HealthCare Global Enterprises Limited (HCG) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the HealthCare Global Enterprises Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Suraj from CDR India. Thank you, and over to you, sir.

Thank you, Sagar. Good afternoon, everyone, and thank you for joining us on HealthCare Global Enterprises Q1 FY '27 Earnings Conference Call. We have with us Dr. Manish Mattoo, Executive Director and CEO; Mr. Sanjeev Kumar, Chief Financial Officer; and Mr. Ravi Gothwal, Head of Investor Relations. We would like to begin the call with opening remarks from the management, following which we will have the forum open for an interactive Q&A session. Before we start, I would like to point out that some statements made in today's discussion may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Dr. Manish to make his opening remarks.

Management, please go ahead.

Good afternoon, everyone, and thank you for joining us for HCG's Q1 FY '27 earnings call. Before I begin, I would like to warmly welcome our new Chief Financial Officer, Mr. Sanjeev Kumar, who has recently joined HCG. Sanjeev brings more than 3 decades of experience across finance, strategy and business transformation, and I'm delighted to have him as part of our leadership team. His experience will further strengthen our execution capabilities as we continue to build India's leading oncology platform. As we enter FY '27, our focus has progressed from laying the foundation to executing our strategy and delivering consistent operational and financial performance. Over the past years, we have achieved several important strategic milestones that strengthened our position as India's leading oncology platform. We sharpened our strategic focus through the successful divestment of our Fertility business, which was completed at the end of June '26. We also strengthened our balance sheet through a successful rights issue, expanded our leadership team, successfully commissioned our North Bangalore hospital and continue to advance our brownfield expansion pipeline and other growth initiatives. With these foundational initiatives in place, our priorities are clear: delivering sustainable, profitable growth, driving operational excellence, improving asset utilization, enhancing patient experience, building our clinical differentiation, optimizing our revenue mix while reinforcing our leadership in cancer care. I'm pleased to share that we have started FY '27 on a strong note. During the quarter, HCG delivered revenue of INR 6,951 million, representing approximately 13% year-on-year growth. Our newly operational North Bangalore hospital, which commenced operations in May '26, contributed INR 67 million during this very first quarter. More importantly, growth was broad-based with 16 out of our 25 centers, excluding North Bangalore, delivering their highest ever quarterly revenues, reflecting sustained patient demand and improving execution across our hospitals. Revenue growth during the quarter was primarily driven by an 11% increase in patient volumes. ARPP grew by 2%. ARPP improvement driven by annual price hike and favorable payor mix, partly offset by changes in case mix, including a lower contribution from high-value low-margin therapies. Our objective is not to only grow faster, but to grow with a better quality of earnings by treating more complex oncology cases, improving our patient mix, enhancing productivity and generating stronger returns on the capital we deploy. We believe this disciplined approach will create sustainable value for both our patients and our shareholders over the long term. I'm encouraged to see the strategy translating into visible outcomes. During the quarter, noninstitutional business revenue grew by 17% year-on-year. As a result, our payor mix improved with noninstitutional contribution increasing from 67% in QY '26 (sic) [ Q1 FY '26 ] to 69% in Q1 FY '27. This gradual improvement in revenue mix is an important driver of sustainable profitability and strengthens the long-term quality of our earnings. On the profitability front, reported EBITDA for the quarter stood at INR 1,223 million, excluding losses from North Bangalore and one-off costs, adjusted EBITDA increased by 20% year-on-year to INR 1,339 million, with EBITDA margins improving to 19.4% from 18.2% in Q1 FY '26. This demonstrates that the underlying operational performance of the business continues to strengthen. Overall, our Q1 performance reflects healthy operating momentum across the network, supported by robust patient demand, improving operational execution and continued progress in enhancing our revenue mix. Let me now briefly touch upon the performance across our operating clusters. The South cluster delivered another strong quarter with revenue growing approximately 16% year-on-year, supported by healthy growth in both patient volumes and realizations. We also witnessed continued improvement in the cash and TPA mix across the Bangalore Center of Excellence and the Vizag cluster. As a reminder, the South cluster numbers include the newly commissioned North Bangalore hospital, which contributed INR 67 million of revenue. The West cluster reported a growth of 9%, led by the Maharashtra region, which grew by over 14%, while growth in the Gujarat remained relatively moderate during the quarter. Overall growth was led by volumes, which grew 11% year-on-year and ARPP remained broadly stable during the quarter. The benefits of an improving payor mix were largely offset by changes in case and service mix, including a higher share of medical oncology patient footfalls, which typically carry a lower average revenue per patient. Furthermore, institutional business in West cluster declined by more than 16% year-on-year, which moderated overall revenue growth of the cluster. However, this is consistent with our strategic focus on improving the quality of revenues, and we expect this business to be progressively replaced by higher-value cash and noninstitutional patients over time. East cluster delivered strong 22% revenue growth during this quarter, driven by robust volume growth across the region. Despite temporary moderation in ARPP, healthy patient volumes continue to support strong top line momentum. We remain confident that a significant increase in patient throughput provides a strong foundation for future growth. This provides us with adequate financial flexibility to fund our expansion pipeline while maintaining a disciplined approach to capital allocation. Looking ahead, I'm particularly encouraged by the initial performance of our North Bangalore hospital, one of our most important strategic investments. In the very first quarter, the hospital recorded over 550 new patient registrations, more than 300 admissions. While the hospital is still in the early stages of its ramp-up, these early operating metrics reinforce our confidence in the long-term potential of this asset. We expect utilization to improve steadily over the coming quarters as insurance empanelments are completed, onboarded clinicians ramp up their practices and awareness and brand record in the surrounding catchment continues to increase. Our capacity expansion continues to progress well and remains an important growth driver over the coming years. During the quarter, we added 121 operational beds across the network, including 61 beds in the South cluster, 27 beds in West and 26 beds in East cluster and 7 beds in our Kenya unit. Looking ahead, we have plans to add additional 65 beds in FY '27, 520 beds in FY '28 and FY '29, and 230 beds in FY '30. Nearly 60% of our planned capacity expansion continues to come through brownfield projects, enabling faster execution and low CapEx, whereas 3 greenfield projects are in the pipeline, and we will share more details once finalized. And please refer to Slide 12 of the presentation for more details. Alongside bed expansion, we continue to strengthen our clinical capabilities by investing in advanced technologies. During the quarter, we commissioned a new LINAC in Rajkot, completing its transition into a Comprehensive Cancer Center. We also enhanced our robotic surgery capabilities with the addition of 2 surgical robotic systems, a new installation at Nashik and the replacement at our Bangalore CoE. Clinical excellence remains at the heart of HCG's clinical presentation. During the quarter, our team successfully managed several highly complex oncology cases across surgical, medical and radiation oncology. These included advanced CAR-T therapies for relapsed hematological cancers, rare anatomical cancer surgeries, first of its kind minimally invasive thoracic procedures and complex organ-preserving oncological surgeries. Such cases reflect the depth of our multidisciplinary expertise and reinforce HCG's position as a referral destination for complex cancer care across India. Overall, we are encouraged by the momentum we are seeing across the business. The strategic actions undertaken over the past year have significantly strengthened HCG's platform, and we believe the company is well-positioned to deliver consistent, sustainable and profitable growth while further consolidating its leadership position in oncology care. With that, I would like to hand the call back to the operator. I will be happy to take your questions.

[Operator Instructions] Your first question comes from the line of Sumit Gupta from Antique.

Hello, am I audible?

Yes, sir, you are audible.

First of all, congrats on a good story in the PPT. So, I have two questions. So, first of all how is the performance in the various buckets of like we were on the per month revenue there. So like in the last quarter's PPT you alluded kind of in the more than INR 10 crores of revenue per month, and then INR 5 crores to INR 10 crores. So how do the performance in those buckets for this quarter?

You are not clearly audible. Sumit, can you repeat the first question again? The line is not clear.

So basically, my question is one the performance of the various buckets of the revenues. So basically in the -- more than INR 10 crores of per month revenues and then INR 5 crores to INR 10 crores. How is the performance in those buckets this quarter?

So, yes, you mean you are referring to the bucket, you know the revenue bucket that we've included in our presentations?

So, this quarter you have not highlighted that. Yes, how is that performing?

Yes. That's right. I mean we believe it will be an annual disclosure. But however, since you asked that question, the bucket with more than INR 10 crores per month revenue we've got from last year 4 hospitals, we moved to 7 hospitals. So we've added 3 new hospitals to that. And the bucket with INR 5 crores to INR 10 crores per month revenue, that number has gone down from INR 14 crores to INR 11 crores. So we are seeing more and more hospitals moving off that ladder of higher revenue number per month. And then the last category with revenue less than INR 5 crores per month, that number has gone from INR 6 crores to INR 7 crores with the addition of North Bangalore to that group.

Okay. Sir, what will be the like-to-like growth in those buckets?

So Sumit, I don't have that number right now, but we can offline connect with you and give you that.

Understood, sir. And so, second question is like in the investor presentation that you have highlighted. So, in FY '28 and '29, there are 180 beds on the greenfield side. So, like which of can we expect these projects to be formed?

So these 180 beds will obviously come from 2 greenfield projects. One of them is in our South cluster in Whitefield. The other one is in Maharashtra in our West cluster. So I think the likelihood of the first one to operationalize is somewhere at the end of FY '27, '28 and the other one in the subsequent year.

We take our next question coming from the line of Jimmy, an Individual Investor.

Yes. Am I audible?

Yes, sir, you are audible.

My question is, can you paint a picture on the plans in reducing the borrowings? What's the strategy of the company in reducing the financial cost?

Sorry, could you come again please?

Yes, what is the strategy of the company in reducing the financial cost? So if the company going forward would have a strategy to reduce the borrowings, so the profit would be evidently visible in the financial sheets.

Sorry, Sanjeev this side. As you actually see that the interest cost has come down during this quarter because of the proceeds that we have raised from the right issued that has been used for the purpose of leaving but actually some of the most almost amounted to a INR 70 crores. We will actually continue to actually fund our growth through a mix of debt and then as internal accruals. And based on which the interest cost will actually fluctuate from year to year. But certainly at this point of time in this year, we expect it to be more rigid from the last year perspective as compared to last year.

[Operator Instructions] Your next question comes from the line of Aditya Chheda with InCred Asset Management.

So as per the slide in investor presentation on bed expansion, the bed expansion compounds at an 8% CAGR from '26 to '29 against our outlook of a mid-teens revenue growth. So I would like to know your outlook on the same center growth, case mix, higher occupancy, et cetera, how this mix will contribute towards the overall outlook that you have on revenue growth? So how are you looking at this internally? That's my first question.

So, we remain confident of delivering a mid-teens growth from the existing centers and including the new ones that we're building through the greenfield and brownfield expansion. So put together, as I said earlier also, we remain confident of delivering mid-teens growth, and there is no change in that outlook. Our focus will remain on margin improvement, which will improve progressively on the back of improvement in payor mix, high complexity of clinical work, paring down of the losses from the new hospital and better operating leverage coming from existing centers. So I think it's going to be a mix of mid-teens growth and focus on increasing our margins.

Next question is on your outlook on the expected loss from the greenfield facility for FY '27. And also now that the ESOP plan is approved, how do you expect the quantum to be charged going forward? And yes, these are the two questions.

Aditya, can you repeat your second part of the question?

The ESOP plan that was approved, how do you expect the charge to sort of hit the P&L going forward?

So on your first question, Aditya, we are very excited about the way North Bangalore has starting to ramp up. As I had mentioned earlier, we've done nearly INR 70 crores in the first quarter itself for Comprehensive Cancer Center, that's a good ramp-up. And we are very excited by the quality of clinicians that we have on board. We have South India's second and perhaps India's most modern MR-LINAC, which gives us a very sharp clinical differentiation. We are among the very few hospitals in this part of the country to have organ-specific surgical teams, and we've got very good response from the community so far. So very excited about the ramp how the early traction has been. We have onboarded key doctors. That process is complete. MR-LINAC commissioning happened in July. So most of the cost has been incurred. And now we are focusing on creating awareness in the market through digital campaign. So that process is on. So as I think most of the costs have been built in, I feel we've reached the peak EBITDA loss in this quarter. So from here on, we feel as we ramp up clinician practices, insurance impairments happen and revenue goes up meaningfully, I think the losses will come down quite reasonably in the next few quarters. So that's our projection for North Bangalore. And on the second question, the ESOP policy is undergoing final stages of approval, and that charge will impact the company's P&L in quarter 2.

Okay. One last question was about the likely impact of the discontinuation of some of the chemo drugs. How much of the impact are we expecting in the current financial year from those? That's it from my end.

So the impact in Q1 has been about 1.5% on our top line. And that's why I think if we were to plow that back, the top line would have been around 15%. But having said that, we have discontinued those drugs because while they were high value, they were low margin. So while the impact is about 1.5% to the top line, it has been margin-accretive for us, which is reflected in our margin expansion on a like-to-like basis. And I mean, for the next few quarters, it will remain in the same vicinity, might marginally come down also as it gets replaced by higher-margin catchment.

[Operator Instructions] The next question comes from the line of Jyothish Vijayan with Moat Financial Services.

So my question is on the operational excellence side. On the third page of your investor presentation, you mentioned that there are some key initiatives are underway. The first one is cost optimization and the second one is driving productivity improvements. And the third one is enhancing the patient experience. So could you please add some color on what kind of initiatives are undergoing in the cost optimization side?

See, on the cost side, we see there is an opportunity across all the cost line items today. And the work is happening both on manpower costs and other fixed costs across centers. We are using a lot of automation and data analytics on that. As far as patient experience is concerned, cancer is a very serious and I think there is never enough that we can do to make our patient experience better in our hospital. So we've set up a dedicated team to look into areas where we can make the experience inside the hospital better when it comes to infrastructure, the services we are delivering. While many of our hospitals are doing a great job, but I think there is still headroom for us to improve that. And the third piece is around productivity. So we are looking at both the clinical and the nonclinical productivity, how do we assist our clinicians with better technology and sales and marketing accelerated efforts to improve their practices. So that's one part. And the other part is the nonclinical productivity that will come through better conversion and cutting the revenue leakage. So all that work is happening across the organization, which will be EBITDA-accretive at the end of the day. But more importantly, I think the big piece is that how do our patients how does their experience inside our hospitals become significantly better.

Okay. Got it. And my second question on the revenue growth side. So how much the revenue contribution -- the increased revenue contribution from the ARPOB increase or the patient product that mix increase or the volume increase. So could you please break down that?

So the growth will be in line with our inflation. And I think that's all the projection that I can give you today as of now. So are you there on the line?

Yes, I'm here. Yes. So on the last question from my side is, in this quarter, you completed the strategy exit from Milann. So how that exit will -- you mentioned that strategy exit will sharpen the focus on core oncology and enhance the management focus and execution. So how that exit will guide or what will be the strategy for that or what triggered the exit from Milann?

So the focus is on building our technology, our clinical capabilities, starting new programs like CAR-T cell therapies in our major centers, starting bone marrow transplant program in major centers, including the robotic surgical work that we are doing or the multidisciplinary clinical protocols that we have in our centers, how do we advance that in all the centers. So I think it's going to be a mix of all that. The idea being how do we invest more in precision diagnostics, in precision oncology through targeted cell therapies, more advanced radiation therapy technologies. So all that is aimed at giving our clinicians more tools so that they can perform better, more complicated procedures and deliver on better outcomes, which we are known for in any case. So that's really the focus on core oncology if you're referring to that in presentation.

Your next question comes from the line of Himanshu Binani with Anand Rathi.

So sir, you have like mentioned in your opening remarks as well as into the press release in terms of like there has been record improvement or record quarterly revenues from 16 centers out of the 25. So maybe if you can help us understand in terms of like which bucket of the centers have actually moved up the value chain. So what I believe is that till last quarter we used to like report the INR 10 crores, INR 5 crores to INR 10 crores monthly revenue and below INR 5 crores bucket. So maybe if you can help us understand that.

So actually, Himanshu, the growth has been broad-based across buckets. From the smallest sized hospitals to the largest, most of the hospitals have done well. So it's not restricted to any bucket. But what has particularly happened is that 3 hospitals particularly have moved up from the INR 5 crores to INR 10 crores trajectory to INR 10-plus crores trajectory. That's been a plus. So you can see the quantum of growth that some of these 3 hospitals must have had. But again, just reiterating that the growth has been broad-based across regions and across the size of the hospitals.

And sir second, if you can kind of elaborate on the FY '28-'29 we have 340 brownfields beds additions. So maybe -- but then if I actually go to the Slide 12 of your presentation so the brownfield details which you have like given so that is actually not adding up to 340 so maybe what are the extra beds there you are like adding up.

So, this brownfield addition of 340 beds will be across our 25 centers. We have mentioned few of the centers, but then there are other additional centers where we have the capacity. So, we will operationalize more beds during the later part of FY '28 and '29.

And maybe if you can like help with the centers most likely the beds can be added.

So, just to add to that what Ravi has just said, I think this is where the beds needs to be added is also an activity of assessment on an annual basis on the basis of the capacity and its utilization and that is the reason why we have actually started that where there is a certainty committee that is defined as a part of the annual exercise that we will undertake. Let's say in the month of January to March quarter, we will actually again look at where are the other beds really are required in various facilities, and we will take a conscious call to really add in those capacities for as far as the brownfield expansion is concerned. And we know that there are lot of facilities where brownfield facility is available, which is indicated about very clearly that there would be 520 bed additions between the two years. And Himanshu discovered just 6 hospitals. And these are the major meaningful additions in terms of quantum. But there are many other hospitals in this which are not mentioned here, like Baroda, Cuttack, Ranchi, or many other hospitals which will have additions from 10 to 15 beds, so which we haven't mentioned here. And I think there's a long tail which, as they improve their occupancy levels and all and we will have benedictions coming at the right time.

[Operator Instructions] The next question comes from the line of Devang Patel with Sameeksha Capital.

My first question was on CapEx. How much did we spend in Q1? And apart from the CapEx mentioned in the presentation, what would be your CapEx for maintenance and upgradation per annum?

We have incurred a CapEx of approximately INR 750 million. And as far as the particular age is concerned, yeah, between the growth and the 19-year-old, we have incurred almost INR 35 crores on account of growth capex and almost INR 40 crores in terms of the maintenance CapEx.

And also if you can indicate for the full year what would be our spend on just maintenance and upgradation.

So, on the year-over-year basis, we actually looked at, the maintenance CapEx is likely to be approximately INR 100 crores in each year and that's what we are trying to have.

Okay. This is over and announced the CapEx mention in for brownfield and greenfield CapEx right?

Yes. So the CapEx that I mentioned is INR 75 crores is actually growth and maintenance CapEx both.

Our utilization level for the Southern cluster was at 68% in FY '26. I know you put up a new hospital in North Bangalore, but does the existing cluster till what level of utilization can you take it without growth getting affected?

So, the existing facilities can manage utilization level up to 75%, 80%. So, there is ample headroom for both in our clusters across the board.

Right, the other question was on marketing and promotion spends, one of the targets was to increase brand visibility. So, have you seen a step up in the spends or meaningful step up from earlier?

Yes definitely we have doubled down sales and marketing efforts because it is a specialty which relies a lot on these channels for the initial volume and HCG enjoys a very strong brand we call it many market but it needs to be calculated down to all our consumers. So, we have doubled down on sales and marketing efforts and then branding efforts too and you can see that in this page.

Of course, just a broad sense of how much percentage point increase has happened in the spends.

Why we actually don't give the specific each and every expense? But I can tell you that as per HCG's marketing is concerned on a year-on-year basis the expense is having increased by a meaningful more than almost 20% plus.

Okay. Just lastly the new hostel opened at North Bangalore you mentioned you will break even on a few quarters by what time period do you see that reaching full utilization or an optimum utilization.

I think full utilization would I mean very difficult to predict right now because it is dependent on many factors, but I think the optimal utilization of 60%-65% we should be anywhere between third to fourth year of operation.

But just to add to that, what we expect is the kind of form that we have got. Initially in our North Bangalore facility, we certainly expect to have a monthly breakeven in this year.

Our last question, apart now that we have the funds in the lag is M&A also a part of our focus in the next two years or that is something more beyond near term?

No, definitely it is. Whenever we get a value-accretive opportunity which aligns with our values and helps to expand our presence in the new market or existing market, we will definitely go for it.