Krishna Institute of Medical Sciences Limited (KIMS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the KIMS Hospital Q1 FY '26 Earnings Conference Call hosted by IIFL Capital Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jeewani from IIFL Capital Services Limited. Thank you, and over to you, sir.

Thank you, Shruti. Hi. Good morning, everyone. This is Rahul from IIFL Capital. I welcome you all to the first quarter earnings conference call of KIMS Hospitals. From KIMS, we have with us today Dr. Bhaskar Rao Bollineni, Founder and Managing Director; Dr. Abhinay Bollineni, Executive Director and CEO; and Mr. Sachin Salvi, CFO. Over to you, sir, for your opening comments.

Greetings, and a hearty welcome to you all. Next week, we are going to celebrate 78th Independence Day. The air is full of Independence Day and other ensuing festivals. You will be pleased to know that this is our Silver Jubilee -- we started our journey in 2000 with our first hospital in my native town of Nellore in Andhra Pradesh with our objective of providing affordable and accessible health care. Encouraged by the overwhelming response, we expanded to other towns and opened our flagship hospital at Secunderabad in 2004. Today, we have 25 centers across 5 states with a bed capacity of 8,000 and a strong workforce of 20,000 plus and all set to grow further in the near future. All this is made possible due to the trust and confidence of patients arising out of our clinical excellence, outcomes and latest technology and of course, support of you, investors. Let me now rush to the present the financial and operational highlights. Total revenue of INR 879 Cr, a growth of 26.8% on YoY and 9.6% on QoQ basis. EBITDA of INR 200 Cr, a growth of 8.5% on YoY and a de growth of 1.4% on QoQ basis. EBITDA margin at 22.7% vs. 26.6% in Q1 FY25 and 25.3% in Q4 FY25. PAT at INR 85 Cr in Q1 FY26 against INR 95 Cr and INR 106 Cr in Q1 FY25 and Q4 FY25 respectively. Consolidated EPS for Q1 FY26 of INR 1.96, a degrowth of 9.2% on YoY basis. Cash and Cash Equivalents includes Cash, Bank balance, Deposits with maturity less than 12 months and Investment in Mutual funds at INR 70 Cr as on Q1 FY26. Q1 FY '26 financial highlights, the consolidated one. The consolidated revenue from operations of INR 872 crores, a growth of 26.6% on year-on-year and 9.4% on quarter-on-quarter basis. Consolidated EBITDA pre-Ind AS of INR 194 crores, a growth of 9.8% on growth of 1.5% on a quarter-on-quarter basis. Consolidated EBITDA pre-Ind AS, excluding other income of INR 187 crores, a growth of 8.6% and a degrowth of 2.9% on year-on-year and quarter-on-quarter basis, respectively. The new units, the quarter was packed with action. We launched our Thane unit, and it has made a promising beginning. We also launched our 2 units at Bangalore, done the Puja in Mahadevpur and Electronic City with a bed capacity of nearly 800 beds, both the units put together and may be operationalized in the quarter 2 and almost all the licenses and everything has come. So we are in a position to start very soon. And our new units in Kannur and Kolam in Kerala receiving encouraging response. We also opened our new units in Seethammadhara at Visakhapatnam, along with fertility center, [indiscernible], child care and a specialty unit. We also opened 120 beds -- 100 beds in Srikakulam, the new facility. Maybe in the next couple of quarters, we may be opening in oncology in Anantapur and Wembur. So these are all our new things which we planned are going in a proper manner. maybe 1 or 2 months getting delayed because of the licenses to get from the organization in the government. And we also have a very good clinical achievements we achieved in this last quarter, a lot more are there with all these clinical achievements, and we are growing much faster starting from a 1-year baby to 85-year-old male. And with all these clinical achievements, there is a proper growth which are going to come up. And these stories make the achievements that much. Interaction with international experts is a regular phenomena at our hospital. Last week, Professor Kelly Hunt, Prof, Department of Best Surgical Oncology, the University of Texas MD Anderson Cancer Center, hosted vis teams and delivered a lure on advancing surgery through collaboration and science. There was a lively academic interaction. We should greatly appreciate the expertise and latest infrastructure. So I conclude now assuring you of our continued efforts to expand our reach and pursue excellence for an even better performance in future. Thank you.

[Operator instructions] The first question is from the line of Damayanti Kerai from HSBC.

My first question is on your new units related cost. So it appears that the losses which you have booked from these new units in 1Q is high. So how should we see like especially Nashik, Thane is something which I understand contributed towards the losses. So if you can share how do you see operations scaling up at these units? And what kind of losses you are expecting, say, for this year and FY '27?

So as far as -- so we have 5 hospitals which are new in the system and which are contributing to small margin or losses. So coming to Maharashtra cluster, we have Nashik and Thane. The ramp-up at Nashik has been a little slow because of tie-up from insurance -- delaying tie-up from insurance and corporate. But otherwise, if you look at the cash business ramp-up, it is quite decent, and we are pretty happy with the response so far. But there are some losses from the Nashik unit, which we feel will neutralize by the end of Q2. As far as Thane is concerned, the ramp-up has been significantly good. The month of July, we closed a revenue of INR 9 crores from the Thane facility, which is much better than what we had expected. We see a very positive trend as far as Thane is concerned. So by end of Q3, we should neutralize the losses from Thane as well and it will be EBITDA neutral. In the Kerala cluster, we have 2 units. One is Kannur, which is EBITDA positive. We have Kollam, which is -- there was an EBITDA drag in Q1, which also is because we are doing a lot of renovation work. But Q2, we should neutralize the EBITDA losses from the Kollam facility, which is commissioned in Kannur. And from Q3 onwards, it will start contributing to EBITDA.

Okay. So all these put together and plus 2 new units in Bangalore, which are going to start in next few days or so. What kind of losses we should bake in for this year from the new unit?

As far as Q2 is concerned, I think from both Nashik and Thane, we should have a loss of around INR 8 crores to INR 10 in Q2. And as far as Kerala is concerned, we should have it neutralized, so there won't be much losses, maybe INR 1 crores at best. And as far as Bangalore is concerned, because we'll start commissioning the hospital now. We got our Pollution Control Board license just yesterday. In another week, we should get our KPME license a week to 10 days. And once we get it by -- towards the end of August, we should commission both the hospitals. So that will be another INR 10 crore drag for the month of September. INR 10 crores to INR 15...

INR 10 crores to INR 15 crores. And these Bangaluru units, should we assume cost breakeven within, say, 2 to 3 quarters of operation or it could take slightly longer?

We should assume September is the first full -- September month is the full month of operations, given that obviously will take time to get on these licenses. So from there, 12 months, we should positively breakeven in both the facilities in Bangalore. We should at least become EBITDA neutral.

Okay. So within 12 months, say, you are going fully operation from September, so 12 months from there onwards.

Correct.

Okay. My second question is on your mature cluster of Telangana. So there, we have seen improvement in ARPOB over last, I think, a few years. However, my question is that the IP volume and occupancy looks more range bound. So how should we look at these 2 KPIs? Because I'm just trying

What did you say about occupancy? I couldn't follow that.

Yes. So I'm saying we have seen improvement in ARPOB in Telangana cluster hospitals, but occupancy and IP volumes, if we look at, I think, last few quarters' number, they look more range bound. So how should we look at these 2 metrics? That was my question.

Telangana, like we said, is a very mature cluster. So we're still growing at a 5%, 6% volume growth on a year-on-year basis, so which is in line with what we predict. And with the Kondapur hospital getting commissioned next year and some expansion happening in the Gachibowli hospital, we should see -- next year, we should see good volume growth in the Telangana cluster. But since it's a mature cluster, we are not anticipating growth beyond the 5%, 6% kind of volume growth

Okay. So mid-single-digit growth for a mature cluster is something which we should assume

By volume. We are running out of capacity in most of these facilities. When Kondapur comes in and when Secunderabad comes in, we will then get more beds operation.

Our next question is from the line of Eknath Shinde, an individual HNI investor.

I just want to understand a telescopic view. My question is, as KIMS expand its footprint across Tier 1 and Tier 2 and Tier 3 how are you leveraging the digital health platforms with AI or remote care models to enhance the stability, the scalability and patient outcomes? And could these tech-led innovations become a structural moat for over the next 3 to 5 years?

Yes. I think we're using AI and technology to help improve patient outcome and patient care monitoring within the hospital. I think as a company, we are very focused in delivering tertiary care and quandary care -- and we do not want to digress from -- we will use technology, embrace technology as much as we can within the hospital. But the key focus is to get the Tier 2, Tier 3 build capacity because there's a lot of unmet capacity demand and focus on being able to slice both tertiary and coronary care, but embrace as much technology as we can. We have always invested a very high on technology, both on AI-related stuff as well as equipment, new equipment that have come in the system.

Our next question is from the line of Rahul Jeewani from IIFL Capital Services.

So the EBITDA losses which we indicated from these new hospitals in 2Q, that number, I think, would be closer to INR 20 crores to INR 25 crores for 2Q. So can you also quantify the combined losses which we had from these new hospitals in 1Q, just so that we better understand in terms of how these losses are moving from 1Q to 2Q?

The combined losses in Q1 is INR 21 crores. crores.

Okay. So this INR 21 crore hit you have already seen, so the incremental hit in 2Q then would be around, let's say, INR 5 crore kind of a number?

INR 5 crores to INR 10 crores because there will be some improvement in the Maharashtra cluster, Kerla cluster, there will also be a drag from the Telangana cluster

Dr. Abhinay, you said that Nashik ramp-up obviously has been slow, so because of insurance delays. So when do you expect these insurance contracts to get formed up in Nashik? Because I think Nashik, we commissioned last year in September. So yes, Actually,

The real commissioning started only from January, Rahul. So last month, we have ramped up to almost INR 7 crores of revenue. So we are pretty happy with the progress made as far as the cash on -- as a player. But with insurance and CDHS, which both account for typically 60% of the volumes in most hospitals in that cluster, we are expecting both empanelment to be done over the next 3 to 6 months’ time.

Okay. So the INR 7 crore revenue for Nashik is just from the cash business. So with these incremental insurance contract, the business should further ramp up?

Correct. Correct.

Sure. And on Sangli also, did we book any losses for the quarter or Sangli, we did not have much of losses?

Sangli is an OEM contract, and we just get the revenue -- we get a revenue share. But when you look at Sangli independently, we had no losses in Sangli for the full quarter.

Okay. And what was this quantum of revenue which you booked from Sangli this quarter?

4Crores.

Okay. So Dr. Abhinay, can you just guide us in terms of how we -- because we have some of these O&M contracts. So I think in the core Telangana cluster -- Telangana AP cluster as well, I think Guntur is again an O&M contract. So for these O&M contracts for which the capacity doesn't get added, but we will be seeing this revenue accretion. So across all these O&M hospitals, what kind of a revenue number should we be factoring in, let's say, from a next 12- to 24-month perspective?

So we'll start sharing that detail separately, Rahul, in the presentation from next time onwards. We got that feedback from some investors. We'll put O&M revenue separately

[Operator Instructions] Our next question is from the line of Karan from GE Shipping Family Office.

Congratulations on a good set of numbers. Sir, I just wanted to double click on the Kerala cluster. As we are aware, there's a brand already present in that cluster. So I just wanted to understand what our strategy will be going forward attracting better volume growth in that particular geography? So that's my first question.

I think the state as such is a very large state. We have seen good volume growth in both our facilities. And competition is not present in all the districts of Kerala. And if you look at where all we are commissioning hospitals, like in Kollam, we don't see -- sorry, in Karnataka, we have no competition from any large corporate tissues that we're setting up, we have no competition. So there is enough space for 2, 3 players to coexist and be able to scale significantly.

And sir, from that perspective, since we are a relatively new brand in that state, if you can just talk about the initiatives that have been taken to reach out to the residents in the geography over there so as to make a brand presence.

Just like we are always focusing on those micro markets where there is unmet demand. And when we go there with the right infrastructure, right technology and the right model to attract talent, the talent themselves attract a lot of patients and they are old patients, new patients and seeing the infrastructure. There's a lot of unmet demand in those micro markets. So a lot of these detailed activities lead to increase in footfall in these hospitals.

And sir, just one last question on the Bangalore, Karnataka cluster. We're commissioning 800 beds there. And you mentioned there will be some EBITDA losses that will kick in from Q2 onwards. So sir, at what occupancy level do we feel that in 12 months, we can see EBITDA margins kind of neutralize there and help us in the consol EBITDA profile?

Yes, I think around a good 30%, 30%, 40% occupancy, we should become EBITDA neutral -- it depends on the initial doctor cost and the time line in which the doctors are joining.

And from the perspective of talent hiring, et cetera, we are already, I'm assuming on track for that so that...

Talent hiring for Phase 1 of the growth, we are pretty solid. We just -- once the licenses are in place, those doctors will have to start resigning from their current organization and then come on board. So that onboarding will take 2, 3 months or 1, 2 months. So that's where we are foreseeing some losses. And because also Bangalore is a heavily insurance-dependent market, so there could be some initial delay in ramp up because we have to get the empanelment and that's a time-consuming process. But overall, the kind of talent we've been able to attract, I think we're pretty confident within 12 months, we should neutralize EBITDA losses from both the hospitals and Bangalore.

That's great to hear, sir. One last question, if I can squeeze in. From the 800 beds, are we looking at opening them in a phased manner? And if so, what would be the time line of that?

Sorry, in which manner. In Bangalore? We will only commission 50, 75 beds in each hospital to begin with. And as we ramp up those occupancies, we'll add more beds.

Our next question is from the line of Nancy Yadav from Allegro.

I wanted to reconfirm the net debt number. I think I missed that part.

So the net debt as on 30 June 2025 is INR 2,020 crores.

And I also wanted to ask that like you mentioned the EBITDA losses are INR 21 crores. So could you give an approximate of how much of this is coming from Thane is there any other asset adding to this.

So we have Thane , Nashik and Kollam adding to this around INR 11 crores because we had only 1 month of revenue, but we commissioned the hospital from May. Nashik will be around INR 7 crores. And then you have Kannur INR 3.5 crores,

[Operator Instructions] Our next question is from the line of Bino Pathiparampil from Elara Capital.

A couple of questions. One, Srikakulam 120 beds, have we commissioned it because I haven't seen any addition in the cluster.

Yes, we commissioned it in Q2.

What are the plans of expansion beyond FY '27 because right now, all the announced projects are ending Q4 FY '27 -- is it better now?

Yes, it's clear.

I was wondering about expansion plans beyond FY '27. All our announced plans are now getting commissioned by end of FY '27. So have you started working on more greenfield projects? And what sort of areas are you looking at?

We are exploring more opportunities, but the focus area and the clusters remain the same, more work in Karnataka, Kerala, Maharashtra and obviously, a lot of greenfield -- brownfield addition in Telangana and Andhra. But our intent is to first stabilize a lot of the greenfield hospitals that got commissioned this year or will get commissioned this year. So towards the end of the year, when we are more stable from all of these operations, we will then start closing on a lot of the other greenfield hospitals, which will anyway take 3, 4 years, and that's a good enough time for us to stabilize operations.

Got it. And one last question. In these new hospitals that are coming up, say Thane, Bangalore, et cetera, when you go for insurance empanelment, is there a rate negotiation that happens? Or is there a standard slab which applies to that bed hospital and it just gets fixed?

There is a negotiation that happens.

Our next question is a follow-up question, and it's from Damyanti Kerai from HSBC.

Given your experience in Nashik for some delays in insurance empanelment, et cetera, what are your expectations for Bang to get the intended coverage which you're looking for?

Thane, Bangalore, Nashik will all take similar time. It will take us anywhere between 9 to 12 months for full empanelment to be completed. That's the typical timeline that we're seeing even in Thane. 9 to 12 months, we should safely assume for full empanelment.

So say, in Bangalore, you are starting in September. So initially, we should assume it's more cash patient, you might be capturing. And then as you build up on the incidence empanelment part, that will come gradually.

Correct. Correct.

Okay. That's helpful. My second question is on Andhra Pradesh cluster. So in last few quarters, again, because of your focus towards improving mix, et cetera, it has gone up from the historical level. But when we look at its ARPOB, it's still -- there is a meaningful gap between Andhra Pradesh cluster and the network level ARPOB. So do you think there is more room to cover up this gap? And what could help you to achieve that?

No, I don't think we will -- that gap will ever get bridged. These are 2 independent micro markets and the paying potential of the patients in that cluster is only so much. We will never be able to get to Telangana or Maharashtra kind of ARPOBs. Even within Maharashtra, the ARPOBs in Thane and Nashik are very different. So I think we'll have to look at it from a micro market point of view.

Sure. But see, right now, I think you are at 24,000 or so 24,000, 25,000 ARPOBs. So if we look AP cluster on its own, we can assume some more growth at December, 25,000?

Yes, there's definitely growth -- potential growth in the current -- from where it is currently, but it may not get to 69,000 like we see in Telangana because case mix is also going to change. Oncology is going to become a significant part. We are focusing on trying to reduce economy in that each of these districts are also improving, gain potential is improving. We will definitely improve, but there will always be that gap that will exist between Telangana and Andhra.

Sure. And I think oncology is one segment which you are focusing a lot to improve mix in the AP cluster. So has it been launched across all the units there? Or you have some room to improve them?

We have only commissioned oncology in one of our hospitals. The others are yet to get.

Okay. So that is yet to come.

Our next question is from the line of Abdulkader Puranwala from ICICI Securities.

First question is with regards to your AP cluster. So if you look at the margins for this particular quarter, there has been some bit of a softening. So can you help us understand why has happened this quarter?

So we have had the preoperative expenses on some of the Srikakulam hospitals, which got commissioned. So we had had a lot of doctors in Q1. Maybe hospital got commissioned on July 1, we were onboarding these doctors for Srikakulam. So the doctor cost went up there. And [indiscernible] is a hospital that we acquired over there, we had seen some incremental doctor onboarding and a lot of renovation work is happening. So there's been some delay in being able to complete the renovation work as a result, because of which the ramp-up is also getting slightly delayed, but we should complete renovation soon and then ramp up in QNRIen. -- largely because of these 2 assets, onboarding of talent.

Got it. And sir, when you talk about your EBITDA losses in Q2, we see a cumulative range of INR 30 crores, INR 35 crores, that even factors the new hospitals that Andhra issue.

There are no losses in Andhra. There are no losses in Andhra. There -- there are no hospitals in negative EBITDA. It's just that there has been some EBITDA drag because of this incremental cost.

Okay. Understood. And sir, in terms of your guidance, how should we look at your EBITDA margins to pan out for the current fiscal? Any color on that front?

I think anywhere in the 22% to 25% range is what we are looking at.

Our next question is from the line of Harish Bihani from Kotak AMC.

A couple of questions from my side. First is on the insurance part for the new unit. If I understood correctly, we were also trying to tie up with some intermediary who can help solve this issue at least for the foreseeable future. So anything on that, that you would like to highlight?

Yes. So that is happening, Harish. We are using that vendor -- a couple of vendors to actually help do a reimbursement for all the insurance patients. But still a lot of patients are -- we are losing a lot of patients because they don't want to go through this combustion process. They just want complete cashless like even in Thane, which is fully commissioned. -- we are losing good number of patients in spite of which we've been able to ramp up, but they don't want to go through this whole cumbersome process. They just want to do either cashless or go to a different hospital. So that leakage also will get plugged once we have full empowerment of all these.

Sure. And this issue takes time largely because of challenges with regard to a new hospital and the insurance company is taking a bit longer. So why does this happen essentially?

One, there are some bilateral negotiations that happen on tariffs. And two, the process itself is quite cumbersome. And now a lot of changes happening at the insurance level also. It's just become a little more cumbersome than before. Even traditionally, it has always been very cumbersome to get empowerment hospital.

Sure. But for a hospital like us, which we are there in multicity, is it possible that some of this can be fast tracked? Or you are giving an outer limit of, say, 9 to 12 months and it could be fast tracked a bit earlier?