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

We'll get started now. Good morning, everyone. My name is Saurabh Paliwal, and I welcome you to Aster DM Healthcare's Q3 FY '22 Earnings Conference Call. We declared our results last evening. Hope you got a chance to review them along with the other materials which were released to the stock exchange as well as uploaded on our website. Today, we'll discuss this quarter's performance and future business outlook. We have the senior management team at Aster DM. It includes Dr. Azad Moopen, Chairman and Managing Director; Ms. Alisha Moopen, our Deputy Managing Director; Mr. T.J. Wilson, Executive Director and Group Head, Dominance and Corporate Affairs; Mr. Sreenath Reddy, Group Chief Financial Officer; Mr. Amitabh Johri, Chief Financial Officer, GCC; and Mr. Sunil Kumar, who is the Head of Finance for India. I would also want to take this opportunity to remind everyone on how we will conduct the call. [Operator Instructions] We will start the call with opening remarks by the management, followed by an interactive Q&A session. [Operator Instructions] Finally, the safe harbor related to this earnings conference call. Certain statements that may be discussed in this meeting that are not historical facts might be forward-looking statements. Such forward-looking statements are subject to risks and uncertainties like government actions, local political or economic developments, technological risks and many other factors that could cause actual results to differ materially from those contemplated by the relevant forward-looking statements. Aster DM Healthcare Limited will not be in any way responsible for any action taken based on such statements and undertakes no obligation to publicly update those forward-looking statements to reflect subsequent demands or circumstances. With this, I would ask Dr. Moopen to start with his opening remarks. Over to you, sir.

Thank you, Saurabh. Thank you. Good morning, everyone. Thank you all for joining our financial year '22 quarter 3 earnings call today. Yes, just as we thought that the global COVID cases were coming to an end, the Omicron was reported in November '21 as a variant of concern by WHO. It spread rapidly around the world, including in India and GCC, as it was found to have high transmissibility but is less virulent than previous strains, producing only minor illnesses in most cases. The large number of health care workers getting it had created some challenges in manning our facilities, but luckily they didn't produce major disruption as hospitalizations of patients were less. With vaccination coverage improving to 75% of adult population in India and almost 100% in the UAE and other GCC countries where we are present, we appear to be in a good place. COVID is predicted to become an endemic disease like influenza soon, God forbid, or another potent variant is created through mutation. I sincerely hope and pray that we are seeing the light at the end of the tunnel and are getting back to normal life soon. There has been significant volatility in the financial performance for some of the health care providers in India and GCC during the last 2 years. However, Aster didn't have major swings except in quarter 1 and quarter 2 of last financial year. Looking at the performance for the 3 quarters in '21/'22, we have come out of the impact of COVID during the financial year. There has been good growth in revenue and profits in this financial year, especially in India. For the quarter ended December 31, 2021, at a consolidated level, we posted a revenue of INR 2,650 crores, which is an increase of 19% when compared with the same period last financial year. The Q3 EBITDA was INR 397 crores, an increase of 21% when compared with the same period last financial year. The profit after tax post NCI was INR 148 crores, an increase of 61% when compared with quarter 3 financial year 1. With respect to the GCC business, revenues grew by 15% on year-on-year to INR 2,032 crores. EBITDA increased to INR 296 crores as compared to INR 277 crores in the same period last financial year. The Aster India business, however, is growing very well with revenue growth of 34% to INR 618 crores, and EBITDA increased by 100% to INR 102 crores as compared to the same period last financial year. EBITDA margins improved from 11% in quarter 3 financial year '21 to 16.4% in quarter 3 financial year '22. During this quarter, after our HR -- new HR head, the Saurabh Paliwal joined, we commissioned an external advisory firm to conduct a financial community perception research study of Aster. The objective to commission the study was to utilize the filings towards strategic course corrections with the enhancement of communication and disclosures to the financial community and to look at realignments with the -- which the financial community thought would be best in the interest of Aster and its stakeholders. I thank all respondents for their feedback and would like to highlight the following. First and foremost, increasing share of India business revenues remains our topmost priority. At the same time, we continue to focus on better sweating of our assets in India. This is evident from the growth in revenue and EBITDA margins year-on-year, especially in India. India contributed 27% of the group EBITDA YTD. The strategy is to grow the India business to a level where it would be contributing 40% to 50% of the overall revenue and EBITDA in the next 4 years. Regarding liquidating our noncore nonperforming assets in GCC, few discussions have happened and some progress has been made. We will inform the stock exchange and update you when a definitive outcome is achieved. We aim to utilize proceeds received for such liquidation towards debt reduction or to distribute dividends to the shareholders. We are actively pursuing suggestion, which came from investors and analysts that we must focus on brownfield CapEx -- low CapEx investments to increase capacity. We are adding 210 beds to our capacity with an investment of just INR 40 crores by way of taking over the [ point ] of Aster Mother Hospital at Areekode, Calicut and converting a hotel to hospital attached to our Aster Women's Calicut. There are many other brownfield hospitals under discussion, and we hope to add many more beds in the next financial year under this model with very low CapEx investment. We have acted on suggestions on enhanced disclosures in our investor perception study, which you may have noted especially related to our India business. We have now included cluster-wise performance and operational metrics for our India hospitals. More disclosures related to diagnostic labs and pharmacy foray can be expected in the next financial year. This should help all of you to track our performance more closely. Our current ESG practices, strategy and commitment to United Nation's Sustainable Development Goals has been summarized in our Investor Presentation and has been showcased in detail in our financial year '21 sustainability report. The sustainability report was prepared in accordance with the GRI Standards, and is more comprehensive than earlier reports. It is available on our company and stock exchange website. I'm very happy to report that Aster has been ranked 94 among global 100 sustainable companies by Corporate Knights after rigorous assessment amount over 6,000 companies with more than USD 1 billion revenue. Proud that Aster is the only company from India and Middle East and is part of a list containing gems like Apple, Intel, Tesla, Unilever, et cetera. Lastly, we plan to hold an Analyst and Investor Day in the coming months. The event would be an in-person event to be held in Dubai or in Mumbai, most likely after the announcement of our quarter 4 results. If a physical event does not materialize due to continued COVID-related uncertainties, we will host a virtual event to ensure the safety of all. We will share more details on the event in due course. Moving on to the operational update, starting with India. As part of India-focused growth strategy, the Aster [ outer ] expansion is now complete, with a total of 63 beds having been operationalized in the third quarter. In terms of capacity expansion at our existing hospital, there will be an addition of 100 beds in Aster Women's Kannur in 2 years with a cost per bed of just INR 35 lakhs. We have signed a lease agreement to build a 200-bed tertiary care multi-specialty hospital project in Kasargod in Kerala at a cost of INR 140 crores to be completed within the next 2 years. We envisage to complete this at less than INR 70 lakhs per bed. We hope that we shall be able to repeat what we have done at Kannur with a breakeven in less than 1 year in view of the huge demand-supply gap in the Kasargod region. We continue to work towards augmenting our hospital bed capacity, especially in clusters where we are already at good capacity levels of 70% and above. Apart from O&M beds that's being mentioned above, we expect the bed capacity in India to increase significantly from the current capacity of 3,920 by end of financial year 2023. Aster Labs, our diagnostic vertical, continued to enhance its presence in both Karnataka and Kerala. As of 31st of December 2021, there are 8 satellite labs and 57 patient experience centers and 1 reference lab. We have an aggressive growth plan for this vertical and aim to reach 33 labs and around 400 experienced centers by the end of financial year '23, which will also involve geographic expansion of our footprint into other states. As mentioned last quarter, we entered into an agreement with Alfaone Retail Pharmacies Private Limited to license the Aster Pharmacy brand to run the retail stores and online pharmacy operations. During quarter 3, ARPPL outsourced -- forayed into state of Telangana. As on 31st December 2020, there are 90 pharmacies, 69 in Karnataka, 13 Kerala and 8 Telangana. ARPPL plans launched around 130 pharmacies by the end of this financial year and around 300 pharmacies by the end of financial year '23. For us, it reiterates our 35th Foundation Day promise that care is just an Aster way. In the GCC region, we hope to commission 80-bed Aster Sharjah hospital and 145-bed Aster Royal Hospital, Muscat, in quarter 1 of financial year '23, where the equipment installation and approvals are happening. As part of improving our presence in GCC region, we also recently announced plans to be presented in Salalah, Oman through a type -- tie up with Maxcare hospitals. On our proposed international expansion beyond India and GCC, we are critically analyzing and evaluating how and if we should proceed with Cayman project, a subsidiary of our GCC company. Appropriate strategic partnerships to bring in funding and expertise from U.S.A. will be explored if we decide to proceed. Before I conclude, I would like to reiterate that we remain excited at the growth prospects for Aster both in short term as well as in the medium to long term. We are continuously looking to grow and expand our business with sustainable partner -- suitable partners, both in GCC and India. Strategic options in terms of right corporate structure along with aligned growth levers are being evaluated and being worked upon. I now request the Deputy Managing Director, Alisha Moopen to elaborate on the GCC business, the digital transformation and other strategic initiatives undertaken by Aster. Thank you very much.

Thank you. Thank you, Chairman. Good morning, everyone. We have seen, as Chairman mentioned, one more quarter of COVID impact. None of us really expected Omicron shall become a new variant. Thankfully, this strain has been less intense and does not require much clinical intervention. While it did again disrupt travel, given the virulent nature as -- had far from people affected quickly, but life continued. Dubai had its Expo 2021. Our resilience to resume normal life was yet again tested, but we are all learning to live with COVID. Life has continued, and we are all working to move ahead with this new normal. The revenues for GCC saw an increase of 15% over quarter 3 and a 7% sequential growth over quarter 2. This has been led by growth in hospital revenue by approximately 8% over the same quarter last year. The clinics revenue also saw an increase of 19% over Q3 last year and an EBITDA increase of more than 23% over Q3 last year. The pharmacy segment is also showing signs of improvement with the revenues increasing 17% sequentially, and EBITDA has been -- has increased from INR 57 crores in Q2 to INR 76 crores in Q3 of this year. This is really indicative of the recovery and growth in the business environment in the GCC. Our digital journey at Aster has continuing along its planned trajectory. We are steadfast to leverage our digital foray to provide comprehensive patient care. Our app 1Aster will be and will become the primary omnichannel mode of engagement and shall allow us to have a unique integrated view of the patient care across all the health care touch points. We launched version 1.1 version in this quarter. We've kept it to a limited launch because we really wanted to enhance the feature set at the end of this quarter. Our patient base on the app has risen almost 3x between October to December and then, again -- yes, October to December 2021. This period also saw the repeat customers also has doubled in the span of the 3 months of the quarter. So we had some interesting insights on the -- we -- as Aster, we touch the lives of over 3.7 million unique patients in UAE. And out of that, we have almost 800,000 patients with chronic conditions. In our pursuit of patient care, we have also been reaching out to our chronic disease patient base through digital mediums for advanced care and launched extensive for diagnostic and general well-being. There's a big focus now internally for personalized and guided care to our patients with the digital CRM initiatives. And this initiative, we have launched it in this last quarter with 150 patients which includes 100,000 patients, which are from the pharmacy and 50,000 from our Aster hospital segment. With this proof of concept, we sold more than 7,000 incremental encounters in our hospitals and pharmacies and revenues of more than INR 6 crores. We are seeing improved patient compliance and repeatability. Patients are showing tremendous response with as high as 25% to 30% click rates through SMS and e-mail, whereas industry average is typically around 10%. This really indicates a strong Aster brand equity amongst the customers. Double-digit percentage of these patients are [ attempting ] digital e-pharmacy bookings, and are trying to rebuild the entire digital ecosystem to build the omnichannel access to our business. We'll be launching the same in the clinic soon, and primary care will be our focus. Our goal is really to scale up DCRM across more than 1 million patients by the next earnings call. Specifically, we're seeing that with the proof-of-concept engagement, it has led to more than 40% compliance on the patient visit. This, as we all know, in chronic patients, is extremely important. We are seeing very positive outcomes within 30 to 60 days of engaging with our patients. But COVID has also made people a lot more aware of actively safeguarding their healths, so the actions we are seeing with our patients is very reassuring. Right now, we are engaging largely with SMS and e-mail, but we will soon be adding WhatsApp as well as, of course, the 1Aster app, which will make it much more easier. We are also launching a Data Lake Digital initiative across Aster. This cross verticals data lake is to leverage the native data across our verticals and shall help in unlocking cross-vertical engagement -- opportunities and engagement. They shall have use cases across marketing, clinical and operations. This is planned to be undertaken over the next couple of quarters as we work towards engaging with our technology partners. Data integration besides unlocking various opportunities immediately will also help and enable the 1Aster online engagement platform, where we'll have the e-pharmacy, the tele-consult, the home diagnostics, home care, all converging together. Tele-consultation is already live and pharmacy will be enabled in Q4 -- at the end of Q4. We shall have diagnostics and home care being launched over the next 2 quarters. With this, Aster will have a truly unique omnichannel health platform for its patients, and it will become a true differentiator for Aster in the UAE. This will all drive best-in-class engagement, care coordination and one experience for our patients. We plan to replicate this omnichannel model in our top core markets in India post successful launch in UAE in a phased approach by Q3, Q4 next year. I will now request our Group CFO, Sreenath Reddy, to take us through the details of the financial and the segmental performance for the quarter. Thank you.

Thank you, Alisha. Good morning, everyone. On a consolidated basis, our revenue from operations for the quarter have increased by 19% to INR 2,650 crores year-on-year and sequentially by 6%. India revenues have increased to INR 618 crores, up 34% year-on-year from INR 459 crores. Revenue from a GCC operations INR 2,032 crores. an increase of 15% year-on-year and 7% sequential. Consolidated EBITDA for the quarter is INR 397 crores, an increase of 21% year-on-year and 16% sequentially. EBITDA from India operations has doubled year-on-year to INR 102 crores, and EBITDA from GCC operation is INR 296 crores, an increase of 7% year-on-year and 23% sequentially. EBITDA margin was 15% as against 14.7% in the same quarter of the previous year, an increase of 30 basis points. PAT post NCI increased by 61% from INR 92 crores in Q3 FY '21 to INR 148 crores in the current quarter. In terms of performance for 9 months, consolidated revenue from operations increased by 21% year-on-year from INR 6,218 crores to INR 7,525 crores. EBITDA for the period has increased from INR 742 crores to INR 1,021, up 38% year-on-year. India's contribution to the group EBITDA has increased to 27% compared to 15% in the previous year. PAT post NCI INR 300 crores compared to INR 42 crore during the same period last year. Coming to the segmental performance for the quarter. GCC hospital, revenue was INR 868 crores, an increase of 8% year-on-year. However, EBITDA loss from our Sonapur facility, which is now put into operations for secondary and tertiary care, has contributed to the losses. The facility was earlier used for COVID patients referred by the Dubai Health authority. Increase in remuneration for our frontline workers have also added to our cost, resulting in decrease in the EBIT and EBITDA assets compared to last year. GCC clinic revenue is INR 637 crores, an increase of 19% year-on-year and 8% sequentially. The EBITDA increased by 23% year-on-year to INR 142 crores, and EBITDA margin increased from 21.4% to 22.2%. GCC pharmacies revenue increased 22% year-on-year from INR 498 crore to INR 608 crores. EBITDA increased from INR 59 crores to INR 76 crores, an increase of 29%. The EBITDA margin for this segment also increased to 12.5% as compared to 11.9% for the same period last year. Consolidated net debt as at 31st December 2021, stands at INR 1,912 crores compared to INR 2,004 crores as at 31st March 2021, a reduction of INR 92 crores. India net debt stands at INR 311 crores compared to INR 306 crores as at 31st March 2021. And the GCC net debt has reduced to USD 215 million from USD 231 million as at 31st March 2021. Capital expenditure during the 9-month period was INR 345 crores. We hope the additional disclosures in our Investor Presentation this time has helped in giving a better perspective on our India operations. We would be happy to answer any questions that you may have. I now request Saurabh to open the Q&A session. Thank you.

[Operator Instructions] The first question is from Aditya Khemka.

First, so on the reorganization plan that you had alluded to last quarter, just wanted an update. Where do we stand there on the reorganization part? And have we narrowed down on what sort of reorganization?

Yes. So we have appointed an investment banker who identified few of the prospective partners for the GCC business, and we are in discussion with them. So that is going as per plan, and we hope that we'll be able to come to somebody who, I mean, with our -- I mean, sort of with our philosophy and all, who match with us and who can also match our expectations regarding the pricing and all. So that's going, Mr. Khemka, as we speak.

Got that. Secondly, on the India business. Could you take us through what sort of would be your CapEx plan for FY '23 and '24 for the India business, given the brownfield expansion that you guys have alluded to?

Yes. So Aditya, like what we have guided in the previous quarters as well. So the total CapEx in the current quarter what we are estimating is around INR 580 crores, right? Out of which INR 300 crores would be in India. That is the broad estimate. So we are looking at similar kind of CapEx in India for the next 2 years. So overall, the CapEx outlay for the next 2 years will continue to remain in that range of INR 500 crores to INR 580 crores. Out of which, major part of it, close to INR 300 crores will be in India.

The next question is from Rajat Srivastava.

Congrats on a good set of results. My question is basically on the GCC region. When I see your 6-month presentation and your 9-month presentation, especially on the 0 to 3 years hospitals, I see that 6 months, you were trending around 70% EBITDA margins for the newer hospitals. But for the 9 months, it's come down to 40.7%. So that would basically mean that last quarter, 0 to 3 years, you would have done around 10% EBITDA margins in your newer hospitals. I also see that your occupancy levels have increased and also the ARPOB have increased in this segment. So what has led to this EBITDA margin contraction?

So over 3 years, in some of our facilities, right, in Medcare hospitals -- we have got the Medcare hospitals. During the quarter 3, we have seen a little bit of slowdown in our Medcare facilities. So that is something -- this is a little bit seasonal. It would be temporary. So we are not expecting this to continue that way. But our higher and upper end segment, which was Medcare, which all the while was doing very well, right, so that has slightly the -- over there, we have been seeing a little bit of slowdown in business. And that has led to the contraction in over 3 years. Alisha, would like to add anything over here?

Yes, Rajat . I think you were talking about the 0 to 3 year, right? So it's not...

Yes. I'm confused because I see that the occupancy levels have actually increased by 2 percentage points. So even if there were seasonality effect, so occupancy should have come down. But both occupancy as well as ARPOB have gone up, but the EBITDA margins have contracted.

We've had some operating...

Yes, so Alisha let me. See, the thing is that like what I was saying, right, so let's say, even Medcare, as a facility, when slightly it goes down, the Aster if something -- Aster is doing better, right? So in terms of the realizations, Aster occupancy, even if it is going up and the realization per bed in Aster is going up. But when you compare as a group, as a whole, the contribution of the EBITDA in terms of ARPOB is significantly higher, right? So that explains as to why you see something like that in 0 to 3 years.

Also, one of the new facilities which has opened up, Rajat, the Sonapur facility, there are some operating losses which has come in from that new facility as well.

Yes. So that is in the bucket of 0 to 3 years. So which...

Yes.

Sonapur, like what I said in the opening speech. But this facility we had, in the past, we had put it into operations. But however, it was mainly for the COVID patients. So it was given on contract to the DHA we are getting revenues out of it. Now during this quarter, in 0 to 3 years in this particular bucket, this hospital was commissioned for the secondary and tertiary care. That is our regular business. And this regular business, right, being the first quarter of the regular business, this has contributed to the losses. So therefore, in this bucket, you will see that unlike the past, the losses for here -- because of the losses, the overall EBITDA margins would have come down in the hospital [ sense ].

Got it. And sir, on your India occupancy consolidated basis for both 0 to 3 years and 3 years, I see that if we were doing around 70% occupancy levels over the -- in the first half, but now it has come down to 65%. So what is that bucket?

Yes. So that is -- yes, that, again, is like what I said, seasonality, right? See, if you look at our quarter 2, quarter 2 in India generally is a peak quarter and quarter 3 is slightly lower in India generally broadly speaking. But also during quarter 2, right, because we had some of the COVID patients and others who are getting filled up, especially in the Kerala cluster, right, because over there, our hospital beds were getting filled up. So now this has slightly reduced, but we expect that in the coming quarters, we should again go back to that earlier occupancy rates.

Got it. And sir, one last question, if I may. So your GCC clinics business seems to have seen some bit of turnaround, both -- like I think you've reported highest-ever revenues in the clinics, and the EBITDA margin also seems to be back to pre-COVID levels. So what has changed within a quarter, if you could just throw some light on that?

Yes. So this is something the clinics -- see, we, during the COVID period last year, there was pressure both on the clinics as well as from the pharmacies spread. But however, now because of the COVID, the RT-PCR testing, the clinics have been benefited. So the increase in revenues and the profitability is mainly on account of the RT-PCR testing. But at some point of time, this will get normalized, and it will go down and the regular business of ours in the clinics will come back. So for maybe another quarter as well, the margins in the clinics will be high. But eventually, it will settle down. It will come back to its normalcy. When we say normalcy, we are looking at somewhere around 18% to 19% as the EBITDA margins in clinics. But it all depends on how long this RT-PCR will continue. In such time, the RT-PCR resting continues, the clinics will have higher margins.

The next question is from [ Kunal Sharma ].

I just wanted to know about the diagnostic segment. So what would be the price range of the radiology and the pathology? And this throw some light at how do we compute the price range as compared to the pure play diagnosed player in India, particularly?

Yes. So we don't have diagnostics -- in the diagnostics, we don't have radiology. This is only lab which is there. So I just want to tell you that we are looking at this as an ecosystem. It's not that we are just -- I mean, spreading labs out there for the lab per se business. It is there, but more importantly, this is creating an ecosystem of our hospitals, pharmacies, labs, and the home care along with virtual care. So that's the whole idea. So the price, definitely, it will be competitive and it will be at lines with what the normal stand-alone labs are charging. But for us, it is much beyond a normal lab. It is an ecosystem to provide one-stop solution for the patients in the geographies where we have already hospitals by bringing all the pieces together so that from primary care to the coronary care, they can get the treatment as a single-stop shop. That's the whole idea. Exactly coming to the rates that we are charging, it is at par with what will be the established players are doing.

Got it. And Alisha, I just wanted to know about the technology and the digital spending. So it was like on the -- before [indiscernible] spend some time. But could you please throw more light on the same?

I didn't hear the question clearly. What was the technology of what?

Yes. Yes, technology and the diagnose and the labs. So could you please throw some light on like on the digital spending for the same? For the [indiscernible]...

Yes. So like what Alisha mentioned. So there are 2 pieces, one, the lab per se. We have a very highly efficient referral lab; along with that, the satellites lab. So all the advanced test will be done in the referral labs where we are going to that level where, except genetic testing, we have everything else which is already there in the referral lab. And this lab is presently taking care of the samples from all our hospitals. It is managing our hospitals in India as well as the samples from the GCC come here. Now it also has the other satellite labs and the patient experience centers from where the samples come into the satellites labs where the technology will be at a lower level. But whatever is required beyond that will be sent to the referral lab, which is in Bangalore. Now the next part is how are we going to do the connect with the patient, which is what Alisha mentioned about the 1Aster app, which will connect the pharmacies, the labs, the hospitals, and the home care, and we will be far ahead of others when we are providing this service to the patients.

Yes. To -- in terms of the tax spend, it has been for the current year until December, it's INR 44 crores. And out of which INR 20 crores is capital in nature. And in terms of labs, the amount that we have incurred to set up this labs is INR 45 crores until 31 December.

The next question is from [ Amrish Kacker ].

Congratulations on a very good set of results. Thank you, also, for the extra transparency on the India business as well as I see we now have a management picture at the back end, which I assume completes our management team, which you had talked about in the last call about the 5 heads for the India business. So my question is if you could help me understand a little bit more about lab and the pharmacy business. So I think I got the point about the ecosystem. I got -- I understand the concept that we will have a brand that can be trusted and therefore, we will be able to provide a better service to our patients. So I think -- and they will have the confidence to come to us. But unfortunately, also, I -- we need to think about it in financial terms. So is there something you can help us understand, first, of course, on the lab side? How do we think about -- what is the lab in terms of revenue or EBITDA? And on the pharmacy business, what is our relationship with ARPPL and how does this translate? Any broad brush because, of course, we can see the numbers for GCC. Anything, if you could help, would be appreciated.

Sure. So the number regarding the lab, what is the plan and where we are now and what we are planning, even though it may be a little forward-looking. Sreenath and Sunil will be -- Sunil, who is the India Head, will be able to give you those details. And even the pharmacy, the -- I mean the -- how it is performing now and what we are looking at. Roughly, what I wanted to just tell is that it's in a very primitive stage and we are catching up. Major part of the business now comes from the own business from the hospitals. Our B2C business is increasing, and that's what we are focusing now, and that should increase our EBITDA. And now our last -- large part of business coming from the hospitals who take the profits. It is not reflected in the lab. But as soon as the B2C business catches up, which is doing as we speak, as we are increasing more and more of the patient experience centers and the satellite hospitals, our margins will start increasing. So our hope is that by next year, we'll have a fairly good situation regarding the EBITDA and the profits and all and the top line also is going to significantly increase. In the pharmacy, as we are having a very fast rollout, in the next year, we are planning another 150 pharmacies. So that will be, altogether, 300 pharmacies. The one good thing which has happened is that we have not gone into that discount mode where -- which has been followed by most of the online stores. Our discounts are very low, and we are still maintaining a fairly good margin. And we are in a situation where the sales also is increasing. Every month, there is an increase in the per store sale as well as the overall volume. Of course, the number of stores are increasing. So I think we will be able to go into a breakeven on the pharmacy side. Sunil, you can just come in on the -- what we are planning and what is the overall plan regarding the lab and the pharmacy. Sunil?

Yes. On the labs, as we already know that we have around [ 66 ] labs that's basically 1 [indiscernible] lab under each, satellite labs and [ 57 ] [ rotation ] center. And currently, our Chairman was saying that a majority of our [ 35%, 38% ] of -- currently flows from the -- our Aster business. On Aster business, is a minority currently around 15 to 20 percentage, which is expected to grow [ quarter-to-quarter ] this, right, end of next year. In terms of profitability, we are almost reaching the breakeven state and expect to have a positive EBITDA in the next full financial year. That is on the [indiscernible]. On the pharmacy bit of it. Already, as the Chairman has suggested that we have already locked in our own [indiscernible] after December. And [indiscernible] sales also is ramping up very rapidly. We are almost reaching to almost [ 10,000 ] per store. We are doing that. And we just put the ARPPL, the connection what we have is that we have a brand licensing agreement from Aster DM, so that's how they are able to launch the [ retail ].

Adding to what Sunil said, see, the lab business at this point of time, majorly it is the [indiscernible] business, a very small component, which comes externally. But beginning from next year is something we'll have a separate vertical segment being disclosed both for the pharmacy as well as labs. So pharmacy, we have got a wholesale business, and the retail is being done by ARPPL under a brand license arrangement from Aster.

So this a very exciting. Look forward to next year on this front. Just one quick clarification, on again, a follow-up from last call, we talked about some form of demerger of the Gulf business, GCC business. Is that now off the table because we're now focusing -- will anyway grow the India business? Or is that still something that we're looking at?

Yes, yes. So I was just talking about in the first question which came in. We are still considering that, and we would like to have these 2 businesses looked -- I mean separately. So that's a very important strategic consideration where the India can be looked at by the Indian investors and analysts and all, whereas the GCC is a different set of investors usually who would like to invest into GCC. So as we speak, we are looking at getting a partner who is interested for the GCC. And if we find a partner who goes well with our philosophies as well as with a good valuation, we will be willing to have this being done either as a demerger or a sale of the GCC business to some -- see, we will definitely be on both sides. And therefore, us, along with a partner, that's what we are looking at, [ Amrish ].

The next question is from Harith Ahamed, Spark Capital.

So my first question is on the Aster pharmacy rollout. The arrangement we have with ARPPL. Just a clarification on that. Do we book the revenues at Aster pharmacy stores? Or is it just a brand licensing arrangement?

Yes. Harith, we don't consolidate the revenues or the profits or losses of the ARPPL. Only to the extent of investments in the [indiscernible]. So we don't consolidate the revenues over here because it is something which is not a subsidiary, so it's a different entity altogether. And we have got -- yes, 15.7% stake. So therefore, we don't consolidate.

And any specific reasons why we have this Aster pharmacy rollout under an associate, and not under the parent company? Or under 100% owned subsidiary?

Yes. So Harith, see, we have got the wholesale business, right? So wholesale business indirectly in terms of -- we will concentrate more on the wholesale business. And this wholesale business would also cater to the -- this particular ARPPL. Over and above the other wholesale business to what we are doing. The reason are due to certain legal challenges we can't get into. We are [indiscernible] can't get into retail, and that is the reason we thought it's best to have a brand license management wherein ARPPL, on its own, can roll out the retail pharmacies. So we will just concentrate on the wholesale. But yes, because we have gained the brand license and other things, they are supposed to follow certain conditions under which this brand license arrangement is being bought..

Okay. So how much of ARPPL sourcing is from our distribution or our back-end network currently? And how should we think about it maybe in the long term?

So most part of the ARPPL business, right, in terms of the procurement, will be mainly from our wholesale business. They can procure from others, but the most part of it, they will be procuring from our wholesale business.

Okay. And my second question is on the COVID vaccination, both in India and GCC. In GCC, is this an opportunity for us? Is there some upside from vaccination in our GCC business? And if yes, under which segment are we booking this? And in India, how significant was this in the third quarter?

Yes.

Harith, yes...

So in India as well as in GCC, this is not an income source for Aster. India, of course, initially, it was. But very limited now, as well as in GCC, this is completely done by the government. So it is not a source of income for Aster.

Okay. Understood. And I'm assuming in India, in the third quarter, it was not a very material number.

No, not material numbers. Sunil, how much was the vaccination income in quarter 3?

In quarter 3, it was only [ INR 2.68 crores ] [indiscernible].

Okay. Okay. And then last question from my side. GCC hospitals, we mature hospital cohorts. We've been at a EBITDA margin of around 16%, 17%. I'm just trying to understand what's the margin profile, excluding the Sanad hospital. And I understand that there could be expansion there on hold. So any updates on that front -- at that Sanad, in terms of an exit? Or the expansion where -- how should we think about it?

Alisha, you would like to answer that?

So Harith, yes, you're right about the margin profile. We expect our steady-state mature hospital to be around 18% in the hospitals. Definitely, Sanad is pulling it down because Sanad is closer to 4%, 5%. So if you adjust it, Sreenath, we might be closer to 17%, 18%, right? Yes, so I think that's...

Yes, [ absolutely ]. Yes, that's right.

And then on the Saudi asset, as Chairman mentioned in the opening remarks, we are looking at some potential monetization on the Saudi asset. Hopefully, we will have some in the next couple of months.

The next question is from Shyam Srinivasan from Goldman Sachs.

Just the first one is on the opening remarks by Chairman on the India contribution over the next 4 years, right? So we are at 24% revenue from India today. And in the comment, it was 40% to 50%. So just on the broader vision around how we plan to reach it. Maybe the split between hospital -- maybe early days hospital, pharmacy, labs? Maybe it's just driven largely by hospitals, but I just want to understand the path. So is it going to be continued expansion in beds? How do we look at the pricing strategy? Do you think ASPs will keep going up? So just help us understand how we reach the bridge from, say, 24%, 25% today to 40% on the lower end?

Yes. So the strategies are different. One is the sweating of the existing assets. We have still -- I mean beds which are sitting there, which are not operationalized. About 300, 350 beds are sitting, which can be [ operationalized ] which will bring in significant revenue. Second, as we speak, we have this new strategy of adding on this -- [ point them ] on brownfields. And that will be a revenue which will start coming in without much delay. Along with that, we also have greenfields in pipeline. Apart from the hospitals which we mentioned, we also have other projects which are in discussion like in some of the areas like in [indiscernible] as well as in Bangalore. And we are looking at the addition of beds in those areas. So with all this, there will be a significant increase in the number of beds. That is one part which will definitely contribute to that increase in the revenues. And maybe there will be some pull down because of the greenfield projects, but we hope that in many of these places, we'll be able to go into a breakeven, which we have done in Bangalore or in Kannur and places like that within a very short period. So the -- answering your question, large part of this will come: one, from setting off the assets better, where there will be an increase in the utilization of the existing beds, [ operationalization ] of beds the existing facilities; and then adding beds to our existing hospitals, which is one of the most important areas. For example, Kannur, we are adding 100 beds. We are planning to add 100 beds in Calicut, it means -- where already 70 beds are added through the brownfield. Another 100 beds we want to add. In Kochi, we have sufficient space to add another 100 to 150 beds. So those things, along with like what we did in Kolhapur, there will be an expansion happening in the existing hospitals. So answering your question, in the next 3, 4 years, there will be a significant increase by way of increase in the number of beds of the existing hospitals and then also new hospitals by way of brownfield and as well as greenfield. Now the other areas, we have now not been very aggressive on our pricing. If you look at our pricing strategy, many of our hospitals have taken significant price increase in the last 3 years. We have now started looking at a price increase per annual price increase of 5% to 10%, which should increase our, I mean, revenues because last 3 years, we have not taken any price increase. So that will be another important thing which will bring into definitely improve the venue as well as flow into the EBITDA. So apart from that, the most important is the ecosystem, which I spoke. We are going to have exponential increase in the number of patients as well as the overall revenues and profits by utilizing the ecosystem of putting together our pharmacies, clinics, the labs, the home care along with the hospital and providing a -- sort of a single-stop solution for our patient needs. That is going to place us in a position which will be far ahead of anybody who presently hasn't tried that up. So we hope that we'll be able to do that and have significant improvement in our revenues, both in GCC and India. So as this is being done in GCC now, we will -- I mean extrapolate that into India and get that benefit. So that's overall strategy.

Dr. Moopen, if you can -- and maybe you can do it, say, when you're doing for 4Q or when you're giving your Analyst Day. Just the walk on the number of beds from 2,900 today. If you say it's like 3,500 or 4,000, what was the number that you are there? So that, that forms the basis for this particular thing. That will be useful to get. I think maybe that is one suggestion that I can quickly give. Flipping over to the question on the other side, which is when GCC reduces in size in terms of significance. Just looking at GCC hospitals, I'm doing 2 years CAGR on hospital business alone, has been low single digit, right, 4%, 5%? Occupancies are like around 50%. Is there something that we think that's the rate it can actually do? Or do you think there is any scope for improving growth in GCC hospitals?

Yes. So I'll answer the first part, and then I'll ask Alisha and Amitabh to answer the part 2. Now the part one of your question, definitely, we can provide that because we have a strategic plan, which is already built for the next 2, 4 years and will to 0 to 5. So we have all the numbers, which I mentioned, being put in there. What are the number of beds which are going to increase in different categories, how much will be increased in our existing hospitals, how much will be the brownfield, and how much will be the greenfield. All these are being -- I mean, being finalized. So we'll be able to give that in the investor meet when we have that. And that will definitely give you a more definite information regarding what is being planned and so that you can also look at how we are doing that. We will provide you those details as we go forward in the investor meet for India. And regarding GCC. If -- Alisha, if you can just take it up and with -- yes.

So Shyam, I think what we've been seeing here is, between the different segments there's been a different competitive pressures happening. So our Aster units are performing quite well. So we are seeing occupancies in them, and that's where we've been expanding more so, right? On the Medcare segment, there has been more units set up over the last 1 year in the market. So there has been some pressure on occupancy, which is seen because of that. Having said that, we do feel that with some of the initiatives that we have started, whether it's the referral leakages, where the digital CRMs, we are pretty confident about the growth in the occupancies. Here, you don't see the occupancy rates like in India at 75%, 80%. We would still be aiming for closer to 60%, 65% as a blended. Aster probably at around 70%, and then Medcare probably -- because here, a large part of the income also comes from the OPD. So it's -- so if you look at Medcare, for example, it's pretty much equally split between OPD and IP in a hospital. In Aster, it's a little bit more skewed where it's probably around 40% OP and then 60% IP. So we don't look at only the occupancy when we are looking at how these assets, especially hospitals, are performing. Here, there is a large amount of revenue that comes in from the OP as well. Amitabh, anything you might want to add?

Sure, Alisha. Thank you very much. So just complementing what Alisha is saying. Clearly, in the case of Aster hospitals, we have seen occupancy for [indiscernible] in the range of 90% and [indiscernible] in the range of 70%. So blended could be in the range of 75%, 80%. While what we see in Medcare is around 52%, 53%, and that's largely emanating from the fact that there are specialty hospitals over there because obviously, occupancy could be lesser. We try to increase that with referrals, especially from the clinics, which is inside clinics and our own clinics and outside upset clinics. Another thing that we are trying to work towards is we work with the insurance companies to increase the networks over there. Because once we do that, this GCC market is an insurance-driven market. The expansion of networks and getting more of dual aligned to the Medcare group will help us increase the occupancy through patient flow. So that is something that we are planning for the next few years to come in.

The next question is from [ Ruchika Bhatia ].

And I just wanted to understand what would be the differentiation strategy for setting up hospitals? Like expanding hospitals in India?

Yes. Can you please repeat that question?

Yes. What would this differentiation strategy compared to the peers for expanding capacities in India?

Differentiation in strategies between GCC and India or...

India compared to the peers.

Versus the Indian peers.

Oh, compared to the peers. Okay. So as I mentioned, many of our hospitals have got capacity for increasing the beds because we have a decent land. So we'll be -- that's our first preference. We want to increase the beds attached to our existing hospitals. We have found that it is much less expensive as well as it breaks even and they provide significant increase in the revenues and profits. So that will be the first preference. And luckily, we have -- in many of our places, we have, I mean, land, which can be utilized for this expansion. The other thing will be the brownfield, which I mentioned. We are going into active search for partners for the operations management to get hospitals into that. So even though others might be doing that, I don't think this is Aster strategy. Others have taken it up. What we see is that, when we have a hospital -- a large hospital in one of cities, and maybe 50 kilometers away, there is a requirement for a hospital facility, and there is a hospital there which we can take over operations management, maybe 200 beds, 300 beds, whatever. And they are struggling in management because they don't have the people and expertise for that. That increases the delivery of better health care in that region because we have doctors who can provide the service there. We can online connect with them. And with all that, we hope that the care there improves as well as that will also bring in a lot of revenues. So answering your question, expansion of the hospitals, I mean, which are our existing hospitals. Second, to go into the brownfield where the CapEx will be very low. And third, of course, some greenfield expansion, and we also will look at the strategic acquisitions if something is available. But that is not the first choice because you will have to spend a lot of money if we want to do that.

Right. What I actually wanted to understand was say suppose there are already other brands in the same area, say, Bangalore or something. So why would a customer choose to go to Aster? In that context, I want to understand.

Okay. So see, as you may recall, when we started 4 years back, the Aster [indiscernible]. We were being warned and told that how can Aster get their business share there because all the national level players are there and it is very thickly populated. But within 1 year, we went into a breakeven. And this, of course, in Kerala, we are the leading player and wherever we go, we have the capability for doing that. And our brand is so prominent, and there is nobody else as a national brand who is presenting in Kerala. So we have confidence that with the strategies that we adopt, we will be able to make a hospital successful by attracting doctors and attracting patients. Now the most important differentiation, which is going to come in as we speak in the future, like what I spoke earlier, is to tie up all these together, where we'll have the pharmacies, the clinics, the home care, the labs, everything, which will be a funnel for bringing patients into the hospitals. So patient will have an omnichannel opportunity for getting full health care, where they will be much more happier than just being product across 3 or 4 providers, [ Ruchika ].

Sure. And one question. I wanted to understand in the shareholding pattern, like these -- we have like Union Investments Private Limited. So can you just elaborate more on the structure and the business of that company? And why is it set up in Mauritius?

Right, right, right. So see, we are people who are doing business. As you know, we were in UAE for the last 35 years, and we established business here and we had significant businesses here. It is at that point we invested into India. And that came through the Mauritius because the India investment, we thought that it is tax efficient to come through Mauritius. So the family, the promoters invested through the UIP into India. That's how our holding in India is through the UIP, and that is by default held by the family. And rest of our investors, some of them are from outside of India as well as many of them are Indian investors. So that's the structure. Regarding the percentage of how much is holding, of course, you can readily access it from the exchange reports.

Sure. Sir, is there -- yes?

Sorry, I just wanted to add to your previous question that you were asking about the differentiator, right? I think one of the key areas of focus for us as a group is all the service piece. So if you actually look at whether it's Google ratings, our own sort of focus on NPS and stuff, we probably have one of the highest scores as far as service excellence is concerned. We take that very seriously. What is every feedback that comes from the patient. How do you sort of prove -- because at the end of the day, especially in markets like Bangalore, everyone has opportunity and the option to go to different places with insurance coverage. So how do you really kind of become the preferred choice, right? So for us, one, the service is a key differentiator. And even if you look at sort of in terms of national rankings on clinical leadership, we are sort of in terms of India in the top 10. We have our Aster Medcity. We have the CMI project, even in the weak survey. So even the clinical competence, which is there, we have done probably around 500 transplants in this year. So the kind of doctors that we have attracted and the kind of clinical work that we do is also being appreciated and noticed. So that really has to be a differentiator.

[ Ruchika ], any other question?

Yes, would -- I wanted to understand further in detail about the Union Investments Private Limited. Like what's the core business right now? Or is it only for the shareholding?

So [ Ruchika ], it's mainly only for the shareholding and it gets dividends, right? So it's a holding company of the promoters, and that's invested into India. Just like any private equity investor who sets it up by their [indiscernible] for Mauritius or whatever, whichever place. So you need investment because the advice was given to the promoters because the promoters being nonresident Indians, the advice that they should invest through this vehicle, and that what this vehicle was [ set ].

Does that answer your question, [ Ruchika ]?

Yes, sure.

The next question is from Amit Khetan.

Just one question from my end. So if I look at your -- the senior management in your [ DRHP ] and your current slide, there is a lot of changes here. So just if you could throw some color on what's really going on here? And what are the challenges we have faced? And what are the steps we are taking to address the attrition, if I may say?

Yes. You are talking about attrition where?

In the senior management team. So if I look at your key management personnel mentioned in the [ DRHP ] around 3 years back and what it is today.

Yes. So there has been no one major change where the India had Dr. Harish Pillai. He has left, and he has actually got a job overseas and he has taken it up. So that's the reason why he has gone. He has not taken up any other local job. He's moved due to that. So that's something which has happened in India. In the GCC, there has been movements, some movements. And we always look at people who are capable and who can, I mean, live up to their KPIs, see, Dr. Harish, of course, it was a moment because of his opportunity. Whereas in GCC, some of the people, if they don't fulfill their KPIs, we may have to replace them. But overall, when you look at the core team, that is 10 to 12 senior management members, of that, at least 80% are stable, and they have remained with us for a long period.

Got it. And can we expect stability in the current management team?

Definitely. So that's what we are looking. And we think that we have now fairly overcome the issues regarding the management, senior management, some of the people wanting and all. Even at the India level, we have some changes at the India management level. But we have now a fairly good team. See, attrition can happen at any point of time. But if it is, say, 10%, 20%, it's okay. But even that, we hope that it won't happen. But like what you said, there has been some attrition more than what we used to have earlier in the last 2 or 3 years because of efficiency-related matters. But we have now replaced people with the people who can deliver and it's going to be stable.

The next question is from Mehul Sheth.

Yes, sir. Sir, one question on your cluster-based approach in India business. So you are in process to divide our India business into 5 clusters, and Dr. Moopen will take a control over India -- Aster India business. So what is the progress on that front?

So that's already happened, and we have divided it into 5 clusters, and we have -- so the performance in the last 6 months has increased significantly after this cluster came in. So for the Kerala cluster, we have the regional director, Farhan Yasin, who is taking care of the Kerala cluster, which is our largest cluster. Then for the Karnataka and Maharashtra, which is put into a cluster, we have Dr. Nitish Shetty, who is taking care of that. Both these people, and the other cluster, which is the Andhra Pradesh and Telangana, we have Devanand. All these people were with us for a long period, and so they are continuing. Two people who joined recently, because they are -- these are 2 new verticals. One is in the lab that is Anindya Chowdhury, who has joined. He has been leading the Eastern business of the -- I mean lab service -- [ Aster ] labs and he has joined us. And another one is pharmacy, where Rama Krishna, has joined, who has been the second in command for the Apollo pharmacies. So these are the 5 people who have joined and started driving, and they are reporting directly to me. So this is not going to be a permanent thing. We will have an India CEO. This is something we thought that in the interim, while this is happening, we didn't want to bring another person and create a confusion. Maybe one of or maybe somebody from outside will take up the India leadership. And another thing which I wanted to tell is that we are now in the process of -- even though we have a person who is taking care of that, we are now with a focus on the virtual. We'll be having a sixth cluster, which will be looking at the virtual and the online-related areas. And that is another cluster which we are hoping to create in the next financial year also.

And sir, one question on your effective tax rate. So what can be in FY '22, then FY '23 and '24, what can be your tax rate?

Tax rate. Sreenath, you would like to answer that?

Yes. So in terms of the -- there have been some news related to the OECD, where 130 countries have come together and signed certain matters related to the taxation. So at this point of time, at least the UAE government has come and said that there will be a 9% corporate tax, right? But that is effect from June 2023 for those companies where the financial year starts on or after June 2023. So for us, our financial year starts in the month of April. So that's for 2023, we may not -- we will not have taxes. 2024 is when we are likely to have the taxes. Right now, the regulations are not clear so we'll have to wait for some more time to see as to what will be the tax rate because there is Pillar 1 and Pillar 2. Pillar 2 companies with revenues of more than EUR 750 million could be taxed at slightly higher rates. So we may fall under Pillar 2, but at this point of time, there is no clarity around it. Maybe a few more quarters we can get some clarity around the entire tax part of it. So I think we will update to the entire investor -- the analysts and the investors as and when there is some clarity. But at least until 2024, you will -- we will not have taxes. The other taxes will continue like what we have got in India and the other geographies, on an average, maybe around 7% or so. At this point of time, we have got the taxes in the geographies where we have presented -- present on a consolidated basis.

And sir, one question on your pharmacy business in GCC side. So you added store in Q3. And despite this store addition, there is an improvement in EBITDA margin. So whether the -- it's -- what are the mix for you right now in terms of stores maturity and all?

Alisha, you would like to answer that?

So Mehul, I think earlier, we were largely focused on adding units with the clinics. It's not like we've added 8 clinics. So these are standalone. We are trying to look more in the malls and good selection of stores which has been showing quick breakeven and good performance. So that's really, -- and I think last time I had mentioned, we are actively working on shifting the pharma, non-pharma percentages. So we are seeing a positive trend towards that as well which is helping on margin. We're also doing a lot more distribution to supermarkets and sort of large accounts like duty-free, which is also helping on the margins. So we are really kind of shifting our focus from just the pharma reliability, which was there earlier because otherwise, it was too connected to what was happening and the clinics was impacting the pharmacies. So we said let's have a very strong parallel track on the nonpharma and the distribution business and our own private labels, which is shown in the positive margins.

Next question is from [ Sunil Jain ].

Congrats on good number. Sir, you had said that India, you may be taking price increase. So can we know how much differential you have with your peers? And specifically in Kerala area, where you are a dominating player, and when we can see this price increase? We should expect it in near term? Or you still wait for things to normalize?

Yes. So Sunil, you would like to answer that the plan for the price increase and how it is being done?

Yes. Thanks, [ Sunil ], for the question. Yes. Compared to our peer group, right, you look at the national players also, they've also been communicated already in the Q3 results that they're also looking for a price increase between 5% to 10% rate. And that is a similar price introduced we would also like to take in all our hospitals. But there is no clear set time line to say, yes, we are going to go and do this in quarter 1 or quarter 2. Usually, our price increase is usually given in the quarter 1 or quarter 3, right? That's how we spread it out. So based on the geography also, we look at it. So that's how we should -- we are planning to this price increase.

Okay. But it will be more of a [indiscernible] over a period, depending on hospitals and all?

That's right.

And one question related to GCC. Here, if I see there is a good growth in pharma business, but if you compare it with a 2-year perspective, still it a little lower than pre-COVID level. So where do you see this business moving from here?

So we do expect a much stronger growth, [ Mr. Sunil ]. So see, as Sreenath mentioned, the clinics are still not at 100% on the pre-COVID levels, that PCR is helping. So as that is also restoring the business, of course, the pharmacy will have that associated benefit. So we see that coming up. Along with that, all these initiatives on making sure we realize that, for example, our chronic disease patients were, on an average, only coming once a year to us. How do we make sure that happens 3x in a year? So all these compliance personalized to kind of focus on the marketing as well, we do believe that we should be able to see a strong, sustained growth in the pharmacies. And as Chairman mentioned at the end, it's really going to come on the digital piece. How do you really use 1Aster to make people have those interactions much more frequently, because the requirement for people to go to the pharmacy, we believe, is not 2 or 3 times in a year. We can have it as much as 7 or 8 times. So how do you make sure the utilization and the stickiness with this platform will enable us to kind of exponentially grow the retail business?

Thank you, [ Sunil ]. [Operator Instructions] So it looks like we don't have any further questions. With that, I'd like to thank everyone for joining us today for our earnings call. If you need any further clarifications, have more questions, please feel free to get in touch with us. With this, we will conclude this earnings call and this webinar. Thank you very much.

Thank you.

Thank you.