Fortis Healthcare Limited (FORTIS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '21 and FY '21 Post Results conference call of Fortis Healthcare Ltd. [Operator Instructions] I would now like to hand the conference over to Mr. Anurag Kalra, Senior Vice President, Investor Relations at Fortis Healthcare Ltd. Thank you, and over to you, Mr. Kalra.

Thank you, Janet. A very good afternoon, ladies and gentlemen, and welcome to Fortis Healthcare Quarter 4 FY '21 and FY '21 Earnings Call. This call is being chaired by our CEO, Dr. Ashutosh Raghuvanshi. With him, we have Mr. Vivek Goyal, our CFO; from SRL, Mr. Anand, CEO of SRL is there; and Mr. Mangesh, who is the CFO of SRL. We will start with some opening comments on the performance of the quarter and the year by Dr. Raghuvanshi, following which, Anand will take us through the performance highlights of the Diagnostics business, and then we can open the floor for question and answers. Over to Dr. Raghuvanshi.

Thank you, Anurag. Good afternoon to everyone, and thank you for taking the time to be with us today. I'd like to start by sharing with all of you how deeply saddened the entire Fortis family, including myself, are by what we have witnessed in the past few months. This, perhaps, is the worst health care crisis in over a decade and in my entire career span of over 40 years, both as clinician and in the role of running hospitals. I have never seen anything like this. The loss of lives, the human suffering and the economic hardship of the people has been overwhelming. At the same time, this has brought a clear and unarguable realization that we need to significantly bolster our health care infrastructure and capability for medical resources for such unforeseen events in the future and the regular health care needs of this country. We, at Fortis, have paid more effort to ensure the availability of beds and medical resources, calibrating the needs with the rise in the COVID- cases as we have seen in the past few months. Our clinicians and health care workers continue to be in the forefront in the battle against the pandemic, making all efforts to save lives and provide the best possible care for our patients. One must fully appreciate the perils of the working in a risk-prone environment that our health care workers face every day and the personal sacrifices that many of them have made to and continue to make. I express my deepest gratitude and appreciation to them for having risen to this challenge. We are steadfast in working with both the central and various state governments and other regulatory medical bodies, providing all support as required. Given our geographical expanse, we are also taking the necessary steps to accelerate our vaccination program at on-site and off-site locations. While we see an intense second wave fought with acute shortages of beds and other medical resources, we are now seeing early signs and encouraging signs of COVID cases abating and simultaneously beginning to witness attraction in elective surgeries and non-COVID occupancy. Our expectation would be that the trend continues, and we see business returning to normal in the short to medium term. However, this, I say, with a sense of cautious optimism as we do not yet fully understand the impact of different strains developing over a period of time. Irrespective, I want to once again reiterate that Fortis has [Audio Gap] required in such difficult times in order to help mitigate this unfortunate calamity. Let me now move on to the company update. I will start with the Supreme Court matter. As you all know, the hearings were due in the Supreme Court for quite some time now. These began in February 2021. And since then, the court held a number of hearings right up to middle of May. Hearings have now been concluded and the order stands reserved by the Honorable Supreme Court. Coming to the performance of the company. Our Q4 financial year '21 performance, both in the Hospital business and Diagnostic business, has been quite robust. With the business returning to normalcy post the first wave of COVID and the results of initiatives we had taken over the last few years, we have seen a significant performance. Also to highlight, the performance of the quarter is quite absorbing and reinstatement of voluntary salary reduction for a significant portion of overall cost reduction in the first 2 quarters. Quarter 4 consolidated revenues have grown 12.5% to INR 1,252 crore versus INR 1,113 crores in the previous corresponding quarter and versus INR 1,177 crore in Q3 of financial year '21. Our EBITDA has risen 41% to INR 204 crores, representing a margin of 16.3% versus 13% in Q4 of financial year '20. Profit before tax prior to exceptional items is INR 110 crores versus INR [Audio Gap], while profit after tax, after minority interest, was INR 62 crores versus a loss of INR 45 crore in the corresponding previous quarter. Coming specifically to the Hospital business in the quarter. We have seen revenue growth of 8% to INR 982 crores as a result of increase in elective surgery, and that has been largely across all specialties. While overall occupancy has remained same in the quarter at about 64%, non-COVID occupancy has risen to 57% from 46% in Q3, also reflecting normalcy in the business. The increase in surgery revenue have led to a healthy ARPOB at INR 1.7 crore, a growth of 8% over the trailing quarter. Revenue from medical tourism in Q4 increased to 28.9% to INR 58.3 crore versus quarter 3 of financial year '21. While reported EBITDA margins are at 14.2% versus 12.5%, if you were to exclude certain one-offs and other income in the quarter, operating margins are 16.6% versus [ 11.9% ] in financial year '20, and 13.3% in quarter 3 of financial year '21. The Diagnostic business recorded its second consecutive quarter of INR 300 crore plus revenue with margins of 22% versus 14.5% in Q4 of financial year '20 and 23.9% in Q3 of financial year '21. I'm quite encouraged by the way this business has turned around and is showing healthy growth, both in top line and margins. The quarter performance was due to a consistent increase in non-COVID test volumes with the non-COVID business reaching 109% of pre-COVID levels of the corresponding previous quarter. The B2C -- B2B mix has also improved for us. We announced the completion of acquisition of 50% balance stake in our DDRC SRL joint venture, further consolidating SRL's presence in Kerala and increasing its B2C component. This acquisition in Q1 of financial year '22 will be a part of our full P&L rather than being shown as a share in associates previously. I will let Anand elaborate more on this acquisition and other aspects of business performance in his comments following mine. On the performance for the year as a whole, this would actually not be comparable as the first half of financial year '21 was weak due to pandemic, which impacted the overall performance of financial year '21. Financial year '21 consolidated revenues were at INR 4,030 crores versus INR 4,632 crores in financial year '20. EBITDA margins stood at 11.2% versus 14.3%, while profit after tax after minority interest was a loss of INR 56 crores versus the profit of INR 91 crores in financial year '20. The Hospital business revenue for financial year '21 were at INR 3,124 crores versus INR 3,754 crores in financial year '20 as a result of overall occupancy declining to 55% versus 68% in financial year '20, primarily due to a weak H1. EBITDA margins in the Hospital business were at 8.1% in financial year '21 versus 12% in financial year '20. But if you compare our EBITDA margins for H2 financial year '21 versus H2 of financial year '20, they were 15% versus 12.7% -- 12.6%, signifying a better second half of financial year '21, as I stated earlier. The Diagnostics business has fared relatively better compared to the Hospital in financial year '21 as a result increased demand for COVID and non-COVID related tests has also a faster rebound in non-COVID test volume in the second half of financial year '21. The business recorded revenue of INR 306 crores, a growth of 32% despite the challenging environment. COVID contribution to business revenue stood at 23% for financial year '21. More importantly, the non-COVID business revenues have surpassed pre-COVID levels in the quarter. Margins for financial year '21 were at 19.3%, similar to the margin in financial year '20. The business witnessed further expansion in its network, adding 500 collection centers and 2,100 direct clients and 23.5 million tests in financial year '21. The number of tests related to COVID, primarily RT-PCR test, also increased many fold from near 1 lakh tests in Q1 to over 6.5 lakh tests in Q4 of financial year '21. For the year, SRL did over 1.7 million COVID tests. On our balance sheet, we have managed to dedicate successfully the difficult past year, both in terms of maintaining a healthy balance sheet and a comfortable liquidity position. Our net debt over the previous fiscal was down by INR 155 crores to INR 849 crores, representing a healthy net debt-to-equity ratio of 0.13x. More importantly, our net debt-to-EBITDA was at a robust 1.04x for Q4 versus INR -- versus 1.52x in financial year '20. Our finance costs were also lower in financial year '21 versus financial year '20. In addition to the above, the balance sheet was also further strengthened as a result of extension of our agreement with the 3 private equity investors in SRL. The exit option stated in the agreement was previously being shown as a short-term liability is now reclassified as a long-term liability. Despite the challenges in financial year '21, we have made progress on our plan for the growth and expansion, investments for bed expansion and new medical programs have gathered pace over the past 2 quarters. We remain on track for adding close to 1,300 beds over the next few years. We launched a 250-bed state-of-the-art hospital in Chennai, our second in the city, and expanded our medical program off links in selected facilities. For example, we launched a new endoscopy unit in BG Road, Bangalore, and a pediatric solid tumor clinic in FMRI, Gurgaon. We have also updated our medical equipment in some facilities, including, among other things, commissioning of a Central Mumbai's first Tesla advanced biometrics MRI and a dual source -- Dual Energy Somatom Drive CT scanners in Bangalore. To complement our expansion plans, we have also taken on board imminent clinicians in a number of specialties, including those related to cardiac sciences, pulmonology and GI and hepatobiliary sciences. The above initiatives will be in tandem with a heightened focus on our digitization initiatives. The pandemic has seen a significant uptick in Delhi and video consult, and the Diagnostic business has also witnessed a two to threefold increase in home collection revenues. We are progressing well on harnessing a number of information technology enablers to provide a seamless end-to-end health care value chain experience. Initiatives such as myFortis and the common HIS across our facilities will provide a better experience to our patients. Internally too, we are utilizing global software such as Oracle Fusion and other business interface tools to enhance efficiency and productivity across the organization. On the cost side, we have seen a number of measures undertaken in the year, including temporary voluntary salary reductions, deferment of new hiring and reduced G&A and sales and marketing expenses. Some of these, like voluntary salary reductions have been reinstated beginning of Q3, but the others will continue to be closely monitored and reviewed. Pharmacy consumables and other procurement metrics will also play a vital role in our cost saving efforts. All in all, cost optimization rather than cost savings will continue to be an important aspect of our performance metrics and business planning going forward. Just to wrap up, I would like to reiterate that strategy remains as is in our portfolio rationalization strategy and focus on selected geographies continues. The challenge of the past year have made us more resilient and vary of the need to adapt quickly and be flexible in our ways of working, something that we have done very successfully in the past year. The pandemic has, in fact, made visible the deficiency in our health care infrastructure and the lack of it, also providing us an opportunity to make further substantial investments, expansion and growth in the future. Q4 has ratified our belief that the building blocks of the business are well in place and the company is actually poised to capitalize on the opportunities available, both through organic and inorganic growth engines once the current COVID wave abates and the environment reaches normalcy. With that, I would like to conclude my comments. I hope I would have given you a good flavor of our business performance in the quarter and the year gone by. Thank you for your time once again. I wish you well and would now hand over to Anand for taking you through the highlights of the Diagnostics business. Anand, over to you.

Thank you, Dr. Raghuvanshi, and a very good afternoon to everyone on the call. Personally, I hope that you're all safe and keeping well. On behalf of the current diagnostics, I warmly welcome you all to our Q4 FY '21 results conference call. In the year dominated by the pandemic, SRL diagnostics became one of the first labs to bring critical COVID-19 testing to our country and deliver the maximum number of COVID molecular and serology tests in FY '21, along with record revenues for the third and fourth quarter. As we close FY '21, we are fully aware that the year presented unprecedented challenges that none of us would have ever anticipated. However, all of us have risen to the occasion and demonstrated extreme resilience and adaptability. I'm really proud of how we at SRL have overcome every challenge to be there for our customers when they needed us the most. The pandemic has tested our nearly 6,000 employees, and they have responded as heros by setting up COVID-19 tests, building test capacity, innovating new testing models with our retail partners, collecting and transporting samples, delivering results and, of course, supporting our customers. We [Audio Gap] one of the country's leading providers of COVID-19 testing. During the fourth quarter, our total revenues grew by 32% to INR 305.7crores as we continued to make progress on our 2-prong strategy to accelerate growth and drive operational excellence. Our business rebounded in FY '21, despite significant challenges in ongoing uncertainty across the industry. Except for the setback in Q1, for the 9-month period, from July '20 to March 2021, SRL registered a revenue growth of 18% and EBITDA growth of 48%. Our large network, coupled with operational efficiency, has helped us in testing 2.3 million COVID RT-PCR samples across India, more than any other providers. This is a testament to our pro-activeness and ability, along with the customer confidence we have earned. Our investments in building the strength of our frontline soldiers to regular trainings, along with enhancement of capacity, have helped us immensely in our ability to deliver sets during the [Audio Gap]. After a month of gradual uptick, we have achieved 10% growth in non-COVID revenues in Q4 FY '21 against Q4 FY '20. We have also seen an increase in our non-COVID revenue contribution from 76% in Q3 of FY '21 to 83% in Q4 of FY '21, despite performing the highest rate of COVID RT-PCR tests in Q4. During the quarter, we also saw a growth in our direct-to-consumer services. Our preventive test offerings continue to resonate with our customers. We witnessed a broad-based recovery and a growth of 28% in our preventive business segment during the Q4, when the pandemic was receding. After receiving positive feedback from consumers on our smart plus health reports during the last quarter, we added more test packages to our smart portfolio, offering consumers a choice of understanding the results report to enter at a time when doctor consultations was not readily available. Our focus on investments on digital platforms have also began to yield results. During FY '21, we saw more and more people booking tests online for home visits. In the last quarter, we saw an acceleration in the number of consumers signing up for our mobile app. Today, roughly 3.3 million patients have an SRL diagnostic mobile app. In Q4 alone, we saw 2 lakh app downloads. Understanding the needs of our consumers during these unprecedented times, we also scaled up our home collection services to serve more and more patients through our own home visit model considering their safety. As a result, our home collection visits increased by 2.5x compared to Q4 FY '20. Today, SRL is offering home collection services in 90 cities, districts across the country. In Q4, 70% of our home visits were for non-COVID tests. Furthermore, we are leveraging technologies such as AI tools and Chatbox to respond to simple queries like, rescheduling, order status, report status, et cetera, thereby improving the customer experience. Demand for COVID-19 testing slowed in the quarter, reflecting an industry wide trend. However, by the end of the quarter, there was a massive surge in testing as the second wave spread across the nation. We conducted 6.5 lakh COVID tests in Q4 versus 5.9 lakh tests in Q3. Our total tests were approximately 7.6 million during Q4 of FY '21, which is a growth of 13.7% versus Q3 FY '21. And our average revenue per tests increased by 18% versus Q4 of FY '20, driven largely by COVID-related tests. In the area of capacity and network expansion, we started testing for COVID-19 in 2 of our reference [indiscernible] in Gurgaon and Mumbai. And over a period of 6 to 9 months, we opened 15 RT-PCR labs across the length and breadth of the country. Not only in India, but we are also serving customers internationally for COVID-related tests. Our cap accredited lab in Dubai is now certified to carry out COVID-19 RT-PCR tests in the city. With the second wave hitting villages in India, we plan to increase accessibility and improve turnaround time in semi-urban and rural areas by adding 5 more RT-PCR labs, along with more drive-through sample collection sites across the country. We continue to serve close to 20,000 doctors and 11 million patients through our network of 2,257 customer touch points. In FY '21, we added 498 new collection centers to our network, and we added 128 collections centers in Q4 itself. With our stringent focus on quality and compliance, we have 48 NABL accredited labs in our network, the highest for any large chain in this country. On the M&A front, I'm happy to announce that our company's shareholders have approved the acquisition of the balance 50% stake in the DDRC- SRL Diagnostics Pvt. Ltd, and the same has been successfully completed in April '21. This acquisition consolidates SRL's leadership position as the second largest diagnostic player by revenue and the largest partner chain with highest number of labs in the country. Earlier, South India was our weakest link. But with this acquisition, we have considered -- we have considerably improved our market share in South India and we became the largest player in South India and a true pan-India player with equitable distribution across all geographies. Our FY '21 results confirm the strength and resilience of our people and the confidence and loyalty of our customers towards our brand. We have defined a clear path of profitable growth, and we continue to execute our vision, focusing on building deeper strategic relationships with our customers, providing the best quality service, robust partner ecosystem, strategic investments and capabilities and constantly future-ready talent. And as we enter the next fiscal, we remain optimistic that SRL will exhibit progressively better performance and add value for all our stakeholders. As the market [Audio Gap] with promising news of COVID-19 vaccination drive on one side and the risk of the resurgence of infection on the other, we are evaluating [Audio Gap] carefully. I'm proud of what we have achieved and optimistic about what we can accomplish in FY '22. I would just like to once again thank all my colleagues at SRL diagnostics for incredible effort. Thank you for your attention. I would like to hand over the call to Mr. Anurag Kalra, Head of our Investor Relations.

Thank you, Anand. Ladies and gentlemen, that was quite a detailed perspective on both the Hospital and the Diagnostics business. We had also sent across the investor presentation day before yesterday. I hope most of you would have got a chance to go through it. We would like to now open the floor for question and answers.

[Operator Instructions] The first question is from the line of Adi Desai from York Capital.

I hope everyone is safe. And again, thank the management team for all the work over the last few quarters, both for the health care infrastructure of the country and the shareholders. I guess, 2 questions from my side. A, I wanted to get the initial views of how the second COVID wave has impacted our 2 core businesses, both on the Hospitals and Diagnostics side in terms of occupancy, both COVID and non-COVID? And in terms of sort of pricing, et cetera, what we've been seeing so far in April and May? And I'll ask the second question after.

Yes. So as far as the second wave is concerned, it has been very different from the first, in the sense overall occupancy figures did not drop that much because the lockdowns were not so severe. And the second thing is that the hospitals were better prepared. The doctors and the frontline workers are immunized. The protocols are more standardized. And as a result of that, the overall occupancy numbers have remained static. Of course, the elective work was not there. However, that's quite partly compensated by higher occupancy on the COVID side. As far as the pricing is concerned, there were certain price control measures, which were put in place by the government authorities in various states during the first wave of pandemic. Most of those are still enforced, and that continues as we speak. So there was -- however, the costs have been aligned over the period of time. And as a result of that, I think there is a kind of healthy sort of mix of both COVID and non-COVID work. As far as Diagnostics is concerned, I will ask Anand to add to what I said.

Thank you, Ashutosh. So as far as Diagnostics is concerned, during the second year, as Dr. Raghuvanshi told, compared to the lockdowns of last year, the lockdowns have been less severe this year. But still, as we all know, when there is a COVID pandemic that's happening and the surge happens, the non-COVId business proportionately drops because more and more people would be concerned about visiting centers and also will be -- not be visiting more doctors. So naturally, the non-COVID sort of tends to come down. But it gets compensated by the increase in COVID and COVID-related requirements for testing.

Got it. I guess the second question from me is more on the long-term side. I mean over the last 2-plus years, since we have had the current management takeover, I think you guys have done an amazing job at stabilizing the business, turning around some of the key hospitals and now -- and also financially turning around the company with net debt-to-EBITDA now almost at 1x, right? So I just wanted to understand, is it the time that we start refocusing on growth and step up on CapEx? And if so, what will be our strategy over there when it comes to addition of beds, brownfield CapEx, greenfield CapEx, et cetera?

So you're right. The company is well poised for a growth phase. However, we still have certain issues to the role in terms of our legal cases, et cetera. Now we had already highlighted a growth plan within the existing setups. So this is like partly organic kind of growth and also some capacity enhancement within the existing hospitals, which would be 1,300 beds. So that is very much on track. There was a delay of about 5 to 6 months because of the COVID impact. However, all those plans are very much intact. 250 beds hospital in Chennai is already commissioned out of this, and all other projects are also online. So we should see that capacity coming online over the next 2 to 2.5 years. Other than that, I think we are well poised for considering inorganic growth as well. So as our situation becomes clear over the next 2 to 3 months, we are going to create a larger expansion plan for the organization.

The next question is from the line of Neha Manpuria from JPMorgan.

My first question is on the Hospital business EBITDA margins. We're already close to about 17%. Sir, you, mentioned that, obviously, the cost optimization focus is there. But now -- I mean what are the additional levers that we have to improve this margin from the currency level -- given rationalization is done? Is there any divestment of certain assets that you could look at? Is it specialty mix, payer mix? If you could highlight 3 or 4 things that can move the margins from the current levels?

Yes, Neha, if I can take this question, Vivek here. So I think we have taken lot of measures to control the costs and that are in. But there is a little bit more needs to be done, and we are targeting that also in the forthcoming year. Having said that, the payer mix is something which we are working on. So still, our government business is contributing around 18% to 20% to the total Hospital business, create business, I will say. So we are trying to convert it into the more cash and TPA business. In the fourth quarter, you might have seen the presentation that TPA business has grown substantially, and we expect this further to grow. And as our international business come online, I think that will further improve the payer mix in favor of higher ARPOB and things like that. And that will lead to the higher margins. So that is one -- second area we are targeting apart from cost. And third is, of course, what we've said along. There are certain assets which are underperforming. So we are working on them. They are start showing results. And because of pandemic, this is a little bit of [Audio Gap] but it is very much on target, and we are quite hopeful that those assets will also start performing well.

Sir, if I were to look at the hospital maturity table that you've put in your presentation for the fourth quarter and compare it with a similar table I think you've given last year, close to about -- based on that table, 60% of our revenue is already having margins over 20%. In which case, do you have -- I mean will the instrumental delta be enough from the remaining 40% of the revenues to move margins? Or -- just trying to understand where will the margin improvement come from the current level?

Yes. So Neha, there is a substantial scope, if I can see -- if you see that table. In the 15% to 20%, there are 4 hospitals. And those hospitals should be moving toward 20%, 25% EBITDA margin. And if we see 6 hospitals are having -- which are contributing around 10% of revenue, they are below 10%, and some of them are on negative EBITDA margin. So there is definitely scope in that. And these are the hospitals which I'm talking about where we are focusing to improve the performance by cost-cutting and other measures.

Understood. And my second question is on the inorganic growth that we mentioned. What geographies would we be considering for this inorganic growth, a little bit on our strategy there?

Neha, our strategy has always been very well-defined as far as the geographical expansion is concerned. We want to remain focused in the clusters where we are already present or we have an ability to become a dominant player because, otherwise, the advantages of having a cluster or a network doesn't count. So we will continue to remain focused in the areas and geographies we are currently operating.

The next question is from the line of Rakesh Jhunjhunwala from Rare Enterprises.

Congrats for good set of results. Sir, how many number of operating beds do we have at the moment, including in the hospital in Chennai?

3 -- 3,900 approximately.

No, how many beds? Not 33,900, sir. How many number of beds we have?

3,900.

And you said you want to do an expansion of 1,300 beds organically?

So 1,300 beds within the existing hospital, this includes the 250 beds of Chennai, which is already commissioned, and the rest of the beds are in Noida, Shalimar Bagh, BG Road, Bangalore, and also in the FMRI Hospital and Faridabad Hospital.

So we will be approximately at 5,200 beds when you complete the expansion?

That's correct.

And what is the cost of the expansion, sir, approximately?

It will be in the range of INR 800 crore to INR 900 crores, sir, because these are all on our existing hospitals. So there is no land cost involved.

And sir, in the Diagnostic business, this Kerala company which you have taken over, what was the turnaround of that company?

The turnover of the company was -- last year in FY '21 was INR 303 crores.

So we should add about INR 175 crores to our turnover this year? Hello?

Sorry, I didn't get you?

So we should add INR 175 crores to our turnover?

Not clearly, sir. It was -- it is 50% joint venture, so we were not consolidating 50%.

And sir, this year, Mangesh here, sir. This year, sir, it was [indiscernible] year, where we had a lot of [indiscernible]. The normal revenues in FY '20 was INR 150 crores. So INR 150 crores can be good.

No, I am a little confused. Were you consolidating the Canada company in the Diagnostic business? Or are we only taking the profit or loss?

We were not consolidating, sir. It was shown as fair in the joint venture in the P&L only. So we are not consolidating line by line because we were only having 50% shareholding there.

And what is the turnover you ingested in the current year in the Kerala business?

INR 303 crores.

Sir, current year, INR 303 crores.

INR 303 crores for FY '21.

So what you're saying, INR 303 crore in the current year, which include a normal turnover because of the COVID related revenue, of around INR 100-odd crores.

That, even if your turnour remains at INR 300 crores, your Diagnostic business will still add a turnover of INR 300 crores this year?

Right.

Yes.

Second part I had is some of the other Diagnostic businesses are having margins of between -- EBITDA margins of 35% and 40%. Do you think we can go there and in what time period?

So normalized EBITDA margins of diagnostic companies have been between 24% to 25% -- 24% to 28%. And this -- there are abnormal margins this year, mainly because of high volumes in COVID and COVID-related tests. So we will be -- we are currently -- in the quarter 4 also, we have reached 22%. So we should be able to move into that kind of margins in the next 2 to 3 years. But at the same time, we also have to note that we already have a capacity with the largest number of labs in our network. And since we have the capacity, so it's a question of improving our utilization of this capacity, which will help us grow faster because of fixed costs already taken care of, and it will add to our margins.

And are you making special efforts to the B2C business?

Special efforts to the B to...

C.

To the B2C business?

Right, right. We are doing that. So we were -- previously, in the last year, we were at 42% B2C contribution in FY '20. So we have increased it to 44% this year. So we are poised to take this to 48% to 50% in FY '22.

And what is the -- and what is your salient feature of your agreement with the private equity investor?

So if I can answer that, sir. So the private equity investor has come long back. So we have renegotiated the entire thing. So now that is agreed is that we have to provide a sort of a listing of this instrument in next 3 years of time. If we are unable to provide listing of this, then they have a put on the [Audio Gap].

How will you calculate the value of the put?

So value of the put is typical the company valuation we have done, which is a market multiple and the DPA value of the -- based on the future projection.

So there's a definite provision in the agreement for calculating the valuation?

Yes, yes. Fair market value. The agreement is fair market value based on which only that is calculated.

No. How we calculate fair market -- sir, I understand fair market value, but how you calculate the fair value?

Yes. So is it based on the fair market valuation calculated by independent third-party expert. We have different experts, which are basically big 4 type of people.

Okay, sir. And once again, congratulations on a good performance.

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

Just first on the competitive dynamics. And if you can just link it to maybe occupancy, say for April and May, where are we in terms of occupancy? Some of the peers are talking about 80%, 90% occupancy. So I just want to understand how focused network is shaping up?

So Shyam, in the month of April, obviously, COVID was at its peak. So if you look at the chart also that we've shown in the presentation, COVID occupancy jumped from almost 12% to about 25%, 30% in the month of April. But we did not, at that point in time, we saw a marginal difference on non-COVID occupancy, obviously, because the COVID cases are going up. May was different. This continues till about mid-May. And from mid-May onwards, what we have seen is, as Dr. Raghuvanshi has also mentioned in his comments, early but encouraging signs of this in COVID cases and traction coming in the non-COVID occupancy. So we do expect that if that trend continues, we should kind of recover well in the short to medium term. But for the month of April, remember that we have -- the COVID at about 30-odd percent and non-COVID was at about 40%. So overall, occupancy in the range of about 68% to 70%.

Got it. Related question on competitive dynamics, and we saw the ARPOM being relatively higher this quarter, for, I am talking about Q4. But how should we look at it on a fiscal '22 basis? What are some of the levers on ARPOM that we have? Is it got to do only with mix? Or do you think there is a scope to increase price?

Yes. So if I can answer this question. The ARPOB part, we expect continue to show upward trend. This ARPOB, we should not be considering quarter 4 because what happened in COVID, generally, the severe cases, generally comes to the hospital which generally survives higher ARPOB. So in normal basis, we expect that ARPOB to remain at around INR 1.6 crore type of number.

Got it. And would this include any element of price increase? Or do you think -- I'm just referring to what are some of the levers on ARPOB that we have? Is it mix? Or is it price?

It is mix of both, actually. So we are targeting certain price increase wherever it's possible. Plus, as I explained earlier, the payer mix will change and also the facilities, which lead to higher ARPOB.

Got it. Second question is on some of the different hospital assets, right? And the margin metrics is quite good to see. But just from a -- I was just looking at FMRI. I was looking -- and even now Y-o-Y, some of them are -- some of the top hospitals are still struggling. Would there be a function of international patients? Or is there certain other dynamics that are happening in, say, FEHI and FMRI? They still are declining Y-o-Y in the Q4 quarter.

Yes. FMRI is clearly attributed to the fall in the international patent. They have recovered quite well. Actually, they are doing much better in the domestic business than they were doing earlier year, pre-pandemic level. So they are recovering quite well actually. And once you know the international business turns up, they will be showing much better results than even the earlier one. So FMRI is clearly that way. The other hospitals, which are main heart center, so where cardiac business and ortho business generally impacted much in the COVID time, and the hospitals who are doing higher volume in these 2 facilities, they are generally revenue and margin in the COVID period. So as things become normal, these hospitals will also start showing better numbers.

Got it. And the last question is on the acquisition in Kerala. So starting 1st April, this is going to come through. So in 1Q when you report, you will have these numbers coming through, right? So I just want to understand the revenue, you have given us some sense of COVID and non-COVID. But where are the margins? And how should we look at the margin for fiscal '22 for that Kerala, please?

The margins for Kerala will be similar to our SRL margins because as we see, in the last year, we had a higher ARPOB for the COVID tests in Kerala because they have not enforced the price gap for a long time. So that price gap has been enforced from this fiscal year, so you'll find that they are on the similar levels like our own -- our rest of the business.

So Anand, just trying to break it down quarter wise. Is it like a INR 50 crore to INR 60 crore revenue? And is it like INR 20 crore, INR 25 crore EBITDA. Would that be how we should think about it? I'm just -- ballpark, you can help us understand.

So Shyam, I think what we should take is about roughly ballpark, about INR 200-odd crore -- INR 200-plus odd crore with margins that are in tune with SRL margins, that has been about 20%, 21% margin to somewhere in that ballpark.

The next question is from the line of Pratik Vardhan from Nomura.

So firstly, I would like to understand on the vaccine opportunities that currently we have. So can you please elaborate a bit on some margins and the kind of capacity that we have?

Yes. So currently, we have a capacity of doing about 3 lakh -- sorry, 6 lakh vaccinations per month. And we have visibility on the supply side. Now the biggest issue with the vaccination is the constraint on supply. And we can easily double then what we are doing currently, which is about we can go up to 12 lakhs month as well. But we don't have visibility on supply to that level right now. We have clarity with 3 vendors now. We have the Serum Institute vaccine. We also have the Bharat Biotech vaccine. And we also have another agreement with the Sputnik vaccine from next month onwards. So the capacity constraint is only on the supply and not on the capacity to inoculate.

Okay. And sir, on the margins bit, what kind of margins or what kind of revenues can we make on the vaccine?

So vaccine is a very controlled business. Margins you can have is determined by the authorities. So there is a very limited scope of increasing the price over there at all. So -- however, it will produce some degree of margins. Revenue, of course, is going to be significant. But I don't think this is a business which is going to produce a very large profitability.

Okay. And on the COVID ARPOB bit...

Yes. Go on.

Sir, on the COVID ARPOB bit, I understand that the COVID ARPOB is lower than the overall company's ARPOB. So can you please specify how much was it? And is this different from last year's ARPOB because a lot of more patients are more critical than last year. So what currently is the ARPOB?

The ARPOB will be similar to the last year. Around INR 1 crore is the average number you can take for the full year.

Okay. And sir, one more bit, on the diagnostics side, last, that we have added around 500 collection centers, right, this year. And then we added 400 last year. Is there any change in strategy that can be done since in FY '18/'19, they did not have much collection centers. So is there any change in the strategy for SRL?

As far as adding collection centers are concerned, that is one of our primary strategies in terms of network expansion and building our hub-and-spoke model around our labs. And when we are focused on cost optimization, one of the key aspects is improving our capacity utilization in our labs. So naturally, we are looking at clusters around our existing labs where we can create more number of collection centers, so that the capacity at the lab can be utilized. So with that focus, we're driving more collection centers.

So what is the right metric to look at like collection centers per lab? What is the optimal level? Are we there or...

Yes currently -- Yes, we are currently averaging about somewhere around 10 to 11 per lab. So we are hoping to reach somewhere around 15 to 16 in the next 2 years. That's what we're looking at. Since our network of lab is quite high, so we are looking at reaching that kind of number.

The next question is from the line of Shantanu Basu from SMIFS Limited.

Just I wanted to clarify with regard to the vaccination revenue. So is my understanding is correct that the administration charge that you get from the vaccine, I mean that would be your net revenue and that would also be the total margin or approximate highly to the total margin from this business? So that is -- and what is charge that you levy? And I mean where is this revenue getting booked? Is it getting booked in the diagnostics side or in the hospital side? So if you can clarify these nuances that would help a bit.

Yes. So revenue is within the Hospital business only, not in Diagnostics. And the revenue will be booked at the price we are charging to the customer, which includes the vaccine cost plus the administrative cost. So administrative costs will be after the expenses we incurred in the net margin. As Dr. Raghuvanshi has walked in, this is not a business from the profitability perspective we are looking at. This is more of a community connect perspective we are looking at in the vaccination revenue.

So what would be the administrative cost, net administrative cost that is coming to you? I mean if I can understand that.

Yes. So major -- different administrations have specified as to what that number could be. It ranges from INR 150 to INR 300. And our estimate is that about 25% of that is the actual cost of labor and other infrastructure needs, that could be a margin.

If I take a ballpark figure of INR 200 per dose, approximately 75% of that INR 200 would be accruing to your margin?

No, you should consider about INR 200 and not INR 300 because...

No, INR 200. INR 200. Yes, yes. That's what I said, INR 200. So INR 200, and if I consider 75% of INR 200, that would be accruing to your margin, right, sir?

Yes.

And you're planning to do around 6 lakh courses -- 6 lakh doses per month, and this would be -- one can assume this will...

Obviously, right, for this whole financial year.

We can't say the whole financial year, but certainly, till December, it should be like that.

Okay. Okay, sir. Okay. And sir, my second question is with regard to the ARPOB. So I mean what would be the total non-COVID ARPOB in Q4 that you last quoted and in Q1, that is the ongoing quarter?

Yes. ARPOB for the month of April is INR 1.8 crores for the non-COVID for this current quarter. And last...

Sorry, how much, sir? How much?

INR 1.8 crores.

INR 1.8 crores, and this is for Q4 or Q1?

Q4. And INR 1.7 crores for the corresponding quarter last year.

Sorry, how much, 1-point...

INR 1.7 crores.

INR 1.7 crores for Q1 ongoing. Okay. Okay. Okay.

The next question is from the line of Sanjay Shah from KSA Securities.

Sir, my question was regarding the payer mix, which we are seeing more tilting towards TPA. So can you help us to know what materially it impacts our revenue, margins and receivables?

Yes. So TPA, as you might be aware that our good paymaster. So generally, the credit period in TPA is below 50 days, so -- as against government [ business ] sometimes it does go beyond 120 days also. So it is substantially benefited from the cash flow perspective. Their revenue also, in terms of, the government business is generally 20% to 30% cheaper than the TPAs. So that lead to the higher margin to that extent.

Sir, we have decided to rebrand name of -- from Fortis to Parkway. So what is the progress on that side, sir?

So as said, that depends on the outcome of the Supreme Court case. We expect that by July, we should resolve that. So we are prepared -- well prepared to make the changeover. But of course, it is subject to the legal approval.

Sir, it has been known that we are leader in this complex treasury care. So can you highlight upon how that business is going? I understand about COVID, but how do you see future ride on that?

Yes. So always, we have focused on tertiary care, and that remains our focus. As soon as the recovery happens over year, there is going to be a recovery on the non-COVID work. We have seen that happening after the first wave, and we expect that this time that will be slightly quicker. But long term, obviously, our focus is on these specialties like oncology, cardiac, orthopedic, GI and organ transplantation, et cetera. We have made certain investments in infrastructure in terms of new linac machines are being installed in Bombay. And also in the in Bangalore, we last year had commissioned the new radiation oncology suite. We are adding further facilities to FMRI as well. And we have created our -- we have sort of upgraded our facilities in Shalimar Bagh Oncology Center as well. So these are the areas where we will see growth coming from.

The next question is from the line of Rishabh Parekh from Sunidhi Securities.

Sorry, I missed the normalized ARPOB number that you all gave earlier in the call. My question was coming from the fact that Q4 FY '20, on company level, ARPOB was about INR 1.62 crores versus INR 1.7 crores in Q4 this year despite COVID not being there last year and the surgical and nonsurgical mix remaining the same. So did we take price increases on non-COVID procedures this year to justify the higher ARPOB?

Not really. So I explained actually -- I again seen this particular trend. In COVID period, generally, the critical patient generally comes in the hospital. And the volume of critical patients versus noncritical goes up, which result into the higher ARPOB, that is the main reason. And if you see our facility mix of the oncology business actually has done better as compared to other mix. And there, generally -- the ARPOB is generally higher. So that is the main reason for the increase in the ARPOB in the non-COVID side.

We did not have any pricing changes in the last year.

Okay. And INR 1.7 crore, is this run rate normal -- can you -- is it sustainable over the next year?

Yes, it will be sustainable. Looking at the -- as I said, we are expecting to improve the payer mix also, which international -- more international patient and the more TPA, I think we will be able to sustain this.

And also, I just want to clarify on the DDRC debt. Currently, the EBITDA that is reported is INR 61 crores operating EBITDA, in the Diagnostic business for this quarter does not include anything from DDRC. Is this understanding correct?

Right.

Right.

The next question is from the line of Ritesh Srivastava from Nippon India Mutual Fund.

This is Ritesh Rathod. You mentioned by July, you will receive approval from Supreme Court for the brand change? Or is it overall you expect the Supreme Court case to get cleared by July? Can you clarify that?

Not specifically for brand. We expect the Supreme Court resolution happening in July because the hearing has been concluded. So hence, we expect that at some point of time, the orders will be passed in the case. Since court is in vacation right now, and it opens in July, so our estimate is that July maybe when we would hear from them.

And even you would have access to the arguments from the both sides or the multiple parties, which are there in this case. Are you more confident than what you were before the start of the argument -- from start of the hearing in terms of your hearing?

Yes. See, we have always been very confident because that we have a strong case because these are -- the issues are primarily between the ex promoters of the company and the [indiscernible]. We, as an organization, have nothing to do with it. And as a matter of fact, we have been kind of a victim in this whole exercise. So since we have nothing to do with that case, that is why we are pretty sure that -- are confident, rather, that we will have a favorable outcome. However, that is subject to so many other factors.

And in terms of the legal charges and the expenses, which we will be there in the P&L, specific to be overall FY '20 level, how much will be back, which may not recur when we are over -- through it? What would be that absolute number?

Yes. So we have provided around INR 14 crore -- rather INR 15 crore for meeting various contingency on various legal cases going on for the company. And I think there are more of the conservative approach we have taken. And you might have noticed the qualification, which was -- we were carrying, which was there by the auditor be relating to these investigations and with various cases has no doubt. So we -- this is just to do that for that purpose. And in all probability, that provision may not be required because we feel that the company is victim of all those things and no wrong thing can be attributed to the company. So our entire amount may be written back post the settlement of all these legal issues.

And the lawyer expenses and all other expenses will be part of this INR 15 crores or that expense will be over and above, which may not recur in coming year?

No, that is a separate case.

What would be that amount, which may not recur sometime in FY '23 or FY '20 -- like 2-year kinds as you meant in this thing, we are out of this thing.

It is different for different cases. In a year, we are incurring around INR 15 crores as a lawyer fee because on the various cases. So that we expect in the current year, I'll say, also until these cases are going on. Supreme Court is one of them, but they have some other cases also, like SEBI has [Audio Gap]. There are other cases also.

And what impact it will have on your interest ability to wage upon or any other impact, which you have once we are out of this and you have changed your brand name? Like are there any constraints in terms of fund raising or the rate at which we are raising funds, grade hitting? Anything else where it will benefit us?

Yes, definitely. Because right now, our rating is constrained because of this Supreme Court thing. And once this Supreme Court thing is settled, we expect our financials with a much better rating what we are going for this currently. At present, we are paying interest rate around 7.5%. We expect this to come down by another 0.5 at this point for interest rate.

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

Thanks, Janet. Thank you, everyone, for being on the call with us today. In case there are any follow-up queries or questions, Gaurav, my colleague, and I are available to take them. Please stay safe, and we wish you well. Thank you, and have a good day.

Thank you. On behalf of Fortis Healthcare, that concludes this conference. Thank you all for joining. You may now disconnect your lines.