GPT Healthcare Limited (GPTHEALTH) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to GPT Healthcare Limited Q4 FY '24 Earnings Conference Call hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jainil Shah. Thank you, and over to you, sir.

Good afternoon, everyone, and welcome to the Q4 FY '24 Earnings Conference Call of GPT Healthcare Limited. Joining us today on the call are Mr. Atul Tantia, Group CFO; Anurag Tantia, COO and Executive Director; Kriti Tantia, CFO, GPT Healthcare. I would like to now hand over the call to the management for their opening remarks. Thank you, and over to you, sir.

Good afternoon, everyone, and welcome to the GPT Healthcare Limited Earnings Conference Call for the Fourth Quarter and Fiscal Year ended March 31, 2024. We extend our appreciation to JM Financial for hosting this call. We also have with us on call our Investor Relations adviser, Stellar IR. As you are aware, we are coming to you for the first full year results post the successful IPO in February 2024 and are glad to announce a good set of results. GPT Healthcare Limited is the healthcare arm of GPT Group. We are driven by the ethos to provide quality healthcare, particularly in the underserved regions like eastern part of the country through our neighborhood tertiary care hospitals. Our financial performance reflects our commitment to continued operational excellence. Revenues for the year ended March 31, 2024, exceeded INR 400 crores, representing a growth of 11% Y-o-Y. EBITDA for the year amounted to INR 93 crores, marking a growth of 16.3% and has had an EBITDA margin of 23%. Profit after tax for the quarter and 12-month period witnessed a remarkable growth of more than 22%, reflecting our efficient financial management and operational leverage. The existing 4 hospitals in Salt Lake, Agartala, Dum Dum and Howrah continue to perform well and are improving on all financial and operational metrics and increasing occupancy. Notably, our ARPU stands at INR 32,950 aligning with our commitment to serving the aspiring population of the society with higher disposable income in the middle-to-high income segment. The ROCE for FY '24 was 30.2% and ROE was 25.7%, surprising the guidance of maintaining the same in the north of 25% bracket. Moreover, due to our neighborhood model. Approximately 90% of our patient business is from cash and insurance patients only, which has enabled us to achieve cash flow from operations to EBITDA above our target of 80% for the year -- being 90%, one of the highest in the industry, which reaffirms our model. The network level bed occupancy currently stands at around 59% with inpatient and outpatient volumes at 30,600 and 106,800 respectively, and ALOS of 3.95 days. Coming to the hospital-wise performance. The 85-bed surgical excellence hospital at Salt Lake has revamped the gastroenterology setup to attract more patients and thereby diversify the specialty mix. The current occupancy for this hospital is at 61% due to the introduction of robotic surgery, which has reduced the loss drastically from 4 to 3.2%. We have an ARPOB here of approximately 34,000 and an EBITDA margin of 26.3%. And the FY '24 revenue for this hospital was at INR 65 crores. The Agartala hospital has received the BARC approval from the radiation oncology set up in this quarter, and we expect the same to be commissioned in the calendar year 2024. Here also the EBITDA margins have been at 26% with an ARPU of around INR 29,000. The hospital has achieved revenues of INR 117 crores, thereby achieving a growth of 12% Y-o-Y. Dum Dum hospital has recorded an ARPU of INR 38,000 for the year with a remarkable EBITDA margin of 29%. Dum Dum ALSO, which was higher at 5.2% earlier due to extensive renewal transplant program with 190 surgeries performed in FY '24. The revenue service hospital in FY '24 was INR 167 crores. The Howrah hospital has improved its occupancy from 39% to 44%, and this has led to an improvement in the revenue from INR 39 crores to INR 51 crores, an improvement of 31%, which is speaking on the EBITDA margins as well, improving from 2.6% in FY '23 to 11.5% in FY '24. The ARPU of this hospital also rose from INR 27,000 -- rose to about INR 27,700 from INR 23,300 and the ALOS was at 3.73%. In addition to our ongoing expansion efforts in Raipur and Ranchi, I'm excited to share our ambitious goal of becoming the 1,000 hospital chain in the next 2 to 3 years. This target underscores our commitment to scaling our operations and reaching more communities in need of quality healthcare services. By expanding our footprint and enhancing our capabilities, we aim to make a meaningful impact on healthcare accessibility and patient outcomes across the Eastern Indian region. This vision drives us forward, guiding our strategic decisions and ensuring that we continue to lead the way in delivering excellence in healthcare. To summarize, for the current financial year FY 2025, we expect a growth of 14% to 15% from the existing hospitals which will primarily be driven from improvements in the occupancy at Agartala and Howrah. And with operating leverage kicking in, we expect the EBITDA margin to improve from 23% to 24% at a network level. We also expect to maintain cash flow from operations to EBITDA at a healthy level of 90% -- 80%. During the year, we will commission the radiation oncology setup at Agartala, which will add revenues to that unit and the Raipur hospital will also be commissioned in the March quarter of FY '25. The Board has declared a final dividend of INR 1.5 per share, maintaining our dividend policy of rewarding shareholders. The total dividend declared for this FY '24 is INR 3.5 per share. Thank you for your attention, and I look forward to addressing any questions you may have. I will request the moderator to kindly open the floor to question and answers.

[Operator Instructions] The first question is from the line of Chintan Shah from JM Financial.

So first question is in terms of occupancy. So we see the occupancy levels for this quarter, I think for most of the hospitals, it has declined on a Y-o-Y basis. So could you just help us understand what is actually happening here?

So the quarter gone by has been a quarter where there's a lot of, I would say, weather related challenges. And the -- we expect the occupancy to improve for the full year. At the full year, we are tracking at almost 59%. We expect occupancy in the full year of FY '25 for the existing hospitals to also touch almost 65-odd percent. It was -- March quarter is generally a quarter which gives us almost INR 100 crores of revenues. And we received about INR 99-odd crores of revenues for the quarter as well.

Okay. So just to dive deeper into this, [indiscernible] I mean this also is a factor of say dynamic sector that is playing out. I mean, how should we understand from a, say, a medium to long-term perspective because our focus is more on micro markets, where we have been present for this hospital for quite some time? So say for one of the hospitals the occupancy has gone down from, say, [indiscernible]-odd percent. So just wanted to get a better sense, I mean, apart from the simplest thing, is there something else also to read into this?

Dum Dum -- on occupancy of 84% is an aberration. It is not -- we've always said it earlier as well that the optimal occupancy for any hospital is about 75% to 80%. Achieving 84% for the year last year was an aberration. And that's not where we look at because then the -- all the beds and all the resources of the hospital also gets stretched. So we -- that's why as a conscious call, we do maintain occupancy around the 75% to 80% mark. So that the patient service doesn't get optimized.

Okay. Got it. Understood. So just going ahead also next year, I mean the majority of growth is to be driven by occupancy. So what is this comfort basically that the occupancy levels will improve from here on?

So Agartala, like Anurag said in his opening remarks, we expect the radiation oncology set up to be started in this calendar year. That will obviously add to the occupancy in Agartala. Howrah has enough and more headroom to grow. The current occupancy in Howrah is about 44%. We expect Howrah to kind of follow the glide path of Dum Dum and reach an occupancy level close to 70% over the next 2 to 3 years. So those are the 2 hospitals which will drive the major improvement in the occupancy.

Okay. Got it. So is it fair to say for us occupancies to reach 65%, 70% takes approx around at least 5, 6 years?

Mature hospitals usually takes 3 to 4 years to reach that kind of occupancy. Howrah has, again, due to the 2 years of the pandemic -- kind of those, you can kind of knock off if you were to remove that from the Howrah operations. We are actually being in Howrah for now close to 3 years compared to 5 years that is optically available in Howrah. So pandemic was an operation and again. So in 5 years, we should hit it up by 65%, 70% for Howrah as well.

Okay. Got it. Understood. And just one last question. Any update in terms of the organic opportunity that we were looking at?

so inorganic opportunities we are evaluating. We are evaluating opportunities in Jamshedpur, in Guwahati as well. Some are in advanced cities, some are in very initial cities. We'll come back to the investors once we have finalized something. Right now, it's too preliminary to comment on.

The next question is from the line of Sunil Jain from Nirmal Bang Securities.

And my question is related to the utilization, how you expect utilization in Agartala and Howrah in FY '25?

So occupancy in Howrah, we expect to improve from 44% to almost 55-odd percent for the year. So almost a 10% increase. In terms of Agartala, we expect from 53% to almost 60-odd percent for Agartala.

Okay. So the utilization in Salt Lake like also, if you can say?

So Salt Lake occupancy utilization has dipped on account of the improvement in the ALOS due to the robotic surgery that we do and also because of the gastroenterology program led to some closure of some parts of the hospital because we have done the refurbishment of the gastroenterology department there. That should get back to the normal occupancy of close to 70% mark in this financial year.

[indiscernible], we are expecting the same thing. And sir, this -- is there any seasonality in Q1?

Q1 is a seasonally down quarter. Q2 is a seasonally good quarter generally. So that's across, I think, all the hospitals, its not just us. And also Q1 has also led to some challenges on account of the elections because some movement in -- a restriction in the movement of patients and their families also there.

Okay. And sir, the price increase, whatever you may be taking, any direction for that?

So we are very conscious of the pricing levels that we are at, like Anurag said in his opening remarks, we are addressing the middle to high income part of the society. We don't want to be very overpriced per se. We added 32,900 market of the ARROB at the network level. We expect the price -- we have already implemented some price increases, but the -- most of the business is driven by the insurance companies, the GYPSA rates. The contracts do come up for renewal once in 3 years. So on the overall basis, I think we expect the -- our ARROB to hit the 35,000-odd mark for the year. Close to 35,000 for the year from 33,000.

Consolidated level?

Yes, at the consolidated level.

Okay. But like what we see that Howrah has very low ARROB. So is there higher chances of improvement there? Or first, you will be looking for filling up the hospital?

So Howrah, honestly the ARROB was lower. So it is not that ARROB -- ARROB has improved from 23,280 to almost 27,670. That was an introductory ARROB per se for Howrah. Howrah is slowly catching up to the overall network level ARROB. It will take some time. We can't obviously do a price increase, a very drastic price increase overnight. Otherwise, there will be a lot of other challenges. So then will be a gradual exercise, not an immediate exercise.

Okay, sir. In this quarterly result, the other expenses is a bit higher. So is there anything accretional in that or its all normal?

Yes. So the other expense relates to doctor payouts and other household services, et cetera. And so there's nothing exception about it. It's almost flat from INR 37 crores to INR 38 crores. There is no challenge there.

Okay. It's likely to remain here?

Yes. In our presentation, we have also given a breakup of the other expenses. If you look at Slide 15 in our presentation, there is a breakup of this doctor payout and other expenses sort of improved that much, doctor payout is at almost INR 104 crores, at par with almost what it was last year.

The next question is from the line of Ankur Shah from Keyshare Capital.

Sir, can you just give a guidance on growth because I think till the time the 2 new hospitals won't come in, the growth is going to be related to pricing, right? So like it must be quite predictable so?

So the growth is not related to just pricing. It's also related to improvement in occupancy. In our opening remarks, we already commented on the growth per se that it will be at almost 14% to 15% from the existing hospitals. Obviously, the Raipur and Ranchi hospital, once they get commissioned, will obviously add better growth. But from the existing hospitals this year, we expect 14% to 15% kind of growth, both from a price -- a, increase in occupancy and b, increase in prices.

Because this 14%, 15% growth we are not seeing since the last 2 quarters.

So quarter is not a very, I would say, correct picture. If you see even last year, we have grown that much, almost 15-odd percent. This year, we've grown about 10.6 -- 11%, close to 11% this year and we expect to grow at the 14%, 15% mark. Slightly subdued on account of the refurbishment in Salt Lake, but that will also now go up because Salt Lake, the revenues were almost flat to INR 65 crores.

Okay. And sir the small oncology division, which was coming up in Agartala, any update on that and the kind of revenues which it can generate? Anything on that front?

So the oncology division, which is supposed to come in Agartala, we've received the BARC approval for that, and we are expecting the machines to get installed in the next 3 or 4 months. We've already started minor medical oncology work in that hospital. We expect the oncology program in the first year to contribute something to the tune of around 5% increase in revenues. Down the line, as program picks up, we expect a better input from there.

5% of the Agartala hospital, right?

Yes.

Okay. And sir, any updates to provide on the Raipur facility on the execution front?

So the Raipur hospital is currently in the completion stage. We expect that also to be commissioned in the last quarter of FY '25.

Okay. And the CapEx is going in line?

The finishing of the CapEx are in line. We are -- we have started the process of ordering equipment. So it is well on track, and we are confident of starting commissioning that hospital in the last quarter.

The next question is from the line of Sunny, an individual investor.

Hello, sir, am I audible?

Yes, please go ahead.

Regarding the Dum Dum Hospital, I just want to -- is there any room for expansion from the 125 beds that we currently have over there?

No, from an FSI perspective, we have maxed out the space available in Dum Dum. We don't have any space to increase the number of beds through a real estate perspective. We are looking at reclassifying our internal bed layout and adding the number of ICU beds there, which should add to the overall ARPOB level of that hospital.

Okay. And given that there's not much room for increase in occupancy in Dum Dum, can you give a breakup of the increase year-on-year? What was the ARPOB increase in FY '24? And next year onward, what is the planned occupancy percentage?

So FY '23, our ARPOB was around 32,000 mark. By focusing on high-end surgeries and short surgeries, we've managed to increase the ARPOB to 38,000 in FY '24. We expect ARPOB to this year to be maintaining at around the 40,000 mark.

Okay. Okay. Okay. So it's a mix of the case mix as well as rate increase, it's a mix of both?

Yes.

The next question is from the line of Priyanka Parekh from MSE.

Am I audible?

Yes, sir.

Wanted to understand on the plan to deploy our treasury investment and cash. So I think we have around INR 65 crores of cash. And you are saying that INR 55 crores of the CapEx funding for Raipur hospital would be from internal accrual and debt. So I wanted to understand what we are going to do with this INR 55 crores of cash and investment?

Sure. So you're right that we have about INR 55 crores in terms of corporate treasury. This is for funding our expansion program. This year, we expect to spend about INR 10 crores in terms of maintenance CapEx and about INR 55 crores in terms of -- for the hospital in Raipur. This would be funded by a mix of debt and equity, like we have said earlier. We are mindful of the fact that the long-term equipments like MRI, CT scans, the radiation oncology equipment wherein we can get cheaper financing from the equipment suppliers like Siemens, Dragger, you would take on that cheaper financing model and the balance would be spending from the internal accruals. Like we said earlier in our opening remarks, the EBITDA -- the cash flow to EBITDA is also quite strong at 90%. And this will not be just funded by the treasury sitting on the balance sheet, but also the internal accruals for this financial year FY '25 as well.

Okay. And how much would we have earmarked for inorganic expansion?

Inorganic expansion, honestly, there's nothing that is earmarked per se. We don't have a number. It is an opportunity -- once we identify any opportunity, we get a valuation on the table. Then we can obviously leverage the balance sheet further as well if required, but we don't anticipate that too much because we are very -- we don't have any debt on the balance sheet right now. There is some debt, about INR 10-odd crores, which is hardly needed on the balance sheet. So we have enough headroom in case we get a good opportunity in terms of inorganic proposals as well.

Okay. So if I have to ask in some different ways. So the INR 55 crores that we currently have in our balance sheet is like we foresee the plan to deploy the same next 1 to 2 years?

We don't have INR 55 crores of debt. We have, in fact, it was an investment on the balance sheet. So we expect to use that mostly for inorganic opportunities. And -- but for the Raipur to be funded from the accruals for this year as well as part on debt.

Okay. Got it. Next question is on -- so I was going through your annual report. And how that you have pharmacy sales classified in the last 3 annual reports. So I wanted to understand what exactly is it?

So 2 of our -- 3 of our hospitals have an outpatient pharmacy. These pharmacies are -- other than Salt Lake, Agartala, Howrah and Dum Dum. This is coming as part of pharmacy sales. The pharmacy that -- the medicines that are administered to the patients that admitted to the hospital come as sale of services, not come as sale of pharmacy.

Okay. So it is not a retail pharmacy?

No, it is a retail pharmacy, but it is not outside the hospital, it is part of the hospital building.

Okay. Okay. So any patient coming in would have option to buy those medicines from...

Correct, or even since we are located in a neighborhood -- in a very densely populated neighborhood, if someone is staying next door, they can also walk into the pharmacy and buy any medicine he or she requires.

Okay. So we reclassified the pharmacy sales of FY '22, to the medical services in the annual report of FY '23. So wanted to understand why we did it and how we think about it?

So we reclassified it because inpatient pharmacy sales have gone to a sale of services and not a sale of goods because that was -- that is more in line with the GST requirement because GST is charged on outpatient pharmacy sales -- for the outpatient pharmacy sales. For inpatient, there is no GST that is charged on as per the GST norm.

Okay. And the sales we are seeing in FY '24, how much is from pharmacy sales?

The sales in what? From the...

[indiscernible] that is INR 400 crores of sales. So how much is coming from there?

So pharmacy, if you see the consumption of pharmacy is almost 20-odd percent, which is almost INR 80-odd crores consumption of pharmacy. Sales, I would hazard a guess, honestly, but I would not like to give an incorrect number right now.

Okay. Got it. So any we see -- any sales we see would have 20% odd coming from pharmacy sales.

20% is my cost, 20% not sales. 20% is my cost.

The next question is from the line of Sagar Doshi from Future Investment.

Yes. So I wanted to understand regarding the new hospitals that we are coming up. So let's say the Raipur which is on an asset-light model. So out there, how do we share revenues with developers, so what percentage if it add? And due to that scenario, what would be our margins be? So let's say, when the hospital is matured, will we be able to maintain an EBITDA margin of 23%, 24% or due to revenue sharing it would go down? And what would be the scenario there? That is what I want to understand.

So the upcoming hospital at Raipur and Ranchi, in fact, both are on fixed lease rental. We are not -- we have not entered into any revenue share program with the partner. It is a fixed lease rental. We've taken the building on a long-term lease rental of 60 years from the developer. As far as the EBITDA margins are concerned, it will not affect the overall EBITDA margin because it goes in below the line in IndAS reporting.

The next question is from the line of Jainil Shah from JM Financial.

Hello, am I audible?

Yes, sir.

Yes. So my question is on what's the current status of Ranchi hospital?

So with regards to the Ranchi hospital, we have started receiving the due approvals from the state government, which is slightly like delayed on account of elections right now. There are a couple of approvals pending after which we will start the construction. The developer will start the construction process for us.

So which approvals are pending now?

At this point, the pollution approvals are still pending, which we are waiting.

Okay. And it would take another 1.5 years to get?

The pollution approvals are pending on the developer end. So developers actually looking after the approval process. Once we get all the approvals, the finishing will take another 2.5 years, 2 to 2.5 years.

Okay. Okay. And how is the doctor engagement going on in Raipur?

So Raipur, doctor engagements are going on well. We have considerable interest from the market. Our operations teams are engaging with clinicians from that area, not just limited to Raipur but overall Chhattisgarh and we are having some keen interest of doctors wanting to associate with us.

Sure. And on the inorganic side, when do we target this particular acquisition. So I mean should we expect an announcement this year or next year?

So like I said earlier, inorganic opportunities, we are actively scouting for new opportunities. We're looking at opportunities in various cities in the eastern part of the country. Some are in discussion stages, some are in very preliminary stages. I can't give honestly a date as to when we can announce. It could be as early as this year, it could be as well, but the Board is also conscious of the fact and there has been a discussion in the Board to kind of get the opportunity done in this financial year. So, let's hope we can keep our fingers crossed that we do something in this financial year.

The next question is from the line of Sunny, an individual investor.

I just want to know, as a percentage of our total revenues, how much does our OPD sales contribute? Outpatient department sales?

Close to 18%.

Close to 18%. And lastly, how much does this transplant surgeries, everything contributes of all the hospitals together?

The transplant is only in the Dun Dum hospital. So in Dum Dum hospital transplant program would contribute -- I mean as a percentage of the overall sales, transplant will contribute to about 7.5%, 8%.

Of our overall sales in Dum Dum hospitals.

No, not Dum Dum, of the overall sales.

The next question is from the line of Ankur Shah from Keyshare Capital.

Sir, I just wanted to know the thought process behind the inorganic acquisition and -- because you see in the past, we have executed the hospitals on our own, we have built it from scratch. And also, generally, these areas, which we are talking about, maybe Jamshedpur, Cuttack, I wouldn't imagine a shortage of land or something. So what we will be the rationale to go inorganic because obviously, inorganic is always going to cost you?

So the rationale, honestly, for an inorganic opportunity is time to market. Time to market is much faster. And sometimes, we are getting a lot of opportunities for hospitals in these cities wherein the doctors have either aged and or the next generation is not interested in running the hospital anymore or there are multiple partners and they are falling apart. So then it gives us an opportunity to step in and kind of get to the market much faster compared to greenfield hospital, which typically takes 2.5, 3 years.

Yes. Because typically, if I look at the criteria which you mentioned, the quite interesting in the sense that you do the very good neighborhood of area where there's a lot of population, then you try to be within that 100, 130 bed. So all of these criteria -- maybe inorganic, I would think that there would be some compromise just to make the deal.

Not necessarily. The deals that we're looking at are having that filter that we have discussed.

The next question is from the line of Harsh from Bhandan Asset Managers.

Am I audible?

. Yes, you are. Go ahead.

Just 2 quick clarifications. One, just to understand the growth profile for the third quarter and the fourth quarter. So it is a bit repetitive, but I just reiterate what I understood. Is that the 3% to 4% year-on-year growth is, one, is the Salt Lake you have the gastro refurbishment, which may have impacted the growth? And the second aspect could be to do with the Dum Dum base, the COVID base in Dum Dum numbers. So these are the 2 major reasons, which is why we are seeing that significant growth rate. That would be the right assumption for third quarter and fourth quarter?

No. The second one is incorrect because the COVID base was not in Dum Dum in FY '23. FY '23 was fully non-COVID year. Dum Dum, we have strategically kind of pivoted away from an overdependence on the transplant program, and we are now doing much more critical care cases like Anurag said, we're kind of having more -- we are changing beds to more ICU beds. So that will actually improve the case mix and further improve the ARPOB of the hospital with shorter stays as well. Right now, it's above 5, which is slightly a number that we are not comfortable with. We want the ALOS to be around 4 there as well. So that's the idea of driving down the ALOS at Dum Dum as well.

Sure. And just on the Raipur right commissioning part, I think so from the last call, you had mentioned that, if I'm not wrong, you had mentioned that it might take 2 to 2.5 years for that breakeven and at least that's what I can understand. Is this certain develop remodeling or something that has been done at the back end for us to understand what would be the first 12 months of level of operating losses because that breakeven level would kick in somewhere around, let's say, 30%, 35% of profitability. So you must have some level of operating losses in the first 12 months. Is there anything we should keep in mind just for our modeling purpose to that extent?

Sure. So in terms of Raipur, we expect the month-on-month EBITDA breakeven to happen around the 15- to 18-month mark. We have historically done in the month-on-month EBITDA breakeven for our hospitals in the 10th month in Dum Dum and the 8th month in Howrah. We are mindful of the fact that we are moving away from our home market. Raipur would be slightly newer market for us. We are doing the branding exercise accordingly. You're right that the number would -- in 2 years, we would do a full breakeven. On a month-on-month basis, we would do EBITDA breakeven around 15 month. Going back to a question with respect to the first year losses, honestly, it's too premature to say that right now. We will come back to you in the next couple of quarters once we are closer to commissioning.

As there are no further questions, from the participants, I now hand the conference over to the management for closing comments.

Thank you, everyone, for your questions, which I hope we have suitably addressed. In case you have any further queries, please get in touch with us on or through our IR advisers. Thank you for your continued support and trust in our company's vision and capabilities. Together, we look forward to achieving new milestones and creating lasting value. Thank you, and have a good day.

On behalf of JM Financial, that concludes this call. Thank you for joining us, and you may now disconnect your call. Thank you.