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

Ladies and gentlemen, good morning, and welcome to Aster DM Healthcare Limited Q1 FY '22 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vinay Bafna from ICICI Securities. Thank you, and over to you, sir.

Thank you, Lizanne. Good morning, everyone, and welcome to the Aster DM's earnings call for the quarter. First, I would like to thank the Aster DM to give us the opportunity to host the call. Now I'll just introduce everyone from the management so this is the company who represented by Dr. Azad Moopen, Chairman and Managing Director; Ms. Alisha Moopen, Deputy Managing Director; Mr. Sreenath Reddy, Group CFO; Dr. Harish Pillai, CEO, Aster India; Mr. Amitabh Johri, CFO, GCC Mr. T.J. Wilson, Director. Over to you, sir.

Good morning, everyone. Thank you for joining our financial year '22 quarter 1 earnings call today. We'll start the new financial year '22 with more positive sentiment and hope that the pandemic seems to be coming on control. While the new variants are creating concern with new waves and lockdowns across the world, looking at performance of quarter 1 year '22, we feel a lot more confident and sincerely hope that the worst is behind us. The light at the end of the tunnel, the active vaccination drive going on in the world. In UAE, where we have a large part of our business, the infection rate has stabilized with majority of the population now being vaccinated. In fact, the UAE is one among the most vaccinated countries in the world now, and life is almost back to normal. In India, however, the vaccination drive has not been that active to start the second wave that happened during quarter 1 led to restrictions in many parts of the country, including states like Kerala and Karnataka, where we have large part of our salesman. However, I'm happy to inform that this -- we didn't have an impact on our business performance compared to previous quarter and the quarter 1 last year. Our performance in India has been quite robust. In our continuing battle with COVID, we have set up two field hospitals in Calicut and Kochi this quarter to cater to the requirement of the patient. Aster is also actively involved in the vaccination drive across all major hospitals in India. And during the quarter, we have administered a total of 3.8 lakhs dose of vaccine. The GCC business is back to pre-COVID levels with good traction in the first quarter, which is usually a lean quarter due to people traveling out of GCC. We are happy that a large number of our doctors and their families in UAE have been provided with long-term residency for 10 years as golden visa, in fact, nearly 400 people and their families, which will increase their commitment to be in UAE as well as attract more healthcare professionals to the country. The another important thing is the conversion of our business to 100% ownership and this is also almost complete, giving much more structural and legal stability. During the first quarter, we posted a revenue of INR 2,372 crores, which is an increase of 36% when compared with the same period last financial year. The EBITDA in quarter 1 is INR 281 crores, an increase of 97% when compared with the quarter 1 financial year '21. The profit after tax, post NCL, for quarter 1 is INR 44 crores compared to the loss of INR 83 crores during the same period last financial year. I'm happy to report that the India part of the business is going up year-on-year. We are pleased to let you know that India share of revenue -- to the total revenue has now gone up to 23%. And as you know, this was around 11% some years back and gradually, it has climbed to 23%. The revenue from India operations has gone up by 84% to INR 550 crores and EBITDA increased by 460% to INR 71 crores year-on-year. The focus going forward as a strategy is to expand capacity in India to the existing capacity beds of 3,757 beds in India. An addition of 411 beds is being planned in the next 18 months. This includes additional 60 beds to Aster Aadhar Hospital in Kolhapur, 276 beds in Bengaluru Whitefield Hospital and 75 beds in Aster MIMS, Kottakkal. In GCC, 225 beds are being handled in the current financial year. This shall take our total capacity in GCC and India together to 5,544 beds. We continue to actively expand the Aster Labs under our pharmacy distribution network in India, in line with our strategy to have wider presence with an asset-light model, along with focus on digitalization. The plan is to establish 130 franchise pharmacies in India during this financial year, which is on track. By the end of the financial year, we plan to... [Technical Difficulty]

[Operator Instructions] We now have the line for the speaker reconnected, over to you, sir.

Thank you. Sorry for that disconnection. There was some line problem. And so I was talking about the Aster Labs and pharmacy distribution. So 130 pharmacies in India during this financial year. We have already established some 30 pharmacies. So it's on track. By the end of the financial year, we'll have 21 Aster Labs and 200-patient experience centers each, again is on track. This along with Aster Home Care and teleconsultation platform being rolled out, shall give us an omni-channel offering to the people, connecting them to the hospital with a single ecosystem. So that's the whole plan what we are looking forward to. It is not only the hospital. It's -- along with that, we are going to have each network across which will help us to have the ecosystem of people coming in for primary to quaternary care. The quarter also saw some other important things like the facilitation for Aster. See as a company, we get a lot of awards. And I'm happy that we were honored with the prestigious Harvard Business Council, international award 2021 for dealing with COVID and also the innovation areas, which we could pass along with that. There were many other awards that we have procured on the individual hospitals during this period. While closing, I would like to highlight two things: one, the focus on India; two, the focus on digital transformation. I've already given you a flavor of the focus on India as a growth market for Aster. We just started paying rich dividends. We have invested significant amount in India and are now beginning to set the assets and getting the full benefit out of it. I hope that India will start contributing a much larger share of revenue and profits in the future with ramping up of the hospital and the exponential power unleashed by starting up the lab pharmacy and the other associated things which I described. The second is digital transformation, which is going to have a huge long-term impact on our company. And this is one area we are really focusing. We have started the journey with, Brandon, as our consultant. This will transform Aster into a digital healthcare company in the future. I now request the Deputy Managing Director, Alisha Moopen, to talk to you on the digital transformation journey and other initiatives undertaken at Aster. Thank you very much.

I think Alisha is disconnected. Can we try and give you a connection again?

Ms. Alisha Moopen, we are not able to hear you.

I think she is not connected. I'm going to chat with her. She just messaged that she has been disconnecting. Can you try and alert her, please?

Ok. Sure.

In the stake of optimism, we've had a good quarter. We continue our effort to make Aster a more...

Sorry to interrupt, Ms. Moopen. We lost the initial remarks. May you please start?

Thank you, Chairman. Good morning, everyone. Echoing the spirit of optimism, we have had a good quarter. We continue our effort to make Aster more future-ready and better experience of patient care. We continue to remain committed to our digital journey. We've been making some wide strategic investments in bolstering our digital backbone. On our digital pursuits, we continue working to create our digital assets, which are foundational, efficient and help us expand quickly in an asset-light model. As I shared in the last quarter, we are investing in creating an app One Aster, which will be our unified mode of engagement with our patient links for their wellness. This will help to reconsult e-pharmacy, home health, e-diagnostics, chronic disease management and creating very streams to support patient wellness. We will be launching the first version of our virtual care app in Q2 at UAE level and we are actively working on the e-pharmacy buildup. This will mark our omni-channel presence across a wider base of patient care. We will be launching wave 1 in GCC, followed by the launch in India later in the year. We have hired a CEO to head our digital business across locations. Investments are made to create a digital organization to sponsor all our ambitions. We have till date invested almost INR 21 cores in digital investments. Riding on the back of digitization, we've also set up our Aster Global delivery center in Bangalore and Calicut with Shared Services today houses around 180 employees, master Center of Excellence in UAE. Early signs are very supportive of our strategic intent of leveraging the human capital in India. We have also had a strong focus on data analysis and digital CRM. So again, looking back at our patient base and seeing what are the necessary services relevant for more personalized care and action. We are trying to enhance and strengthen our patient connect looking at how we can further improve the patient journey. The Phase 1 of our Aster Hospital came in Medcity has also received the Central Planning Authority approval on a planned area development for the 150-bed hospital. Construction of the hospital should commence soon as well. I will now request our group CFO, Sreenath Reddy, to take you through the details of the financials as well as the segmental performance for the quarter. Thank you so much.

Thank you, Alisha. Good day, everyone. We start the financial year with a relatively better quarter, both in GCC and India. The quarter saw higher patient count in GCC and better hospital utilization in India. For Q1 FY '22, our revenue from operations has increased to INR 2,372 crores compared to the FY '21 Q1 revenue of INR 1,747 crores. On a year-on-year basis, revenue increased by 36% and corresponding constant currency increase [indiscernible]. In India, the revenues have increased by 84% year-on-year with occupancy levels of 70%, with outpatient and inpatient count increasing by 42% and 38%, respectively. The revenue in GCC has increased by 26%. The outpatient count and inpatient count have increased by 84% and 10%, respectively. GCC contributes to 77% of total revenue whereas India revenue contribution to the remaining 23%. In Q1 FY '22, we have reported consolidated EBITDA of INR 281 crores, an increase of 97% compared to FY '21 Q1 EBITDA of INR 143 crores. GCC EBITDA contribution was 75% of total EBITDA and India EBITDA contribution was the remaining 25%. EBITDA margin in Q1 FY '22 was 11.8% as against 8.2% in Q1 FY '21, an increase of around 360 basis points. PAT post-NCI increased to INR 44 crores as compared to a loss of INR 83 crores in quarter 1 FY '21. PAT for the quarter is after considering onetime charge on account of fair value [indiscernible] in FY '20, amounting to INR 16 crores and expense with respect to digital initiatives amounting to INR 8 crores. This has impacted the non-annualized EPS. Eliminating the impact of these expenses, the non-annualized EPS for the quarter would have been INR 1.37 per share instead of the reported INR 0.89 per share. Coming to the segmental performance for the quarter. GCC hospital revenue has increased by 23% from INR 686 crores in Q1 FY '21 to INR 842 crores in Q1 FY '22. The EBITDA increased by 27% year-on-year to INR 130 crores in Q1 FY '22. The EBITDA margin increased from 14.9% in Q1 FY '21 to 15.4% in Q1 FY '22. Last year, same quarter, clinics had a lower footfall due to COVID, which made us reset across this. This quarter, the revenue is at INR 550 crores compared to INR 356 crores in quarter 1 FY '21, an increase of 55%. EBITDA for quarter 1 FY '22 is at INR 100 crores compared to INR 15 crores in Q1 FY '21. The EBITDA margin increased to 18.3% in quarter 1 FY '22 compared to 4.3% in the same period previous financial year. We have been seeing an uptick in revenue of GCC pharmacies and also in preparation for the upcoming Expo 2020, certain ahead of time investments have been made in human capital, which have impacted the operating margin during this quarter. In India, we have seen significant jump in terms of both revenue and profitability. Hospitals in India are now reaching mature state, thereby absorbing improving margin. India's share of revenue to the total group revenue has gone up to 23% compared to 17% in Q1 FY '21. Revenue for the quarter from India operations is INR 550 crores with an EBITDA of INR 71 crores and a margin of 12.9%. We expect these trends to continue as hospital attain maturity in India. In India, the vaccination revenue for the quarter was at INR 31.84 crores. Coming to the balance sheet. The group net debt stands at INR 2,021 crores as at 30th June 2021 compared to INR 2,004 crores as at 31st March 2021, which is an increase of INR 17 crores. The breakup of net debt, India stands at INR 314 crores compared to INR 306 crores as at 31st March 2021, and the GCC net debt stands at $230 million, a reduction of $2 million compared to 31st March 2021. On that note, I conclude my opening remarks. We would be happy to give you our perspective on any questions that you may have. I now request the operator on this call to open the question-and-answer session. Thank you.

[Operator Instructions] The first question is from the line of Aditya Khemka from InCred AMC.

Am I audible?

Yes, yes. We can hear.

Okay. Okay. So my question is we are obviously one of the larger hospital chains listed in India. And we are becoming larger with the CapEx that we are doing in India, in Cayman. The problem that I face as a shareholder or as a potential shareholder, is that it's becoming more and more complex to analyze the company given the different moving parts that we have. We have 3, 4 parts in GCC. Now we'll have a part in Cayman. We have multiple centers in India and then the digital mission that you have on India, you have the labs, the clinics. Is there -- and the pharmacy in India. So is there a thought in the management to sort of demerge these businesses to make it simpler for a layman to understand, analyze the business model and to maybe unlock some potential shareholder value from your -- for the shareholders? That's my first question.

So that's a very good question. We also understand with the challenge and the last 4 years, we have been listed and found that the India investors, the fund managers as well as everybody for that matter finds it difficult to understand because it's a complex business. We run hospitals, clinics, pharmacies, in many geographies and different types of hospitals like not at least in the UAE. So there is a -- it's a complex business, like what you said with the increase in -- I mean complexity coming into India also with the pharmacy as well as with the labs and all. So definitely, we feel that there is a requirement for us to have some method by which these two are differently looked by the investors. So we are looking at ways in which we are in discussion to have that opportunity to have -- we know that the business in India is doing very well. That asset, if it looks by India industries, will be valued at a much better way rather than when they look at the GCC also along with that. So you have asked a very, very pertinent question. This is on the top of our mind as a priority, and we are looking at ways in which this can be done in the near future.

Sir, for how long has this deliberation been going on inside the company? Because your stock price -- you have been listed for 4 years now. Your stock price has better much told you that this confusion has been there for the past 4 years in the investors' mind and they cannot properly value you because of this confusion. So for how long have you been deliberating this? And my -- the reason for asking this question is to get a sense of when you say near future, I mean, are we talking a few months? Are we talking a few years, a few quarters?

Yes. So we have been -- see, first 2 years after we got listed, we thought that, as you may be aware, all the analysts, everybody were giving very high buying for this stock, they were actually because they go deep into it. [indiscernible] of the stock they are giving very high -- they were actually in the -- from the very beginning. It even now continues to [indiscernible] who have to invest, they don't want to [indiscernible] India. They don't want to look at for something which they don't know fully. So that's the reason. So answering your question, yes, it will -- it's in the midterm, it won't be too far away, and it's not immediate also. But within next few -- I mean, quarters, I think we'll be able to, I mean, come to some way in which this can be discovered -- the value can be discovered.

And sir, why would it take us a few quarters? What is it that we are working on to arrive at that decision? What is the hurdle?

I don't want to talk about that now because this is a matter which we have to now -- it's a listed company and we also -- I won't be able to tell. But what I can tell you is that this is on top of our agenda and we won't take too much time to take a decision and move forward.

Understood. Sir, as long as it is top of your mind, and it is a top priority, I think your shareholders will really, really appreciate that. Second question is, sir, on the capital expenditure that we are doing in Cayman and again, so health care for change like us globally is obviously an infinite opportunity where there is a lot of opportunity for us to open hospitals and to create affordable healthcare for the patients. However, what we also see is when hospital chains go on expansion spree like the one you are on, it basically puts a lot of stress on cash flow. As we can see in this quarter, there hasn't been any material cash flow despite a very profitable business with the GCC and India business doing well. So the problem that happens when you go on expansion spree is, you stretch your balance sheet, you stretch your P&L beyond this particular point. And that, again, isn't something that the investors are not very happy with because end of the day when we buy an asset, we buy the cash flow. And there is no cash flow today because we keep reinvesting what you generate. So what is the capital allocation policy you guys are looking at? I mean is there a end to this capital expenditure funnel? Or is it that we are just going to keep reinvesting what we make and keep becoming a more larger asset rather than a cash-generating machine? I mean what is the thought processes? That was my question.

Sreenath, would you like to answer that?

Yes. So I can answer that. So yes, you are right that increasing the CapEx definitely put pressure on the balance sheet. But the way we are looking at it is that, see, you are aware that we are in two geographies, India and the GCC. So in GCC, going forward, we don't want to expand much. Our focus is going to be in India. So -- but having said that, we would like to have some growth coming from the GCC region. The reason is that it gives us good cash. So one geography, which is similar to the GCC market, or I can say is slightly better compared to the GCC market is Cayman Islands. And therefore, Cayman Islands is an extension of the GCC. And the project cost for this particular venture -- we are looking at various ways of funding it. So it is not that we will leverage the balance sheet. To some extent, we are also looking at whether we can partner with some healthcare player or an insurance player from the U.S. to be part of this particular venture. But having said that, this particular project in Cayman -- because that is one of our peers over there, who is doing well. And therefore, we are confident that irrespective of whether there is a partner or not, this particular project, even though we invest the capital over a period of next 2.5 years, will give us a good return. So in GCC, will not find us investing significant capital going forward because any capital that we're going to invest is going to be more on the asset-light models like the clinics and pharmacies, which will not take much of the capital. So now the focus is going to be more in India, and the capital allocation in India will be higher compared to the GCC geography. And adding on, it is not that we'll continue the capital expenditure-free. It is -- because in GCC, on the CapEx side, we will be going a little bit slow. India, we would like to continue to add assets, but we will have a balance. It's not that we will continue incurring significant CapEx. We will have a balance on that.

Understood. I will just conclude by giving you one remark, and this is my opinion. The highest valued businesses in India have two common characteristics across businesses. One, they are easy to understand, they are simple business structures. They don't have 2, 3, 4, 5 lines of businesses. And two, they're cash generative. Even though the growth may be slightly lower, they generate a lot of cash -- free cash flow after capital expenditure. That's something I just wanted to highlight and even bring to the management's notice.

They were pretty insightful and we will definitely -- we are aware that we will definitely look at both these.

The next question is from the line of Amit Khetan from Laburnum Capital.

So my first question is on the margins. Could you give us some sense of what are the long-term sustainable margins for each of the key lines of business. So you have GCC hospitals, you have GCC pharmacy and GCC clinics as well as the India business. I understand that currently, the margins may be a bit suppressed because of COVID and because of many of the hospitals are not yet mature. But could you give some sense of what the long-term margins could be in each of these lines?

Yes. So GCC Hospital -- sorry. Is someone answering? Yes. Okay. Sreenath here. So in terms of -- there is an echo. We'd request people to put the phones on the mute.

[Operator Instructions]

So GCC hospitals, we are looking at a margin -- a steady-state margin of around 18% to 20%. Similarly, the clinics, we are looking at around 18% and pharmacies, the margin -- the EBITDA margin will be around 9% to 10%. And India hospitals, at this point of time, we are at 14.3%. But we are confident that this margin in the next couple of quarters will steadily keep increasing. And on a steady state, hospitals in India can have an EBITDA margin of 20% to 25%. But as you are aware, at any point of time, we will be having some project -- new projects, which will be a drag on the margins on the profitability. So on a consolidated basis, India hospitals considering the new hospitals can be anywhere around 17% to 18%.

Got it. And these would be post NDS, right?

Yes, these are post-NDS, yes.

Got it. Got it. And my second question is your India strategy page, right? If I look at your investor presentation, it mentions that the focus will be on large format hospitals in Tier 1 cities. But if I look at your pipeline of projects, you put your Chennai and the Bangalore Hospital on hold and you are expanding in Kolhapur and Kottakkal. So is there a change in your strategy here?

Yes. So there is no change in the strategy. But if you look at Kottakkal and Kolhapur, these are already existing hospitals, which are already there. And you are aware that if any addition to the existing hospital will give us better returns in terms of profitability. And both these places are doing fairly well. And we are pretty confident that by adding this -- because the fixed costs are already there. So it will give us better margin.

I just want to comment here. So there is a point in what you said. So some time back, we were talking about just hospitals, like what I mentioned in my speech. There is a focus now on the other areas to create an ecosystem of the pharmacies, labs and also expansion of the existing hospitals, which already have [indiscernible] because it will be straightaway increasing the collection which goes into the bottom line. So while we are not aggressively looking at other metros and looking at the large hospitals in metro -- because that requires huge capital again, it goes to the question of again bringing in CapEx. So we are going for an asset-light model, like our -- all the assets mature, and we are on to that level of ramped-up state of 25% to 30% EBITDA in India, which will give us that opportunity to go into larger projects in the larger cities.

Got it. Got it. And lastly, could you share the July occupancy level for both the India and the GCC hospitals?

Sreenath?

The July numbers, we will get back. Yes, we will get back to you.

The next question is from the line of Rajat Srivastava from InCred AMC.

So my first question is on the India business. I see that our new hospitals, which are 0 to 3 years old, they are running at a higher occupancy level than the mature hospitals, that is hospitals which are more than 3-plus years old. And ARPU also are higher, right? The ARPU for new hospitals is around INR 32,000 while for mature hospitals is around INR 30,000. But still, when I look at the EBITDA margins, the EBITDA margin for new hospitals is around 10% and for the mature hospitals around 17%. May I know why is there a difference between the 2? Like where is the headroom for expansion and the EBITDA margin going ahead in the new hospitals? Because occupancy levels of 75% in any which way is the very good occupancy that we do have.

Yes, Rajat, Dr. Harish here. So when you look at the three assets, which you said is a ramp up, so two of them are in Bangalore and one is in Kannur. So when the first question you asked is about occupancy level, so the Kannur project has been extremely unusual that it's a peak occupancy that we have almost run out of bed in comparison to the Bangalore unit. So that is why when you look at overall, the occupancy level of 2, 3 assets, look at 75% in compared to the rest of the mature units. Now the other question is to do with ARPU. So the ARPU of the two Bangalore assets are much higher compared to the Kannur assets. So when you look at the category of three, it just looks like that the ARPU of the cluster of 3 units is much higher than the other units in India. So yes, the third question is in terms of margin improvement. So these -- the 3 units are just settling down in terms of -- like I spoke about the Kannur unit because now the entire focus on cost efficiency. So we will be realizing the results in the couple of quarters coming up. One asset, which is already there in Bangalore, it's really settled down well. So that's coming up, whereas the Whitefield unit is brand new. So it just ramping up. That's a small boutique facility, which we have built for women and child. So that's -- so yes, in the next few quarters, the margin improvement in these three assets will be much more than what it is right now.

Okay. And sir, internally, what is the peak EBITDA margins you are looking at for the India hospital business?

So this question was answered by the CFO earlier. At a steady state, we are looking at consolidated India business at about 17%. That's mainly because, as I mentioned, we have the three assets already there, which are in the ramp-up stage. But if you look at individually at the mixture, the cluster what we have in the mature hospitals, it is at high teens compared to the others. So overall, it will be steady state, maybe around 16% to 17%.

All right. And sir, just trying to understand the India business of better. May I know what was the thought process behind Aster DM targeting Tier 2 cities post and then moving to Tier 1 cities? Because from what I gather is getting good talent in Tier 2 cities like good doctors is very hard because good doctors like the star doctors generally prefer to stay in Tier 1 city. So what was your thought process behind going after Tier 1 -- Tier 2 cities fast?

So when you look at the evolution of the growth in India, the first asset, which we had was the Calicut hospital, which is the Malabar Institute of Medical Sciences. And we are currently the largest players in the state of Kerala. Now the ecosystem in Kerala is that being India's most literal state, the availability of healthcare workers in the state is so high that it's a net supplier of healthcare manpower to the rest of the country and even overseas. So we have never felt that kind of crunch where the state of Kerala is concerned. The other example in terms of Tier 2 is that our asset in Kolhapur. Now Kolhapur is also pretty interesting socioeconomic mix that it is also one of the richest districts in the state of Maharashtra with its own availability of locally based healthcare workers. So we have not really faced manpower crunch in the geographies where we operate right now.

All right. And sir, one last question from my side. In the results press release, we mentioned unallocated assets of around INR 1,000 crores. May I know what is that attributed to?

Sreenath?

Sreenath?

Yes. So just give me a minute, I'll get back on that. Just give me a minute. We'll go to the next question after that next question, I'll be back.

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

Just the first one is on just the EBITDA margins for India. We see 2, 3 numbers, so maybe you can clarify [indiscernible] as EBITDA. If I look at the previous [indiscernible] and so what's the right number? And is it a function of the labs and the clinics being added in months and not in the other, if you can clarify that?

Dr. Harish?

Yes. So that -- the one number when you looked at the INR 79 crores, that is before the corporate expenses in India.

Okay. And -- but it also includes [indiscernible]

Yes, because some of it is -- our clinic presence is rather small. But yes, clinics and the labs are also included because they are in the start-up mode, especially the labs.

Got it. And Dr. Harish when you say 17%, assuming this 14% versus 17% be corporate overhead expense. That's where we should be looking at, right?

Yes, that's right.

Okay. Got it. That's helpful. Dr. Harish again, second question that is from the state of the pandemic in Kerala right? Any thoughts around the high persistent numbers? And what are you seeing in your hospitals in terms of -- is it a variant? Is it a different ingredient? What explains this? Kerala has also one of the toughest lockdowns. So from your experience, what do you think is happening?

So Shyam, this is actually a classical case of misinterpretation and misreporting in India. I'm honestly quite disappointed at the quality of media that we don't have a carder of epidemiologists who assess data. You see the fact of the matter is that if you look at per 1,000 people from a population statistics point of view, the state of Kerala is testing much more than the rest of India. Obviously, if you test more, you will pick up much more cases compared to any other state in India, number one. If you look at the ICMR seroprevalence survey, it has clearly shown that the level of infectivity of the entire population is much less. It's around 43% on a -- even if you look at it on a pan-India basis for Kerala. And even the population group, which has turned positive, it's all to do with vaccination. So if you look at right now, the state -- the actual state and the status on the ground is that, it is quite -- life is almost as normal, like this next week, Onam is going to be there. And the kind of calibrated strategy, which there following the state government, is on -- to look at resuming of economic activities and also looking at micro lockdowns, looking at where is the concentration of pandemic cluster and focus on zoning that area rather than on a pan-statewide. So we are quite comfortable because interestingly, when you look at hospital occupancy data of COVID, it is more or less in line with what we spoke about during the second wave, which was in quarter 1, the occupancy of COVID numbers was quite high than post quarter 1 in the month of July, the occupancy of COVID numbers came down. And we are following the general pattern. It's just that because the testing is much more, the public infrastructure in Kerala is probably the best in the country. And that is why you're finding these numbers, which unfortunately are wrongly interpreted.

Got it. And I needed one last data point on India side. What's the revenue we have bought from vaccinations?

So this was already mentioned by the CFO. We are looking -- we had already cropped in a revenue of INR 31.84 crores. This is looking at an administration of 380,000 doses.

Okay. So the INR 550 crore includes INR 31 crores, INR 32 crores?

Yes, INR 550 crores includes that, yes.

Got it. Just one last on GCC pharmacy, right? We have called out for about 10% margins aspirational. But I'm just looking at growth also of all the 3, 4 formats we have, it seems to be 1 underperforming. I'm just looking like a 2-year CAGR, even Y-o-Y this year is the slowest growing of a very weak base. So are we running with all the restructuring and the changes that we have been doing here? And when will we likely see a better margins?

Yes. Alisha, you would like to answer that regarding GCC?

Yes. Sure. Yes. So you're right. We have been having a little bit of a slow growth in the retail, especially on the pharmacy side. But like what Chairman had mentioned in the opening remarks, we are seeing sort of footfall coming back and kind of getting restored back to 2019 levels, even at the pharmacy right now. So we're pretty much at that level. And sort of the estimate is that by the end of this financial year, we would be able to see, again, a healthier CAGR and footfall growth is coming up. And as I mentioned on the digital CRM, we are doing a lot of activations just to make sure that the connection between the hospitals, clinics, pharmacies, will sort of drive footfall. We've got the Expo coming up. So we're quite positive about what the next 2, 3 quarters will look like. So we should be able to see a different trend than what we have seen over the last 18 months.

The next question is from the line of Anmol Ganjoo from JM Financial.

So maybe a couple of questions. If you look at the GCC pharmacy revenues, what do you attribute the sharp sequential fall to 35%? Have you guys been losing market share to e-pharmacies or there is something else at play here?

Yes. So the large part... [Technical Difficulty]

Ms. Alisha Moopen, we are not able to hear you.

I think she got disconnected. Can you connect her again please?

Yes. Sure.

Or Amitabh, you can take that.

Sure. So since you asked a question about the sequential drop in revenue. The quarter 1 for this financial year has a holiday. So it pretty much had a 7- to 8-day downtime which leads to a slower footfall in this period and people go on vacation. And as a result, the revenue takes a bit of a beating in this quarter. Historically, also this has been the same trend. But as of now, we don't see a challenge about the upcoming quarters because we've seen the footfall gradually rising over the recent past.

Yes. So basically, I was trying to correlate it with Alisha's opening comments, where she said that we're looking to do omni-channel and e-pharmacies. So just 2 questions, just dive into this one, is that from a market landscape standpoint, are you seeing acceleration for e-pharmacies and therefore, the digital initiatives are to protect the existing market share, especially in the GCC markets? Or it's just -- or you're trying to play catch up or there is a real e-pharmacy focus where you really think you can reasonably create value in line with what's been happening elsewhere? And does India anywhere stand in that picture of e-pharmacy rollout from an omni-channel or a pure-play pharmacy model?

Sure. So let me try and answer that. So on the e-pharmacy side, we do believe that there is a need of an omni-channel and Aster has a unique advantage because we have clinics, we have hospitals, and we're also actively trying to get into diagnostics. So our omni-channel where we can provide both timing in the tertiary care as well as provide pharmacy support through a same app, if something that is perhaps the way we can create more opportunities of customer care for ourselves. We do believe that there is an opportunity sitting over there. There is a brick-and-mortar plus, as we call it say, a brick-and-click approach where there is e-pharmacies, which are on-site pharmacies as well as the digital model that will allow us to engage with our patient base. That was an answer to your first question. On your second question, yes, there is an active plan to take the e-pharmacy to India also because here, again, we are trying to expand the pharmacy base and that pharmacy base would be complemented by an app whereas both the pharmacy as well as the e-pharmacy will coexist to provide the retail for pharma and the non-pharma supply to our patients.

Just wanted to add here, you asked a very pertinent question. So we are not playing a catch-up gain in GCC. In GCC, in fact, there aren't too many players into the e-pharmacy space; whereas in India, yes, there are established players. And what we are doing is that we are coming with physical pharmacies and adding e-pharmacy on to that. Whereas here, we have an established chain of physical pharmacies, and we want to leverage that. In fact, we are in discussion with many of the major e-commerce players to be along with them as well as starting our own activity in the same area to get that traction. So here there was a definite advantage of being in the forefront when it comes to e-pharmacy.

Right. Would you have any number as on to what the e-pharmacy penetration in GCC or the representative markets today is versus what it was pre-pandemic? Because in India also, we've seen a fairly sharp acceleration in that penetration. So just curious in terms of how various markets are behaving.

Yes. I won't be able to tell that. Alisha, are you there?

Yes. I am back. So like what Chairman and Amitabh mentioned, we do have a unique advantage. We are the only one player who is able to kind of close this loop on clinical services as well as on the pharmacy. There's -- it's not been as accelerated as you've been seeing in the India landscape. So we do have -- we are probably much ahead of the game here. We already have almost 8% to 10% of our orders that are coming through some sort of digital form, whether it is online, whether it is WhatsApp, whether it is a phone call, so some sort of technology intervention that's happening. So we wanted to make sure we continue to take that market leadership and then build on this asset and then bring it across the India. But we don't have the exact percentage of what the e-commerce one, looks like it's not very intense right now. So we wanted to make sure we continue leading it.

My second question is around diagnostics. So that's again a piece that you've been talking about and as a value creator. I just wanted to understand what are the key monitorables here? Where are we in that journey? And what's the game plan here with any defined time lines as on to when we see scale up in that business to be called out separately?

Dr. Harish, you would like to answer that?

So as you know that we have already -- see, our model in India is fairly simple. We went about establishing our state-of-the-art reference lab in Bangalore, which covers most of the basic bread and butter specialties and also added up with high-end specialties. We were quite fortunate that quarter 1 2020, our reference lab was one of the first in the state of Karnataka to get both ICMR and NABL approval for RT-PCR testing. So that ramped up quite nicely. Now we are looking at genome sequencing and how we can participate in that. Parallel to that, the lab team also looked at consolidating the existing labs within the hospital, what we call as HLM Ventures. And at the same time, of course, the strategic outlook was parallelly to look at B2B and B2C models where we can look at the non-Aster opportunity, which is out there. So following that track, we had established [indiscernible] labs. Already, we have 4 [indiscernible] labs. But the big focus is bottom of the pyramid, what we call it the patient experience centers, and this has already alluded to in the Chairman's opening remarks. So we are currently looking at this fiscal of a big bang approach to increase the number of franchisee centers across the network so that we can sweat the assets, both in the reference lab and also the main unit what we have. The number what we are targeting this financial year with is 200-patient experience centers. So I feel that this kind of -- it's a pretty simple and an elegant strategy. It will really help us not just consolidation, but improve margins significantly in this space.

Right. Right. So I would love to have further details on that in terms of 200-experience centers. What's the revenue outlook with respect to that? I know it's slightly early, but we can probably take it offline in terms of how is the rollout looking like? My last question before I get back into the queue is...

We have a person joined who is from [indiscernible] who is driving this. His name is [indiscernible] he will be available for any -- I mean, if you would like to get any of that time so we can connect definitely.

Perfect. That's helpful. And my last question is on the India hospitals. So basically, if you were to triangulate all 3 variables loss or occupancy, with the current installed bed capacity and with no major CapEx, how much can the quarterly run rate ramp up by relative to this quarter? I know that for individual hospitals, there are [indiscernible] and you might not be able to share things for competitive reasons also. But how much of a quarterly run rate upside do you see to current numbers?

So let me put it this way that, I mean, obviously, I wouldn't like to make a forward-looking statement. But if you look at our occupancy levels for quarter 1, it's already at 70%. And out of that 70%, yes, we had a share of COVID occupancy also. But when you look at quarter 2, the ramp-up of non-COVID business has been quite significant across the geography. So we are looking at the similar kind of a steady-state performance of what we saw in quarter 1, despite the COVID numbers coming down in comparison to quarter 1.

Hello?

Am I audible? Did you hear what I said?

I missed the last sentence.

So we are -- what I said is that even though the COVID occupancy has come down from quarter 1, there has been a significant ramp up of non-COVID business across the geography. So we are looking at a steady-state performance on par with quarter 1, where the margins will look better because obviously, COVID impacts a certain case mix and the material consumption due to COVID is much more. When the COVID numbers relatively come down, the margins will also look relatively better.

The next question is from the line of Harith Ahamed from Spark Capital Advisors.

My first question is on the GCC clinics business. So just trying to understand the recovery here, excluding the RT-PCR revenues. So the OPD volumes here is what percent of pre-COVID levels currently? And then we've heard that in certain specialties like pediatrics, which is very important for the business, the volumes are -- were low in the previous few quarters. So how are things shaping up here?

I will answer that. So we've seen some recovery on the clinics, which has happened primarily because of the RT-PCR. But also when you look at the profitability, a lot of them having the cost optimization measures. When you look at the footfall volume for this quarter, what we are seeing is where it had dropped down to almost 40%, now we're probably just 15%, 20% below as far as Aster is concerned. It's been a little bit more steep in terms of footfall reduction in Aster just because that is the population that had shrunk in the market. But again, with the Expo coming, we are seeing sort of a -- it's also been a little bit of a challenge because the boarders have been close to India. So now again, we have seen the relaxation of the travel restriction. So our assumption is that the population on that base of the pyramid, which had dropped during just at the wave 1 and wave 2 of the COVID, will get restored in the population and we will be seeing an increase in the Aster. So Aster levels, going back to your question, things are pretty much 15% to 20% only below what it was, and we're seeing a steady trend especially this quarter, and we expect the Aster's numbers also to sort of come up in the next couple of quarters.

Okay. And on the pharma distribution side in India, we recently announced an acquisition of a small entity here. So can you talk a bit more about our plans here? And should we look at more addition of distributors and front-end stores on this part of the business?

Dr. Harish?

Yes. So we have -- as announced to the stock exchanges, we have acquired an existing player in the Bangalore market, which has already been supplying to our Bangalore cluster hospital. So there is already an existing relationship with them. So the way we are looking at is leveraging their USPs and know-how in the supply chain logistics space to extend this, not just to the hospital but to the growing retail activity, both in the diagnostic space as well as in the pharmacies. So we are working closely with them to extend their geographies beyond Karnataka to Kerala and other places. So this is something, which is a work in progress at this stage. There is also a technology bit where we are also looking at. There is an ongoing ERP integration work, which is happening both for finance and supply chain. So we are looking at efficiencies brought in, which will also improve operating margins for the larger business through this acuity.

Any targets in terms of number of stores that we would like to have from a 2-year or 3-year perspective on the pharmacy side?

So for this fiscal, we have already announced 130 of which as Chairman has already alluded to. We have already have 30 stores, which are already operational in the Bangalore cluster. And in Phase II, we are entering Kerala, after which we will go to other parts. So we are only entering geographies where there is a certain brand equity, and that is what Chairman's opening remarks were that the strategy for India is to unlock value through an integrated care delivery platform, which will connect hospitals, clinics, diagnostic chain, the pharmacy and home care. So that is what our GCC CFO, Amitabh, also alluded the click-and-brick model of healthcare.

Okay. And then last one from my side on Cayman. So what are the time lines we are looking at in terms of commissioning of hospital here and your peer in India, who has had a head start in this geography operating hospital for the last 4 or 5 years. They have announced expansion and then that should be online by next year. So how should we think of the competitive intensity here given it's a small market, even if you include the neighboring Caribbean islands? So what are your thoughts on this?

Alisha, you would like to take that question?

Chairman, I think Alisha disconnected. Sreenath, can I request you to take on this question?

Yes. I can then answer. So we know that the plans of our, I mean, peer group who are there. So we were aware about it even when we went in. But we see an opportunity to be slightly different from what is being done by or is certainly doing the business there. So it's not for the local call, the Cayman. We are looking more for getting patients from U.S. It's a huge opportunity. So that's a huge opportunity that attracted us to Cayman. It's not the Cayman assets or the Caribbean Islands. It is the Mainland, U.S. as well as other places like Canada, which has got significant potential. So our whole focus, we have already started strategizing for getting patients from those geographies. And it will be very easy to fill up the hospital as well as to get good revenues and good profits if we are able to -- I mean make it successful. So that process has been started. In fact, we have in our -- I mean, a senior functionary taken people who have exposure to this and who are certainly in Aster working for the corporate in areas like service excellence as well as in areas like digital transformation. The person, who is in service excellence, David Boucher, has been a CEO of many hospitals in U.S. as well as being the head of service excellence for Bumrungrad Hospital in Bangkok. So he is looking at how medical value travel can be, I mean, made to India as well as to our GCC hospitals. And later, when he goes on to hospital sides in Cayman, there to Caribbean. So answering your question, Harith, the idea is to look at patients who can be attracted from the mainland and look at specialties which are more pertaining to that requirement. And that is what we are looking at.

The next question is from the line of Monika Sharma, an investor. As there is no response from the current participant, this was the last question. I now hand the conference over to the management for their closing comments.

Yes, one second, before the closing comments, there was a question related to occupancy for the month of July. So in India, the occupancy is at 65%. In GCC, it is at 50%. And there was another question related to unallocated assets in the control statement of INR 1,050 crores. So this relates to the Sharjah Hospital which is in the UAE. So it's still under construction and also relates to the land, which is in India, which is in some of our companies, which is not directly linked to our hospital. So in fact, we are looking at monetizing some of these lands, which are in the management company -- in various companies. So that is one way of monetizing those assets. And also the tax asset related to the advanced tax and deferred tax also forms part of it.

Thank you Sreenath, for clarifications. Thank you, everyone. Thanks a lot for a very active participation and the very good questions. And we look forward to meet you for the next quarter and hope that the business will look up, and we have taken your suggestions as well as very positively your questions. Thank you very much. Thanks a lot.

Thank you. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.