et cetera. But the situation has improved significantly now, and sourcing of material has normalized. To mitigate the impact of COVID-19 on our business, we have taken highest -- we have given highest importance towards maintaining a strict watch over our operating expenditure. We have either paused or stopped some of our overheads and nonessential expenditures. We have rationalized our people costs for both GCC and India employees. We have also taken the challenge of COVID as an opportunity to improve efficiency by optimization of manpower through measures like rightsizing of the staff and using shared services. We hope to reduce our HR costs in coming months significantly. We have also managed to secure better payment terms with our vendors and trimmed payment periods from our -- department of our lease facilities in GCC and in India. All planned CapEx have been postponed, except for the projects which are in the advanced stage of completion such as Aster Hospital Sharjah, Whitefield Hospital in Bangalore and expansion plans for Kolhapur hospital. I'm happy to inform you that the Sonapur Hospital in Dubai is complete, and we have operationalized it in the month of May. We have put all other projects on hold till the overall business environment go back to normalcy. Once we go back to normal, we will then expedite these projects to completion. We are also continuously servicing our existing debt, and we have certain unutilized working capital limits to support our operational liquidity requirements. We have taken COVID as an opportunity for digital transformation. We've witnessed an uptake of our telehealth services to deliver and facilitate health and health-related services with the help of telecommunication and digital communication technologies pointed at an untapped potential which can be immediately scaled up. In India, total number of doctors enrolled on e-consult portal are 581 across Aster hospitals. Teleconsultation for international patients have been done through existing platform as a pilot for 25% to 30%. Similarly, home healthcare is in other services that we -- it's another service that -- which we are focusing. And we have been -- we have seen an uptake in the nursing pharmacy and lab services, and home ICU also is a top revenue-generating service. The present focus is on extending care for the discharge of patients through home care. The new business vertical in India, Aster Lab, has been seeing increased volume month by month. Aster Lab, the NABL-accredited lab, had received ICMR approval for RT-PCR testing for COVID-19 and so far conducted more than 4,500 COVID tests, including government and private hospital samples. Certainly, the Aster Lab team is focusing on strengthening B2B business by entering MOUs with other hospitals. As we have communicated in our last call, we have received formal approval letter from government authorities to convert all our business in Dubai to 100% legal ownership. Initially, we intended to complete the process by March, but due to present situation, we could not do that process, but we have now completed it. We expect [ all the work ] in government offices will be normalized shortly, and we expect to complete this legal transfer processes for all our subsidiaries in hospital, pharmacy and clinic verticals in Dubai during the second quarter. Whatever is left, we will be completing that. Before I conclude, I would like to add that though the situation is volatile, we are continuously monitoring it and taking adequate initiatives to address the situation through proactive measures. The immediate priority is to ensure smooth functioning of our existing business operations and focusing on business continuity. We believe that overall improvement in business will start to be evident from early quarter 2 of financial year '21 and hope to cover up lost ground and achieve near normalcy by second half of 2021. Thank you. I would now like to pass it on to Sreenath Reddy, the group CFO, who will walk you through the financials.

Thank you, doctor. Good day, everyone. Before I get into the numbers, I would like to highlight that COVID-19 pandemic has caused havoc on world economy and on several businesses in various magnitudes. The current unexpected situation has impacted our regular business operations, majorly during the last 2 weeks of March and in the first quarter of the current financial year. Our priority is to support existing business operations and have increased focus on cost control measures. In terms of overall financial portion, I would like to place that we have sufficient liquidity and undrawn credit line for both GCC and India. We have not availed any enough credit line as we are here to utilize the existing banking element. Banks are also willing to provide additional credit lines if required. In India, we have taken the benefit of deferring the principal and into it as per RBI guidance. And in GCC, we have not taken any benefit, and we continue to service the term loan. The loan covenants in the term loan, we are within the limits, and if required, we shall approach bank for relaxation. Based on present trend, we expect business to go back to normalcy by Q3. Now let me share the financial numbers for the financial year '19/'20. As you already know, we are transitioned to Ind AS 116 during the year. However, for the purpose of comparability, we will present the numbers before Ind AS 116 impact and later brief upon the financial impact due to the accounting standard transition. In Q4 FY '20, we have registered revenue from operations of INR 2,301 crores, which is 5% growth on a year-on-year basis and corresponds -- constant currency growth is 2%. This is due to the contribution of Wahat Home Care business, which we had acquired in December 2000; ramped up operations in Aster [ Aadhar, ] Mims Kannur and RV Hospitals. In Q4 FY '20, we have reported EBITDA of INR 316 crores, which is 10% reduction on a year-on-year basis, and corresponding constant currency reduction of 12%. This is due to reduced EBITDA contributions from the clinic vertical and the loss in the RV Hospital Bangalore and Aster Labs as well as COVID-19 impact. EBITDA margin in Q4 FY '20 was 13.7% against 15.9% in Q4 FY '19, a reduction of around 220 basis points. Profit after tax decreased by 32% to INR 142 crores as compared with Q4 FY '19. This is mainly due to the mark-to-market currency loss of approximately INR 25 crores as well as the impact of reduced EBITDA. Q4 is normally a supportive quarter for us, but because of the pandemic, we lost 2 good weeks of business. Coming to the 12 months' performance. Revenue from operations for FY '20 grew by 10% to INR 8,739 crores from INR 7,963 crores. The EBITDA, excluding other income, grew by 12% to INR 968 crores from INR 863 crores for FY '20. PAT has grown by 3% to INR 342 crores from INR 333 crores for FY '20. The reason for lower PAT growth is on account of increased finance cost of approximately INR 56 crores, including mark-to-market loss of approximately INR 40 crores, additional depreciation of INR 49 crores and loss and closure of Philippines operations of INR 18 crores. Our revenue and EBITDA growth in constant currency stands at 8% and 11%, respectively. Moving on to Ind AS 116 impact. It is important to note that our GCC operations are predominantly based on asset-light model, with leased land and building. Due to this, Ind AS 116 accounting standard has an impact on our financials. EBITDA has increased by INR 290 crores in FY '20, and PAT has decreased by INR 65 crores due to Ind AS 116. Resulting EBITDA impact are INR 1,258 crores and INR 277 crores, respectively, for FY '20. EBITDA margin has increased by 3.3%, and PAT margin has reduced by 0.7% on account of Ind AS 116 impact for FY '20. Coming to the segmental performance. The revenue in hospital increased by 16% on a year-on-year basis to INR 4,607 crores in FY '20. EBITDA increased by 22% on year-on-year to INR 612 crores in FY '20. The EBITDA margin remained at 13% compared to the previous financial year. The revenue in GCC clinic is at INR 2,005 crores in FY '20. The EBITDA margin dropped to 14.3% compared to 15.9% in the previous financial year. This is due to the low in patients coming to mid-segment of Aster clinics rather than going to active clinic. We have taken steps to channelize demoing patients to Aster clinic. This is free up capacity at Aster clinic. The impact of COVID on clinic vertical is much more compared to other verticals. For pharmacies, revenue has grown 9% to INR 2,372 crores, and the EBITDA margin is 10.7% in FY '20 compared to 10.2% in FY '19. Coming to the balance sheet. The group net debt stands at INR 2,783 crores as at 31st March '20 compared to INR 2,329 crores as at March 2019. The breakup of net debt stand in India at INR 358 crores compared to INR 242 crores as at 31st March 2019. And in GCC, net debt stands at USD 324 million compared to USD 301 million as at 31st March 2019. CapEx during the 12-month period was INR 531 crores, and the purchase consideration for acquisitions was INR 233 crores. Cost control, liquidity and efficiency will be our focus going forward. On that note, I conclude my opening remarks. We'd be happy to give you our perspective on any questions that you may have. I will request the operator on this call to open the question-and-answer session. Thank you.

[Operator Instructions] We have a first question from the line of Shyam Srinivasan from Goldman Sachs.

First one is on your update that you put out on June 1, where I think one of the lines mentioned that there was difficulty in getting receivables in GCC because of the largely insurance kind of nature of that business, insurance space. So can you give us an update on what's been the progress there in terms of receivables? And my second question is on occupancy trends, April, May, June. I think the update said 30% in India and 52% in GCC. But if you could give us the ramp in the month of May and year-to-date -- or month-to-date India.

Yes. Sreenath, if you can take that question.

Yes. So on the receivables, if you look at -- in the month of the April, we were comfortable amongst all the receivables because there's directions from the government to the insurance companies to release as much money as possible to clear [ those ones ] and to start releasing the money. So the April month, the collections was 50% more than the normal collection. But however, subsequently, because of the lockdown, many people started working from home and all that. And because of which, the collections during the last 1 month has been lower. But we expect the collections to normalize in the coming months. Now that most of the insurance people are coming back to the offices, we expect the collections to go back to normal. Regarding the occupancy, yes, you are right. The occupancy level in the GCC at this point of time is just 10% lower compared to normalcy. But however, in India, we are still facing a challenge in terms of occupancy. Certain hospitals so far in Kerala have got good occupancy. But however, outside Kerala, we are facing challenges in terms of occupancy, and the coming days could also pose a challenge, especially in India. Dr. Harish, would you like to add on?

Yes. Thank you, Sreenath. So like the lockdown in India was really impacting our OP footfalls as well as IP numbers mainly in the month of April. But after the easing of the lockdown, especially in Karnataka and in other states, we find that the occupancy levels have actually increased compared to April. Kerala, because in terms of the public health response as the best governed state, in like, for example, in Northern Kerala, the hospital occupancy is almost like pre-COVID levels. So all -- as a cluster, Kerala occupancy levels are much higher than others. But overall as a trend, we find that the numbers are going up. But like you said, Sreenath, we need to be cautious because there seems to be a surge in COVID numbers in bigger cities like Bangalore. So we have to be cautious about what happens next. Thank you.

[Operator Instructions] We have next question from the line of Anmol Ganjoo from JM Financial.

Yes. So between various segments, if you look at the COVID impact, could you just grade the impact across your segments. For example, in order of the impact, what is it that suffered the most? And also that we've observed strong recovery trends in May. If you could just identify the business lines where the resilience of the recovery has been the most, that will be helpful.

Alisha, could you please answer that?

Sure. Sure. Anmol, happy to take your questions. So in the beginning, most of the units were impacted severely across the board. But like Sreenath mentioned in the clinic, because of the lockdown and because we see large volume of patients, this was the one where we had the biggest hit because the number of people getting out of the houses were very minimal. And of course, in the hospital as well, because the electives were stopped. For maybe around 2 weeks, we actually saw a big drop in our revenue up to the tune of 70%. But very soon, this was picked up by the COVID patients coming in, where we had pretty much 100% occupancy in our hospitals. So the recovery, which happened in April and May, were all because of the COVID revenue. We had our hospitals full, we realized hospitals were full. We opened up new tracks to expand the bed capacity, which we did by commissioning around 400 to 500 beds in hotels. So that helps in terms of the hospital revenue being a little bit more impact over this quarter anyway in the first 2 months. Now what we are seeing is that since the lockdown, the OP numbers are coming back up. The surgery numbers had been reinstated. So at that point of -- I mean the last 2 months, the biggest impact had been in the clinics. We saw the pharmacies did quite well because, one, there was -- even though the OPDs had come down drastically and we were worried about the pharmacy dispensing of medicines would naturally come down as well, but it was almost offset because people were coming in to buy the sanitizers, masks, vitamins, all of these things. So actually, the pharmacy did quite well. And also a number of pharmacies had shut down during the period because they were trying to control costs. So you only had 2 or 3 of the larger chains which were able to sustain and keep open. So in UAE, this was the trend, whereas in Oman and Qatar, we were not really involved in taking the COVID cases. So we had a larger impact in the business because the government, for the last 2 months, have primarily tried to manage the COVID cases themselves. So because of that, we could not really participate in the only business which was available during this time. Whereas now, they need for lockdown and now they've also started asking the private sector, especially in Oman and Saudi, to participate in the COVID care as well. So we are seeing the same trend pretty much like a month apart where UAE had the largest surge in sort of April and May, whereas we are seeing that surge happening in Oman now. And Saudi has also just surged and now sort of coming down slowly. So I think the trend at the end of the day has been the one which was largely hit over that period. In the hospitals, we managed to sort of offset some of the revenue. Of course, not to the full extent of what we get with our surgical load. It was long-stay patients. We're talking about everyone staying at an average of 10 to 15 days. But that was some way we said it helps us to kind of recover OpEx cost at least. I hope that answers. I don't know if you have any additional.

No, thank you. That's indeed very helpful...

[ No more now? ]

No, no. Thank you. That was indeed very helpful. So -- and quite detailed. My second question is that everything has changed in the COVID world. The situation is unprecedented. So how are you guys thinking about your CapEx plans? What are some of the projects that you'd now be willing to go slow versus where we were in February? So what are the pullback areas from a CapEx standpoint? And also Sreenath spoke about some of the cost efficiencies. What would be helpful to understand would be where is the low-hanging fruit we think we'll be able to be plucked strong? And what are some of the areas that you've identified in terms of these ones that we may be able to undertake?

So I'll just mention about the pipeline projects. So we have actually put on hold and terminated some of the projects. For example, there was one Aster hospital in International City, Dubai, which we had planned earlier, 65-bed facility, which we have decided not to go ahead. And many of the hospitals, like one in Muscat, Oman, 145-bed facility, we have put it on temporary hold; as well as the Sanad Hospital, there was an expansion plan for 69 beds, which, again, we have put it on temporary hold. And in India, there is Chennai. We have announced a hospital -- a standard but large hospital, which, again, we have put it on hold. And the Aster KLE Hospital, a 600-bed hospital in Bangalore, this again is on hold. So the ones which are going ahead, they are the Aster Hospital Sharjah, which is in the construction stage, which we are going ahead. It's an 80-bed facility. And then we have in India the Aster Aadhar Hospital, which is an extension of our existing hospital, 60-bed, which is construction is going on; and the Whitefield Hospital, which we are starting new one, where the Phase 1 of that is being done up now. So there has been significant focus on reducing the CapEx because we don't know where this is going, we are not able to predict it. So we thought that we will conserve the CapEx and funding, and that we won't go ahead with that. Now coming to the cost-efficiency measures where -- I briefly mentioned it in my speech. But one thing which I want to just highlight before others also join is regarding the focus on the human resources where we thought that there is a good opportunity for us for rightsizing our present staff and reducing the cost by increasing efficiency, utilizing more of technology by way of systems and all, by better utilization of that and going into shared services, work from home. And all these measures together and also reducing some staff, we think that we'll be able to make significant changes in the HR cost, which is a major focus area for cost control.

[Operator Instructions] We have next question from the line of Sabyasachi Mukerji from Centrum PMS.

Yes. A couple of questions from my side. So if you look at the margin profile for quarter 4, basically, what happened is that GCC hospitals gave a surprise and India business was in single digits margins. If you can explain the same.

Yes. Yes. So if you look at India, for us, Q4 was not a good quarter. Q3 was a good quarter in India. And in GCC, generally, Q4 for us is a very good quarter. So if you look at the hospitals and something have been doing very well. Some of the hospitals, which are ramped up in India, have been doing very well. And that explains the reason as to why the margins have gone up, but for the last 2 weeks where we had an impact due to the COVID. But only the challenge what we said, if you look at in the last quarter and also if you look at in the earlier quarter was also -- was on the clinic trend. So there, we have been facing a bit of a challenge, mainly like what I said was the low in patients coming into the Aster clinic. And that is something which we were looking at, moving this patient back to the Aster clinic, which enabled us to ease some capacity at Aster. But however, even though we ease the capacity at Aster, still we need to get that many number of footfall because that was a problem. But by that time, the directors was completed, came the COVID, and the COVID has major impact on the clinics vertical compared to the hospital vertical.

Okay. Because -- so why actually I'm asking this question is if I look at the occupancy levels, Q4 FY '20 vis-a-vis Q4 FY '19, your GCC hospitals' occupancy is 58% vis-a-vis 54% a year ago. That is an improvement. And while India business has come down from 65% to 56%. While I understand that India business, you have added capacities and then there was -- and a lockdown in the last 2 weeks, GCC, what happened to GCC? I mean there is a 400 bps kind of improvement in occupancy levels despite over disruption in the last 2 weeks of March. What explains that rise in occupancy? I was just curious about that.

See, there was a new hospital that we started, right? This is -- which we started, then we also started the Medcare Hospital at Sharjah. So these are the 2 hospitals where the occupancy was lower in the previous year. So the occupancy of these hospitals got ramped up nicely. So that explains for the increase in the occupancy in the GCC. In India, even though we have been saying 2 weeks, last 2 weeks, but the impact in India was slightly a little bit earlier in terms of the -- because they are -- as soon as the lockdown was enforced in India, India, the occupancy started dropping drastically, and that continued into the month of April as well. So therefore, the reduction in occupancy in India was much more. But however, in the GCC, the occupancy, at least for last year, because the impact of the COVID in the GCC, we are seeing more in the month of April and May. But however, during the last quarter, we will see that kind of impact in terms of the [ hospital. ]

Okay. Okay. And on the margin side?

Okay. As to...

Sure.

Sorry, just wanted to add to what Sreenath was saying. So in the GCC, we had 3 projects which have done exceptionally well. Of course, like he mentioned, [ like he said hospital ], which was new in Dubai, the Qatar project as well. But another unit, which was a bit low in sort of the uptake was the Medcare Hospital in Sharjah. We had some change in the leadership, and we have seen an improvement in the occupancy there as well, which we feel in the next few quarters will also ramp up much better. So we would expect the GCC hospital margins to go up because these are 3 large projects, and especially the next year is a very large project.

Okay. Okay. Sure. Next on the margin front, what kind of sustainable margins we can work for the clinic and the pharmacies, if you can highlight that?

Yes. So if you look at the hospitals, we would look at anywhere around 14% to 15%. So that is what was the expected margin should stabilize at, maybe at 15%. GCC clinics, this I'm talking for the full year, right, because there are the various quarters where the margins fluctuate. GCC clinic is where we are finding a bit of a pressure. So the margins for that may not improve because, in fact, if you look at in the current year, the margins have decreased. And we expect the margins to be under pressure for some more time. Maybe we'll continue to remain at the same level for a few more quarters. At this point of time, due to COVID, the margins will significantly have dropped at the GCC clinic. What I'm talking about is, once we go into normalcy, wherein we are expecting the second half of this year to go into normalcy, so we are expecting similar margins like what we have seen last year to around 14%. And pharmacies will also continue to remain at similar margins, which we have got around 10.7%. Maybe it can improve up to a maximum of 11%, but we don't see it going beyond that. And in the case of hospitals in India, hospitals in India, the margins at this point of time is 11.2%. But however, we expect, if we are able to go back into normalcy by second half of the year, hopefully, so in the second half of the year, on an annualized basis, we should go back to around, say, 14 -- 13% to 14% on an annualized basis in the second half of the year.

That helps. Just on the FY '20 India business margins, if I look at your -- and I think you updated 1 slide for the India business in FY '20, where you have mentioned the EBITDA margin for -- in 2 buckets, 0 to 3 years maturity and over 3 years-plus. And in spite of 67% kind of occupancy in less-than-3 years hospitals -- and you have posted an EBITDA loss, I guess. Any reason behind this? Was there any one-off into this?

Yes. So first, I will answer, then I will ask Dr. Harish to add on. So this -- we started 1 facility in Kannur during the last year, end of March, somewhere around March, we started. And yes, in the month of March last year, we started. And the April, we started the Aster RV Bangalore. Now the Kannur project, there, the EBITDA breakeven happened in around 4 months' time, less than 4 months, so which was a record of sorts. And today, even today as we see, it's just 1 year old now, and it is at the peak of occupancy. So this is one-off, those hospitals that, within 1 year's time, it has reached peak occupancy, and they're struggling to find beds in that particular hospital. In fact, we are looking at adding a few more beds at their hospital. Now the pricing is something which was lower during the past year. The pricing was kept lower. It has already gone into profitability. And now, in the current year, we were to increase the margins for that. But with COVID coming in, we are going a little bit slow. But very soon, we should be in a position to increase the pricing over there at Kannur because it's -- the occupancy is at its peak. The Bangalore hospital, RV hospital, that is still under losses. It had almost gone to an EBITDA breakeven during the last quarter. But immediately, with the COVID coming in, again, it has gone into losses. So for the full year, there is losses at the Bangalore facility, the new hospital that was started, Aster RV Hospital. Dr. Harish, would you like to add?

Yes. Thank you, Sreenath. So like you mentioned, the Kannur Hospital actually surprised all of us in terms of its performance. It had an EBITDA breakeven of -- in around 4 months' time. So this EBITDA loss, what we look at is mostly by the RV Hospital in Bangalore. Having said that, compared to what we initially thought, RV has also done much better than what we had initially forecasted. When you look at India vertical overall, I just wanted to add 1 more point is that, like you mentioned, the last 2 weeks of March we had this almost complete -- almost 90% drop in our footfalls, OP, mainly because of lockdown. It had its consequent impact in inpatients. But right from the beginning of the quarter, from January itself, we could find a deceleration of international patients coming to India. So when we look at that NVC segment in terms of degrowth, that was quite significant for quarter 4 compared to the same time in the previous fiscal. So that's an important contributor because we get better margins from the NVC segment. Thank you.

Last bit on the Home Care business, if you can just guide something on the revenue and the profitability part, the Wahat Al Aman Home Care, sir.

Yes, Alisha?

Yes. On the new business, you mean on the Wahat that we acquired?

Yes.

Yes.

Yes. So that business has been doing quite well. We have around 350 to 400 nurses within that business. And I think with the timing of COVID, actually, this is 1 area -- well, not just in Wahat, but actually, home care across the group has taken off. The only challenge has been sort of recruiting more manpower because there's a nursing strain that is coming through, at least in the GCC, where the border is being closed. But otherwise, people are quite reluctant. Since there is a reluctance to come into the facility, there's more and more preferences of at least affordable segment to go into home care. So the home care that we had, it's been doing quite well. Sreenath, would you be able to just pitch in on the margin? I think if you can just give the exact range, that might be helpful. But we've been, in fact, growing consistently.

Yes. So home care, generally, the margins are much better compared to a hospital. But the thing is that, because we are in a very small geography, so now the focus is going to be whether we can extend home care to other geographies. So we are exploring Saudi, whether we can have home care over there. Similarly, in Dubai, we have got some home care, but very small because it's -- in Saudi -- because the insurance, both in Saudi as well as in Abu Dhabi, even pays for it. Now what we have also done is that -- now, we also have started in India. So we began in Kerala. So it is very promising. We started off with Kannur. We continue Aster Medcity there. It's at peak capacity. So therefore, Kannur, Calicut -- so we are starting the home care from those areas, and eventually, we'll spread across various geographies. So this is going to be promising. That is what we expect. Even though in India, it is mainly paid out of pocket, but the initial response has been fairly good.

[Operator Instructions] We have next question from the line of Anmol Ganjoo from JM Financial.

So I have one question. There has been fair amount of dislocation in the GCC market by one of your competitors getting into some kind of a trouble. Do you see that throw up any interesting opportunities for -- are significant in that market? How are you looking at developments there?

Yes. So as you said, and unfortunately, there have been total destruction of one of these large companies by way of its senior management. But if you look at the operational level, there has not been much of impact by that. The hospitals and the other facilities in GCC, at least, are running as usual. So we were looking at this. We have this in mind. So 2 things: one, we would be interested on selected assets, if it becomes available, not like the company or a large vertical or a large geography. So that is something which we are looking at. In places where there are synergies with our facilities, we are looking at that opportunity. And second thing, of course, because of the challenges there, there are a lot of people, healthcare personnel, starting from doctors to others, who are wanting to shift, and that is happening. And we see it as an opportunity for us to improve our manpower efficiency and get more people who are capable.

[Operator Instructions] We have next question from the line of Shankar from HSBC.

Can you please let us know who is funding the UAE COVID patients? Is it the government? Or are the insurers funding that?

Yes. Alisha, you would like to take that question?

Sure. Sure. Hi, Shankar. So in the beginning of the pandemic, the government had actually mandated the insurance company to be funding it on the basis of the -- on the basis of anyone who is covered with medical insurance. The ones who were not covered, government was going to sponsor their treatment. The change that happened probably just over 1 month ago was they standardized the rate for COVID. So they categorized into 5 different -- from mild, asymptomatic, moderate and ICU care. And they came up with 1 universal rate for COVID, which was quite healthy rate. And they said if you are part of the medical insurance scheme, then this will be the rate that will be reimbursed by the insurance company. And if not, this would be the rates that will be given by the government. So that's how it's been handled here. In at least the UAE and Saudi, again, the government has said that they would be paying for the COVID patients, and the 2 countries where we are largely seeing the COVID cases with the noncare.

Dr. Harish, in India, would you like to update?

[ And so that means ] sort of. Yes. Go ahead, Dr. Harish.

I'm sorry, I had an audio issue. Can you just repeat, please?

Yes, yes. No, yesterday, there was -- in Bangalore, the government gave a notification on the COVID, where -- who is going to pay for the COVID patient, whether it's the government or the insurance or out of pocket?

Yes. So let me just explain that -- see at different levels. One is at the central government level, many of us from the private sector, we have made a representation on recommended prices. So we have given benchmark prices to the government of India, which is still under consideration. This is part of the FICCI task force representing the private sector. That has been already given. The second aspect is because we are -- Aster in India is across 5 states. The state governments have got their own jurisdiction in terms of price capping, if at all. The Karnataka -- like Sreenath mentioned, yesterday, there was a circular where they have given 2 broad categories. One is price capping. This is actually defined per day for general ward, whether then the isolation room without ventilator and ICU with ventilator for patients referred by the government. And the second category is if a patient comes on its own, that is, without referral. Third category's insurance patients. So that -- they have already announced, and we have all been asked to comply. But still, there are ongoing discussions with the private hospitals association. So there is some feedbacks, which we have given, based on some ambiguities which has been visible. So it's still, I would say, a work in progress.

We have next question from the line of Agraj Shah from Tata AIA Life Insurance.

Sir, I wanted to know if I can get a clarification on the sharp increase in depreciation and finance costs in sequentially and year-on-year. So you mentioned that there's a mark-to-market component over this. Can you just maybe explain this kind of increase?

Yes. So see this -- India, if you look at this number -- India, because the lease rental that gets bifurcated into depreciation and infra -- because of this, when you compare it to last year, the numbers, both on the interest as well as the depreciation, would have gone up significantly. The EBITDA -- if we look at it, the EBITDA will be higher, but it has got an impact on the PAT. Now added to that, we have already given a separate slide on that in the presentation, the impact of India, both on the EBITDA, interest, depreciation and on the PAT. Now the other thing is that, in terms of finance costs, we have got a policy where our loans, whatever we are working with GCC, as a policy, we hedge them. So 50% of the loan amount is hedged. So if you look at -- in the GCC, it is a dollar-denominated loan, and the currency over here, the dirham with respect to the dollar. So therefore, there is no currency risk effect. But however, the hedge that we take is more on the change in the LIBOR, because the interest rate is LIBOR plus the spread. So via an interest rate swap, we have taken that hedge for 50% of the loan. Now that has caused an impact because of the LIBOR going down. It has caused an impact for us in this financial year of INR 40 crore. And if you look at in quarter 4 alone, that is a INR 25 crore hit. So this is a notional phase because this is what is appearing, not when we get the benefit of the interest with the lower LIBOR. But however, the benefit that we get on a lower LIBOR is just for that 1 quarter. But however, that is what we take on the mark-to-market. It's considering the future rates that are going to be on the LIBOR to the extent of our outstanding time frame. So because of this, the impact on that mark-to-market for the whole year is a INR 40 crore impact.

And on the [Audio Gap] it's almost a INR 30 crore [Audio Gap]

Sorry?

On the depreciation, there's almost a INR 30 crore impact quarter-on-quarter increase.

Yes. On the depreciation, Sumanta, can you get the number on quarter-to-quarter?

Hello?

Hello. I'm back. Yes. I'm back.

I mean are you all right?

Yes. Yes. I am. I am.

Okay. So I will give you a little more clarity on your first finance question as well as on your depreciation question. So if you really look at the increase that has happened is basically INR 180 crore, so the total increase in finance cost. So that out of that, INR 130 crore is the extra because of Ind AS impact on the finance; INR 40 crore, as Mr. Sreenath explained of this mark-to-market, that adds up to INR 170 crore; and INR 10 crore is just extra interest because of the total debt has slightly increased on a year-on-year basis. So that explains the increase of INR 180 crore in a full year basis. And now coming back to your depreciation part of it. The hit -- the depreciation has only 1 impact, it is because of this Ind AS. The hit of this Ind AS in 1 quarter itself is around INR 67 crores. So that is basically the total is up to the full year basis. It is exactly at INR 189 crore -- sorry, it is 100 -- INR 230 crore. So that is the reason that you see a depreciation increase, i.e., in quarter-on-quarter as well as in full year basis.

See, and also I'd like to add on is that -- what happens is that this leads into, right, the breakup of lease rental into depreciation and interest. So this is something you can -- let me explain a little bit in detail. Many -- some of our assets are short-term. For example, pharmacies and others are less than 1 year. So when it is less than 1 year, so what happens is that it directly goes at rental cost. But however, if it is more than 12 months, then that gets broken up into depreciation and impact. Now what happens is that, during the period, every quarter, there are many new rental agreements, which keeps getting renewed. So when these rental agreements get renewed, so sometimes we choose 1 year, sometimes we choose 2 years, especially when it comes to short-term way. So on a quarter-to-quarter basis, so there will be a difference in these rentals in terms of the depreciation and interest that is getting reflected because of the Ind AS 116. So there were a few lease rental agreements, where we went -- enter into a longer duration during that -- this period. So that also will have an impact in terms of the change in the depreciation as well as the change in interest.

And that was quite helpful. On the CapEx side, do you have a number in mind for the full year FY '21?

See, the CapEx, as initially mentioned, right now, most of the CapEx has been put on hold, and we will be looking at only once we go back to normalcy. So we are expecting to go back to normalcy in quarter 3. So at that point of time, we'll have clarity as to what kind of projects we'll take up again, or whether we will not take it up. Because some of the projects, like doctor said, we have put it on hold. Now whether those projects should continue to remain on hold, or whether we should take it up, will be only decided once there is normalcy. Now until then, there are a few projects, right, like what doctor mentioned. For example, we have Sharjah Hospital and, similarly, the Bangalore Whitefield. The Bangalore Whitefield is a -- the phase 1 is only a mother and child. So the expense that goes into these projects is very, very minimal. So we are looking at less than INR 100 crore in the first half of the year. So that is what we are looking on the CapEx side. And this is something which we would like to complete this project for the reason that it is almost close to completion. So instead of keeping it pending, it is better that we complete these projects. And so that we get that revenue, and we could get some margins out of it because we have already significantly spent money on the Aster Sharjah project. It is 85% complete. So what needs to be completed is just 15%. So no point holding on to that project that it is 85% complete. So we would like to go ahead and complete it. So these are the only 2 projects at this point of time, where we are looking at moving forward. All other projects are on hold. And appropriately, we'll take a call once normalcy comes back.

For these 3 projects, Aster Sharjah, Whitefield and the Kolhapur expansion, the total [ you call for ... ]

[ Those ones. ] Yes. Yes. Sorry, I missed out on the Kolhapur expansion. Kolhapur expansion, again, doesn't need it. Bangalore Whitefield project, for completion, will take only INR 20 crores. This is the mother and child because we are not investing into the land. We are not investing into the building. So therefore, the amount required is very, very minimal. The second phase is where we will require a significant amount for the hospital. That will not -- that CapEx will not come in -- into this, at least for the first half of the year. Kolhapur is hardly anything that we need to spend in. It's almost 80% complete again there. So we need to spend maybe around INR 10 crores to INR 12 crores, and that project will get completed. And the rest of the CapEx is mainly for Aster Sharjah. So once we complete, so we will be in a position to add significant -- we will be in a position to add additional bed, which will contribute to the revenue.

Aster Sharjah amount would be how much crores, roughly?

So roughly, we are looking at around -- anywhere around INR 50 crore to INR 60 crore.

Okay. And finally, on the COVID testing on the [Audio Gap] it is a little, strong, how is that progressing? Can you give some numbers around that or your experience so far with the government?

I didn't get that question. What was that question? COVID?

COVID testing at the Aster labs, Bangalore facility. So...

Okay. Dr. Harish, you would like to answer that? Dr. Harish? Is he not there?

Yes, I can answer that. Dr. Harish is not there on the call. So the COVID testing is something which has started because we have been recognized as ICMR -- by ICMR, so therefore, the testing is happening. But then you must be aware that the government has fixed the pricing of [ 4,500. ] So that is the pricing [ what you would spend for COVID. ] So the testing has happened, and it was just a coincidence that the lab came into operations and also this COVID started because of which there are increased volumes. And many hospitals within the city also are tying up with us, including many other competing brands, mainly for the reason that we are able to reduce the debt at a very fast pace with results that are very positive. So that has picked up well. But the next few months is that we are focusing on, nor for the next few months or so, there will -- there is likely to be more of COVID tests. But we would like to get into a regular B2C business once the COVID comes down and because the initial plan was more to go with a B2C model. But at this point of time, it is more of a B2B model.

Just to add on to that, I also have those here. So I just wanted to add on the lab. See, we have the advantage of having a captive business for the lab sitting in our hospitals, 25 hospitals and the clinics. So this -- we are now in the process of consolidating and sending the samples, which are now being sent outside into our lab, which in itself should be a significant business coming from the B2B, even though it is internally. So that part is being focused now, which we think that will be significant business in the next 3 to 6 months, we'll be able to get through that, and as well as in the development of the B2C business and outside B2B business. So that is the plan in which we are going. And the COVID testing and all will be only temporary, and this may not have too much of an impact in the long term, but this is the one which is going to have a significant impact.

Okay. And how wide is the test menu for this, as in how many tests do you offer per year?

Yes. We'll have to get back to you on that because there is no expert in this. So we can separately, offline, give you those details. The Head of Lab, which is Mr. Jayaprakash, who is at Bangalore and manages this, and unfortunately, somehow, Dr. Harish also has dropped out. So we can get these details directly sent to you via chat.

We have next question from the line of [ Rupen Masalia ] from [ RN Associates ].

My question is in the medium term, that is, say, 2 to 3 years, where do you see the net debt level, which currently stands at approximately INR 2,800 crore and capital efficiencies in the form of ROC in the light of likely reduced CapEx intensity and maybe some inorganic growth initiatives and, of course, your focus on cost rationalization. So taking all these 3 initiatives together, where do you see the net debt level and your capital efficiencies in the medium term?

Sreenath?

Yes. So see, that is something which we would like to reduce. The focus is on reducing the debt. So we don't want to take more debt. And therefore, see, right now, if we look at the net debt to EBITDA, we are at 2.9x. But however, we would like to reduce it to around close to 2 in the next 2 to 3 years. It will take at least 2 to 3 years. We are looking at various options because, unfortunately, this COVID has come in. And some of the initiatives, what we were trying to do, was not happening to the extent we were expecting. For example, we were thinking of some of the idle land, what we have got at some places in India. So we were thinking that, that is something which we should monetize. So such kind of things have got a bit delayed, but we are very clear in our thoughts that we should bring it down, the debt level, to levels of around 2 -- debt to EBITDA to around 2 in the next 2 to 3 years' time frame.

Yes. And on your capital efficiencies, like because, currently, you all are operating at below optimal capacity in GCC and India, hospitals and hospitals. So -- and likely reduction in CapEx going forward, plus improvement in margins at EBITDA level due to cost rationalization exercise. So what sort of capital efficiencies can be expected in the medium term over the next 2 to 3 years?

Yes. So the margins, see, the thing is that efficiency is we focus, right? So if you look at many of our facilities, which are new, some of the facilities have already ramped up. But there are also a few facilities which are in the process of ramping up. And also in many of our facilities, mainly in India, if you look at -- there is still a lot of beds available. So therefore, the need to add more CapEx or more hospital beds will not arise. And that is one of the reason also why we terminated 1 project in Dubai, the International City one. Similarly, we have put some of the projects in India on hold. And we have got second part whether we should again spend CapEx and again add those capacities. The existing capacities will continue to -- we will continue to see a good ramp-up in the occupancy, and therefore, that will bring in additional margin. So whereas once the occupancy goes up but because the fixed costs are more or less the same, so that should bring us margins. That is one way of getting the margin. The other way of getting additional margins from where we are today based on controlling the cost. So cost is something, like what doctor said, we are looking at various ways of controlling the cost, including that it could be outside, that many of the staff work outside instead of being in GCC. And also we are also looking at work from home and other such options. So therefore, we believe that this cost savings and, similarly, the increase in occupancy levels should give us better margins and should increase at least by 150 basis points to 200 basis points over a period of next 2 to 3 years is what we expect. Because on the pricing strength, at least in GCC, we don't expect significant increase in the price, so therefore, it is important that we bring in efficiency.

Just to add to that, to what Sreenath said. So 3 things which are in our favor and, even though COVID is a challenge, we think these are blessings for us. One is on the cost front, like what Sreenath said. We have an opportunity to reduce the cost, especially in the area of manpower. And the second thing, of course, is the opportunity of digital transformation, where the cost, again, will be less, then the income generator will be higher. And that is another very important thing. And the third thing is that, as result of COVID, the CapEx will be much less what we are spending, and that will definitely help us to have better return on capital, whatever is employed. And so all these 3 together, we hope that we will have a better margin as well as overall the cash flow and debt reduction.

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments. Over to you, gentlemen.

Yes. Thank you very much. Thanks a lot for participating in the earnings call. And we are all in very difficult circumstances, but we all hope that this is actually in the lower side of the pandemic, and we are going down. And we sincerely hope that it will be like a U or W in all the countries. It won't be -- I mean, a U or V, not like a W, which means that there will be, again, something coming up. And we sincerely hope that we will come out of this as early as possible. So we look forward to meeting you in the next quarter call. Thank you very much. Thanks a lot to everyone who participated.

Thank you very much, sir, ladies and gentlemen, on behalf of Aster DM Healthcare Limited.