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

Ladies and gentlemen, good day, and welcome to Max Healthcare Institute Limited Earnings Conference Call. [Operator Instructions] Please note that this conference has been recorded. I now hand the conference over to Mr. Suraj Digawalekar from CDR India.

Thank you, Neerav. Good morning, everyone, and thank you for joining us on Max Healthcare's Q1 FY '25 Earnings Conference Call. We have with us Mr. Abhay Soi, Chairman and Managing Director; Mr. Yogesh Sareen, Senior Director and Chief Financial Officer; and 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 all, and a warm welcome to Max Healthcare's Earnings Call for the first quarter of fiscal year 2025. It's been a very promising start to this financial year. I'm pleased to share that we have operationalized Max Super Specialty Hospital, Dwarka on July 2, located in the heart of South Delhi, it is a 303-bed hospital equipped with the latest high-end technology and currently has 125 doctors and 418 nurses, paramedics and support staff. The hospital is seeing good traction since the launch. Presently, the hospital teams are engaged on various fronts, including patient outreach, empanelment with insurance companies, clinical accreditation, et cetera. Yesterday, we announced a built-to-suit transaction for setting up a 250-bed hospital in Mohali. This 2.75 lakh square feet building with attendant parking will be constructed by the developer as per our requirement and specifications. This is a long-term lease extendable up to 50 years at our option, and we expect to commission the facility before FY '28 -- sorry, in FY '28. The hospital will cater to surrounding areas of Himachal Pradesh, Punjab and Haryana. This is in line with our asset-light strategy, which allows us to expand while insulating against development risks. Further, in strong demonstration of our turnaround capabilities, both Lucknow and Nagpur Hospitals that we acquired at end Q4 last year are ramping up well. With an average occupancy hovering around 60%, for Q1, these hospitals contributed INR 99 crores to the revenue and INR 18 crores to the operating EBITDA, reflecting a year-on-year growth of 21% and 64%, respectively. And more importantly, this was done with the first 3 months of us acquiring these facilities. Collectively, their ARPOB stood at 45,300, an annualized EBITDA per bed of about -- close to INR 30 lakhs. A large part of the post-merger integration activities has been completed now, the results of which will be more visible in the quarters to come and further augmented as new clinical teams joined and infrastructure is upgraded them. Now coming to the Q1 performance. This is our 15th consecutive quarter of year-on-year growth. Overall, network gross revenues stood at INR 2,028 crores, registering a growth of 18% year-on-year and 7% quarter-on-quarter. Network operating EBITDA was INR 499 crores, net of onetime charge of INR 6 crores towards prelaunch costs at Max Dwarka. This reflects a growth of 14% year-on-year and a marginal decline of 1% quarter-on-quarter. Profit after tax stood at INR 295 crores compared to INR 291 crores in Q1 last year, and INR 311 crores in the previous quarter. While we expect substantial improvements during the course of this year, we're also infusing equity in the Lucknow subsidiary to bring down the finance costs. All numbers from here on are going to be now shared on for a like-for-like basis, including new hospitals. One, average occupancy for the network increased to 77% from 74% in Q1 last year, and 75% in the trailing quarter, while occupied bed days grew by around 5% year-on-year and 2% quarter-on-quarter. Average revenue per occupied bed, ARPOB, for the quarter improved to INR 80,100 growing by 7% year-on-year and 3% quarter-on-quarter. Year-on-year improvement in ARPOB was largely due to growth in oncology, orthopedics and renal sciences, as well as increased number of robotic procedures. This was coupled with tariff revisions for self-pay insurance and institutional segments. Network gross revenue was INR 1,929 crores compared to INR 1,719 crores in Q1 last year and INR 1,847 crores in the previous quarter. This reflects an increase of 12% year-on-year and 4% growth versus the trailing quarter. The international patient revenue stood at INR 158 crores. There was a temporary impact on patient flows from some countries due to political situations and credit risk management-related actions taken by us, which accounted for the muted growth in this segment. Network operating EBITDA stood at INR 487 cores, reflecting a growth of 12% Year-on-year while declining by 2% quarter-on-quarter. Operating EBITDA margin stood at 26.5% for the quarter. Growth in EBITDA was impacted due to annual merit increase, GST on variable management fee and drop in footfall for immigration health checks owing to change in visa regulations by some countries, particularly Canada and U.K. Annualized EBITDA per bed stood at INR 74.7 lakhs, clocking a growth of 6% year-on-year. Profit after tax was INR 316 crores versus INR 291 crores in Q1 last year and INR 322 crores in the previous quarter. Free cash flow from operations was INR 258 crores. Of this, INR 213 crores was deployed towards the ongoing capacity expansion projects and upgradation of facilities at new hospitals. Consequently, net cash position stood at INR 66 crores at the end of June 2024. Continuing our efforts to support the local communities, we treated approximately 36,800 patients in OPD and 1,150 patients in IPD from the economically weaker sections of society value free of cost or free of charge. Both our strategic business units continue to report significant growth in the revenue and profitability. Max@Home reported a top line of INR 49 crores, reflecting a strong growth of 23% year-on-year and 6% quarter-on-quarter. This SBU offers 14 service lines over 10 cities and continues to experience a very high rate of repeat transactions. Max Lab, the non-captive pathology vertical now offers its services in nearly 50 cities and has a network of over 1,100 collection centers and active partners. This strategic business unit reported a gross revenue of INR 41 crores, reflecting a strong growth of 21% year-on-year and 6% quarter-on-quarter. Now coming to the status of expansion projects. For the 590 beds at Lucknow hospital, the work on refurbishing the existing facility is underway, finishing work for operationalizing additional 140 beds has started. We have also received environmental clearance approval for setting up a new 450-bed tower on the site, and we expect to complete the development of the new tower within 48 months -- sorry, within 24 months. The 440 beds at Nagpur Hospital work has been initiated to add around 25 beds through internal reconfiguration by Q3 FY '25 and environmentally clearance application to adding 115 beds and 2 additional floors has been filed. We expect approval over the next 2, 3 months, and the project completion by -- in the next 24 months as well. For 241 beds in Nanavati, Phase 1, the hospital structure will be up in this month, and the project completion is expected by end of this fiscal year, as communicated earlier. The project continues to be on schedule. 375 beds at Max Smart at Saket complex, the project was fast tracked in Q4, and we expect its completion by Q1 FY '26. This is a steel structure building and the installation of columns have already started. The site is fully mobilized, and we don't expect any further delays. For 155 beds at Mohali, work on the second floor slab is underway. While the work on ramp area is reaching ground level, all high-side equipment has been ordered and the project is on schedule. We expected completion by Q1 FY '26. For 300 beds at Sector 56 Gurugram, basement slabs are nearing completion and the project is progressing as per plan. Orders for all high-side -- high lead items have been placed. We expect completion for the first phase by Q2 FY '26. For 250 beds at Patparganj Phase 1, post issuance of the no-objection certificate by the fire and water departments, we have submitted the drawing for approval and the tendering process for the project is on. For 415 beds at Max Vikrant Saket, the environment clearance and consent to establish has been received. The barricading and D wall, et cetera, has started. We have applied for forest approval and are still awaiting the same. We expect some delay due to ongoing litigation involving DDA and Delhi government regarding cutting of trees in the eco-sensitive zone near Solan and the military areas without approval. With this, we open the floor for Q&A.

[Operator Instructions] First question is from the line of Amey Chalke from JM Financial.

The first question I have is on Lucknow Sahara Unit. Is it -- I understand that we have plan to expand unit to 550 beds, and then there is another tower which could come up. But what is the near-term action plan for the existing units of the 250 bedded unit in terms of any specialty addition, et cetera, that ARPOB, I believe, has substantially improved. So what is the driver going ahead for this unit to improve ARPOB further?

The clinical program is clearly one, I think doctors is the other, and that's how you sort of achieve clinical programs, improvement in infrastructure. So we're expecting to refurbish the entire -- I mean, the present infrastructure as well as add the 140 beds by end of this calendar year. I think as far as clinical programs are concerned, on quality represents less than 2% of the total revenue in Lucknow. So that's a major driver for us. It is the high sort of ARPOB business as well as contributes more than 24%, 25% of overall revenues. So if you look at sort of implying that over there, we'll see a major flip in ARPOB. I think like I mentioned, we've had -- in the first 3 months, literally, I mean, we got there, we acquired at the end of March and April, May, June -- compared to April, May, June last year, there's been a 60%, 60-odd percent increase in EBITDA. And this has largely come through all the sort of low hanging fruit, et cetera, which is there. The real changes that we may have made are you want to have all of those sort of pay dividends in the quarters to come. Also, typically, we have a higher proportion of surgical business that we do in our hospitals and a lower proportion of medical business, whereas in both Nagpur as well as Lucknow, the situation is the other way round. I mean it's a higher sort of -- when your surgical mix moves up with respect to the medical mix, you see higher ARPOB in any case. So there are plenty of levers. I'm not sort of concerned about that. And frankly, I think the kind of traction that we are getting, the kind of early wins that we've been able to demonstrate over there, really gives me a lot of confidence that we should be able to ramp up both ARPOB as well as profitability there.

So this oncology addition, et cetera, should we expect it in the current existing units? Or it will happen when the expansion for the bed addition happens?

No, no, existing unit. We already have bunkers for radiation, et cetera, which are nonoperational. We will just operationalize this. The 140 beds that we are adding, as well as this thing that we're doing, is going to happen by the end of the year. Actually, even the new towers that we're building are going to be done over the next 24 months. Because it's 27 acres of land, we don't have to do so many basements and so on and so forth. Similar to what we've done at Max Smart and some of the other listings that we're looking at. But yes, the oncology business should ramp up in the current year itself. I mean it will not ramp up to 25%, but you'll see ramp-ups in the quarters to come immediately as well as the surgical business, right? And even after we sort of take over these, when we start adding doctors, when we give doctors letter of intents and they sign up with us to join us, they have a 2-, 3-month notice period. So it takes them kind of time to join us. And as the infrastructure sort of -- the equipment has been ordered, the new equipment and so on and so forth, as that comes through, you see more and more teams coming up, right? Now all the technology, all the equipment is being replaced and so on and so forth, right?

Sure. The second question I have is on the Dwarka unit, which has been recently commissioned. If you can provide some time line over there, how the ramp-up will happen? And in terms of the speciality, is it at par at present with the other units? Or do you think the improvements will happen over a period of time?

In terms of the infrastructure is concerned, it is at par. I think the bunker is not ready yet. That is going to be ready in due course. But other than that, I think as far as infrastructure and technology is concerned, not only it is at par, but it's the new generation. So I would say it's perhaps 1 or 2 steps ahead of existing infrastructure. We have again seen very, very good traction over there. It is a massive facility. It's the best infrastructure of its kind in the region of Dwarka. The huge amount of -- again, fantastic traction is what we've seen in the first month itself, and I think this should continue. You should have a breakeven no more within 6 to 8 months.

Next question is from the line of Lindi Tan from Lion Global Investors. Lindi, sorry, we are not -- I mean, you're not audible. Can you speak through the handset? Lindi Tan, can you hear us. Lindi Tan, your audio is not clear. Can I request you to speak through the handset?

Why don't you take the next?

Sure. next question is from the line of Rishi Mody from Marcellus Investment Managers.

Can you hear me?

Yes.

Yes. So just on the Mohali hospital that you're planning to add 4 years out, right, are we going to be -- is this going to be, firstly, an O&M agreement that we have with Devki Devi and those kind of hospitals? Or is it an outright rental sort of a model that we see in retail where we don't incur a CapEx, we have to just put in a security deposit and we start operating on it?

So it is the latter. It is we are leasing it. It's outright rental stroke lease model, where somebody else is putting the infrastructure and has invested in the land, making a build-to-suit. It's a 50-year lease agreement. The only difference is normally, you have commercial leases for 9 or 15 years or whatever. But here, there's pretty much a 50-year blocking. So yes, it's a 50-year lease agreement that we will have.

Okay. And so just from a broader conceptual point of view, right, are we seeing incremental interest from, say, the builder or real estate community towards having these sort of models? Or like if you could share your observations from across North India or rest of the country?

See, it depends on the tenant. Today, if you tell a builder that you please make a build-to-suit, and I will give you 8%, 8.5% yield and I'll give you, whatever, 3%, 4% of increment every year, I mean, that is what the market is, right, as far as commercial real estate is concerned. So as far as the builders are concerned, developers are concerned, they are happy to do it for commercial real estate or retail real estate or for hospitals. The question is how many hospital chains can offer this? Your own ROCEs have to be significantly higher than what you're paying out over there. So I think in our situation, we are able to take up these hospitals because our ROCEs are significantly higher. And so this build-to-suit kind of model works for us. It may not be the case -- and it certainly works for the developers. They are taking a punt on our balance sheet effectively. And that is where they're getting this thing that, look, we will be around 50 years, and they'll be able to -- after even making that particular hospital or this thing and dedicating it to us for 50 years, because do remember this is build-to-suit, so it's not as per our design. If somebody is building something under certain specs and leasing it out to you for 50 years, he has to sort of be very confident that you will be around for 50 years and your balance sheet will be able to hold it. But I think that's a punt a developer needs to take, because eventually, your tenants. But here you are tenant for 50 years, it's not as if you can move this hospital and you'll start using it for a mall or give it for some other purpose or a hotel or whatever else it is.

Right. All right. Secondly, just -- I think you went through the capacity addition plans and updates pretty quickly. But just on an overall basis versus Q4, any delays or any preponement, just if you could highlight that piece?

Not really. So we're not expecting any delays or preponements. I think you want to have -- except for Vikrant, I think which is the last one, which in any case was a 2028 generation hospital, which we're expecting maybe a couple of quarters of delay on that one. Other than that, we're not expecting any delays. So you should have Mumbai, Mohali as well as Saket up by Q4, Q1.

Okay. Got it. Yogesh, I had a question for you on the tax rate piece. So I'm seeing tax rate for this quarter has come up to 26%. Just wanted to understand, because I'm under the impression that we have a tax benefit in the BLK and the Nanavati, and now with the Dwarka unit. So is my understanding correct? And this is just a factor of the profitability for these 2 charitable hospitals? If you could just help me understand the tax piece...

This is Yogesh. Yes. So overall rate is 22.8%, right? This quarter, the rate has gone up because we have losses in the new entities, mainly the Sahara hospital entity. You know this Sahara Hospital transition was INR 993 crores. We funded this by INR 840 crores of loan into the entry. And as Abhay mentioned that -- alluded in his speech that, we are changing the capital structure in the company. So since we have losses in this company, we don't do the DTA as per our policy until it sustain -- the company is profitable, right? So that means you have these losses, but you have the tax out on the other entity. So that's the reason why the rate has gone up. But otherwise, the rate was the same as in quarter 4. Quarter 4 was 21.8%, and we do think that, going forward, we will be around 22% rate.

Okay. But -- so just if I take a calculation, right...

Also on the BLK, the overall -- the agreement is that whatever is the net profit, 98% of the profit comes to us, right? So the moment we withdraw that money from there, there are 2 taxes on that. One is there is GST and also there is -- when the money comes on this side, then we have to pay tax on it, right? So to that extent, BLK doesn't allow me any tax sheet.

We don't trap money in trusts. We sort of take it, we pay full tax on it.

Okay. For example, now BLK there is no capacity expansion plan. So you're taking the money, repatriating it to the holding company. But Nanavati, we have a plan of expansion, hence, we are not repatriating. But once that expansion is done, it will also become like BLK. Is my understanding correct?

That's right. But also this formula is on cumulative basis, right? So what happened is that the BLK write-down their losses on a cumulative basis last year quarter 2. So the withdrawal has happened from quarter 3 onwards, right? So similar things will happen for Nanavati, the withdrawal will happen, but that will happen once the cumulative profits are made in that entity -- in that trust.

Okay. So maybe 1, 2 years down the line, it will start paying off.

Yes, yes.

Next question is from the line of Damayanti Kerai from HSBC.

My first question is on the margin contraction, which we have seen in first quarter. Can we attribute most of that for the new facility cost or between 4Q and June quarter. Have you seen like any major change in the business mix, say, in terms of medical and surgical volumes, which are coming to your facilities?

We've clearly seen change in the clinical mix has moved to a higher-end clinical mix. And like I've mentioned in the past, when you -- when you do higher-end surgeries, you do more robotics and more oncology and so on. They typically have low margins, lower margins in percentage terms, but higher margins in value terms. So whilst you see a flattening of EBITDA margins, you don't -- you see an increase in EBITDA per bed on the existing hospitals as well. So I think the takeaway should be that what is the increase in EBITDA per bed. Because eventually, we have 2 things, we've got inventory and we've got a number of days in a year. And it's really -- you'd rather do to a 15% -- you'd rather do a 20% margin on a INR 10 lakh surgery than do a 15% margin on a INR 2 lakh surgery, right? So I think this percentage is relevant. I think we should look at sort of -- the other this thing is that we had a reduction in OPDs, like I mentioned in the current year, and these OPDs were largely from the immigration because of disruption in visa from Canada and from U.K. and a little bit in Australia, we've had reduction in OPDs. And this is the immigration income that we had. So that has had a couple of percentage point sort of impact.

Okay. That's clear. And my second question is a couple of your hospitals are scheduled to start in another, say, 6 to 12 months, if I may say, Nanavati, Smart, yes, Mohali.

6 to 8 months, that's right.

Yes. So just want to understand, when you are about to start a new facility, when do you start your prelaunch activities and -- what kind of cost you're anticipating for these upcoming units?

So look, unlike Dwarka, which is -- it's a new facility. So what you have to do is you have to actually have a minimum amount of doctors and staff, et cetera, which is pretty much you need to start the entire hospital, okay? In that case, before you apply for even a nursing home license, right, so you're sitting fully staffed, okay, then you make the application for the nursing home license, okay, and then you need to sort of promote the facility by advertising it and so on and so forth, by onboarding doctors and getting new -- getting all the insurance companies and TPAs onboarded by getting institutional sort of this thing, by public, corporate tie-ups and so on and so forth. So you're really starting ground zero. All of the facilities that you sort of alluded to right now, be it Nanavati, Mohali as well as the Max Saket, they're all existing facilities. So I don't need to promote the existing facilities. They are enough people waiting in my ER over there waiting for beds, right? And it's going to be very similar to what happened in Shalimar Bagh. In Shalimar Bagh, we didn't have to have any pre-op expenses really, or promote those facilities or even wait to get these. So all the contracts, everything is already pretty much signed up. So you won't see any pressure on margins over there. I think almost day 1, you're sort of good to go.

Okay. Understood. And my last question is on clarity on your Mohali planned hospital. So you said it's a 50-year long lease and it's a build-to-suit premise, which you will be getting, so there will be no CapEx once you get the facility leased, just, say, equipment and then people's cost, which will be going towards this unit?

That's right. That's right. So we will be providing the medical equipment and -- other than the deposit, again, which is interest-bearing, and loose furniture. The entire project cost is incurred including the land and building. More importantly, any delays, any cost time, overruns, everything onto their account. I mean this is very similar to what we've done in Dwarka,right?

Okay. So the way like Dwarka, it's an O&M facility, which you got into your network, but...

This is not an O&M, this is a lease. But the same this thing as Dwarka in the sense that developer develops it and he incurs the project cost, we bring in the equipment and so on, okay? And I mean whether you look at O&M or a lease, the commercials are pretty much the same, asset light.

Next question is from the line of Kunal Randeria from Axis Capital.

Abhay, in the last few quarters, the number of institutions where they're standing is around 29%. Do you see headroom for some improvement over here?

We do see headroom for improvement here, but first quarter and usually the third quarters are weaker quarters. So compared to a fourth quarter, what -- you take your foot off the accelerator. That's not the time sort of this thing because your occupancy levels subdue at that point in time. So if you want to kind of this thing -- and you know when to churn your patients. Typically, you will see churn happening in the second quarter and the fourth quarter.

Okay. Sure. Because even I think in last quarter, it was somewhere around 29%, right? So I thought just, in the last 5 or 6 quarters, somewhere in this range.

That's in Q4, right? The fourth quarter is a strong quarter. So if you see Q3 versus Q4, there may have been some change. But if you look at Q4 versus Q1, you won't have a change. So typically, now again from Q1 to -- sorry, Q1 to Q2, you'll see a change. But Q2 to Q3, you won't see a change. I would also say there's a change that we don't see, that change is in the ARPOB of the business, right? So we do the PSU business, but while you may see the same beds. But the throughput of those beds have gone up. If I see the improvement in the ARPOB, it's Y-o-Y, it's a 10% improvement in the ARPOB of the PSU. So which means that we are -- within that batch, we are trying to do high-end work, right?

Sure. Got it. Just second question...

Yes, yes, installation, yes.

Sure. Second question on ARPOB. This quarter saw around 7% growth on your existing units. So is this the new normal that we should expect going forward?

No, I think we've had -- because of the immigration and visas, okay, that's had maybe a couple of -- 2, 3 percentage point impact on ARPOB. That is something we had last year. But this year, there's been some disruption because of Canada not issuing visas, U.K. immigration visas have been sort of this thing. And you've seen the same with Australia as well. We believe it's a temporary phenomenon, and the business will sort of this thing. But if it doesn't, then we kind of repurpose that space to put more dialysis beds and so on and so forth. We will catch that up. But yes, so I think 7% would be a little muted compared to perhaps what we had in the past.

Sure. Got it. And sorry, when you say this and assuming also in the new units that are coming in or it's only the existing units?

Sorry which is...

So when you mentioned that your growth should be higher than 7%, so does it include all the beds or just the new units -- the same units?

So new units will be a significantly higher ARPOB growth, right? I mean new units are starting at a low base. So if you combine the 2, then your growth should be more.

Okay. For example, I mean...

I mean we had a revenue growth of 21% in the new units, right?

Okay. Okay. Because -- so you are saying that maybe Lucknow and Nagpur, whose ARPOBs are lower, should grow at a much faster pace than your existing hospitals?

And Dwarka.

And Dwarka. Okay. Sure.

It's a new hospital, right? So I mean, your percentage growth, the absolute base is lower. They are starting on a lower ARPOB.

Sure. Okay, so...

We had a 21% and 64% growth in Lucknow and Nagpur on sort of revenue and EBITDA loan, so you can imagine huge amount of growth come from that place.

Sure. And just one, actually Lucknow seem to be like a go-to spot for lot of your peers also. Do you think that so many beds coming up in that area, there is enough medical talent available both from a doctor as well as from a nursing perspective?

Actually, I don't know of any other hospital coming up there. And besides Medanta, which has been there for a while, and a smaller Apollo facility, which has again been there for 5, 6 years. This was also existing facility. And other than that, we only bought the land on Shaheed Path, which is opposite Medanta, but don't -- I have not heard of any other hospital really coming up there.

Nevertheless, we don't -- we see an abundant supply of talent there. In fact the doctor that we employ and a lot of them are from SGPGI, Lucknow. So to that said, we haven't really...

Historically, Lucknow has been the place where we've got most doctor, I mean, 25%, 30% of our Delhi doctors are from Lucknow. Historically, Lucknow has had medical colleges and government medical hospitals, et cetera, and it's a big, big sort of base of doctors there.

Next question is from the line of Dheeresh from WhiteOak Capital Management.

Sir, which quarter do we take the annual increments, is it this quarter or...

1st of April.

1st of April. Okay. For the Mohali asset that you mentioned, it will be possible for you to share how much the partner -- real estate is investing in the land and building for the 250 bed?

I can't share that. We've already -- he owns the land, so he would have...

So we have a fixed...

Thank you for specification in our BOQs, then they don't sort of share what they are spending. But usually land and building will cost -- well, the building alone will cost about 80% of the total project cost if we were to do it.

Next question is from the line of Adrit Chaturvedi from Nomura.

So I have a question specifically regarding the inpatient business. So you've reported this quarter around INR 1,600 crores of...

Adrit, sorry to interrupt you, your voice is coming muffled. Can you speak with the handset, please?

Am I audible now?

Yes.

Yes, yes.

Sir, my question is specifically regarding the inpatient business. So you've reported around INR 1,600 crores of IP revenue. So that's around 21% Y-o-Y growth. And also the volumes have grown by roughly 17%. So that translates to about like 3.5% growth in realization. Now this 3.5% is sort of one of the lowest in the preceding quarters. But at the same time, the volumes are like highest in the preceding quarters. So is this the sort of business profiling that we should come to expect as you grow and you expand? That your realization per patient on the IP business is going to be around 3%, 4%, but you're going to focus more on volumes?

I think you are looking at the overall number, which includes the new facilities, right? So you should compare the number on Y-o-Y basis for the existing hospital separately. Because the new hospitals ARPOB is obviously lower, right? And also -- so to that extent, you find a volume increase, but not the increase in the revenues because of the ARPOB issue. But as Abhay mentioned, that as we have -- we changed the mix of the business in those new hospitals, we're also putting oncology there and have more talent there, slowly the ARPOB will inch up, right? So there's a difference INR of 80,000 to INR 45,000. The new hospitals have an ARPOB of INR 45,000. And our existing hospital have an ARPOB of INR 80,000, right? So we think that INR 45,000 will surely come up fast. So it should be anything been INR 60,000, INR 65,000, let's say, in a year's time. And that's how this will catch up, right? Then you'll find that the number increase and the overall aminities will come up -- start to have lesser differences.

So the backdrop also on the levers for these realizations, right, so like if you look at the sum of shares of oncology, cardiac sciences, orthopedics, neuroscience and renal, like the sum -- the share has come down this quarter on a Y-o-Y basis. And that's a first in a while. And even the...

It's because you are including the new hospital. Because you've included the new hospital, which have less than 2% oncology share, right? So it will, right?

So what's this...

Because the new hospital's share is very different from what we have in the existing hospitals.

Right. So when do you suspect like, as the expansion ramps up, that we would have a sort of a resting rate where, as you said, ARPOB grows at roughly 9%, 10%. So I guess the realizations grow at 8%?

No, no, no. It doesn't work like that. See please understand, okay? What are we -- what is it that we focus on? We focus on acquiring facilities, okay, turning them around. See that this thing get higher ROCEs over a period of time, but you look at it on an incremental basis, right? Now all of -- if we bought something, okay, with a lower EBITDA, lower ARPOB, okay, and we are demonstrating an increase in that ARPOB, it may or may not get to -- Nagpur hospital will not have the same ARPOB, okay? Eventually -- that a Delhi hospital does.

Okay. So...

Nor we'd have the same EBITDA per bed. What you have to see is, okay, vis-a-vis what you've paid for it, okay, what is the sort of return you're going to get and so on and so forth. Yes, the levers for doing all of that -- and what we are seeing is that levers for doing all of that is going to be better clinical mix, doing more surgical work, less sort of testing, et cetera, higher oncology business and so on and so forth. That makes to 25% or 24% oncology, okay? But you may not get to the ARPOB, because the ratio over there are cheaper. I'm not even chasing the Delhi ARPOB with it, right?

Yes. Now I understand. So just lastly, so a lot of your peers have mentioned that they're sort of translating a lot of the lower ALOS businesses to like daycare. And right now, your IP business is roughly 80% of overall. So you don't give any separate numbers there. So do you have like any kind of qualitative color regarding what's the OPD margin profiling versus daycare, and how it helps your margins if you sort of translate a lot of those lower ALOS to daycare and census beds, non census beds?

So look, I think if you -- the lower ALOS business to -- this thing has its own sort of tenants with it, okay? Because currently, insurance companies don't cover businesses, which are -- where you don't spend the night in the hospital, right? So you need to spend a night for insurance companies. So daycare business may not be covered by the insurance companies. That itself is kind of this thing. So by squeezing a lower ALOS business and doing a daycare, I mean, of course, you can -- daycare procedure, okay -- the longer you stay in hospital, the hospital loses money, right? I mean the surgical part is what makes money. So if you can translate anything into a daycare, get a person in the morning, do the procedure and have him out by the evening, okay, your yield is significantly higher. The question is why is it that you can't do it? Because for a lot of the procedures or for most of the procedures, you need to stay the night in the hospital to get -- to claim insurance.

Okay. So on the cash patients, like the cash patients, is there a targeted strategy there to like move a lot of these lower ALOS to daycare? Or is it something that's not the focus right now in terms of your non-IP business?

We do that in hygiene, right? And I don't know exactly what you are seeking. If you're able to articulate a little better, then perhaps I can answer you for the sake of...

I think for us, the ARPOB is the one that we go for, right? We will obviously -- and this daycare procedure will be all run-off the mill procedures, right? Our focus is to go up the value chain, right? So we'll be pursuing liver transplant, oncologies, neuro, cardiology, cardiac surgeries. I think those are the procedures that we pursue, right? So while we'll obviously -- there'll be shift of some daycare procedure, 1-day stay, can you do it in daycare? Yes, we can, we do. But that's not the focus of the hospital administration to really go after, right?

It really depends what your proportion is, right? I mean everybody's ALOS is sort of different because the clinical programs are different. If you do a liver transplant, okay, your EBITDA per bed -- your ARPOB is higher, your EBITDA per bed is higher, right? But the fact of the matter is the patient stays much longer. Would I replace that with the dengue patient which has maybe a lower ALOS, but a higher percentage margins but lower sort of EBITDA per bed, no.

Next question is from the line of Prashant Nair from AMBIT Capital.

Just one question on your -- so as your new projects now start coming on stream over the next few years. So if you take some of your larger brownfield projects like say in Saket or Nanavati, when the new beds come online, would they have similar case mix, payer mix, ARPOB et cetera for all the beds? Or would they start at slightly different levels and then match up to how the existing hospital beds are?

So you want to have a different sort of mix to start with because, first and foremost, what you do is you try to ramp up occupancy over there in the new beds. And when you do that, then you're not kind of very strict on the payer mix as well as the clinical mix, okay? You are going to take -- and people who may not be getting priority today because that's a lower-end payer mix or a lower-end clinical mix, right? You kind of open your doors to it. So ARPOB from the incremental bed is lower. Having said that, the EBITDA per bed is higher. Your profitability -- because you get huge amount of operating leverage over there as well. right? Because your main costs and, et cetera, associated costs, everything is already being incurred by existing hospital.

Sure. And second question in these projects, would the investment in the beds follow a similar pattern? So say a new greenfield project, you front load everything, right? So in brownfield, there's -- is there a period maybe after the first year, second year, when you have to step up either investment in people or equipment, given that these beds have no ramp-up? Or are they all done at the beginning?

This is all done in the beginning, so you don't have a step up anything. I think brownfield, I understand you pretty much -- yes, you're operating with the same set of people, the same -- majority of the equipment is already there. So yes.

Next question is from the line of Tushar Manudhane from Motilal Oswal.

Sir, just on the international patient ARPOB, if you could just help understand like how much drop the ARPOB or decline in the ARPOB that has happened because of these issues related to immigration in the year-over-year or quarter-on-quarter basis.

So international business has got nothing to do with immigration business. These are 2 separate streams altogether. The immigration business is where people come for visas, they have to get themselves tested and so on and so forth in our immigration departments, right? The international business is the incoming business that you have. I mean immigration business is the people who have to -- if you have to relocate to Canada, then you have to get your medical sort of tests and all done.

It's OP business.

It's OP business. The international medical tourism is people who are coming to India. These are 2 separate business streams.

Understand. So as far as international business, just to understand what kind of ARPOB growth we've seen for the last 2, 3 quarters.

No. So Tushar, typically, the ARPOB in the international business is already 1.5x of the overall ARPOB, right? So international business growth on ARPOB would be 7% to 10%, right, if you see the last year. So -- and also it changes, right, quarter to quarter depends on what the provider efficiencies that you redeem. But that would be the -- so it will be overall growth. Because these tariffs are linked to the self-pay tarrif.

So largely similar to that of the domestic patient in terms of growth, not in terms of value. But in terms of growth, we are largely similar in both international as well as domestic patients. Is that the right way to understand?

Fix things, yes. So the pricing change is -- yes, price is linked to the self-pay, right? So we charge a premium on that, but then it's linked to self-pay.

Understood. How much of the OpEx at Dwarka? Like operation cost, when you say breakeven within 6 to 8 months. So if you could share how much OpEx and how much of that is already into the period? Given that you said that we need to get the licenses and all, so you need to have doctors and nurses already on board. So does it mean that OpEx is already in 1Q?

No, so Tushar, basically, in this quarter, we have INR 6 crores of prelaunch costs, these are the cost of the doctors and the staff that we had hired. Before you get the nursing home license, you supposed to have people on your roles, right? So you have to demonstrate to the department -- to Delhi Health Department, to say that we have so many people available for treating patients. So that is the cost. We haven't had any revenue from the hospital in quarter 1, right? These costs will obviously get built, right? This is a cost, which is for the quarter. But obviously, if you take June month, June month, this cost would be higher than the average rate. INR 6 crores is not for the full quarter, it's not for the -- so let's say, June -- if I take July, you will have further increase in the cost because you're adding more people. So we opened 94 beds at this point in time, and I can't give you a P&L statement in terms of what the cost would be. But we do think that by 8 to 9 months, we should be on a breakeven state, which means that this should be in the quarter 4 that we start to see breakeven numbers at EBITDA level for Dwarka hospital.

So is that -- primarily, we're still trying to understand till that time how much drag would be there on the existing EBITDA of, say, INR 500 crores, so from that perspective wanted to understand.

Tushar, we said quarter 4, we'll breakeven, right? So that was -- the drag will happen until quarter 4. Since quarter 4, you'll see that loss becoming breakeven for Dwarka.

Sure, sir. And how much further investment would be required in Lucknow for this 450 beds once the EC approval is there?

So I think this will be around INR 700 crores plus, 450 beds.

Next question is from the line of Amit Kadam from Canara Robeco Mutual Fund.

Yes, sir. Am I audible?

Yes, yes.

Sir, my question is like I'm just reading the Slide #10, and I'm trying to refer the outpatient growth what we have seen, the fourth chart, where it shows that 4.5% has been the growth for the like-to-like of the existing hospitals. Whereas, when I compare it for the quarter 1 FY '24, a year back, this run rate was like almost 13%, 14% growth rate. What -- how do I read this particular thing 14% versus 4.5% right now?

So the OP consults have come down. I think Abhay had alluded to that in his speech also that we had immigration business, which is down by around 48%, right? There's a large immigration -- so we have 3 centers for immigration, right, 2 in Punjab and 1 in Delhi. Now the footfall has come down by 48% here, right? So obviously, that has impact in these numbers because that's all OPD business. So we do think that this impact will go until quarter 3 and from -- because quarter 4 was a normal quarter because we have this change in the visa regulation from 1st of January this year. So there will be some impact of that, that we will have.

But the good part is this is not the OPD business, which needs to admissions or IPD, right? I mean this is purely, which is always -- immigration business OPD people come to the consult, the same go out. So they don't get translated. Normally, reduction in OPD business or outpatient footfalls, okay, would be concerning because that means is that you're going to have a lower in-patients going forward. But this is not the category of people, which converts to inpatients.

Which is what 3% of costs?

Also last year, I think we opened Shalimar Bagh. And so 3% of that was because of the capacity expansion like you just pointed out. That is last year. So there's new capacity, which opened in this month last year, in that quarter.

So like the kind of capacities what we are going to see in next 1 odd year, what is the metric -- or what number you would like to see? Because for a kind of a run rate in terms of volume what we want to see and partly driven by volume, this number should be high single digit. That's what could be a number for maybe a steady-state growth.

Are you talking about the existing hospitals or new hospitals or combined?

Existing, sir. Because combined, you are -- it may not be correct reference. But like when I just see that inpatient and outpatient growth, and you say that partly would be the international, but I'm just like little confused that international patients coming off may not have so much impact.

So the material part is the inpatient.

Yes. So inpatient is 5.5%. That's what I -- the second part of the question is then what is the run rate I need to see in this particular number to maintain a steady-state growth rate of this, as a tracking point?

So I'll just give an example of what happened in Shalimar Bagh, right? This is a hospital where we added 43% bed capacity. And the moment you have the speciality available, the speciality got filled up, the IPD volume and the occupancies went up by 34%, 35%. The OPDs and the IPD footfalls went up by 34%, 35%, right? So that the same thing we expect there to the extent that if there is a brownfield expansion and we are adding, let's say in a 300-beded hospital, we are adding 150 beds, we plan to open all those 150 beds in one go. And to that stand, we will find that the volume will expand within 2, 3 quarter, which should be at a normal occupancy...

But if you want to do apples-to-apples, like you added Shalimar Bagh capacity last year same time, this year, you'll add Lucknow and Nagpur and then you see what the overall growth is. That's why I asked you the specific question because you're not doing apples-to-apples, right? If you're looking at existing hospitals last year, then if you look existing hospitals stands the -- without the Shalimar Bagh expansion.

But sir, this is a volume count, right? So it is irrespective of what hospitals I'm trying to count. Because even I give that benefit of Shalimar also now part, where I'm like -- in the existing product and if it is 5.5...

No, I mean, I just look at it differently, right? So let's say, last year, okay, so you had 300 -- 3,400 beds and then you add, let's say, 200 beds to it, because you've done a brownfield, or you move to 3,600 beds, right? You're not comparing the 3,400 to the existing beds today. You're comparing the 3,600 to the existing today, but you have a jump of 200 beds last year. Likewise, if you take a jump of 900 beds this year, okay, then you need to look at overall footfall.

Abhay, let me just give some objective around it, just explain this. So basically, we have the highest occupancy among our peer group, right, which means that we don't have -- we can't have more IPD patients, right? So what comes first, you have to have capacity to have more IPD patients. So what -- so that means to that extent, we are limited by the number of beds that we have. And the example that I gave you was Shalimar Bagh was that the moment we added beds, the volume went up. So as we -- as people get added, we do think this volume will materially change. The growth in the volume will materially change because we don't have beds, right?

If we don't come up with brownfields, we don't come up with capacity addition, we're already operating at 77% occupancy. I don't have room for my beds occupancy to go up, marginally only, right?

Yes, this explains that particular thing. Because maybe on the flip side, I was maybe trying to see is there a shortfall in terms of whatever the demand expected...

No, no, no. I mean if there is a shortfall of supply, there is supply shortfall and that's why we're doing all these brownfield, right?

And that's where Shalimar was an example, right?

Right. And you mentioned that inpatient and outpatient doesn't have like high correlation with that particular thing.

No, no, no. We have had a very high correlation, okay. But the outpatient business, which is reduced, is the immigration -- visa immigration business. See if you're going to Canada, you have to come to get your blood tests done, so you get your certificate on this thing, that you are medically fit, right? So let's say if you're immigrating to Canada, you would come to a hospital and get that testing because we were accredited with the Canadian embassy. Now that person was not going into an inpatient, even though I'm getting admitted for a procedure. So the visa policy right now, Canadian government is not giving visas. So people are not coming for that medical certificate.

So if you would have added that missing part, it would have -- what run rate this number 4.5% would have been, it would be in the...

It will be same. Inpatient would be the same.

Not inpatient, outpatient then, sir. That 4.5% would have jumped up.

Yes, then that would have gone up, yes.

Next question is from line of Sumit Gupta from Centrum Broking Limited.

I am audible?

Yes. Yes.

I just want to understand on the bed share mix. So basically, from the existing units, bed share has remained majorly between 29% to 30% for the institutional segment. So -- and our overall institutional bed share mix has come down to 27%. So how do you see it going forward over the next 2 to 3 years once all the facilities get integrated and they are in full swing?

So I think there are 2 aspects. So far, like we said, that quarter 1 is a weaker quarter, okay, you have less demand. So you don't put your foot on the accelerator and start driving out institutional business. You accept and accommodate, because you want to fill your beds. Normally, you see this happening in Q3 and Q4 where you have a reduction in institutional business. Having said that, like I mentioned, when you come up with new capacity, new brownfield, then you take in -- occupancy is the criteria, not the caliber of clinical mix as well as the sort of payer mix. So we will be at that stage, taking more institutional. But having said that, even on the institutional business, the EBITDA per bed, which you're able to eke out is significantly higher than what it is for existing beds. And that has been experience with Shalimar Bagh also, right? So when we opened the new beds, you saw the ARPOB, the incremental ARPOB of the new beds come down, because you were taking institutional as well as sort of lower payer mix, et cetera. But the EBITDA per bed pertaining to those incremental beds were higher than the EBITDA per bed of the previous hospital, on existing hospital.

Okay. Okay. Understood, sir. And for the international patients also, you see like there's bed share mix going upwards or remaining at the same level? And like, how do you see this international business going forward?

We see it -- I mean, the growth in that business has been outstripping growth in other businesses, percentage incrementally going up.

So I think Q1 is an aberration there. But we do think that there'll be growth, which will come back it -- it has come back, I mean, as we speak. And I think that there was some temporary blip because of Bangladesh situation and situation in Yemen, Somalia, et cetera.

But nevertheless, your growth in international business is more than growth in your other business, you have the bed share only go up.

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

Sir, we have added 2 new cities to our network in the past 6 months. Other than these 2 our focus seems to be on growing in the existing market, at least over the next 4 to 5 years. So the question is beyond what we have already announced so far on the expansion front, is it fair to expect a relatively higher expansion announcement coming through towards the newer markets?

Look, I think growth in our existing hospitals is not a focus, growth in our existing hospital is a necessity because we've run out of capacity, we're already operating at 77%. I need to increase bed strength in my existing hospitals. And that's why you're seeing this incremental kind of this thing. And this is something we embarked on 2, 3 years ago. And so we've been in construction and so on and so forth. And over the next -- maybe between the next 8 to the next 15 months, you are going to see -- or 20 months, you're going to see a lot of that capacity come through. Now having said that, we still have a balance sheet. You know all the expansion is being incurred through internal accruals. So we are intending to go to other markets. They are high ROCE markets, high opportunity markets. And frankly, I mean, you can imagine whatever multiple I gave for these 2 hospitals has already come down by 60-odd percent, simply because we moved the EBITDA by this much in the first 3 months. So we see opportunities in other markets as well, and we are focusing on that. That's where the focus is going to be. It doesn't mean that you don't look at metros. The point is that in metros it's going to be that much more difficult to be able to acquire hospitals or to acquire land because it's not available.

Fair enough, Abhay. So maybe linked to that one, how are you looking at this expansion from an operational standpoint? I mean any need to beef up the senior management team? Can senior management bandwidth be increasingly an issue going forward?

On the contrary, if you actually see the number of locations that we've added in the last 5 years or 6 years, right, is essentially 3. One is Dwarka, which is open, one is Lucknow and one is Nagpur. So from maybe 17 locations, we wanted 20 locations. Now everybody wants career progression, right? And we got 30,000 people who work for us. And if it's 1 unit head, he also wants over 5 or 6 years, his area of influence will increase, maybe he's handling one hospital, he wants to handle 2, the person who is handling 2 wants to 3 or 4 or whatever. So I think providing that growth, providing the segue for people's career path, it's a necessity today, in 5 years to have 3 more locations. And essentially, if you make a brownfield, I mean, a lot of our expansion is a brownfield. Now if I increase 800 beds by another 400 beds in Saket, nobody is -- I mean it's the same location, it's just you're doing a little more of the same thing, you're not -- maybe operating another facility. So from 200 beds in Mohali, you go to 355 beds, you don't require management bandwidth for it. I mean you are just doing more of the same effectively. And 85% of our growth is coming through going forward. 90% is coming through brownfield. So it's your existing capacity you're increasing. So look, I think from a leadership standpoint or down this -- I mean, the 3 locations on top of 17 which have been added, I don't think it's -- on the project side, of course, we've augmented the teams because when we embark upon all of these kind of expansion, you need to sort of fortify those teams. So that we focused on. Other than that, not really. I mean, of course, we've strengthened the team, et cetera, but -- and that happens through due course. I don't see bandwidth issues. Because frankly, the expansion hasn't been that much in terms of locations.

Fair enough. Sir, maybe that question becomes more relevant as we go beyond these 20 cities. Okay. So the second one, then Abhay is we have been increasingly hearing about resistance from insurance companies on rising health care tariffs. Over a period of time, do you expect any change in the balance of power when it comes to negotiations between corporate hospital chains like us and the insurance companies?

Look, I think the insurance companies, by the end of the day, okay, piggyback on what your schedule of charges are, right? What your rate list is for cash paying patients. And frankly, I think you have the most democratic system over here because no hospital has a monopoly. Patients are choosing to go where they want, basis the value proposition they're able to get, okay? It's not as if people are not kind of reducing the prices to get more patients and so on and so forth. Everybody does that. None of the big chains, none of the big guys, okay, are price-makers. We're all price-takers. Eventually, 90% of all health care is provided by smaller nursing homes and so on and so forth. Every year, they have no what the inflation is, they come up with a particular price. And when we seek price data, okay, that is the basis on which we increase our rate. So I think from our standpoint, you keep in mind, I mean, our EBITDA per bed is still 55% better than the second best player in the industry. Our ARPOBs are maybe 20% better than the second best player in the industry, okay? So if they're price negotiation that sort of comes down, then I frankly think even insurance companies a lot more fragmented.

Next question is from the line of Shubham from Purnartha Investments.

Sir, I want to know how many nursing seats you have across hospitals?

How many what?

Nursing seats.

Nursing seats?

Yes.

You mean nursing colleges?

Yes. I mean you have some nursing seats in Lucknow, I think.

We have one nursing college in Lucknow, and that's about it.

Yes. That's around 100 seats.

100 seats.

Okay. And do you want to increase that or something like plan is there?

No. We have tie up with many nursing hospitals -- nursing colleges.

Okay. And how many beds operationalized in Dwarka?

94 beds, at this point. So it's a 350-bed hospital, so far 94 beds as we speak.

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

So thank you, everyone, for joining us for the first quarter FY '25 earnings call. We look forward to catching up again next quarter. Thank you.

Thank you very much. On behalf of Max Healthcare Institute Limited, that concludes this conference. Thank you for joining us, and you may now disconnect. Thank you.