Max Healthcare Institute Limited (543220) Earnings Call Transcript & Summary

Good day and welcome to the Max Healthcare Institute Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Suraj Digawalekar from CDR India. Thank you. And over to you, sir.

Thanks, [ Aman ]. Good morning, everyone, and thank you for joining us on Max Healthcare's Q2 and H1 FY '24 Earnings Conference Call. We have with us Mr. Abhay Soi, Chairman and Managing Director; Mr. Yogesh Sareen, Senior Director and Chief Financial Officer; and Mr. Keshav Gupta, Senior Director, Growth, M&A and Business Planning. We will 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 call 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 Abhay to make his opening remarks.

A very good morning to everyone. We are pleased to welcome you to Max Healthcare's Earnings Call for the Second Quarter and First Half of Fiscal Year 2024. Let me start by stating that our performance in the first half of the fiscal year has set a commendable precedent for us to follow in the latter half. We recorded a year-on-year increase of 17% in network revenue, and 20% in EBITDA, in H1, while Q2 turned out to be the 12th consecutive quarter of year-on-year growth. Our Q2 performance this year largely mirrored our quarter-on-quarter performance last year, alluding to the steady state of our operations as well as secular demand for quality health care services. Further, our granular focus on execution and capital allocation as evident from our pretax ROCE of 38.3% in quarter 2, we are well poised for the next leg of growth that is set to come from planned capacity expansion as well as inorganic opportunities. On that note, we are happy to share that the developer of our upcoming hospital in Dwarka has applied for the occupancy certificate, which is a significant milestone and is actually the final milestone. And we expect to commission the same in the fourth quarter of the current year. Moreover, our most recent brownfield expansion, Max Shalimar Bagh, has reported an overall average occupancy of 78% on a year-on-year revenue and EBITDA growth of 41% and 48%, respectively, in the second quarter. On the clinical front, we have signed memorandum of understanding with Intuitive Surgical, the U.S.-based pioneer of robotic surgical systems, to establish Southeast Asia's first Total Program Observation Center located at our Max Saket facility. The center is expected to have a positive impact on both India and Southeast Asia's surgical health care ecosystem by enabling health care professionals to drive advancements in patient care using robotic-assisted surgery and elevate surgical health care standards in the region. Now moving on to the highlights of our second quarter performance. Occupied bed days grew by 3% year-on-year and 5% quarter-on-quarter, reflecting an average occupancy of 77% for the quarter. 93% of the year-on-year and 118% of the quarter-on-quarter increase in occupied bed days was driven by preferred cash channels -- preferred channels which is cash, insurance and TPA and international. With increase in occupied bed days and marginal drop in ALOS, the inpatient discharges were up by 7% year-on-year. Even OP volumes exhibited a strong growth of 14% year-on-year and 4% quarter-on-quarter. Institutional bed share fell to 27.3% compared to 27.9% last year and 29.7% in quarter 1 this year. However, after excluding Max Shalimar Bagh, the most recent expansion, the overall institutional bed share stood at 25.4% during the second quarter. Average revenue per occupied bed for the quarter stood at INR 74,600, growing by 13% year-on-year and remaining flat quarter-on-quarter due to seasonality. The year-on-year improvement was witnessed across all specialties, with oncology being the key driver. Network gross revenue was INR 1,827 crores compared to INR 1,567 crores in the second quarter last year and INR 1,719 crores in the previous quarter. This reflects an increase of 17% year-on-year, led by growth in ARPOB and occupied bed days. Quarter-on-quarter growth of 6% is mainly driven by increase in OBDs, occupied bed days. Revenue from international business again grew significantly by 25% year-on-year and 11% quarter-on-quarter, accounting for now around 9% of the total revenue from our hospitals. During the quarter, we have operationalized company-owned patient assistance centers in Nepal, while all formalities for the Bangladesh center have been completed. We expect to operationalize this center shortly. This is in spite of the Afghanistan business, which was 12% of our total international business, is down to 0. Direct costs were lower quarter-on-quarter due to increase in medical patients attributable to seasonal vector-borne diseases. On the indirect costs side, while the overall percentage was lower, there was an increase in absolute costs primarily due to marketing costs for international channels and seasonal increase in power consumption. Network operating EBITDA stood at INR 497 crores, just below the magic mark of INR 500 crores, reflecting growth of 21% year-on-year and 14% quarter-on-quarter. Accordingly, the operating margin increased to 28.7% versus 27.7% in the Q2 last year and 26.8% in the previous quarter. Most importantly, annualized EBITDA per bed rose to INR 75 lakhs, yet again our highest ever, clocking a growth of 17% year-on-year and 7% quarter-on-quarter. Profit after tax was INR 338 crores versus INR 267 crores in Q2 last year and INR 291 crores in the previous quarter on a like-to-like basis. The year-on-year improvement of 26% was primarily attributable to flow-through of improved EBITDA and lower finance costs. Free cash flow from operations was significantly higher this quarter at INR 436 crore, of which INR 90 crores was deployed towards ongoing capacity expansion projects. Net cash position improved to INR 1,303 crores at the end of September 2023 compared to net cash of INR 42 crores same time last year. Continuing efforts to support the local communities, we treated approximately 39,000 patients in OPD and 1,300 patients in IPD from economically weaker sections, free of charge. Both our strategic business units continued to trade strongly on the growth trajectory. Max@Home reported a top line of INR 42 crores, reflecting a growth of 23% year-on-year and 8% quarter-on-quarter. We continue to receive good feedback for our services, and the same is reflected in the SBU's revenue growth. Max Lab, the non-captive pathology vertical, offers its services in 36 cities and now has an operational network of over 1,000 collection centers and active partners. This SBU reported a gross revenue of INR 39 crores, reflecting a like-for-like growth of 32% year-on-year and 15% quarter-on-quarter. Now coming to the status on upcoming expansion projects. As most of you know, 122 beds at Shalimar Bagh have been operationalized at the start of this financial year. And as mentioned earlier, the hospital reported an average occupancy of 78% for the quarter. For 300 beds at Dwarka, application for OC, occupancy certificate, has been submitted in October and majority of the interior works have been completed, and some of it is just being finished as we speak. We expect to commission the hospital in later half of Q4, subject to receipt of occupation certificate by the developer. For 329 beds at Nanavati. Excavation and raft work are complete. Steel fabrication up to the ground level and slab work have also been completed. Ground-level structure is expected to be completed in the current quarter, and the project continues to be on schedule. For 300 beds at sector 56, Gurgaon, in Phase 1, the D-wall has been completed and the site excavation is almost done. The EPC contractor is already onboard and design development is under process. TDR approval for additional 0.5 FAR has been received, and the project is on schedule. For 190 beds at Mohali, the D-wall is completed and excavation work is underway. All statutory approvals to start the construction have been received. And the project is largely on time -- well, almost entirely on time. The EPC contractor has been mobilized and the design development is in progress. The 350 beds as Max Smart in Saket, which have seen some delays initially, we have now initiated the process of transplanting the trees as permissions had taken some time to come, which are now -- this has been on the critical part, but now the projects is back on schedule and work should start by December, current year. For 300 beds at Vikrant at Saket complex, environmental clearance has been received and submission of drawings to the Municipal Corporation of Delhi is in process. For 250 beds at Patparganj, drawings have been submitted to the Municipal Corporation of Delhi and the application for environment clearance has been submitted. So all other projects are on schedule. There is no delays as such. And finally coming to the overview of the company's performance in the first half of the financial year. Network gross revenue stood at INR 3,546 crore, reflecting a growth of 17% year-over-year. Network operating EBITDA grew by 20% year-on-year to INR 933 crore. Increased ARPOB, improved case mix and augmentation of network bed capacity by 130 beds resulted in margin expansion to 27.8%, while EBITDA per bed grew by 15% to INR 72.8 lakhs per bed. In first half, we generated INR 697 crores of free cash flow from operations, after interest, tax, working capital changes and routine CapEx, of which INR 128 crores was deployed towards ongoing expansion projects. With this, we open the floor for Q&A.

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

My question is you continue to see progress in reducing bed share to institutional patient. So a few quarters back, you had given an indication that you'd like to bring it down to the industry level, but with Shalimar Bagh, I guess you have taken more institutional bed to ramp up occupancy, et cetera, so do you still target to bring it down to, say, industry average? And when it will likely happen?

So I mean there is no industry level, so to say. I mean there is no classified industry level. I think it's highly sort of changes between metros and non-metros. You have more PSUs, headquarters, et cetera, out of places like Delhi NCR, so you have a larger sort of evolvings of that larger amount of businesses coming through. Now 2, 3 things have happened. One is, apples-to-apples, from 29.7%, it's come down to about 25% in the current quarter. Second is that it's on a increased capacity, including Shalimar Bagh which has happened. Thirdly, certain rates have moved up, in which because -- in CGHS. And we're expecting certain other rates for institutional business to move up in the current quarter, because of which, a little bit, we would have taken the foot off the accelerator. And finally, even within the institutional business, there's been a churn in the sort of specialties we are catering to and the ones we are not catering to. And all of it sort of comes down and plays out in your higher EBITDA. So what you're seeing is, although -- because of the overall capacity constraints that we have, your occupancy has moved up by only perhaps 3% year-on-year, but there's been a churn of about 3% to 4% year-on-year also within the patient in -- within the payer mix. And all of that tends to translate it into a higher percentage margin as well as EBITDA per bed. So to say -- I mean, apples-to-apples, the same inventory going forward will be coming down, as far as institutional business is concerned, but to your point, as you rightly mentioned, as and when you have new capacities coming, those capacities initially will have increase in institutional business. So in percentage terms, it will move up, but in -- or remains stagnant just when those capacities come in, but I think overall it still translates to your better EBITDA margins.

Okay. Okay, so you mentioned like...

So just to sort of complete that point.

Yes.

You may have seen, because of Shalimar Bagh, new capacity coming in, the institutional business sort of moved up, but if you actually see the EBITDA coming from those incremental base, in spite of that -- sorry, basis this increase in institutional business is yet 40% margin.

Okay. So that means obviously you are getting much better realizations from these set of patients also. As you mentioned, wage hike in CGHS could be one of the reasons which might be contributing and then obviously specialty mix. Just...

Not that. This is largely because of the operational efficiencies that you have. You have huge operating leverage on the new beds. You don't have the fixed costs, et cetera. So what happens is even the lower mix, right, I mean the lower payer mix, okay, becomes more viable and more and more viable even on the new sort of beds because your operating cost is very low on the incrementals.

Okay. So it's primarily driven by efficiency as you mentioned. Like you have better absorbed overheads there that is presenting in these kind of numbers.

That's right.

Okay. And just a clarification: You mentioned there has been a bit of hike on the CGHS patient also. So right now, like, what is the difference between that price channel and then the normal cash and others, like, very broadly? Like what is -- yes.

Damayanti, typically if you take the ARPOB of these 2 channels, they will be -- so the CTI channel, the preferred channel, is 85% higher than the PSU channels.

So the preferred channel is 85% better ARPOB number?

If your PSU ARPOB is 100, this will be 185.

Okay, 100 and 185. Okay. My last question is your difference between gross revenues and net revenues which you booked for pro forma financials, that's primarily driven by what you pay for EWS patients, right, so...

Yes. That's right, yes. Largely that's the number, yes.

Yes. And I'm seeing that number has broadly remained somewhere like 5% of gross revenues. So should we assume similar numbers to trend even if like, say, we are commissioning new facilities ahead, and then according to government rules, we have to allocate some beds for the EWS...

No. Damayanti, Dwarka, may not have an EWS obligation.

It does not have. Dwarka does not have. Mumbai will have and others will have. I mean Gurgaon won't have.

Okay. So Dwarka and Gurgaon does not have.

Other than Gurgaon, Dwarka and Mohali, all others will have. So out of 2,200 additional beds, I think, between these, you have 200 in Mohali, 300 in...

1,000 beds.

1,000 beds you will not have. Balance 2,200 will have. I'm sorry, balance 1,200 will have.

Approximately 1,200 beds will be utilized and then others don't have such requirement?

Yes. So let's say we have 2,200 beds further coming up -- sorry, 2,700 beds will be further coming up, of which 1,000 beds will not have any EWS obligations. Now the balance 1,700 will have the 10%, so let's say about 170 beds out of 2,700 beds.

The next question is from the line of Kunal Dhamesha from Macquarie.

First, on the -- a housekeeping question on the international patient bed share. What was that for the quarter?

Yes. So that will be around 5%.

5% only?

Yes, yes. Yes. As you know, the ARPOB is higher. So that's how it's -- the revenue share goes up. So it's -- I mean [indiscernible] 5.5%.

5.5%, okay, okay. So then probably the pricing, et cetera, kind of more or less has remained same. Okay. And secondly, when I look at our specialty mix, oncology therapy, if I see, has been growing at almost 2x the overall revenue growth I think for the last 2 quarter. And even if I look at a longer-term trend, for the last 9 quarters in a row, it has grown faster than our overall revenue growth, so what are we doing differently there? And is it a market growth or...

Yes. I think overall growth is 17%. This is about 26%, 28%, not exactly double, but there's been a focus on oncology, and we've also seen a larger burden of the disease sort of this thing playing out. We've also had a focus on robotics, et cetera. And as are moving up the value chain, what we are seeing is more and more people are choosing more sort of better technology. And you're seeing more and more percolation of insurance, then people tend to sort of for higher-end this thing, that's why do less of window shopping. They go to more established corporate hospitals and brands, so we are seeing more and more people for oncology and some of the other this things; whereas, they would have gone to smaller places earlier, now coming to larger hospitals, so insurance plays an important part.

And Kunal, also oncology tends to have higher entry barriers, right? So there's a lot of investment required in equipment, et cetera, bunkers, infrastructure, et cetera, so to that extent, the patients do navigate towards bigger players.

Sure, sure. And is it possible to share the split of this 25% of revenue mix between, let's say, surgical and nonsurgical? Because we have -- also have chemotherapy and radiotherapy included in this 25%, right?

Kunal, that's not public numbers, but I mean obviously it's a large part. I would say not the -- so it will be a large part this will be chemotherapy, right? But I would say it's a fair share of all three, radiation, surgical and medical. Now we haven't publicly given that number and so we don't publicly disclose the split between the three.

Sure. And is it fair to say that oncology would be highly accretive to profitability for us?

Yes. The oncology happens to have higher ARPOB, right? So to that extent, yes, it will be higher profitability also.

Sure, sure. And second...

It depends on how you're looking at it. I mean it also occupies much space, so there is also a return on capital and return on real estate over there.

Okay, okay. So return on capital is also higher, in your view or does it require more space, so it would more or less...

I think, return on capital, it's evens to evens the rest.

Okay, okay, great. And secondly, on the drivers of our strong ARPOB growth from 13% year-on-year for the first half. If I kind of do some back calculation using the bed share and revenue share, it seems that CGHS ARPOB or institutional ARPOB would have at least gone up by around 20%, 25%. Is that a fair number or I'm overestimating, underestimating?

No, that's right. The PSU ARPOB has gone up by 28% exactly.

48% for the first half?

28% Y-on-Y.

And that's not because of pricing.

Yes, it's also because of the mix...

Mix change, which I was mentioning earlier. It's a change in mix. It's not a change in price. The change in price will not even have INR 14 crore impact on your overall revenue.

The next question is from the line of Bino Pathiparampil from Elara Capital.

Congrats on a great set of numbers. Just one question on the expansion plans. For all these facilities, the greenfield facilities that are coming up over next couple of years, what's your internal target for EBITDA breakeven? I mean, how many months or quarters?

Almost 90% of our expansion is brownfield. And normally we seek EBITDA breakeven in quarter or two if not the first quarter itself. Our last experience was EBITDA -- we had EBITDA breakeven, we were hitting 40% margins within 40 days.

Also touching on greenfield facilities, as you know, greenfields we do see 11 -- I mean within the first 12 months breakeven. That means 11 to 12 months should be breakeven EBITDA.

That's 10% of the total expansion [indiscernible].

Okay, understood. So within a year for greenfield and within a quarter for brownfields. Okay.

Perfect.

Yes.

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

Abhay, what -- can you give us some numbers on what has been the increase in discharges -- inpatient discharges of Q-o-Q and Y-o-Y?

7%.

This is Y-o-Y.

[indiscernible] Q-on-Q season matters because you have more medical patients, et cetera. So when you have more medical patients, your discharges of your ALOS is lower, discharges may be the same. We look at everything on a year-on-year basis which is a better comparison.

Okay. And secondly, on the seasonality part of it, typically, I mean, how should one think about seasonality in our business? Q2 obviously is bigger than Q1. And how should we think about the rest of the year with respect to Q2?

See, Q4 is the best quarter in the year. Q2 is the second best quarter. Q1 and Q3 are weak quarters. And that's seasonality in the business and happens every year. Typically, your H2 is better than H1.

Okay. And I guess, given the way things are, that's a trend we should follow even though -- follow even this year for us?

That's right. I mean, unless something disruptive happens, that's -- typically the secular trend in health care is H2 is better than H1 and Q4 is peak because of the burden of disease, et cetera. Also, your Q2 is the second best simply because you have the seasonality due to dengue and vector diseases. And Q1 is weak because you just had increase in salaries and fixed costs, et cetera on the 1st of April. So your margins are kind of squeezed. And yes, Q3 is the festival seasons, which is Diwali and all that kind of stuff.

And secondly, on your expansion plans. Barring -- beyond what you've already outlined, so far, how are we thinking about expansion -- we've got enough cash reserves on books now -- in terms of inorganic growth opportunities which are there. I mean, have you -- how you'll see the landscape playing out? There have been a lot of private interest in the space, which probably, I don't know, would have had its own -- create own challenges for value buying, so how are you looking at the inorganic growth opportunities outside of NCR?

So I think there are quite a few. I think there are about 20-odd sites that we are looking at, and we've been busy at it. And hopefully, in the near future, very shortly, we should come up with some surprising stuff. But yes, there's been a lot of this thing on the -- I mean we maintain some fiscal discipline and don't want to run fool's errands by the end of it. But there are quite a few amount of opportunities both on the build side, partner side, on the asset-light model as well as certain acquisitions as well, so yes, we intend to deploy this capital.

Okay. And last one, on the Shalimar Bagh expansion that we did in brownfield, what is the capacity utilization on that...

78%.

On the overall.

On the overall, new and old combined.

And when you would have put the new capacity, the older would have been, what, closer to 80%-plus. The...

80% to 83%, yes. 80%.

Okay. And what -- and just sort of reconfirming: On the incremental beds, we're making right now 40% incremental margins?

Yes, that's right. That's right. And even within 40 days of opening those beds.

Right, right. And in your assessment, incremental brownfields that you're going to be putting out, how should one think about -- you talk about the first quarter breakeven, but in terms of -- is Shalimar Bagh an exception in the way it's played out? Or this is going to be a template that's broadly going to get replicated across the newer brownfields?

Look, honestly, I think there's been a -- the Shalimar Bagh experience was a experience in Vaishali before that as well. Because -- I mean, theoretically you're tapping into un, sort of, tapped demand on your doorstep to start with. And then you have operating [indiscernible] real fixed costs with those incremental [indiscernible] theoretically, it should be -- I mean this should be the template. I mean I don't see that changing.

The next question is from the line of [ Ankur ], as an individual investor.

See, I think my question is partly answered in one of the previous questions that was raised by one of the participants. Really, it was about the last 2 years. There's a bit of a concern that we haven't acquired any project and added anything onto our already announced development pipeline. And obviously, we've been running an underleveraged balance sheet for a while now and now we've got all this cash accumulating. And you've talked about acquisitions, M&A and all of that, but I mean it's 2 years since we added anything. And also, on the greenfield side of things, are we looking at any greenfield projects that we want to add? And I know you keep saying like imminently that there should be some announcements, but it also takes about -- I think, if you add a new project or greenfield project, about 3, 4 years before it's operationalized. So if you can throw some light on all of these things, please?

Yes. I think there's always a tug-of-war between desire to expand and fiscal discipline and one has to maintain that. It's not as if we haven't been this thing. We kiss many frogs before we find the prince, and we are at it. And we are quite certain that, shortly, we should be able to deploy. Do keep in mind it's not a huge amount of cash because, even to construct a 500-bed hospital, you're require -- take about INR 1,000 crores, right? To acquire a 1,000-bed -- or a 500-bed hospital will cost you another maybe INR 1,000 crores to INR 1,500 crores; so 1 or 2 acquisitions, and you're done. So at one side, we are sort of excited about the fact that we are accumulating cash, but we are also conscious of the fact that this amount of cash and even the ability to leverage is not going to take you very far. I mean, today, transactions are available at 15x, 16x, let's say, EV-to-EBITDA. What that means is, even at entry, we'll be able to buy it even if I was to go and spend INR 5,000 crores, right? I mean we can invest -- what is the math on that, divided by 15? About INR 200 crore EBITDA? That's about 10% of my total EBITDA -- sorry, INR 300 crore EBITDA. That will be 15% EBITDA. So I can increase my EBITDA by 15% by deploying INR 5,000 crores. And that would pretty much use up all my cash and my leverage ability, right? So I think it's important to -- while we've noticed that there's an amount of cash [indiscernible] accumulated, do keep in mind it is a capital-intensive sector, one; and secondly, there are a massive amount of opportunities in the sector yet. So if we want to sort of participate in that, okay, we need to accumulate the cash and spend it with the right amount of fiscal discipline at the right time. See, there is money, but not that much money also.

Yes. And also, like as the way we've been growing and it's what, almost, let's say, 20% sort of EBITDA growth, cash flow growth over last couple of years. And going forward also, it seems we're going to continue on that trajectory over the next 4, 5 years, so then beyond that, to continue growing at the 20% sort of rate, we also need to keep adding the bed capacity at that sort of rate, right? So we need to have like this continuous development pipeline which keeps, every year keeps adding projects year-on-year so that the growth continues for a long duration. So I'm sure you guys are working on it, but just -- and you've mentioned, like, you're looking at 20 cities, so -- but there has been no, like, actual project acquisition. So that was my only question, but -- yes.

No, but you're absolutely right. Just keep in mind 2 aspects, right? In the last 2 years, there has not been any significant capacity expansion. That's right? Yet you are seeing a 20-odd-percent increase in EBITDA. Even in the next 3 to 4 years, you're going to have 2,500 to 2,700 beds coming, increasing your capacity. 85% of it is through brownfield. That is almost like doubling your capacity over the next 3 to 4 years. . Those are coming on stream. So shouldn't that be giving you expansion for the next 5 or 7 or 10 years itself? And increasing your -- given the fact that your breakeven is so short in this brownfield, okay, it will add a bunch of more cash flows for your this thing, which again all of it gets deployed and gives you further this thing. So look, I mean, I think there are 3 streams of growth over here. One is your current bed capacity which has been growing in terms of EBITDA, okay, then all the expansions that have already been announced which have already been underway which we said are largely online. And the third is what you're going to do with this cash, right? So I mean it's exponential 3x strategy. It's not a strategy with a 15%, 20% growth. I mean, if I was not to sort of deploy this cash, give it all back as dividend, yet you will be doubling your capacity over the next 2 years -- sorry, 3 to 4 years.

Yes, yes. I think that's it, I mean, from my side. I understand where you're coming from. It's -- and also it's clear, like, as the cash flow keeps accruing over the next 3, 4 years and they keep growing, you'd continue to add onto your development pipeline and continue this growth for long term. So that's it from my side. All the best.

Thank you, [ Ankur ].

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Sir, just on the organic basis on EBITDA per bed. While we've already, I presume you've optimized in terms of efficiency at the overall level. So how do you think about the levers for improving EBITDA per bed for next 2 years -- 2 to 3 years?

I think EBITDA per bed, now in the first half has already happened, right? And you know your second half, I mean, really is marginally better than your first half and so and so forth. I think, for -- at least for the rest of the year, some sort of trajectory has been already articulated.

So more from -- let's say, beyond FY '24, how to think about it?

Sorry. More from?

Beyond FY '24, how to think about it? In the sense, the case mix or the, let's say the payer mix is also -- you have already taken good price hike on, in terms of institutional patients, the insurance penetration is...

No. No, it's not a price hike impact. It's only 14 crores. There's a 28% increase in ARPOB and that's really due to the clinical sort of this thing because you're moving into higher-end procedures. We are distilling procedures. The price hike has been negligible, in fact.

Yes. Of the 28%, only 5% is price hike impacts in the PSU segment.

In the PSU, right. So like Yogesh rightly pointed out, out of 28% increase in ARPOB in PSU, only 5% has been due to price hikes, right?

No, I meant to ask like how much more can further be optimized, if not on price hikes but other levers, so as to drive the EBITDA per bed maybe in mid-teens or more or less growth over next 2 to 3 years?

In a similar fashion. Your -- as your payer mix sort of starts moving up on a particular trajectory, your clinical mix moves up on a particular trajectory, all of it flows to your EBITDA. Your indirect cost is increasing by maybe 6-odd percent every year, 6%, 7% every year or whatever. The difference between your revenue increase, now you have to take assumption of revenue increase and the difference between that and the indirect cost increase is all flowing down effectively.

The next question is from the line of Bansi from JPMorgan.

So I have one question, and this is on the advancement of robotics that we've seen in the overall health care space. So we've seen more and more specialties using robotics. And even the noncomplex ones are making use of robots. So in general, where are we today in terms of surgeries which are getting done on robots? And what's the scope here, where it can go to? And also will this be -- I'm assuming this will be lucrative enough, so what is it in terms of ARPOBs and margins, how different they are compared to our traditional surgery work?

So I think, first and foremost -- I think, although robotics has been around for some time, over the last couple of years, there's been a sudden uptake of that. And acceptability between doctors and patients both has been quite dramatic, as far as robotics is concerned. I mean, to be honest, it surprised us also on the upside. I mean, like I mentioned earlier, our total number of robotic procedures have more than doubled in the last 1 year. And it's been a pleasant surprise. Most specialties now -- you get into this flywheel concept as acceptance sort of this thing, we are being pushed by many of our hospitals and many of the clinicians now, okay, to set up robots because, I mean, frankly, it's become more and more viable. What happens is, of course, it's at a higher cost compared to laparoscopic or even, for that matter, a general surgery for the same this thing, but -- and so it leads to higher ARPOBs, but the contribution levels from robotics are lower. And EBITDA in terms of margins are lower in percentage terms, although in value terms are higher. And this is something that, Bansi, I've previously mentioned with respect to both higher-end payer mix and clinical mix, that you get lower percentage margins but higher value in terms of absolute EBITDA coming from this. Yogesh, what is...

Yes. It also helps us in terms of reduction in ALOS, right? So EBITDA per bed is obviously better, but in terms of margin, that may be probably lower than the overall average.

But a little difficult to right now sort of present a trajectory where do we see growth happening and will it continue to be 100% growth or will it taper down to 70% or 50%, but -- or will it increase from here?

Got it, but the adoption has increased. And in general it also improves your throughput, right, within a particular specialty.

That's right. And I mean overall it's -- I mean it's got all sort of positives with it. And as public acceptability starts to increase, you've seen technology advance, there are entry barriers in this. The smaller sort of places can't adopt it increasingly and awareness increases, then you see this move towards larger hospitals and more sophisticated health care systems. It's also better medical outcomes for patients.

[Operator Instructions] The next question is a follow-up question from the line of Kunal Dhamesha from Macquarie.

So one on Dwarka. So as we are kind of getting closer to the commissioning of the facility, would -- have we like started hiring in terms of doctors for key specialties or, say, paramedical staff? Or would it be more closer to the commissioning?

So we've started all of that. And I think we've or at least all the heads of the programs and functions already in place. And they've been in the system. As we speak, they are working in some of our other facilities. And yes, so we -- I mean, as far as the soft power is concerned, people are concerned, et cetera, all that is in-line and on schedule, so there's no lull on that. And there's enough availability and excitement around the facilities from a clinical standpoint as well.

And would it be more like a staggered hiring in terms of specialties? Or we would go with the full-fledged 300-bed operationalization on day 1...

No, no. We will do about 150-odd beds.

164 beds.

164 beds, we are doing, to be precise, as Yogesh pointed out. So 164, day 1; and as we require, sort of open up more and more.

Okay. And one follow-up on the robotic surgery while you have alluded that it's good from the ARPOB perspective and the absolute EBITDA perspective. But in a longer term, if let's say even the other hospitals also kind of start affording it, does that bring them to the equal level in terms of surgical outcomes, et cetera and then the importance of brand or surgeon's skill kind of get reduced, do you see that happening?

Not particularly. I think the market is growing. I mean there's only those many players which can adopt robotics because it's also people have to be trained on it. You have to have availability of your talent to be able to do this, so all of that will take time, but I think more and more, before that, your market would have expanded. And I mean we've seen this, right? I mean why robotics, as far as any technology is concerned, the larger players sort of have adopted first. The smaller players have adopted thereafter. The market continues to expand, but I've never seen a larger player's sort of market share go down because the smaller players have adopted the technologies thereafter. I think you've kind of increased the size of the market between -- all the smaller players also have a hand in increasing awareness for that product.

Sure. And for us, is it more like a CapEx model or is it more pay-per-use model?

Actually we've -- right you asked. Actually we've started with sort of the pay per use because we were quite unsure. But we've actually bought back -- or bought more than 50% of the robots recently. Because it kind of surprised us, in any case. So yes, at this point in time, we have a hybrid simply because we started off by pay-per-use, but now we got into buying it back. We've bought more than 50% of the robots that we have.

Yes, okay. And return on capital is higher on...

Of course. That's why we are buying.

The next question is from the line of Naysar Parikh from Native Capital.

My first question was on the overall industry trend. Are you seeing still there is a gap between supply and demand growth? And what you're seeing for the next couple of years, there will be leverage to continuously grow price and ARPOB. How are you seeing that?

I'm not seeing it over the next couple of years. I'm seeing it over the next few decades. I think this is a multi-decadal opportunity. There is huge amount of underpenetration. There's a massive, massive, massive gap between supply of quality health care and demand for quality health care, which is only increasing as we go by. So -- and that's the reason it's -- and India perhaps offers this opportunity which nowhere else, no other country, no other health care system in the world does. I mean you have -- at one side, you operate almost like a utility because you have the sort of this inflation-free, insulated business, but at the other hand, you also have this massive growth opportunity because of the -- I mean, just the sheer lack of penetration or availability of quality facilities.

Got it. And on the international patients side, you said around 5%, 5.5% of your beds. Is there scope to -- for that to significantly go up to, say, 10% or higher? And how are you seeing the international traffic on the [indiscernible] side?

It's grown 25%. Traffic has grown by 25%, in revenue terms, at least over last year; okay, even I suspect even, in terms of total number of beds [indiscernible] that means in terms of volume of patients has also grown by 25% over the same quarter last year and 11% over the last quarter itself. And then do keep in mind this is 12% of our total business, which was from Afghanistan down to 0. I mean, if you assume that coming back to normalcy, I mean, this would have been an increase of 30-odd percent over last year, or more, in fact. So I mean, where does this train stop? I think we haven't even scratched the tip of the iceberg. This should continue, in my mind, at significantly higher pace than the rest of the hospital growth.

Got it, got it. And the -- so 2,600-bed expansion that we have, can you give some idea in terms of how much can come in the next 6 months and how much in '25?

So 300 beds should come in by end of FY '24, current fiscal year. FY '25, towards the end, you will have another 350 beds of Nanavati come in; then Mohali, another 200 beds, again, same time next year. And Gurgaon, same time next year. So you have about 1,000 beds coming in the next one year -- 819 beds.

So 300 by the end of this year and another 800 to 900 by the end of next year, right?

Yes. It's on the presentation on the website. You can see it. I mean it's quarter-by-quarter expense and date of commissioning.

All right, okay. Got it. And just one last data point: You said the institutional ARPOB obviously will improve significantly, so now where does the gap between institutional and noninstitutional ARPOB lie, roughly, what would be the gap?

85%. Somebody had asked the question earlier. 85%. For institutional, it's 100; for noninstitutional, 185.

The next question is from the line of Alankar Garude from Kotak Institutional Equities.

Sir, you mentioned about expecting to make some announcements on the expansion bit shortly. So I just wanted to check, when it comes to different expansion models like, say, between partnered, build to suit, O&M and acquisitions, do we have any specific preference?

No. I mean acquisitions are at the right price for the this thing, but otherwise, build to suit, in the sense the asset-light is very good. We don't like greenfields.

Understood, okay. And on that point, on this CARE acquisition, you have been providing regular updates, including one yesterday night. Now on one hand, the appeal is reserved for orders and on the other hand, Blackstone seems to have announced the acquisition, at least as per media articles, so not sure what to make out of this. Can you please help elaborate on the current situation?

I mean the situation is what it is. We've made appeal to the High Court. Now it's for the High Court to decide.

Understood, okay. And one final question...

I can't give you any opinion on that. I mean it's for the Judge to decide.

True, okay. And Abhay, one final question. When it comes to some of these allied services, we are into diagnostics done at home, but we have seen some of the other hospital chains doing far more, as far as some of these allied health care services is concerned, getting into pharmacies then insurance or diagnostics in maybe a bigger way, so maybe in future, not immediately, but in future, are we open to being more aggressive on some of these allied services?

I am open to anything and everything in the health care business, okay, which others have succeeded in. Philosophically, we don't like to do pioneering things. When they succeed, we will study, we will learn from their mistakes and we will gain confidence from what they got right and then we will do it better like we do, okay? So anybody does it, I'm very open to doing those things, but let somebody else do it successfully first. I mean there are more than enough examples in front of you where people have jumped into situations and got it wrong. I mean that's not a game we play. That's not what we're good at, to be honest.

The next question is from the line of [ Amit Kawani ], as an individual investor.

My first question is that -- I don't know if it's already been asked or -- and have you answered it, but the division impact on the institutional business, can you tell us what it is expected to be in the December quarter and March quarter?

I have no idea what is expected to be because they haven't taken us into confidence on that. So far, the impact has been 5% of ARPOB of the PSU business, but we have absolutely no clue how the government is thinking about it.

Okay, so no further -- any wage -- or sorry, institutional division has been announced, basically?

No. We were told we were expecting it this quarter. And now hopefully, we are expecting in next quarter, but I -- we don't know when it will come through and how much will it be.

Okay, okay. The second question is, actually when I speak to other hospital companies who are not really in metros, they say that the institutional business does not have lower margins than the overall business.

That' right.

So just trying to understand the kind of the difference between them and us. Is it, just because that we are in metros, that our -- we -- our noninstitutional business is higher paying? Is that the conclusion to reach?

No, no. So look, the institutional business, let's say, has an ARPOB of, let's say, 40,000-odd, right? If the rest of your business, for whatever reason, has ARPOB of 40,000 or lower, okay, then it doesn't impact you, does it? My ARPOB is the highest in the industry. Now why is that -- a lot of players have a ARPOB of 40,000. Now that could be a function of 2 or 3 things. One is that, their clinical programs, okay, they're not doing high-end clinical programs like transplants, high-end oncology, et cetera, et cetera, et cetera. They have more medical patients, okay? Their payer mix, okay, is not very visiting. They don't have international patients. They don't have cash-paying patients, insurance patients, to that extent; and whatever else it is. Substitution of institutional isn't there, so obviously for them there is no benefit in moving up.

But so -- but the question actually is that suppose if someone has a hospital, let's say, in Ranchi, which is like a Tier 2 city, so will the CGHS compensation to them be the same as another hospital in Saket? Will it...

They are almost same. There are [indiscernible] in the NCR price and non-NCR price, but, I would say, not a great difference.

Negligible difference, basically the same. So Ranchi, it will do it. The only thing is, Ranchi, there won't be too many CGHS patients, right?

The next question is follow-up line from Kunal Dhamesha from Macquarie.

Sir, on the CGHS and self-pay ARPOB, we have said the difference of around 85%. Can you also quantify what would be the difference for the international patient? So let's say CGHS...

International patients typically will be 1.5x of the cash and insurance, so that means domestic patients versus [indiscernible] domestic to international will be 1.5x ARPOB.

So could it be roughly around 250, like, if we -- CGHS is 100?

CGHS -- well, do the math. So I'm saying, if CGHS is 100, that is 185, this is 50% more than 185.

Okay, okay, perfect, 275 then. And this is -- these are the numbers for H1, I would say or like more or less this remains...

They're current numbers, running numbers.

Current numbers, okay, okay. And secondly, on CGHS, you said that -- on institutional, you said that we are now taking higher, complex procedures, et cetera, so do we have that flexibility to choose on the specialty on CGHS or some of the institutional business?

Well, we all inherently do because some of the hospitals are now disengaged. And now hospitals which have engaged are doing, won't have those kinds of facilities. There's a churn which happens.

Okay, so basically some word of mouth, something, more people...

Some word of mouth. Like Saket now only does cardiac and oncology; have stepped out of CGHS on all of the this thing, et cetera. That's the main hub, so you start moving towards that.

Okay, okay. So we have the flexibility of saying no to other specialties, basically?

It's not a question of flexibility. It's a matter of contract. We've gone and told them that we can't treat patients, right? Our contract is amended to this thing. It's not a flexibility that we have. We have no flexibility for all of this thing, you do all of it. You can't start cherry pickings as for whatever arrangement you have.

Okay. So our contract is only for a few specialties where we have a strong base and more complex. Okay. Perfect.

Thank you.

[Operator Instructions] Ladies and gentlemen, as there are no further questions from the participants, I would now like to hand the conference back to the management for their closing remarks. Thank you. And over to you.

So thank you all for coming on to Max Network's Q2 fiscal year 2024 results. We will look forward to seeing you for our next results as well. Thank you very much. Bye-bye.

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