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

Ladies and gentlemen, 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. Anoop Poojari from CDR India. Thank you, and over to you, sir.

Good afternoon, everyone, and thank you for joining us on Max Healthcare's Q2 and H1 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 Mr. Keshav Gupta, Senior Director, Growth, M&A and Business Planning of the company. We will begin the call with opening remarks from the management, following which we'll have the forum open for an interactive question-and-answer 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 afternoon to everyone, and a warm welcome to Max Healthcare Earnings Call for second quarter and first half of financial year 2025. The financial year was projected to be one of limited growth. Our brownfield capacity expansions were scheduled for completion at year-end, and a greenfield hospital in Dwarka, would still be in its early stages of operation. However, the first half of the year has seen stellar growth, fueled by recent acquisitions and the successful integration into our network. By expanding into new but proven geographies, we have supplemented our growth momentum. Max Lucknow and Max Nagpur have been fully integrated into the network and have significantly improved their performance. Combined revenue reached INR 130 crores for these 2 hospitals in Q2, representing a growth of 40% year-on-year and 32% quarter-on-quarter. Compared to the previous year, the combined EBITDA nearly doubled to INR 33 crores in Q2 with a margin of 26%. The newly operational Max Dwarka Hospital reported a revenue of INR 33 crores, an EBITDA loss of INR 18 crores, with occupancy of 41% and ARPOB, average revenue per occupied bed of INR 80,000. This hospital has been doing -- performing very well, and we believe we'll breakeven before -- much before the end of the year, and perhaps will be the fastest breakeven in our history. We are excited about the recent acquisition of Jaypee Hospital Noida. It is a marquee asset and will strengthen our presence in the national capital region. The enterprise value for this acquisition was INR 1,660 crores and we expect to integrate the hospital into the network quicker than others. In the near term, our plan is to increase the operational bed capacity from 376 beds currently to 430 beds by March and upwards of 480 beds by December 2025. We're simultaneously strengthening the medical program in urology, medical oncology, gastroenterology and neurosciences through a combination of external hires, infrastructure enhancement and technology upgrades. Now coming to Q2 performance highlights. This is our 16th consecutive quarter of year-on-year growth. Overall network revenue stood at INR 2,228 crores, registering a growth of 22% year-on-year and 10% quarter-on-quarter. Network operating EBITDA was INR 566 crores. But more importantly, excluding the extraordinary items comprising of INR 18 crores of start-up losses at Max Dwarka and INR 7 crores of transaction costs for the Jaypee deal, the operating EBITDA stood at INR 591 crores, reflecting a growth of 19% year-on-year and 17% on quarter-on-quarter. Profit after tax stood at INR 349 crores compared to INR 338 crores in Q2 last year and INR 295 crores in previous quarter. Yet again, excluding the extraordinary items as mentioned above, PAT stood at INR 383 crores, reflecting a growth of 13% year-on-year. From here on, I will mention all numbers and percentages, excluding the extraordinary items. Our average occupancy for the network increased to 81% from 77% in Q2 last year and 75% in the trailing quarter, while the occupied bed days grew by 18% year-on-year and 8% quarter-on-quarter. Average revenue per occupied bed for the quarter stood at 76,100, growing by 2% year-on-year and remaining flat quarter-on-quarter. Like-for-like, ARPOB grew by 7% for the existing beds -- for the existing hospitals. Network gross revenue was INR 2,194 crores compared to INR 1,827 crores in Q2 last year and INR 2,028 crores in previous quarter. This reflects an increase of 20% year-on-year and 8% versus the trailing quarter. The international patient revenue stood at INR 178 crores, which reflected a growth of 12% both year-on-year and quarter-on-quarter despite contraction in patient footfall from Bangladesh and Yemen due to political unrest. Network operating EBITDA stood at INR 591 crores, reflecting a growth of 19% year-on-year and 17% quarter-on-quarter. Operating EBITDA margin stood at 28.2% for the quarter. Annualized EBITDA per bed stood at INR 75.5 lakhs, remaining flat year-on-year and increasing by 6% versus the trailing quarter. Like-for-like EBITDA per bed grew by 4% for the existing hospitals. Profit after tax was INR 383 crores versus INR 338 crores in Q2 last year and INR 295 crores in the previous quarter. Overall free cash flow from operations was INR 464 crores, of this INR 217 crores was deployed towards ongoing capacity expansion projects and upgradation of facilities and acquired hospitals. Consequently, net cash position for the network stood at INR 313 crores at the end of September 2024 compared to INR 66 crores at the end of March 2024. Continuing our efforts to support the local communities, we treated approximately 39,600 outpatients and 1,300 inpatients from economically weaker sections of society entirely free of charge. Both our strategic business units continued to report significant growth in the revenue and profitability. Max@Home reported a top line of INR 53 crores, reflecting a robust growth of 24% year-on-year. It offers 14 specialized service lines across 12 cities with over 50% repeat transactions. Max Lab reported a gross revenue of INR 47 crores, reflecting a strong growth of 21% year-on-year. It provides services in 50 cities through its network, of more than 1,100 collection centers and active partners. Now coming to the status of our expansion projects. So capacity augmentation at Max Lucknow, finishing work for additional 140 beds is in progress and will be completed by December 2024, as communicated earlier. Further, environmental clearance and consent to establish and fire NOCs, et cetera, have already been received for additional 450 bed tower at Max Lucknow. We are completing the drawings for the same and will be appointing the contractor shortly. For 150 beds at Nagpur, 12 beds have been added in October 2024 for the balance beds on additional floors, applications for environmental clearance, et cetera, are in progress. For 268 beds at Nanavati in Phase 1, we have completed most of the structural work. The project continues to be on schedule, and we expect completion by end of the financial year, as communicated previously. For 400 beds in Max Smart, this project is on track. We expect its completion within Q1 FY '26. For 155 beds at Mohali, again, most of the structural work is complete, and we expect its completion again by Q1 FY '26. For 500 beds at Sector 56 Gurugram, again, the structural work is complete [indiscernible] above, we expect completion of the first phase of 300 beds by end of Q3 FY '26. All of these are on schedule, and we see over the next 12 to 15 months, significant ramp-up in our capacity, most of which via Nanavati, Mohali as well as Max Saket should be coming through in the months of April, May, June coming. For 367 beds at Patparganj, post issuance of a no objection certificate by fire departments and water departments, et cetera, we've already submitted our plan. We got environmental clearance. We are doing the tendering and all of that, and they should be pretty much in schedule as well. For 550 additional beds at Max Vikrant in the Saket complex, the environmental clearance and consent to establish, et cetera, has been already received. Barricading work is on. The forest approval over here is delayed due to Supreme Court proceedings in relation to tree felling involving DDA and Delhi -- Governor of Delhi. So right now, for the past 6 months, they haven't committed anybody to remove any trees, but I think this should get resolved fairly soon. And finally, moving on to overview of the company performance in the first half of financial year 2025. Network gross revenue stood at INR 4,222 crores, reflecting a growth of 19% year-on-year. Overall network operating EBITDA grew by 17% year-on-year to INR 1,089 crores, reflecting a margin of 27.2%, while EBITDA per bed stood at INR 72.8 crores -- lakhs per bed. In the first half, we generated INR 722 crores of free cash flow from operations after interest tax, working capital changes and routine CapEx, of which INR 430 crores was deployed towards ongoing expansion projects. With this, we open the floor for any Q&A.

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

Congrats to the management on good set of numbers. The first question I have on Nagpur and the Lucknow units. So both have done well during the quarter. I understand the Nagpur might be going through the seasonal peak. The occupancy might -- but both the units are now delivering 20% plus margins. Is it possible for us to give some color what would be the potential margins for optimally utilized units, both at the Nagpur and the Lucknow unit? And specifically, Lucknow, can it match the profitability of our existing -- or connecting Saket, et cetera?

I think, firstly, we don't give forward-looking statements. But intrinsically, margins and percentage margins, one part. They're still operating at lower ARPOBs compared to the rest of the network and also compared to the potential in the market over there. And in the coming quarters, you should see an improvement in that. When you have improvement towards better quality programs that means higher-end surgical mix and so on, more robotics, more complicated surgeries as the new teams that we've hired come in, kick in, some of them are very recent hires, et cetera. So you'll see all the benefit coming through. But also keep in mind, in Lucknow, so far, we have a bunker over there, but oncology has not been a big play. In Sahara, I think it's only a couple -- 1 or 2 percentage -- 2 percentage points -- 7 to 8 percentage points of revenue as against 26%, 27%, which is across the network, and that's a high sort of the state. And as this -- as we get the bunker ready, the new machine, the LINAC machine is coming in place, you will see this number move up. So you'll automatically see an increase in ARPOB. Our preoccupation, as you're aware, is never with margins in percentage terms, it's EBITDA per bed. And I think there is a significant amount of juice over there with respect to EBITDA per bed.

Sure, sure. The second question I have is on the Saket complex expansion, which is close to...

Also, I just want to sort of add, as you're going to get 140 more beds over there, it's almost 50% more capacity, right? So your operating leverage because on the incremental beds is much more. EBITDA per bed for incremental beds is significantly more. So you'll see margins expand because of that as well.

Sure. So you see the INR 70 lakhs per bed kind of EBITDA to be achieved in Lucknow?

Well, I will not give you a forward-looking sort of statement on that.

Sure. No problem. The second question I have is on the Saket complex. So here, we are adding almost 1,000 beds over next -- maybe 800 to 900 beds over the next 2 to 3 years. So should we consider this as a brownfield expansion because considering this much amount of beds are getting added, I believe that everything like utility, doctors, everything should be added as well, right? So sort of the delta in the margins will not be significant, right? Is my understanding correct? Or do you think that this is like a plain brownfield expansion, which is happening in [ this local ].

No, it works like a plain brownfield expansion. I think when you look at utilities, et cetera, you're looking at the capital cost. As far as the operating cost is concerned, there isn't a significant increase in operating cost. If you look at the P&L, about 15% of your costs are related to doctors, and out of the 33% of indirect cost, 23% is nonmedical personnel. Most of it is management. About 25%, 26% of the operating cost or up to 30% of the operating cost may increase on an incremental basis, but you still have significant amount of room. In each one of the brownfields that we do, the utilities, it's the same. You have to increase your utilities, both in terms of -- whether it's in terms of chillers for air conditioning or STP and so on and so forth. So -- but it's in the same complex, yet you have these benefits of a brownfield. Also keep in mind that it's not 800, 900 beds over the next 4 to 5 years. You have to look at it -- or 3 to 4 years. You have to look at it slightly differently. You're going to have 400 beds, let's say, in the month of April, May coming up, which is now, right, we expect very quick sort of ramp-up of those 400 beds like we've witnessed in our other brownfield expansion. The next set of 500 beds, okay, is going to come up after 3.5 years. Basically, you had a run on these 400 beds, you'll have for the next 3.5 years, 4 years, my belief is that these beds are going to get occupied in very, very quick time. And you're going to run out of capacity way before, okay, your new beds, which is another 500 beds in Vikrant are going to come out.

And the third question, if I can squeeze in. Our profitability for the core business is still healthy at 20% plus margin, but it has dropped slightly year-on-year. If you have to call out anything there?

Again, the point I'd like to call up is you need to change your view of the margins. When you start doing high-end surgeries or high-end payer mix, your margins in percentage term comes down. In absolute terms, it goes up. I mean you'd rather do -- and I keep saying that you rather do INR 10 lakhs surgery with a 20% margin than a INR 2 lakh surgery with a 50% margin. If you look at medical patients, medical patients give you less -- more margin in percentage terms, but less in value terms, whereas a surgical patient, liver transplant patient, a heart transplant patient gives you less in percentage terms but more in value terms. I mean, but that's the patient you'd want, right? You need to see it is in context of -- so 3 aspects. You need to look at EBITDA per bed, that's one. Secondly, you have to compare it to same time last year rather than on a quarter-on-quarter basis, Q2 is always a medical quarter. Your ARPOBs are lower in Q2, but it's always also characterized the higher occupancy, which you've seen. And the third aspect is that if you are going to look at EBITDA per bed, you've got to take out at least the newer acquisitions that have been done, okay, because be it Dwarka, which has been started right now or Lucknow, which has been acquired or Nagpur, they're still in the building stage, right? So they enjoy lesser EBITDA per bed. Other than that, if you look at it, it's fairly...

So Amey, the EBITDA per bed has grown by 6% Y-o-Y, right? And this is despite the fact that we had an inpatient business, which we mentioned last quarter also, which has dropped by 44%, right? And this is a very high margin -- high EBITDA business -- high EBITDA margin business. And I would say that has some impact, but I think that will get normalized from quarter 4 onwards because we had that drop from quarter 1 -- quarter 4 of last year. So I think that once that get normalized, you'll see that even EBITDA per bed growth would be much better than what you see today, which is 6% Y-o-Y.

Got it. So going ahead for the existing business, the EBITDA per bed improvement would be largely inflationary? Or you think there would be improvement in terms of the productivity as well?

So you know that the ARPOB is growing by 7%, right? And if I really adjusted for the [indiscernible] 8% to 9% growth in the ARPOB. And in the 8% to 9%, 2% is because of price. Rest all is efficiency in terms of process efficiency or I would say, payer mix and also the case mix, right? So that is what we call efficiency and that's what will continue. And I don't think we will see any big change in these numbers in terms of growth in ARPOB, et cetera going forward.

Next question is from the line of Neha Manpuria from Bank of America.

On the Jaypee asset acquisition, Abhay, just wanted to get a sense on do you think -- if I look at the numbers, EBITDA bed obviously can be better, but in terms of occupancy, ARPOB, it seems pretty decent. Obviously, it can be higher. But what do you think is required there from an either -- do we think we need more medical equipment, more doctor team? Does it need upgradation? How are you thinking about ramping up that -- the Noida asset?

I think all of the above. It's been a company, which has been in liquidation for a significant amount of time. As you -- I mean, as you would sort of appreciate, it's not as if the best management, the best kind of equipment will be end of life because this is administrative, nobody be employing that equipment. So equipment is end of life, new equipment, handheld instruments, et cetera. I mean all of that is very basic over there. As far as the clinical programs are concerned, again, I think it's been operating with gravity. There's a huge amount of upside over there. I think separately, it's been operating as a 380-odd bed hospital. We believe very quickly you can move to a 500-bed hospital within the current structure without making any significant sort of changes. And this can be done in a matter of -- in a few quarters itself. So, a, if you ramp up the capacity, you move up the clinical programs, you move up on the ARPOB with the payer mix, et cetera, I think you'll be able to get there. To me, given the location, given the access and given the quality of infrastructure, it's a marquee asset. So when you have that kind of this thing, it becomes an easy sort of -- I have no doubt that this will play out the same way as Lucknow, Nagpur or better.

And are there any litigation, et cetera, that we need to be worried about, which needs resolving? Or which could be a liability in the future that we need to be mindful of?

None whatsoever. None. I mean there are no pending litigation -- see, that's the wonder of buying through an NCLT process. But if there are any creditors, if there are any claimants, et cetera, there is a time-bound manner in which they have to sort of raise their hand and put it, be it any department, be it even this government regulatory department. The NCLAT process allows you, okay, to basically step up and say, look, this is what my claim is. And after that time, okay, those claims are not sort of entertained. In this case, it's not as if -- all the claims that were entertained at the NCLAT proceedings, all of them have been satisfied. And more importantly, even post that proceedings, there are no further claims which have been raised. When you get something through a High Court order -- NCLAT is a High Court. You get something via High Court order, I mean, how you question that?

Yes, yes. So it's a fairly clean -- from a litigation perspective, there's no big overhang that we need to be worried about then?

I mean you can't be -- you have a cleaner sort of title than that, right? I mean you're getting it through the High Court.

Fair enough.

And there are no creditors which are dissatisfied creditors either. So all have been fulfilled. So I don't think there's any.

Understood. Understood. What about the 2 -- the Bulandshahr and Anoopshahr. And Bulandshahr, I think, is commercial so would that be meaningful enough? Should we be considering that when we are looking at the math?

No, they're not meaningful enough. And I think we do not even attribute any value to it. Really, the question is that whether we should focus and spend CSR time and money on this or just sort of EBITDA. We'll figure it out. But it's not -- it's meaningless...

And last on Jaypee, we've acquired part stake, right? The rest of it, what is the process for that? By when do we see that full acquisition?

I think in the next few days, we should have that wrapped up.

[indiscernible] so I think hopefully, next week, we should be wrapped it up.

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

My question is Dwarka. So Abhay, in your opening remarks, you mentioned Dwarka will still be in ramp-up phase for most of this FY '25. So just want to understand like on TPA and insurance empanelment, I believe discussions are underway. So when do you expect this 18% revenue share will likely move up to the network level, 30%? When you empanel the required number of channels?

Damayanti, presently, the TPA empanelment is underway, right? So we're also waiting for the NABH certification, et cetera. You know that some of the TPAs have requirement to have NABH certification. So we do think that by the end of December, we should have all of them in place. And that the time January onwards, we should be more than 30% revenue coming from TPAs.

Okay. So by December, most of the contracts will be signed and then build up from there?

Yes.

And the ARPOB, which you mentioned in your presentation, INR 80,000, that is because we understand most of the patient so far with the cash channel patients, right? And maybe ARPOB will settle down more at your network level for this hospital also?

Yes. So Damayanti, there are 2 things. One is that we have very high OPDs, right? And we were not able to -- since we do not have TPA empanelment, et cetera, so some of the OPD happening, but IP was happening in some of the hospitals, right? So these doctors had -- did have some attachment in other hospitals. So they're taking patients in the other hospitals. As an example, neurosurgeon [indiscernible] Gurugram so we take the patient to Gurugram. So that's what is happening. So I think, hopefully, when we have everything in place, then the ARPOB will moderate a bit. But it won't be a very big change because -- I mean it will be more near to the national average than the INR 80,000...

Yes. But it's a play between occupancy and ARPOB. Our belief is this, like I said, this will probably be the fastest greenfield breakeven that we've ever witnessed and very good traction. It's a matter of time you have the TPAs, et cetera, signed up. And we started end of July, so pretty much August. It does take 3 to 6 months to sort of sign all the contracts, et cetera, et cetera. And -- I mean, a lot of it is in play. I think by -- like Yogesh mentioned, by January, we expect all of that to be done.

Sure. My next question is on your network level revenue contribution from TPA and corporate channel. So it's around, I guess, 38% in the first half. So looking ahead, I guess, when we are adding a lot of capacities into the network, where I guess this payer mix, et cetera, will take some time to build up. So say, in next 2 to 3 years, what kind of contribution we can assume from this particular channel. Say, from 38%, can we assume it can comfortably go up to, say, 45% or so? Or how do you see this pie moving up?

So I'm not going to give you again any forward-looking this thing, but I can tell you what our experience has been that when you open new brownfield capacity, you essentially start taking in also a larger amount of lower-end payer mix as well as lower-end clinical mix, which typically you -- so one of the characteristics is -- a brownfield is that you pretty much finished with distilling your payer mix, doing very little or none of institutional business, right? Like in Saket, in the main cluster, in the main hospital, we stopped doing it. In Nanavati, we stopped doing it. The minute you put up additional brownfield, one of the things you're going to do is you're going to switch on the tap for institutional over there, which is a lower-end payer mix, right? But because of operating leverage, even with the lower-end payer mix, that means lower ARPOB, the EBITDA per bed is high. That's what we witnessed in Shalimar Bagh when we opened the brownfield. If you actually see what has worked for us in Nagpur is it was operating at maybe 55% or 60% occupancy. And first order of business after taking over operations was to sign up the institutional business, which is, again, lower ARPOB but provides higher occupancy. Now the result is ARPOB sort of kind of got muted, the occupancy went up to 90-plus percent, but EBITDA moved up by more than twice, right? So I think that's what we see when you have occupy incremental beds, okay, which are -- the cost of which is only incremental cost, okay? And even with a lower sort of payer mix, that brings it down to the bottom line. Your margins improved. To what extent, that I will not guide you.

Sure. And my last question is in some of your near-term upcoming capacities, so Lucknow and then, I guess, Nanavati, those are coming in near term. So for these facilities, when do you start putting up a new set of doctors, medical team, et cetera? Or it's like very -- it happens very near to the commencement of these units?

No. So there are 3 things. I mean we have new capacities coming up in -- firstly, in Nanavati, in Max Saket and Mohali as well as Lucknow is coming sooner by December, but these 3 are coming up in the same time in the month of March, April, May sort of thing, right? These are brownfields. In brownfields, unlike Dwarka, which was a greenfield, okay, where you're going to staff, you're going to get doctors, you're going to get nurses, et cetera, they'll be on your books for about 2 months before you commence operations. Even when you commence operations, it takes you time to sign up PPAs, sign up this things, et cetera, there's a ramp-up. So there are some limitations in ramping up, which are not limitations at the operational level, but there are limitations of enabling that occupancy over there. In a brownfield, you don't have that. It is the same existing contracts, the same licenses, the same this thing. And all your doctors -- pretty much all your doctors are the same. The more expensive ones are the Chairman of the programs and the head of the programs, et cetera. It's not the units of the junior consultants below. I mean the resident doctors, the junior doctors are not -- which is extremely sort of this thing. So it doesn't really show up in the first month itself. It kind of -- you get them and it absorbs it and so on. So I don't see a major impact because of it, unlike Dwarka.

Okay. And any -- yes, so any hiring in the brownfield, as you said, maybe the department heads or the really senior position, but most of the team is already in place. That's why like there won't be any meaningful delta in terms of cost? Okay, understood.

That's right. Even on the management side, if you see, I mean, the same facility head, is the same F&B head, it will be the same nursing head, it's the same engineering, medical superintendent and so on and so forth. So it's not a significant amount and particularly in Smart, we're expanding beds. So the team is there, already in place.

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

2 questions. First is on the -- can you tell what is the international patients' bed share? And what kind of trend that we can expect?

Yes. So international bed share is only 5.5%, right? And it constitutes around 9% on the revenue side, but 5.5% -- you know the ARPOB is higher than the national average when it comes to international patients.

Right. Sir, second is on Jaypee hospital. So can you explain the cases and the payments of this hospital in Noida?

Sorry?

The case and payments in Jaypee, Noida.

I can't hear you. You're cracking up a little bit.

So Jaypee Hospital patient case mix, about 25% of revenue comes from institutional business, and about 10% to 14% of business month-on-month comes from international business.

Okay. And sir, just want to understand on the broader aspect, like how is the competitive scenario in Noida, just like -- so there are other hospitals which are also going to expand in this geography. So how do you see that panning out? Will there be any impact that you see on the volume side?

I think this hospital is there. Other hospitals are going to come up are going to come up in some time. But this is a AAA+ location. I mean you can't get better than this in Noida -- Jaypee, Noida so anybody is sort of familiar with that area. This is an 18-acre complex. It's 9.5 lakh square feet. I mean, honestly, I think none of us would ever build a hospital like that, we wouldn't want to. I mean the size and scale of it is something which is -- it's over specced. So from that standpoint, the benefit is that you get something with that size, that scale, that location, that kind of infrastructure, which nobody is going to operate. It's like you can make -- in Jaipur, you can make a new hotel, but there's one Rambagh Palace. This is the Rambagh Palace over there. So it's an easy sell, easy access, easy everything from that standpoint. It already has a start, right? It's already -- even in -- with a lot of limitations that it operated with, okay, that under liquidation for over 10 years, very little medical equipment and so on and so forth, yet you've seen decent -- sort of halfway decent results coming out of this hospital. The reason for that is just fundamentally structural. I mean it just -- I mean, getting 7 stars treatment at maybe 4-star, 5-star prices or quality of service or whatever.

Okay. Okay. And sir, lastly, on the Dwarka Hospital. So just like in the presentation, sir, you mentioned that the hospital is expected to open nearly 200 beds by end of FY '25. So just want to understand on this. So like you're going to add like 200 beds or what -- 141 beds are going to be operational bed capacity to get to 200 beds?

No, sir, it's a [ 300-bed ] hospital, right? So you know that in a greenfield situation, we don't open all the beds because when you open more beds, that means there's a cost attached to it, right? So we open beds as we are able to fill it up. So I think what we're saying is we have 141 beds opened as of now, and we think we'll be -- by March, we'll open 200 beds...

No, yes, what happens is that you have to get a license right? Now if I get -- in order to get a license, if I go and get a license for 300 beds, then I need to staff all the 300 beds. Then you have to prove it through the licensing authority that you've staffed all the 300 beds. But if you have occupancy of about 150 beds, then you'll just say, okay, give me a license for 150 beds because you staff accordingly then. There's no point carrying staff to all 300 beds of nurses and resident doctors for 300 beds when your occupancy only 120, 150 because you're waiting all the TPAs and all of that to happen.

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

Again, a follow-up on the Jaypee asset. When you acquired it, you had mentioned that there is scope to raise capacity meaningfully here -- bed capacity meaningfully here. Abhay, you also mentioned -- alluded to that now. Can -- do you have -- I mean, have you worked out over what period of time you will be looking to expand the bed capacity here? And also a second part for the current hospital, how much do you think you would need to invest in order to upgrade medical equipment, clinical capabilities, et cetera, over the next couple of years?

I think on the first part of the question, I think we will look at expanding the capacity at the earliest. We will be limited by actual time it takes to construct. So we're looking at right now moving up to 480-odd beds from the current capacity. And thereafter, it should take us 2, 2.5 years to build another 450 beds, 500 beds, which we will embark on that right away because we see the current capacity being filled out in the matter of months and way before the new capacity that we are looking at because it takes time to construct, by then, we are looking to set it up. As far as the BME medical equipment right now and upgrade is concerned, Yogesh, what is the...

Yes. So I think we already have some plans on that. There will be a INR 150 crores, INR 200 crores spend that we're planning to expand the quality beds. And then, as Abhay mentioned, then -- and after that, we'll start another...

This includes the medical equipment over INR 150 crores.

Yes, yes.

That includes -- because you have to appreciate that all -- almost all of the medical equipment is end of life. So it requires replacement.

Next question is from the line of Nitin Agarwal from DAM Capital.

Abhay, on -- we've had a pretty busy last few quarters in terms of these acquisitions that we've done. So -- and with a bunch of new assets coming on stream next year, as you mentioned, I mean, are we looking to take a pause on the inorganic growth part of plans? Or there is still -- we still continue with the inorganic growth activity for the next few quarters?

I mean if we get -- we have a pipeline, we keep getting opportunities to add marquee assets, we'll continue to do that. We certainly have the balance sheet, and we certainly have the bandwidth.

Okay. That's good. Secondly, on Jaypee. So we mentioned a INR 1,600 crores, if I remember as the EV for the business acquisition. This includes the entire payout for the entire equity and whatever debt we've taken on for the asset?

That's right. That's the enterprise value.

And beyond this, you mentioned there is going to be some registration and transfer charges. So how much of that will really account to?

I think it is about INR 60 crores...

Yes, some INR 60 crores, which is over and above. It's a -- there's a [indiscernible] amount we paid. So it's a INR 62 crores that we paid.

That's already paid out. No further transfer charges.

So I mean, how should we think about the assets? So we paid about, say, what, INR 1,700 crores plus, including the upgrade in about INR 1,800-odd crores for buying out an asset -- for about 500-bed asset. So about -- is that the way we should think about it. Apart from obviously, it's a running asset that gives us immediate EBITDA versus a greenfield investment that we would have done. But in your mind, how should you evaluate this versus -- assuming you were to make a same greenfield investment, assuming there's an opportunity like this in Noida to -- versus acquiring this asset for the price that we've paid?

You look at it from an ROCE standpoint, right? I think essentially, what you're doing is you're looking at a 500-bed asset, which is renovated with new equipment, et cetera, and capacity to add another 1,500 to 1,700 beds over there on the land there is, right? So I mean, very clearly -- I mean you look at it over -- if you want to look at it over a 4- to 5-year plan, you look at 500 beds plus another 450 beds that you would be able to add, you already got the land for it. And you look at what is the EBITDA and what sort of ROCE you're able to get, you're able to generate more than 25% -- 20%, 25% return on capital employed over that period of time, it's a good acquisition. That's how we look at it. It so happens that this one is the easiest sell perhaps because it's a marquee asset with that location, with that -- this thing and so on. But no matter how you cut it, no matter how you look at it, even if you look at it stands any expansion, a 500-bed hospital, okay, in this location should give you about INR 250-odd crores -- sorry, should give you about INR 300-odd crores of EBITDA...

So let me just tell you how we look at it, right? So basically, also, if you take -- we have a hospital in Vaishali, right? That's a 360-bedded hospital -- 367-bed actually. And this is going to be 480 beds, right? Now 480 beds with all the money that we're going to spend, et cetera, is going to be roughly around INR 1,900 crores. And this hospital in Vaishali does roughly around INR 380 crores of EBITDA every year, right? And that's a 360-bedded hospital. So this is going to be 480-bed hospital...

So this is actually a better location, better access, bigger, better infrastructure than Vaishali.

Yes, more beds, 18 acres. I mean that's 4.5 acres piece of land. So obviously, you can see the kind of numbers that we are going to expect from Jaypee, given that we have a benchmark in the same market already giving that EBITDA margins and...

Our normal bed size, average is about 1,100 square feet per bed. This is close to 2,000 square feet per bed, already constructed.

And Abhay when you are looking at -- obviously, you're looking at consistently evaluating a pipeline of various sort of assets. So the kind of transaction that you've gotten in the Jaypee Hospital, is it more of a one-off transaction? Or there are similar such transactions which are there for the taking in the market?

Well, if Jaypee is a one-off, then I guess Sahara was a 2-off and then Nagpur is a 3-off, right? So I think we keep doing these one-offs, which we like every once in a while. And I think Sahara, Lucknow now is very similar so was Nagpur.

No, I get it. I appreciate that. And lastly, on Dwarka, you talked it's going to be our fastest probably breakeven for a greenfield. So what is the time horizon looking at for the breakeven here?

I mean on the outside, we look at it before end of financial year.

Next question is from the line of Andrey Purushottam from Cogito Advisors.

Thank you for putting in an exceptional performance, not just for the last quarter, but for so many quarters. And as a long-term investor, I want to express my appreciation of the performance. My question is really a follow-up from one of the earlier questions in terms of the levers that you have to increase EBITDA per bed. If you could just expand a little bit on that and also answer 2 specific questions. One is, has your proportion of your low-margin CGHS kind of business actually diminished over the last year or 2? And how do you intend scaling up the international business per se and also perhaps to compensate for the possible reduction in volumes from places like Bangladesh? And how important is Bangladesh to your total share of patients of the international business per se?

So lots of questions. I'll take the last one first. Bangladesh seems to be less than 1% or 2% of our total business. So it really hasn't impacted us that much. And we've been able to sort of compensate that through other markets and all our initiatives everywhere else. So Bangladesh is not affecting us. What did affect us in the past was Afghanistan, which was 12% of our international business. But we haven't had that for many, many quarters now. So you don't see the impact of that. Hopefully, as and when it comes through, there will be a positive impact because of it. Having said that, levers for EBITDA per bed really start from the top -- the revenue levers to start with. And perhaps most of it are revenue levers, okay, got to do with adding clinical team, adding occupancy, increasing occupancy, increasing more beds. I mean every revenue levers that you can sort of imagine will play into the bottom line and increase your EBITDA per bed because I think as far as costs are concerned, we are pretty much in queue of where we want any benefits over there will be only incremental. Institutional business has diminished marginally over the last few quarters, but the ARPOB of the institutional business has almost doubled. So you'll actually see that within that category, the ARPOB has doubled. So the rates are becoming closer to our cash rates. More importantly, we are not doing in a lot of our metro locations where we already have very high capacity. We've distilled away from that. So if you look at Mumbai, we don't do any institutional business. But once we start the new capacity, we'll start that. We just occupy the beds with it till such time then we have idle capacity. Once that kind of runs out, we start distilling it, go back to cash business. Saket, same thing and the main Devki Devi, et cetera, we don't do institutional business. At some stage, once we come up with new capacity of Smart, yes, we'll start taking on more institutional patients. But again, over a period of time, we'll distill it. But then third phase, 3, 4 years later, when Vikrant comes again, we'll start doing that. So you keep playing that game. But more importantly, as you start running out of capacity, you start distilling payers. And within those payer groups also, you start distilling the -- you kind of start distilling the clinical mix.

Right. And going back to the international business, you said that you have a 5.5% bed share and a 9% revenue share. Now if you're looking to increase this share, what is the approach that you're following? Is it largely walk-in business? Or are you making a fair amount of proactive efforts in other geographies to attract talent here -- or to attract patients here?

We've set up offices in the last 2, 3 years in about 22 geographies, right? So we've got our own offices and partner offices, et cetera. And that is the reason that you've seen that -- look, we have an outsized sort of growth in our international business. It may be 9% or 10% of our revenue, but our revenue has also been growing significantly over the last 4, 5 years. This business has been a 20% CAGR for us. I mean we're growing at about 20% plus per year. So that it kind of outstrips -- and the reason is that some of the investment initiatives that we've taken in terms of setting up these offices and drive to fly, et cetera, overseas.

Well, here is about lots of problems that people face with the NHS in England and similarly in places like Canada, et cetera. So given the fact that we can provide outstanding medical care at a fraction of the cost, do you see more traction coming from developed countries like U.K. and Canada, et cetera, where a lot of bureaucratic problems about getting service in their own countries?

Yes. It's a question of whether you want bad health care free or you want to pay for good health care and upfront health care and you want to come to India for it. So we are setting up some beachhead operations in the U.K., as we speak, because of the same reasons that you mentioned. But I'm not expecting some flood gates too. I think it's more a long-term kind of this thing that we need to have some sort of presence over there to at least get people of Indianized products to India to be able to do. But I don't see people coming in those because there's a waiting time in NHS. There's a waiting time, but it's free.

Next question is from the line of Madhav Marda from FIL.

I just had one question. On the Dwarka unit, it's quite encouraging that a greenfield asset can breakeven in a very short period of time. Could you just give some color in terms of what guides us? Because I guess the general understanding for everyone has been that greenfield assets take, let's say, 2 years, 2.5 years to reach EBITDA breakeven. But since we can do it at a very good pace, just what are things that are working in our favor, just for my understanding?

No, I think it's not 2, 2.5 years. It takes about 18 months to breakeven. Typically, it should take about 18 months, that's par for the course. But having said that, I think this is, again, an excellent, excellent location. The first, this thing is always the location. Second is the infrastructure. The third is the -- how much underserved that market is. And fourthly, I tend to believe that our brand are -- that is NCR-centric. We already have 14-odd facilities over there, makes a big difference. There is a very strong brand recall. What -- my belief is that we would have already broken even if we had all the institutional tie-ups, the NABH, et cetera, et cetera, which typically you need 6 months of data to get NABH. Once you get NABH, you get higher rates from institutions. So a lot of it is process related. But otherwise -- I mean, for us, again, once the location is good, once the infrastructure is good, access is good, then it shouldn't take time to ramp up. Also a team of doctors. We've been able to access or get a very, very good team of doctors, but that's the max advantage, particularly in NCR, that we are able to attract quality talent.

Next question is from the line of [ Amit Tiwari ], an individual investor.

I particularly enjoyed the response to the question whether Jaypee was a one-off, but jokes apart, I just was -- I also enjoyed how we've broken up the business into existing and new units. So -- can you -- so at 81% kind of capacity utilization, we are a little bit maybe constrained for volume growth in the existing units. So can you -- a little bit of a forward-looking statement, what would the growth that you estimate in the existing units in volume and ARPOB going forward? I mean just a ballpark, even a range is fine. And even I'm looking for more of a longer-term number rather than a short-term number.

Firstly, 81% is a seasonal number, right? I mean because of seasonal flus, et cetera. Normally, the second quarter has a higher occupancy. So you'll see actually in Q3, perhaps the occupancies to get a little more muted than that, and that's traditionally been the case. Whatever is in the Q2, Q3 is lower, Q1 is lower. And then Q4, again, you ramp up. So, yes, the other characteristic of having a capacity constraint is that you have a higher move up in your ARPOB simply because when you have a capacity constraint, the lower end clinical mix and lower-end payer mix is perhaps not given the priority. And when you haven't given the priority, you post those surgeries and procedures at a later date, they're likely to evaporate. When you have capacity, all of that lower-end payer and clinical mix comes through. But like I said, it's also characterized by higher EBITDA per bed. So it works out better to have higher occupancy than a ramp-up in ARPOB. I mean, the fact of the matter is that we've been operating at these kind of capacity levels for the last couple of years with a 1, 2 percentage points here or there as far as occupancy is concerned. And that will always at the margin, there will be some elasticity, but it's diminishing returns. And we need to be cognizant of the fact that we have capacity constraints. We are cognizant of the fact that we have capacity constraints. And therefore, we embarked on this massive journey of brownfield. Some people will ask me the question, like you are asking me that, look, you're at full capacity, where do you go from here? So the answer to that is that's what the brownfields are for. And some other people tend to ask that, look, there's so much capacity coming in the country, why you putting up more capacity? Well, this is the reason we are putting it up. We've run out of capacity.

Correct, correct. But any quantitative guidance, would you want to venture in that?

No, I don't. I normally sort of stay away from forward-looking guidance.

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

Just one question for Yogesh, sir. With Dwarka coming online, what will be the annual lease payment at the network level?

I think the overall number for the year would be around INR 95 crores, right? I'm talking all the distilling as well as this one. So specifically, this number is around INR 28.9 crores.

And the number for Dwarka, when you say INR 95 crores would be for 9 months, right?

No, INR 28 crores is Dwarka. Total is INR 95 crores for the overall network.

INR 28 crores for the year.

Yes, for the year. I'm talking all annual numbers, right?

Understood. Understood. So basically -- I mean, for FY '25, the number would be INR 7 crores, INR 8 crores lower, got your point.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for the closing comments.

Thank you, everyone, for joining us on the second quarter results. We look forward to interacting with you again next quarter. Well appreciated. Thank you.

Thank you.

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