Fortis Healthcare Limited (FORTIS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Post Results Conference Call of Fortis Healthcare Limited. [Operator Instructions] Please note that this conference is being recorded. 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, Liz Ann. A very good afternoon, ladies and gentlemen, and thank you for taking the time to join us on our quarter 3 FY '21 earnings call. The call is being shared today by our MD and CEO, Dr. Ashutosh Raghuvanshi. With him, we have our Chief Financial Officer, Mr. Vivek Goyal. On the SRL side, Mr. Anand, the CEO of SRL, joins us over here. And with him, we have Mangesh Shirodkar, who is the Chief Financial Officer of SRL. I hope all of you have got a chance to go through the results, the PR and the presentation that we had sent across on Friday evening. All these documents are also uploaded on our website. We will start the proceedings with some opening comments by Dr. Raghuvanshi. And then Anand will take us through some brief highlights of the diagnostics business. Post which, we will open the floor for question and answers. Over to Dr. Raghuvanshi.

Thank you, Anurag. Good afternoon, everyone, and thank you for taking the time to join us on our Q3 financial year '22 earnings call today. I hope all of you are safe and well in light of the third wave that we witnessed in January this year. I shall come straight to the results for the quarter and my thoughts on the business performance and the way forward. Q3 for us has clearly been a relatively robust quarter. I say that due to the fact that in this quarter, we have a lot of a string of festivals. And as a result of that, typically, the Q3 performance is generally muted versus the trailing quarter. However, this time around, our Q3 performance for both hospitals and diagnostic business has not only been very strong vis-a-vis the corresponding previous quarter, but is also similar to the trailing quarter, which itself reflects the health of our business. Our consistent efforts towards revenue accretion and cost optimization initiatives have begun to yield results, and we do expect these to continue to play out as we move forward. Specifically, coming to the quarter, our consolidated revenues were at INR 467 crores, a growth of 25% versus the corresponding previous quarter. This compares to INR 1,463 crores in Q2 of financial year '22. Our consolidated EBITDA margins are at a healthy 20%, which is 300 basis points higher than the corresponding previous quarter and similar to Q2 of financial year '22. Our profits before tax has increased INR 185 crores, while our profit after tax has grown a robust 163% to reach 142% -- INR 142 crores. We continue to maintain a healthy debt and give -- given our cash flow generation have further reduced our net debt by approximately INR 248 crores in the quarter. Our net debt at the end of quarter 3 stands at INR 621 crores. This reflects a net debt-to-EBITDA of 0.53x compared to 1.3x in Q3 of financial year '21. Our net debt-to-equity stands at [ 0.0 ] at the end of financial year '21. Our hospital business remain on a firm footing. We have witnessed an occupancy of 65% in Q3 versus approximately 64% in both the corresponding and trailing quarters. COVID contribution to this is negligible, with non-COVID occupancy in the quarter at 64%, and non-COVID revenues accounting for almost 98% of the total hospital revenues. Higher complex surgical volumes in selected medical specialties and the rebound in the international business have resulted in an 18% increase in ARPU to INR 1.86 crores. All these have enabled the hospital business revenue to reach INR 1,118 crores in the quarter, a robust growth of 24% and also slightly better since the Q2 of financial year '22. The hospital business EBITDA grew 46% to touch INR 190 crores. This reflects a margin of 17%, a 260 basis point improvement over Q3 of financial year '21 and similar to the margins in Q2 of financial year '22. If you were to exclude the start-up costs of our Vadapalani facility in Chennai, hospital business margins are at approximately 18%. Our diagnostic business has also performed meaningfully well, with revenues growing approximately 27% to INR 389 crore versus the corresponding previous quarter.

Ladies and gentlemen, thank you for patiently holding. We now have the lines of the management reconnected. Over to you, sir.

Thank you. I'm sorry for this disruption. I think there is some problem with the line. I think I was talking about the Diagnostic business which has also performed meaningfully well, with revenues growing approximately 27% to INR 389 crore versus the corresponding previous quarter. This was aided both by the acquisition of BDRC in Q1 of financial year '22 and the higher B2C revenue components. Non-COVID revenue grew 33.8% versus Q3 of financial year '21, while COVID revenues declined marginally versus the corresponding previous quarter. The EBITDA margins in the business stood at 26.6%, which were 270 basis point higher than Q3 of financial year '21 and better than 25.7% margins in Q2 of financial year '22. Some qualitative comments on both businesses. On the hospital side, investments are on track to augment our bed capacity by 250 to 300 beds a year for the next few years and further bolster our medical and clinical infrastructure. We have added oxygen generation plants in 5 of our facilities and have introduced several other high-end equipment, like neuro microscopes, neuronavigation systems, cat labs and endoscopy suites, in many of our facilities. We have also onboarded imminent clinicians in cardiology and oncology in selected facilities. The international business recovery has been encouraging with the revenue of [indiscernible] in the quarter, a growth of 45% versus Q3 of financial year '21. It's also important to highlight that our digitization initiatives have now begun to show traction. Revenues from digital channels, led by the efforts to further enhance key digital mediums, such as our website, apps and digital campaigns, have resulted in a year-on-year increase in digital revenue of almost 125% versus the corresponding previous quarter. On the Diagnostic business, while Anand will delve into more details, I'm quite pleased that our consistent performance and earnings trajectory. The acquisition of the stake in our DDRC SRL JV has turned out very well. And we have now completed the integration of that business into SRL. The B2C revenue component, which contributes a healthy 52% to overall Diagnostic revenues, have grown in excess of 40% in the quarter, led primarily by the growth witnessed in walk-in patients. SRL continues to expand its customer touch points and have added approximately 284 such customer touch points in Q3. At present, the business has 2,200-plus touch points, which are expected to further increase going forward. This should hopefully result in a better customer touch point to lab ratio, improving utilization and gaining higher operating leverage. To sum, all in all, we have witnessed a good Q3 across both our businesses, and plans effort to ensure that as we end financial year '22 and enter financial year '23, the growth momentum will continue. I say this with a bit of cautious optimism as the current quarter has had an impact due to the third wave of COVID, primarily in the month of January, and one doesn't know if how -- if at all, this situation comes back again. As we speak, we are seeing gradual recovery in businesses, which we expect will only accelerate going forward. This should hopefully enable us to end the year reasonably well. In addition, the strength of our balance sheet also shows -- allows us the flexibility to evaluate select inorganic opportunities in our focused clusters of Kolkata. Such strategic initiatives and a steadfast focus on revenue enhancement and cost optimization in both businesses should be well for the growth and profitability for all stakeholders going forward. With this, I hand over to Anand for an update on the 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 Q3 FY 2022 Results Conference Call. It's really good to be able to speak to you again this quarter. We witnessed the onset of an Omicron induced third wave in many parts of the country, and it has been a relief that the effect of the surge has been mild as compared to the previous surges. I wish you all well and hope that the future holds better days for everyone. Looking at the numbers for Q3, we are confident that our streak of good revenue growth continues. We have posted revenues of INR 388 crores in Q3 FY '22 versus INR 396 crores in Q3 FY '21, recording a growth of over 27%. Q3 FY '22 figures include DDRC and not directly comparable to Q3 FY '21. COVID revenue share stands at 19% in Q3 '22 compared to 24% in Q3 '21. COVID revenues have reduced due to price gaps across the country. COVID revenues will depend on how the pandemic pans out in the coming months. Our non-COVID revenues, however, have grown by about 33.8% in Q3 FY '22 versus the corresponding previous year quarter. Our test volumes have grown to 11.2 million tests in Q3 FY '22 from 6.7 million tests in Q3 FY '21, registering a 69% growth. Of the total test volumes, non-COVID volumes specifically grew from 6.1 million in Q3 FY '21 to 9.9 million in Q3 FY '22, recording a 63% growth. We have maintained a healthy EBITDA margin at 27% for Q3 FY '22 versus 24% in Q3 of FY '21. In an endeavor to go closer to the customer and improve our omnichannel presence, I'm pleased to inform that we have opened the highest number of customer touch points in the last quarter. SRL added 284 net new collection customer touch points to its network in Q3 FY '22, taking the total number of touch points to 2,200 plus. SRL has been aggressively expanding its network, having opened approximately 100 touch points each month since August 2021. This also translates well in our B2B -- B2C contribution of the business, which stands at 52% as compared to 46% in Q3 of FY '21. We have an equitable distribution across geographies in India, and our endeavor is to grow further in focused geographies through organic and inorganic routes. We are exploring opportunities for acquisitions that make a strategic fit. I'm also happy to announce that SRL's lab software is the first among lab chains to be integrated with the government's Omicron variant digital mission as a health information provider. We have pioneered a lot of concepts in India, fueled by our endeavor for innovation. It's our privilege to be part of the national digital health ecosystem in India. Offering superior customer experience and enabling convenience at all touch points has been our relentless pursuit, especially since customer expectations have changed during the pandemic. We are continually improving our web and app interface, which is experienced at all our centers and home visit experience. Currently, we are providing home collection services at 150-plus cities across the country, and this will remain one of our focus areas. Our average NPS scores for patients for Q3 is close to 80. Improving our patient experience and patient satisfaction scores will remain a constant endeavor. We are also witnessing an upward trend in the wellness category as customers are now more cognizant about their health and taking measures to monitor their vitals. SRL has well curated wellness packages. And our offerings of small reports for wellness packages has received an encouraging response from customers. SRL's revenues from preventive healthcare packages grew 23% over Q3 of FY '21. To support our government in the National COVID Vaccination Program, we started vaccinations for general public in 4 of our centers. We further approximately 16,500 people till the end of December. We are particularly taking care of the safety of our employees and have begun the process of administering the precaution dose. We have added 20 new specialized and super specialized tests to our test menu in the period between July and December '21. We will continue building our test menu and advance our efforts, particularly in genomics, in the areas of oncology, reproductive health, infection diseases and immediated disorders. With that, I would like to hand over the call to Mr. Anurag Kalra, our Head of Investor Relations. Thank you for your attention.

Thank you, Anand. Ladies and gentlemen, we shall now open the floor for question and answers. Requesting the moderator to begin, please.

[Operator Instructions] The first question is from the line of Amit Khetan from Laburnum Capital. [Operator Instructions] As there's no response from the current participant...

Hello. Can you hear me?

Yes, sir. We're able to hear you. Please go ahead.

Yes, yes. Sorry for the issue. So firstly, can you talk a little bit about the new hospital in Gene? How is that ramping up? How many beds are currently operational? And what is the kind of occupancy we are seeing there? And when is this expected to break even?

So this is Vivek. I can take this call. So we -- this hospital is built for around 200 beds at -- when it will be fully ramped up. But right now, it is operating around 75 beds, and occupancy is around 45% occupancy. So there are some challenges. I think next year, it should be breakeven in on the EBITDA side.

Understood. Understood. And secondly, if I look at the margin profile that you've shared at your hospitals, there are some 5 or 6 hospitals that continue to be in the less than 10% margin category. So which are these hospitals? And where are you seeing things improving in the near term? And where do you see structural issues? And for the hospitals where we have some structural issues, is there a plan to take any kind of strategic decisions maybe once the SC judgment is out of the way?

So, the hospital -- 4, 5 hospitals has remained the same. One is, of course, our premium hospital for cardiology. Then followed by Jaipur, and Wati in Mumbai and the Chennai hospital. So these are the 4 hospitals which may majorly contributing -- is coming in this list. So we are evaluating all the option. And [indiscernible] and Jaipur are saying, including [indiscernible], showing very good sign of recovery. [indiscernible] still we are struggling, we are exploring all the options whatever possible in the current circumstances.

Sure. And would it be right to assume that any actions you take will be post the Supreme Court judgment?

Yes. I see nothing to do with Supreme Court judgment, but right now, we are evaluating various options.

We'll move on to the next question. That is from the line of Shyam Srinivasan from Goldman Sachs.

First one is on the ARPOB, INR 1.86 crores, so it's up 18%. So what are some of the drivers for this? Is there an element of pent-up when we look at this number? Or do we think this is the kind of level, maybe like a double-digit growth in ARPU? Is that sustainable?

Yes. So Shyam, this is a mix of a couple of factors. One was the case mix. So there were a higher number of surgical cases. I don't believe this is pent-up demand because second quarter also, we saw almost near normal work on the non-COVID side. One of the contributing factors was the international business, which picked up especially during the month of -- later part of November and December. So that contributed in a significant way, as we have said in the previous quarter call also that we would expect the ARPOB to be slightly muted as we had, at that time, said that it is likely to be less than the second quarter. However, it has been higher. And it is showing this growth simply because of the case mix as well as the international contribution being better than expected. But I expect that eventually, it will not be in the same percentage of growth as we have seen now. But we may see some growth in the future as well.

The question is, I remember we were doing a lot of things, right? One is this payer mix rationalization. Second was the GIPSA rate increase. So aren't those sustainable? Or why is there a little bit of caution around the ARPOB?

Yes. So GIPSA, as we had mentioned, that somewhere around the second quarter. And the -- there are, obviously, expectations that the international traffic will come to normal gradually. The reason why I'm being cautious about it is that the case mix itself is likely to change as the things start getting more and more normalized, there will be increased number of medical patients, et cetera. So because of that, we believe that on a blended basis, the rate of ARPOB growth may be a little lower than what we have seen typically in this quarter. But there certainly will be a growth, as I said.

Yes. And last point on this, just sorry to harp on this, especially on the price increases. We are not considering something at this point of time, right?

Not right away, but we will be taking some price increase. As you know, that the yearly costs start hitting at -- when the new year starts in terms of increments and staff costs, et cetera. So certain inflationary pressures are there. In order to take care of that, we will have some price correction midyear.

Mid -- you mean midyear this year? Next year? Sorry. Fiscal '23, you mean?

I mean, the calendar year, not the financial year. So you should expect that in the first quarter of the next year, we should have a price.

Like a 4% to 5% medical inflation linked price increase, do you think?

Yes, somewhere in that range.

Got it. Okay. Just a second question around human resources, doctors. What is the attrition that you're seeing? During the last 12, 18 months, I think we have managed to pay or reduce guaranteed fee for doctors. As things reopen and things become more normalized, do you foresee there is an issue here in terms of inflation in both wages for medical, non-medical staff, even for doctors as they come back and start doing the higher volume of growth and expect to be paid higher? Is that a dynamic that you think will likely pay out in, say, fiscal '23?

So the dynamics is complex, as you have rightly appreciated. But what we have seen is that we haven't seen a major attrition happened during this period. And that could be because of many factors and people may not be wanting to change, et cetera, but when we look at the model of payment and the changes we have made to that, I don't think that will affect. And the reason why we are confident of that, when we do a detailed analysis and look at individual income, et cetera, the new model actually has given people better individual remuneration, especially to the people who are more committed towards our organization and not -- are not visiting consultants. So with that in mind, I am very confident that this new model is actually something where the company's interest and the physician's interests have got aligned. And as a result of that, this should be very, very sustainable. The only place we still see challenge on the human resources is the nursing side, where during the phase of pandemic, we saw the attrition go down. That has again started going up, but that is more of an industry-related problem. So we are not too concerned about that. And then there are many other progressive steps we are taking in terms of other traders of human resources, like, for example, the National Apprenticeship Act has been legalized and has been made very tropical. And we are exploring many of such initiatives in order to make sure that we have a better and a continuous supply of manpower and also there is some cost advantage.

The next question is from the line of Saion Mukherjee from Nomura.

Sir, can you talk about the pricing environment, particularly in the diagnostic in the non-COVID space? How are -- what's happening there?

Pricing environment in the sense?

No. How the -- your competitive and pricing environment in the diagnostic space, for the non-COVID tests. Are they stable, increasing, decreasing? And by what rate?

The pricing environment in the non-COVID business is sort of stable as far as requirements for acute and chronic diseases are concerned. So you will see a lot of pricing happening in the wellness packages, which is where all the digital operators are there. So there, you will find that there are a lot of pricing offers have been rolled out. But otherwise, as you see, the prices have remained more or less the same across the board.

Sir, as the COVID contribution comes down going forward and you sort of execute on the collection center and volume increases, what should we expect in terms of steady state EBITDA margin for the diagnostic business?

Currently, we are having an EBITDA margin which is in the range of 25% to 28%, which is primarily due to higher workload and operating leverages that we get from COVID. Going forward, on a steady state, we would expect it to be somewhere around in the 23% to 24% is what might take us.

Okay. That's helpful. And secondly, on the hospital side, sir, can you give some granular details on your expansion plan? Which are the key hospitals where we would be adding? I think you mentioned about 300-plus beds every year. And also, on the acquisition prospects, what are you seeing in the marketplace, both for hospital and for the diagnostic business?

Yes. So on expenses side, we are well on track for all our extension program, whereby we have a chip-down plan for expanding our bed capacity, about 1,500 beds over next 4-year span. And we have completed expansion in Shalimar Bagh where we have increased the beds. Similarly, we have completed the expansion in Milan, where we the bed -- 100 bed have been able. There are 4 hospitals where we are increasing almost 250-bed in each hospital, where the land is available, and we are building a new block there. So the work is on. I think in the next couple of years, those hospitals will also start there. Apart from that, there will be -- there are opportunity available in hospitals where by investment, we can increase the bed capacity. So that also, we are like in the Kolkata, the like in Bangalore, so all those opportunities, we have are exploring. On acquisition side, Dr. Raghu?

Yes. So as far as acquisition is concerned, I think we have said it earlier that there are certain geographies which we are interested in, which is the clusters where we already are present. So NCR obviously remains one area which we will be considering and the Mumbai Maharashtra area is another one. And there are some potential opportunities may come in other geographies like Bangalore and Kolkata as well. But our first priority is the brownfield expansion within the given hospitals and then the second part option is for acquisitions. So in a calender, we will certainly be exploring all opportunities which come to us. And I think we are in a pretty strong balance sheet kind of situation right now, and we will have ability to execute some of those.

We'll move on to the next question. That is from the line of Rishab Parekh from Sunidhi Securities.

Just a question on your ARPOB again. One of the key drivers this quarter, as you mentioned, was medical tourism, which is about 5%, 6% of our revenue. Just wanted to know, what was the peak number pre-COVID? And structurally, how much higher ARPOB do medical tourists contribute?

So overall, the business -- the contribution to the business was about 10% before the [indiscernible]. And that -- as far as the yield is concerned, it is pretty similar to cash-paying patients, which is the highest paying [indiscernible]. So that's why it gives the positive impact on the overall ARPOB because this is at the highest price band of whatever prices we charge. But it is not significantly different from what a domestic person pays.

And sir, just following on from that, what would be the difference between the cash paying the top -- the cash-paying patients versus our company level ARPU which is 1.86?

So it is different for different specialty basically. So it is a mixture of the payer mix and the specialty mix. Generally, cash paying patients are having the highest ARPOB, following by PPA, which is generally 20% lower than the cash paying. And the garment business means [indiscernible] business is 30% lower than the [indiscernible]. And the [indiscernible] 40% lower than the cash paying business. It is on [indiscernible] for speciality [indiscernible], which I'm talking about.

Right. And coming on to SRL. So you all have done a phenomenal job in the last one year in expanding revenue, EBITDA and touch points. But just earlier on the call, you mentioned that steady-state EBITDA margin without COVID would be anywhere between 23%, 24%. This is still lower than our competitors. So is there any fundamental cost structure that we have in our diagnostics business that we cannot correct? Or what is the reason for the gap?

Thanks. Thank you, Rishab, for your confidence. But what I would like to say is that as we continue to grow our business, as we continue to expand our B2C share of the business, the margin profile will keep improving. But this is what in the short term that we are saying that we'll be doing that.

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

I mean most of my questions have been answered. Just one data point. So I want to know the non-COVID ARPOB that was there? Was it very similar to the actual published ARPOB for the whole business?

So non-COVID ARPOB is lower than the COVID ARPOB. I'm talking hospital business. So it is around -- in the range of INR 1.4 crores to INR 1.5 crores, although the potency is quite low at this point of time.

So non-COVID ARPOB was lower than the overall ARPOB?

COVID. COVID. COVID. Non-COVID is around INR 1.95 crores.

The next question is from the line of Kunal from Edelweiss.

Sir, I don't think I completely understood the -- your SRL margin guidance. I mean last year, you did somewhere around 23.5% kind of margins. This year, you did 26.5%, right? At the same time, your COVID -- you had a very sharp decline in COVID realizations year-on-year. Now with COVID actually going down again, maybe testing going down again, you are saying the margins will fall. So I don't completely understand this. If you can just maybe explain that, too.

B2C, we had FY '21, a margin profile of about 19%. And in FY '21, '22 and in this current year, our margin profile has improved significantly, mainly driven by operating leverages as well as some changes that we have brought about in the overall processes and systems. So what we feel is that once -- currently, if you see this quarter, we have about 19% contribution from COVID. But on a yearly -- on a year-to-date basis, we will be somewhere around 21% contribution from COVID. So with that kind of a contribution from COVID and with the COVID rates during the year being very fluctuating, so it's very difficult to determine the exact contribution for the operating leverage that we get from COVID. So that is the reason we are saying that we need to go through a non-COVID phase. And how much of the non-COVID returns and how much of -- with the kind of volume that it's bringing, so we'll be able to understand it better. So that's why we are placing it at about 23% to 24%.

Okay. Got it. Just one question on the hospital side. So currently, 17% to 18% of our revenue comes from PSU, CGHS, EWS, et cetera. Just maybe 12 or 24 months down the line, are you still see around the same proportion? Or should it fall down substantially?

Yes. So that we expect to continue the same. Reason being we are on the expansion mode. And for the expanded bed capacity initially, we see -- we may require these permits also. So you may expect the similar type of payer mix. Although, our endeavor will be to increase the nongovernment and PSU business here, reduce our nongovernment PSU business here and increase PPN care, which is the fact actually is going up quarter-on-quarter.

Right, right. And just one more, if I can squeeze in. Sir, in one of your slides, I see that teleconsultations have dropped down very, very sharply after COVID in April and May. So what should we expect going forward? I mean, what are our aspirations? Would I have building? Is it a part of the business that you want to invest and build?

I could not get it. Can you please repeat?

Sure. Sure, sir. So in one of the slides, on patient volume, you have -- I see that teleconsultation has gone down very sharply after the COVID second wave. Now -- I mean, it's almost like from [indiscernible] I think 80%. So is this one part of the business that you would like to build going further? And how should we see this business coming out?

Yes, yes. So essentially, the outpatient numbers have still been low, and they have not come back to the kind of pattern which we used to see earlier. Though in terms of how many patients are coming, it has recovered significantly. But as you have correctly noted, that the overall numbers have been low. So what we are seeing is that patients are avoiding outpatient appointments, but they're coming for procedures. So in terms of inpatient admissions, we are seeing a good trend. Going forward, as that normalizes further, the number of outpatients may increase further. But we are not banking solely on that. We are also taking certain steps in terms of enhancing our digital offering as well as having a very aggressive outreach policy, including having outpatient departments in the wider geography.

Sure, sir. That's helpful. But my question specifically is regarding teleconsultation. So is this a number that we should probably work with? Maybe I think there are some 4,300 or something with that teleconsults.

Yes. So teleconsults, we don't expect to rise too much, but there should be a some kind of steady growth. What we have noticed is that the kind of service offerings we have of tertiary, quarternary care, patients tend not to go for a teleconsultation, and they prefer a consultation in person. Whereas certain specialties, like mental health, et cetera, are ones which are gradually moving towards virtual consults. So we expect to grow on that place, and we want to build on that expertise and experience and build the numbers further. But I would say that short term in, say, next couple of quarters, we would not expect a very large increase in this virtual consults. But then we are trying to build the other part of the business which is primarily focused around mental health and few other chronic illnesses. So that should yield these numbers to go up in virtual consultation.

We'll move on to the next question. That is from the line of Jayesh Gandhi from BNP Paribas Mutual Fund.

Am I audible?

Yes, yes.

A couple of questions from my side. First and foremost, if you can give us a very quick brief update on the various litigations or put matters. Where do we stand now? It's been quite a while in and around. That was one. And second is, of course, subdues item, which is regarding M4, Private Capital Trust filing a suit against us and another 21 parties for it for infringement of copyright. So maybe a quick update on that as well as your perspective is very helpful.

Yes. Sure. So as far as the legal case and Supreme Court is concerned, that hearing had concluded. The argument hearing had concluded in the month of May last year. And normally, in normal courts, one expects the judgment to come in 6 months' time, which has also passed. So we do not have a visibility currently as to when they are going to pass the judgment. As you know, the court was also quite disrupted in between. But we are hoping that we should get something soon, maybe by March latest. That is our expectation. That's what is a kind of an educated guess. But we don't have [indiscernible] ability on that. Regarding the second part of your question, about the litigation, which is -- which we had reported earlier. That is a -- in our view, that is absolutely frivolous kind of case where we believe that we have absolutely no reason to be concerned of. Having said that, the merits of the case are as follows, which is that there is a party which claims that they had some kind of a nonbinding term sheet signed with Fortis and they never got an opportunity to invest in Fortis. But records, et cetera, which we have available, that doesn't show that. The second part of their contention is that the erstwhile promoters had pledged the brands to that. And that was the second part of their -- this claim, and they say that they should be compensated for that. So neither is the New Jersey jurisdiction in anyways linked to us or even this organization. We don't know where it operates strong. So we believe that this is a completely frivolous. And it would be tackled as and when we get notices that. And as we have said earlier in our disclosure, that we have not received a notice. However, one notice has been served to IHS, and hence, we are aware of the details of the matter.

Okay. It's been sent to IHS, not to you as of now?

As of now. But the index, it seems that they have also included Fortis as well party.

Okay. Understood. Fair enough. My second question is regarding the overall business momentum and the way forward. Currently, we're running at around 65% utilization or occupancy, however, you look at it. As you see the next 2 years, sir, how do you see this improving? That is the first part of the question. Second is that, if I look at quarter 2 and then quarter 3, on the hospital business side, it seems like we're hitting kind of a plateau in terms of revenues, ARPOB and margins, et cetera. So what would be the levers for us in the next 2 years to improve all these key metrics?

Yes. So as far as the occupancy number figures are concerned before this wave came, had -- were trending towards about 68%. So we expect the occupancy levels to grow and settle at 70% plus over a period of time. So that is one which we are going to get. The second thing is, as far as the third quarter is concerned, historically, the third quarter is always a slightly muted quarter for the reasons that there are multiple festivals which come during this period which make -- because of this, some -- the doctors and staff also takes vacations. And there are -- and there are -- that is why it sort of reduces the number of elective cases happening during the month -- these months. So considering that slight -- slightly higher revenue than the previous quarter rather than lesser. So in our view, this has been a reasonably good thing, and there will be further growth. The third lever of growth which we have is that, as we stated, that there are certain brownfield expansions within our network. And some of those bed capacities are coming on stream now. We have approximately about 45 beds in our Shalimar Bagh facility, which is incidentally doing extremely well. And then we are adding another 13 deluxe rooms in our FMRI facility as well as there are beds which are going to be commissioned in our Milan facility in Mumbai, approximately 70-odd beds by April, March or April. So with all that addition also, we expect to see a certain top line growth. And since these are all brownfield kind of growth, so any growth which happens in revenue obviously would impact the margins in a very positive manner.

Sure. Okay. These numbers don't seem pretty large. But nevertheless, the final question is on CapEx. Sir, what would be your CapEx for the next 2 years?

Yes. It will be in the range of INR 300 crores to INR 350 crore annual, which will be a mixture of the maintenance CapEx and the gross CapEx, unit to be 50% each year.

Fair enough. So would it be fair to assume that there is really no greenfield CapEx that you are doing now? It's largely brownfield for next 2 years, at least not envisage as of now.

Yes. We are not inclined towards doing greenfield. Our focus is on brownfield or a possible acquisition if it comes at an attractive valuation. The brownfield expansion itself, we have about 1,200 beds which are going to come on stream. Out of that, about 200 are already functional. About 110 are the ones which I mentioned which will get commissioned within say, within the quarter, the running quarter. And then the following year also, we expect to add another 150 beds. So that is a pretty decent pace of growth. Greenfield, we are not very inclined to, except for in certain geographies where there may not be opportunities to acquire something, because nothing exist, like, for example, if I had to say north of Bangalore where a lot of housing developments are happening and the hospital supply is low, we would like to take a position there, then those could be greenfield. Other than that, we will be focusing on an attractive valuation acquisition if possible within the given clusters we have.

I understand. No. I guess where I was coming from is to take a cue from what some of your competition has announced significant greenfield expansion across India. That's where I was coming from. But anyway, all the very best.

The next question is from the line of Shaleen Kumar from UBS.

Yes. Just sorry to repeat this again, I think coming from the previous participant. Sir, so we are looking to add how many beds on a yearly basis, from brown plus green acquisition? And if you can talk about, let's say, 3- to 4-year plan, is there a possibility? Broader guidance...?

1,500 beds.

And out of which, if I correct you, around 1,100 to 1,200 beds brownfield.

All are brownfield.

The -- see, we had earlier given a guidance of about 1,200 beds. Now we are increasing that guidance further, and we are paying that about 1,500 beds, this is brownfield. As far as acquisitions are concerned, those are slightly opportunistic, and we won't be able to out a number on it.

Absolutely, absolutely. Sir, but brownfield, we have a visibility, and this will be over a period of next 3 to 4 years or 4 to 5 years kind of thing? .

4 to 5 years.

4 to 5. And sir, what was the broader CapEx per bed here? Because it's a brownfield, so I believe it will be meaningfully lower than greenfield?

Yes. INR 55 lakhs to INR 75 lakhs, depending upon the...

Absolutely. Absolutely. And last, last bit on this. Even, should we consider them to come like evenly, like something like 250 or 300 beds every year? Again, -- or is it like there could be a -- we will see some spike coming at a later half of your time frame guidance?

Yes. I think the side you will be seeing in the third year onwards, where you know the major -- because most of the brownfield is where we are building additional tower. So this takes generally 18 months to 24 months for building a tower and then spearheading it. So that's why I think 3 years -- or in 3 years' time, you will be seeing that pace.

[Operator Instructions] The next question is from the line of Arjun, an individual investor.

I think congratulations on a good set of results. And we think the company and all its different arms and businesses seem to be now headed in the right direction and firing on all cylinders. I will not waste too much time. Everybody is very concerned about the Supreme Court judgment. I'm sure it will come in due time. And hopefully, court ruling should be positive. Just want to know what the company plans to do post this event. And if you could just throw some light on that from a company perspective. That's my only question.

Yes. Thank you, Arjun. There are several initiatives which would be taken post this resolution. I mean a lot depends on how exactly the resolution happens, but we need to make our structures a little more efficient. That is one initiative which we will have to do and is -- so that we get advantage of our operational flexibility, et cetera, between different entities, et cetera. So that is one major activity which we will have to undertake. And then as you know that have PE investors in our diagnostics business. So we will -- we do have an agreement with them where over the next few years, we are supposed to give them some kind of an exit, either an IPO or something like that. So those will be -- certain steps will be taken in that direction. And other than that, we would also have a little more flexibility in raising some fresh capital and going for some significant acquisition. But as I said earlier, we will be careful and calibrated in our growth.

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

Thank you, ladies and gentlemen, for taking the time to be with us on the call today. If there are any follow-up questions or clarifications, [indiscernible] and I are available. Please do feel free to reach out to us. Thank you very much again and have a good day.

Thank you.

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