Fortis Healthcare Limited (FORTIS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Post Results Conference Call of Fortis Healthcare Limited. [Operator Instructions] I now hand the conference over to Mr. Anurag Kalra, Senior Vice President, Investor Relations at Fortis Healthcare Limited. Thank you, and over to you, sir.

Thank you, Aman. A very good afternoon, and good evening, ladies and gentlemen, and welcome to Fortis Healthcare's quarter 2 FY '22 earnings call. The call is being led by our Managing Director and CEO, Dr. Ashutosh Raghuvanshi. We have Mr. Vivek Goyal, our Chief Financial Officer. From SRLs side, Mr. Anand, the CEO of SRL joins us along with Mangesh, who is the Chief Financial Officer of SRL. We shall begin the call by some opening comments by Dr. Raghuvanshi, post which, Anand will take you through certain key highlights of the Diagnostics business. And then we would welcome question and answers from the audience. Over to Dr. Raghuvanshi.

Thank you, Anurag. Good afternoon everyone, and welcome to our Q2 financial Year '22 earnings call. Thank you for joining us on the call today. I hope you and your families have had a good festival season and are safe and well. I would like to straight away move to the performance for the quarter. We have had a good quarter led by a strong recovery in Non-COVID business and a significant decline in COVID cases. I'm quite pleased with the way we have been able to capitalize on the bounce back, which reflects our purposeful effort for ensuring continuity and sustainability in business in the challenging past year. Both the Hospital and the Diagnostics business continues their upward trajectory, clocking top line growth in excess of 40% over Q2 of financial year '21. The Hospital business revenues have grown 47.2% to INR 1,098.5 crores, while the Diagnostic business gross revenues grew 42.6% to INR 402.7 crores. At the consolidated level, revenues were up 47% to INR 1,463 crores and were also better versus Q1 of financial year '22. Important to note that the COVID business has been significantly less with the Hospital business revenue contribution from COVID is a mere 3%, while for the Diagnostic business, COVID contributes 18% to the revenues. This compared to Q2 of [Technical Difficulty] when COVID revenues contributed 21% and 28% to Hospital and Diagnostic business revenues, respectively. A healthy top line growth has enabled us to gain higher operating leverage and register robust margins for the quarter. The Hospital business EBITDA margins were at 17.2% versus 10.5% in Q2 of financial year '21 and versus 14.9% in Q1 of financial year '22. The Diagnostic business EBITDA margins were at 25.7% for the quarter versus 25% and 30.6% in the corresponding and trailing quarters, respectively. At the consolidated level, EBITDA margins were approximately 20% as against 14.6% in Q2 of financial year '21. At the PBT level, before exceptional items, we recorded profits of INR 181.7 crores versus INR 37.4 crores, while PAT was at INR 130.6 crores versus INR 15.5 crores in the corresponding previous quarter. We also continue to have a healthy balance sheet with a net debt-to-EBITDA at 0.74 for Q2 of the financial year '22 versus 1.04 for quarter 4 of financial year '21. This was post the acquisition of the balance 50% stake in the DDRC SRL joint venture in April 2021, which was funded entirely through internal actuals. Our net debt was at INR 869 crores as on September 30, 2021, reflecting a net debt-to-equity of 0.13x. With a strong balance sheet, we remain well-positioned to evaluate opportunities of growth and consolidation for value enhancement for all our stakeholders. I'll now briefly take you through some aspects in both our Hospital and Diagnostic business. For the Hospital business, overall occupancy for the quarter was 64% versus 57% in Q2 of financial year '21. More importantly, our non-COVID occupancy improved to 62% in Q2 of financial '22 versus 39% in Q1 of financial year '22. Higher complex surgical procedure volumes across key specialties contributed to the highest ever quarterly ARPOB at INR 1.87 crores, a growth of 26% over Q2 financial year '21 and 15% over the Q1 of financial year '22. Surgical revenues contributed 56% to overall Hospital business revenues versus 44% in Q2 of financial year '21 and 41% in Q1 of financial year '22. This was as a result of pent-up demand for such complex procedures, which were long overdue, along with new demand in the normal course of our business. The pent-up demand, to my mind, may gradually taper off over the next few months. We are also moving rapidly to expand and further invest in our medical infrastructure and technologies. State-of-art advanced equipment, such as MR LINAC, Gamma Knife, Cath Labs, PET CT and Bone Marrow Transplant Units are in the process of being commissioned in select facilities such as FMRI, Mohali, Mulund, Shalimar Bagh, Noida and Jaipur. Commensurate with our plans to expand and upgrade medical infrastructure and programs, we have further augmented our clinical talent pool with eminent clinicians in specialties of cardiology, medical oncology, surgical oncology and radiation oncology, as well as in the areas of neurosciences, gastroenterology and orthopedics across our key facilities. We continue to review our portfolio of facilities and our effort to turn around underperforming, but high potential facilities, such as Fortis Escorts are seeing encouraging results. Investment for brownfield expansion should augment our existing operational bed capacity of close to 3,900 beds by another approximately 250 to 300 beds in this financial year. Of course, our plans for adding accumulated 1,200 to 1,300 bed remains well within our visibility. We continue to leverage various digital mediums to increase our patient footfalls. For the quarter, OPD footfall through digital channels more than doubled as compared to quarter 2 of financial year '21 and increased 21% versus the first quarter of this year. OPD footfalls through digital channels contributed 13% of the overall OPD footfalls versus 11% in Q2 of financial year '21. In addition, utilizing information technology in the form of myFortis app, ERP systems, advanced business intelligence tools and medical process digitalization would go a long way in ensuring a smooth and seamless experience for all our patients. I'll take you through some highlights of the Diagnostic business and leave it to Anand for more detail after I conclude. The Diagnostic business continues its upward trajectory. SRL has successfully integrated its acquisition of DDRC SRL joint venture. Post the acquisition of the balance 50% stake in the said joint venture in quarter 1 of financial year '22, the business recorded revenues of INR 83 crores in the quarter, a growth of approximately 20% over Q1 of financial year '21. Aided by its Collection Center expansion and acquisition of DDRC SRL joint venture, SRLs B2C and B2B revenue mix strengthened to 54% versus 46% in the quarter versus a mix of 45% to 55% in Q2 of financial year '21. On the network expansion side, the company added 107 new Collection Centers to its network in Q2, taking the total number of Collection Centers to 1,948. Home collection revenue from preventive health packages and specialized tests are other areas that are seeing good work potential in the business. My last comment would be on the cost. As you would know, we have always maintained that cost optimization is an inherent part of our efforts to better our performance. We continue to rigorously look at our drugs, consumables and reagent procurement and aspects related to substitution and consumption optimization. In addition, as a Group, we are also looking to bring in economies of scale with respect to medical equipment procurement. We are constantly pushing ourselves to try and be more efficient in our indirect expense line items, such as housekeeping and others. All in all, costs across functions and facilities have, and will continue to be monitored closely. Just some concluding thoughts. We have weathered the difficult past few quarters well, and I do believe that as COVID has abated significantly, the possibility or the probability of an impactful third wave now seems lower. We are investing rapidly in our infrastructure, both medical and in beds, hiring quality talent, driving focused sales and marketing efforts and effectively leveraging IT enablers, both internally and externally for better efficiencies. I do believe that all these would play a key part in our future growth and progressively strengthen our business performance. I would now like to hand over to Anand to take you through the specifics of Diagnostic business. Thank you.

Thank you, Dr. Raghuvanshi and a very good afternoon to everyone on the call. Thank you for joining us today. On behalf of SRL Diagnostics, I warmly welcome you all to our Q2 FY '22 results conference call. It's really good to be able to speak to you again this quarter. I wanted to start off by thanking our employees, customers and partners for the trust and loyalty, which led to a continued strong revenue growth alongside highest ever non-COVID revenue and network expansion. Looking at our Q2 numbers, I can only say that we are coming off a very strong quarter, where our revenues grew by 43% versus the same quarter last year to reach INR 403 crores. At the same time, we conducted approximately 12 million tests in Q2 FY '22, which is a growth of 95% versus Q2 FY '21. We have maintained a healthy EBITDA margin at 25% for the quarter. I'm particularly happy to let you know that we recorded our highest ever non-COVID revenues of INR 331 crores in this quarter. This is a growth of 65% versus the corresponding quarter of the previous year. COVID contribution to the overall revenue was 18% versus 28% in Q2 FY '21. With the pandemic receding, we expect our non-COVID business to grow steadily. The pandemic has no doubt changed the way business is performing. The digital trends have brought a paradigm shift in the buying journey of our customers. This has pressurized companies to innovate continuously to converge the online and physical channels so that they can deliver superior customer experience. We understand that the brands of today need to make their online and offline retail strategies work together and that the buzzword for brick-and-mortar stores is now experience. That's the reason why even at SRL, we are investing both on our physical presence as well as digital experience of customers. In the second quarter, we continued to expand our customer touch points across India to be more accessible to patients. At the same time, we have also launched our new mobile app with exciting features like live phlebotomist tracking, real-time booking slots availability checking, among others. With this, we want to achieve a close integration between our digital and offline channels. With our new features like easy sharing of a lab location map link, we want our digital channel to complement the offline experience by making it easy for customers to see the benefits of visiting the physical lab. Our efforts towards improving our customer experience has also resulted in significant growth in home collection. As a result, our home collection revenues grew 40% versus Q2 FY '21. Currently, we are providing home collection services at 150-plus cities across the country. COVID pandemic also made the world realize the importance of diagnostics, not just in terms of advances in technology, but more in terms of public perception of diagnostics as a critical vertical in healthcare. This has resulted in a growth per interventive packages. We have seen our highest ever quarterly revenue in the preventive care portfolio with a growth of more than 50% versus Q2 FY '21. Aided by our network expansion and the acquisition of DDRC SRL, our B2C-B2B ratio of the revenue mix significantly strengthened to 54% to 46% in the quarter versus 45% to 55% in Q2 FY '21. To support our government in the National COVID Vaccination Program, we started vaccinations for general public in 4 of our centers. SRL vaccinated approximately 12,500 people until the end of September. We are also in talks with the government to support the vaccination program as part of our CSR initiative. Just like we became the Official Lab Diagnostics Partner of the Indian Olympic Association for Tokyo 2020 and Paris 2024 games, we also conducted pathology tests of all the players representing India, coaches, media and the government officials traveling to Tokyo for the Paralympic Games. Over the last decade, genomics has acquired a prominent position within clinical medicine. As I mentioned in our last call, we have established an advanced center for Genomics at our Mumbai reference laboratory that can provide solutions to clinicians through precision diagnostics in the area of oncology, reproductive health, infectious diseases and inherited disorders. We have also procured advanced machines to improve our TAT's on some of these specialized tests. Apart from this, in Q2, we also launched our in-house designed and developed third mutation for glioma patients on pyrosequencing technology. To summarize, I would say that the demand environment continues to be strong and our growth chart over the last few quarters reflect this. It also reflects our improved execution engine. Together with the investments we have made in capabilities and talent over the last few months, I'm confident we'll be able to participate and win at a greater pace. With that, I would like to hand over the call to Mr. Anurag Kalra, our Head of Investor Relations. Thank you for your attention.

Thanks, Anand. Ladies and gentlemen, we will now open the floor for questions from the audience. I hope all of you have got a chance to go through our investor presentation that was circulated on Friday evening. Nevertheless, the same has also been uploaded on our website, but we would now like to open the floor for questions, please. Thank you.

Thank you very much. [Operator Instructions] Our first question is from the line of Aashita Jain from Edelweiss Securities.

So my first question is for Anand. So on the SRL side, if I take a, say for example, medium to long-term view, or say, 3 to 5 years, how should I see this SRL business growing in the next 3 to 5 years? And what are the growth initiatives that you have in your mind currently, maybe in terms of Collection Centers or target locations or your inorganic growth plans? Please, if you could talk briefly on this.

Thank you, Aashita. So on our plans, we continue to expand both in terms of our network capabilities, as well as our lab networks across the country. If you see, we have expanded our Collection Centers. And this customer touch point expansion is also going on, and it will be accelerated over the next 2 to 3 years as well. So while at the same time, we are also looking at the white spaces in the geography in terms of setting up new lab infrastructure. So that plan is also going on. And over the next 2 to 3 years, we'll be working on these aspects of growth as well.

Any number that you could give us in terms of labs or Collection Centers that you plan in the next 2 to 5 years?

We are currently around approximately 2,000 collection points. So we are basically planning to double this over the next 2 to 3 years.

Okay. Okay. And just lastly, if I look at your Q-on-Q growth for this quarter, it was nearly -- it was near 1%. But if I have to put your D-dimers in IL-6 in the last quarter, what is the base business growth for this quarter?

What is the -- I didn't get the last part of the question.

Excluding D-dimers in IL-6 or maybe COVID allied test, if I remove it from the Q1 of FY '22, what is the like-to-like growth in this quarter sequentially?

Even though we don't track this separately, but I'm sure that it was a very significant [Technical Difficulty] number in Q1 of FY '22, especially the COVID allied test, but we don't track them separately.

The next question is from the line of Ranvir Singh from Sunidhi Securities.

Sir, just wanted to understand on OPD side, we have digital channel OPD and then we have on hospital side teleconsulting. So that I wanted to understand, how these activities actually contribute to our revenue. And for a normal digital OPD and having a OPD through digital channel, how is realization differs in that 2 modes?

Yes. So Ranvir what we mean by digital channel is when the consultation actually is happening in physical form. But there is another component, which is the teleconsultation component that is not a very significant component. And we do charge similar fee, whether it is a physical consult or a virtual consult. As far as the number of patients who come through various digital channels, which means our own app, our website and through our other partner apps. So that is the traffic, which obviously leads to similar revenue profile as it would be from a walk-in patient.

Okay. And similar case for teleconsults also, or teleconsults are just more to call patient and finally the patient comes for a physical interaction, right?

No, there are teleconsultations as well. Those teleconsultations are also charged equal. Those are virtual consultations where patient doesn't physically come. The contribution of that segment is very small at the moment. During the peak of the [Technical Difficulty] up, but then as soon as that recovers, those numbers come down.

Okay. Fine. So for our understanding, mode of channel actually doesn't differentiate in revenue contribution, right, overall?

That's right, that's correct.

Okay. And secondly, on our expansion plans, earlier we indicated that 1,300 beds are likely to add. So if you could give some timeline when -- what number of bed would be added year wise, is it possible?

Yes. This is Vivek. I can take this question. So this 1,300 bed we are planning to operationalize in the next 3 to 4 years' time. And out of the 1,300, almost 300, we will be commissioning during this financial year.

Okay. And rest would be roughly equally distributed, next 3 years?

Almost roughly. Yes, almost 300 to 400 beds every year, we are planning to increase.

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

Just the first one is on the ARPOB, INR 1.87 crore number. How should we look at this, Dr. Ashutosh? You mentioned a little bit about pent-up may go away, but this is the highest level. So should it ideally now go to a more normalized level? And -- or do you think it will be between that INR 1.6 crore versus INR 1.9 crore, let's assume? How should we look at it going forward? And also, what are some of the drivers of this sustaining at higher levels versus pre-COVID?

Yes. Shyam, see, I mentioned that 56% of the business came from surgical cases this quarter, so that is one of the drivers of the higher ARPOB. As you're aware, we haven't taken any pricing correction in last one and a half, 2 years. So we do have some possibility of doing that as well, though we are not planning it immediately, but we would do that. My estimate is that the -- this might get slightly moderated over the next quarters as the medical business picks up, but the numbers should definitely be higher than what the previous baseline was. So it would get moderated to some extent, but more or less, this could be the trend going on.

So Dr. Ashutosh, INR 1.75 crore, INR 1.8 crore number you think is sustainable on a go-forward basis once all these normalization and pent-up demand and all goes away? Think so?

That's correct. That's correct. Yes.

Got it. Okay. That's very useful. And when -- what are the levers for it to go further up from here? Is it the international patients today? I think your disclosure says 3.8%. Would they be also accretive to ARPOBs? Or you think, no they come at the same similar level, so that wouldn't be a driver?

No, they do come at a slightly higher ARPOB level. But overall, from a profitability point of view, it was also same. So you're right that those patients we are likely to see coming back to normal volumes over the next one or 2 quarters depending on travel restrictions. So yes, that definitely will contribute to maintaining the ARPOB at a higher level.

All right, sir, very helpful. Second question is on Hospital margins...

And there's one more point which lever here, that the GIPSA rates have been revised in quite a few of our units from this month. So we would see some impact of that coming over the next 2, 3 months.

Revised upwards, downwards, and the percentage there of GIPSAs?

Revised upwards to the tune of about 10% to 15%.

That's useful. In terms of the margins now, about 17%, if I remove the startup costs at Chennai, INR 8 crores, INR 9 crores for the quarter, it's at 18% like your presentation says. So this is something that we were aspiring to. Is there an element of one-off in these margins? Or you think these margins can now -- we can build on these margins from here?

Yes. There is no one-off on these margins. So these are more sustainable margin. And as Dr. Raghuvanshi mentioned, with the international business coming up and GIPSA rate revision and continuous focus on cost optimization, I think these margins should go up only.

Like I said, we had a goal of reaching 18%. Now we have reached 18%, so what do we do now? Do we go to 20%? Is there -- just looking at your peers, those -- and if you can outline what are some of the cost structures we are still different or inferior versus, say, some of the peers where we think the levers are still existing. Maybe that's the other way to ask the question.

Yes. So as I said, the margins should only go up. Last call, we mentioned about 18% target, and we again in this quarter itself we achieved 18%. So I think 20% is the immediate target for us. And in terms of levers, there are certain cost items which are on our radar, certain costs, which are in our system, which we are bringing back into system, which will result into reduction in the cost. So like OP pharma and things like that. So we are working on that and the result you will be seeing in the forthcoming quarter.

Got it. Helpful. Last question is on SRL. And just again an industry question. Anand, we have seen 2 of your largest competitors announce acquisitions. I know we have done a DDRC JV, but that was a JV, which we have now assumed. So just how should we look at M&A for you as we look forward. Just looking at your geographical mix, East seems to be the one where we have the least exposure to, or lower exposure, relative exposure. So how should we look at M&A? Do you think there is appetite for us? Do you think that is the way forward? Or do you think organically, we still can grow higher than the industry?

Shyam, we continue to explore both the options. We are -- we have organic as well as inorganic expansion plans, and we are evaluating opportunities for M&A in the geographies where we have a lighter presence. But at this point of time, as you know, SRL has a much more equitable distribution across geographies in India. So we are looking at options in some of the white spaces as well as to consolidate our leadership. Especially, if you see East, we are the top player in the East. So we would like to look how we can consolidate our position there, as well as strengthen our presence in other locations where we have -- we are -- most of the places we are the contender, and we have a strong presence. So we are exploring our options.

Got it. Last 2 data points on the SRL. What is the home collection revenue percentage -- total revenue? And preventive package, you said, grew 50%. Can you also give us the relative contribution? In the old disclosure, I think it was some 2%, 3%. So just some color, yes.

The home collection revenue is about 7% to 8% of the overall revenue. That is in the whole 50%.

And preventive, sir?

Preventive, we don't have a separate number. Let me just check.

Okay. Maybe I'll circle back with Anurag. Thank you. Thank you so much. All the best.

We'll get back to you.

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

So I have few questions. The first question would be on -- basically on why there has been a drop in EBITDA margins, I mean, in SRL from 30% to 25% in Q2 FY '22? And in your earlier con call, you stated that 30% EBITDA margin is sustainable. So this 25%, is this an aberration on what should be -- I mean, how should we look at it going forward? Would it again revert back to 30% going forward? So that's one. And then with regards to your Hospitals, I mean, why has the revenue contribution increased to 30% of total revenue for Hospitals in the below 10% and 10% to 15% EBITDA margin buckets from 16% of total revenue in the same buckets in Q4 FY '21? Although the number of hospitals have remained the same, but the operational debts have gone up, and the revenue contribution has also gone up by 30%. So why this 14% jump in revenues in the lower EBITDA hospitals? And then I would want 2 data points. So what would be your non-COVID and COVID ARPOBs for the quarter? And what could be the DDRC revenue during the quarter?

Right. On the difference between the 2 quarters, so what I can say is that our expectation on this would be normally in the range of 23% to 25%. And the 30% of the previous quarter was driven mainly by the high volumes, as well as we had higher pricing on COVID in many other places. As you know, even during July and August also, many states had reduced their pricing. So overall, we have seen a drop in average revenue per test, both for COVID as well as non-COVID. So we are -- what we feel is that -- what we are seeing in this quarter is more sustainable than what we see as an aberration in the previous quarter.

So 25% is a sustainable number going forward.

I said 23% to 25%.

Okay. Okay.

To your next question, I think you also asked the breakup of DDRC revenues for the quarter. Quarter 2 FY '22, DDRC revenues is about INR 83 crores versus INR 69 crores in quarter one of FY '22.

Okay.

Right? To your third question, before coming to last one, you had also requested for the ARPOB of COVID versus non-COVID. COVID ARPOB in quarter 2 has been about INR 1.29 crores, while our non-COVID has been about INR 1.89 crores.

Sorry, COVID ARPOB has been INR 1.36 crores?

INR 1.29 crores.

INR 1.29 crores and non-COVID?

INR 1.89 crores.

INR 1.89 crores. And lastly...

COVID has been a very small portion of the overall Hospital business. Out of the total revenue, only 3% revenue contribution is from COVID.

Right, right. Yes, you have disclosed that. And what about the question with respect to the buckets of revenue and the lower EBITDA margins? Why is this happening compared to Q4?

Sure, sure. So that question, we will have to see what are the movements in terms of the facilities that have moved either up or down in the range of the EBITDA margin that we mentioned. If you look at the last range, if you look at -- compare it with quarter 4, there are a couple of hospitals that have moved up the ladder, while one or 2 hospital has come down. The intention of showing this margin metric is to just give a flavor of how our various facilities are doing, and what is the potential of these facilities to go to that peak, which is margins between 20% to 25%. And I think there's a whole lot of details behind this. So I don't know how to explain that. But if you look at the contribution, there are certain facilities that have moved up. For example, as Dr. Raghuvanshi was also mentioning, just as a way of an example, Fortis Escorts was one of the facilities that was in the below 10% range in quarter 4 of FY '21, which has now moved up to the 10% to 15% range. So that's an improvement. So there will be, at various points in time, various facilities that would kind of move up. But our overall intention would be to ensure that facilities that are towards the latter or 1/3 half below, then eventually move up. So that's the way we want to show this.

I see. But then the operational beds, that have also -- in the 10% to 15% and 15% -- below 10%, the number of operational beds have also gone up. While the number of facilities have remained the same, the number of operational beds have also gone up. So I mean, any thoughts on that?

Yes. So, Shantanu, that would depend on facility to facility, right? So if you have a certain facility that is 200, 250 beds, that for some reason in the quarter come down to the negative 10% one, because it's a larger number of beds, so number of beds will go up. So fortunately, if you have a smaller facility, that margins are doing very well, that will then go to the next level. Each facility will be looked at in terms of the number of beds, and our facility remains from as low as 50 beds to as high as about 350 beds.

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

So you have a brownfield expansion plan of 1,300 beds. Just wanted to understand, is the Supreme Court judgment in any way impeding a growth aspiration in terms of inorganic growth or a greenfield expansion?

Yes. So as far as all the organic growth and brownfield expansion is concerned, that has no constraints from the legal issues. Those are totally unrelated. And all the plans which we have highlighted in terms of number of beds of 1,300 over a period of next 3 years or so are not contingent on what happens on the legal side. So we have a very comfortable operational position to be able to deliver on this growth, what we have stated.

Sure. But what about acquisitions? You're not looking at them right now?

As I mentioned earlier that we are looking for all kinds of growth. So if there is a larger acquisition, which is available, we would definitely consider this. But at the moment, we are exploring few smaller options which may be available. But we would stick to our stated strategy of expanding in the given clusters where we have a good presence. And then it has to be a attractive valuation at which the asset comes. But there are no constraints as far as the growth is concerned, be it organic or inorganic.

Understood. Understood. And how have occupancies trended in the quarter? So if you could give figures for July, August, September and October?

Just a moment.

So it was -- July -- so July for non-COVID it was 68%, 64% and 65% and COVID 3.3%, 3.8%, 2%.

And what would be the figure for October, overall?

It is almost at similar levels around 65-odd percent in October for non-COVID.

Got it. And this is a sustainable number or does this have some element of pent-up demand, the October number?

Very little pent-up demand in ortho and all. But as you know, the COVID situation is getting better, the occupancy is going to go up only from here, and we expect to settle around 70%, 72%.

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

Dr. my question was regarding our focus on medical tourism. After things getting normalized and more gets opened up, what are our targets on medical tourism? And what are we doing that to increase that business?

Okay. So medical tourism, as you know, is contingent upon, Sanjay, the travel restrictions. So lot of that is not in our hand. But our focus continuously remain. We have remain engaged with all these geographies where we are present. Some of our teams have also visited even during this period. So we would aim to bring it back to our normal level within next 2 quarters or so and then we take it further from there.

Okay. So now going through our growth trajectory and increasing our foothold, are we planning to enter any Tier 2 cities? Or do we have any plans or any major plans to ramp up our business?

Yes. So we -- as I was speaking in the earlier question that our strategy is very clear that we will remain focused on the geographies where we are present and have a meaningful cluster. The only exception to that would be another geography where we could create a meaningful cluster, either through some acquisition or some other possibilities. So some large cities where we may not have business today are attractive markets, then we would definitely consider those.

Dr. continuing to my same question was regarding our growth. How do you see our business coming? Do we see any patient coming to from unorganized single hospital to institutions or business is coming because of incremental growth on our new surgical and other therapies and other businesses? So how do you see that change happening? Do you see that visible change on the patient's preferences?

Yes. So there are certain segments which are moving more towards larger hospital, and there are certain segments which are moving towards boutique facilities, like, for example, obstetrics work is moving in the opposite direction, whereas all other major surgical specialties and critical care areas are moving more towards organized hospital. So that is the trend across the industry we are hearing. And that's the same thing what we are seeing as well. So it is not that there is some gross consolidation towards the organized players. Smaller hospitals still continue to serve a large population, especially in Tier 2, Tier 3 cities, but they're developing more formal relationships with the larger hospitals for spreading their complex work.

My last question was regarding Supreme Court verdict. Any update on that side?

We don't have anything new to add, except that we are waiting anxiously just like you.

The next question is from the line of Raian Sorabjee from Rare Enterprises. Raian Sorabjee, your line is unmuted. Please unmute yourself. Since there is no response from the current participant, we will move to our next question which is from the line of Nagendra from Growthx Capital.

I just wanted to -- on the expansion side, you mentioned the number of bed is 3,900. Is it the current bed or it is -- it would be after '22 end?

It is the current number. And as we said earlier, that about 200 beds will get added to this within this financial year.

Okay. So post FY '20 end, that would be roughly 4,100?

That's right.

Okay. So just wanted to know just on the new bed addition, so what is the expected occupancy level on this -- these new bed additions in this financial year or any time when you add new beds within the year? What is the expected occupancy level for the next financial year?

Yes. So see, we do add beds when we see that there is occupancy level in the existing hospital is high. And we expect the occupancy level to remain at the similar levels at which they are there. So some of these hospitals where expansion is happening, are generally having occupancy of about 70%-plus. So we expect it to remain within that range. But you would appreciate that when new capacity is just added, at that time, there may be a little lag before it comes to a normal occupancy level, which is about 70%.

Okay, sir. Got it. Sir, just wanted to refer a news, there was a news in September side, September something from Economic Times, that SRL is going to allocate INR 300 crores to INR 500 crores for the expansion by FY '23 end. And the news stated that company is going to add 25 to 30 labs during this period. Can you give some color on this?

So as I was telling earlier also, we are looking at opportunities for expansion both organically as well as inorganically to add more labs. So we are exploring options. So we have some opportunities in hand, and some we are considering. We are focusing on that. So we'll let you know once something happens there.

So there is no current plan finalized, right?

Plans are on, but there is nothing that we can officially declare now.

Okay. Okay. Just one data point question, sir. Can you give the number on the side of what is the COVID [Technical Difficulty] during the quarter? Number of COVID [Technical Difficulty].

It was about 1.3 million tests.

1.3 million. Last quarter, it was roughly 1.6 million, right?

Yes.

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

Anand, on the Diagnostics business, there are, again, post-COVID reemergence of a lot of small niche franchises in various parts of the country. Are you seeing it translating into increased competitive pressure, especially on the pricing front across -- in certain parts of the country?

We don't see any pressure on pricing or competition like that. So the only thing is we are seeing more and more people coming out for doing preventive and packages as well as approaching diagnosis through various brands, including digital channels. But I don't see any specific competition that is probably pushing the prices down.

And even since you mentioned the digital channels, are the digital channel-based sales which are happening, are there -- I mean, is it accelerating the pricing competition in the market? Or you don't think there is a pressure on pricing because of the increased aggression of the digital channels?

We focus more on acute and chronic patients. So our competitive -- mainly the pure-play digital players focus on wellness segments, so where there is a price competition. But in our case, we focus more on acute and chronic illnesses. So that is why we don't feel that difference in prices.

[Operator Instructions] The next question is from the line of Bhagwan Chodhary from Sunidhi Securities.

Sir, can you please share what was the vaccines revenue in this quarter?

It is INR 20 crores.

INR 20 crores, okay. And secondly, on your Diagnostic business, now I think there was some contribution from the COVID in the current quarter as well. If we look in the longer term, how should one look at the margin side because pre-COVID it was around 20% to 22%, between now still hovering at 25%, given the fact that some -- there is integration of DDRC as well. So just a longer-term view, where the margin would be, and what kind of trajectory in the revenue maybe.

So on the longer term, margins will be in the range of 23% to 25%. So we -- the COVID contribution is coming down, as you see, it's 18%-plus for the overall revenue. So with that, we'll continue to be in this kind of margins in the future.

So do you think, sir, this 25% is the base in the current quarter?

Yes, that's more on a sustainable basis.

Okay. Secondly, if I'll -- I may ask in this way that, what has led to improvement in the margin from the earlier 20% to the current 25% scenario?

So overall, most of our capabilities that we have set up over the last 2 years, we have started having better utilization on the facilities, as well as we have taken some cost optimization measures over various factors, including revenue-linked costs as well as direct costs like materials. So we have been constantly tracking this, and this has led to some improvements in the margin.

Got it. Just final on the same. In the current scenario, the COVID business margins are same as the non-COVID or it's a bit higher or lower?

COVID margins are lower.

Our next question is from the line of Sumit Choudhary from Zaaba.

Yes, Dr. Raghuvanshi and team, congrats on great execution. A couple of questions from my side. Just on the Hospital side, to be clear, between now and the year-end, we are expecting to add another 200 beds, yet the occupancies should remain in the mid-60s. In fact, I thought I heard we should expect it to stabilize at closer to 70%. Just wanted to be clear that's the right understanding?

That's correct. That's it.

Understood. And in terms of the ARPOB, of course, so there was the change in mix from COVID -- away from the COVID patients leading to the numbers which you reported. But when I listen to some of the other hospital players out there, it seems mostly as expected to be sustainable considering the offset from the international patient side and the case mix is expected to remain strong. So is there anything which benefited Fortis disproportionately in the quarter gone by for that not with the case for us? Versus the industry?

No, not really. It is just a marginal difference in the number of surgical versus medical cases. So the trend is sustainable. But the same number, I think, may not be there. It might get moderated a little bit as the medical number of cases increases. So that is our estimation at the moment. Of course, it needs to be seen. But earlier on, as I was mentioning, that there are certain pricing interventions which are happening parallelly, which would also have their independent impact. And net-net, eventually, we may end up sustaining ARPOB at these levels which we have achieved.

Understood. And you mentioned some of the cost-out measures that you are undertaking, including pharmacy -- pharmaceutical procurements, et cetera. And I guess, even on the investment side, you did mention how you're looking to add more complex surgical machinery along with hiring more experienced clinical technicians at all of your hospitals. So I imagine the ARPOB should benefit from the latter as well. And coming to the point of the cost-out, should we -- if you could help us quantify how much exactly is the cost-out, either in margin percentage points or rupees that you're looking to take out?

Yes, I can take this question. The cost side, there are various initiatives which we haven't initiated. And I have enumerated that. It is very difficult to point out the number on that. So we'll not be able to quantify the number. But having said that, this is a continuous effort and you can witness from the last half year, with the same fixed cost we were be able to achieve higher revenue, which itself give a better margin.

Yes. Understood. I guess put it another way, you've mentioned, I think, earlier on the call about 20% margins are achievable. Over what timeframe would you kind of expect to get there for the Hospital business?

Yes. We aspire to go to 20% in couple of years' time.

Ladies and gentlemen, that would be our last question for today. I now hand the conference over to the management for any closing comments. Thank you, and over to you.

Ladies and gentlemen, thank you very much for taking the time to be with us on the call today. In case there are any further queries, clarification or questions, Gaurav and my colleagues are there to address those. Thank you for your time again, and have a good day. Thank you.

Thank you very much. Ladies and gentlemen, on behalf of Fortis Healthcare, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.