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

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

Thank you, Nirav. Good afternoon, everyone, and thank you for joining us on Max Healthcare's Q1 FY '26 Earnings Conference Call. We have with us Mr. Abhay Soi, Chairman and Managing Director; Mr. Yogesh Sareen, Senior Director and Chief Financial Officer; and Mr. Keshav Gupta, Senior Director, Growth, M&A and Business Planning. We will begin the call with opening remarks from the management, following which we will have the forum open for an interactive Q&A session. Before we begin, I would like to point out that some statements made in today's discussion may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Abhay to make his opening remarks. Thank you, and over to you, Abhay.

Good morning, everyone, and thank you for joining us on Max Healthcare's First Quarter FY '26 Earnings Call. We are pleased to report a strong start to the financial year with a year-on-year growth of 27% in revenue and 23% in operating EBITDA for the network. This marks the 19th consecutive quarter of year-on-year growth, underscoring the success of our strategy and strong execution capabilities of the team. This performance is driven in part by the successful integration of the hospital acquisitions made in recent years, which have significantly bolstered both our top and bottom line results. Looking ahead, our focus remains on commissioning the new bed capacity scheduled to come on stream during the course of the year. We expect to add approximately 1,000 brownfield beds and 500 greenfield beds. Trial runs have already been initiated at the new 160-bed brownfield tower at Max Mohali. In addition, our Board has recently approved the execution of an agreement to lease for a build-to-suit 130-bed hospital in Dehradun. The site is located approximately 100 meters from our existing 220-bed Max Dehradun facility, which reported over 80% occupancy in the first quarter FY '26. The new facility is expected to be commissioned by the end of 2028 and will primarily focus on advanced oncology services, including radiation therapy, which is presently missing at our Max Dehradun facility. As part of our strategy to focus on super specialty care in selected geographies, we have executed a binding term sheet to divest Chitta and Anoopshahr hospitals for INR 40 crores, with completion expected by September 2025. Of the two, only Chitta Hospital was operational and reported approximately INR 5 crores in revenue and INR 1 crore of EBITDA loss in the first quarter FY '26. These assets were part of the overall Jaypee Healthcare acquisition and had limited strategic alignment. Now coming to the performance highlights of the first quarter. Please note that the term Existing Units hereafter refers to the network facilities that were operational prior to Q1 FY '25, while Max Noida and Max Dwarka are categorized as the New Units. Average occupancy for the network stood at 76% compared to 75% in both quarter 1 last year and the trailing quarter. However, Existing Units achieved occupancy levels of over 78%. Occupied bed days increased by 26% year-on-year and 4% quarter-on-quarter. Average revenue per occupied bed for the quarter was INR 78,000, growing nominally by 1% year-on-year as well as quarter-on-quarter. For the Existing Units, like-for-like ARPOB grew by 5% year-on-year and 2% quarter-on-quarter. Network gross revenue was INR 2,574 crores, up from INR 2,028 crores in Q1 last year and INR 2,429 crores in the previous quarter. This reflects an increase of 27% year-on-year and 6% versus the trailing quarter. Of this, New Units reported a gross revenue of INR 231 crores. Like-for-like revenue growth in Existing Units was 16%, driven by an increase of 10% in occupied bed days and 5% in ARPOB. Digital revenue from online marketing activities, web-based appointments and digital lead management was INR 744 crores, accounting for approximately 29% of the overall revenue. Website traffic witnessed over 69 lakh sessions during the quarter, growing by 61% year-on-year and 7% quarter-on-quarter. International patient revenue reached INR 208 crores, registering a growth of 32% year-on-year and 3% quarter-on-quarter despite airspace restrictions and geopolitical volatility in certain regions. Network operating EBITDA stood at INR 613 crores, reflecting a growth of 23% year-on-year and a 3% dip quarter-on-quarter, primarily due to the impact of annual increments and additional manpower hired for new capacities. New Units contributed INR 27 crores to the network EBITDA, representing a growth of 19% compared to trailing quarter. Network operating EBITDA margin was 24.9% for the quarter. Existing Units reported an EBITDA margin of 26.2%, which is 44 basis points higher than Q1 last year. Also adjusted for the onetime donation of INR 12 crores, the margin increased to 26.7% for Existing Units. Annualized EBITDA per bed for the network stood at INR 68 lakhs. Like-for-like EBITDA per bed for Existing Units was INR 75 lakhs, reflecting a 7% growth year-on-year. Profit after tax for this network was INR 345 crores versus INR 295 crores in Q1 last year and INR 376 crores in the previous quarter, reflecting a growth of 17% year-on-year. Free cash flows for the quarter were INR 389 crores. We deployed INR 435 crores towards ongoing capacity expansion projects and facility upgrades at newer units, while INR 131 crores was spent towards land purchase for brownfield expansion at Max Vaishali. As a result, net debt for the network stood at INR 1,755 crores compared to INR 1,576 crores at the end of March 2025. Continuing our efforts to support the local communities, we provided free treatment to approximately 40,000 patients from economically weaker sections of the society worth INR 62 crores at hospital tariff. Both our strategic business units continued to report steady growth in the revenue and profitability. Max@Home reported a top line of INR 60 crores, reflecting a robust growth of 22% year-on-year. It offers 15 specialized service lines across 15 cities, with over 50% repeat transactions. On the other hand, Max Lab reported a revenue of INR 48 crores, reflecting a growth of 19% year-on-year. It provides services in over 55 cities through its network of more than 1,300 collection centers and active partners. Now coming to the status of our expansion projects. Firstly, the 268 beds at Nanavati in Phase 1. We are in the advanced stages of commissioning three basements, ground to 3rd floor along with 7 floors over the next few weeks. 400 beds of Max Smart and Saket Complex. The interior and MEP fit-out works are progressing as planned, with phased commissioning expected to start towards the end of Q2 FY '26. Max Lucknow, the current capacity of the hospital stands at 413-beds, and we expect this to increase to 520 beds by end of the financial year. Of the 107 additional beds, 32 beds are ready for commissioning. The onco bunkers are also -- this is oncology bunkers, are also in advanced stages of completion with LINAC installation expected to start in early September of this year. The 500 beds at Sector 56 Gurgaon, structural MEP work is currently in progress with high side equipment and installation, we expect to commission the facility by the end of this financial year. 100 beds at Max Nagpur, we are currently awaiting formal environmental clearance. While the project has been otherwise approved, civil contract has been awarded. We expect to complete within 24 months. 397 beds at Patparganj, post receipt of environmental clearance, barricading and tendering work is in progress. The [indiscernible] designs, et cetera, has been done and work is now being awarded accordingly. This is also in line with what we had projected. 550 beds at Max Vikrant, Saket, we are still awaiting clearance from the Forest Department for tree transplantation. A fresh application has been submitted in line with discussions with the department. Any which way, this project is to start upon commissioning of the 400 beds at Max Saket by the end of this year. The 400 beds is Zirakpur, Mohali, the partner has received the approval for the drawing and construction and site work is progressing at a very fast pace. The project is expected to be completed within the next 24 months. 140 beds at land adjoining Max Vaishali, demolition of the existing structure is underway, and the building plans are being filed with the authorities. We expect to complete this project within the next 13 months. 500 beds at Thane, partner is in the process of finalizing the master plan for the larger site, detailed drawings for the hospital are being prepared, and we expect submissions to begin by the end of this quarter. The 250 beds at Pitampura, Delhi, partner has submitted drawings for approval, site cleanup and barricading works have been completed with construction work to commence upon receipt of necessary approvals. With this, we open the floor for any questions you may have.

[Operator Instructions] The first question is from the line of Tushar Manudhane from Motilal Oswal.

So just in terms of the operational beds have increased by almost 25%, so -- and that is how the revenue growth it seems to be with -- given the stable ARPOB -- at the headline level. So if I exclude this additional operational beds, which would have happened over last 1 year, then the remaining beds -- performance, how it has been, if you could throw some light.

So like I mentioned, even the existing beds is what we are calling, what opened in the last 12 months. So Dwarka opened in July, and Jaypee Noida was acquired in October, November. If I just take these two facilities out, then the growth in revenue has been 16%.

And that is driven again by further sort of optimizing payer mix? Or is it a combination of...

No. Abhay, let me say this. So basically, the existing hospital, that means including the Lucknow and Nagpur, the growth has been 16% and 18%, as Abhay mentioned, right? If we take out the two new hospitals that we added in this, basically the Lucknow and Nagpur, which the acquisition happened in the quarter 4 of FY '24. So in that case, the growth would be -- if I take that out, then the growth will be around 13% in the revenue and around 15% in the EBITDA. So that means even the base level of existing hospital, even taking out Lucknow and Nagpur, the revenue is quite robust growth.

Got it, sir. And so subsequently extending to this...

And also, I want to mention that in that case, the growth in ARPOB will be 7% instead of 5% that Abhay mentioned over the existing hospitals. So that means the base level existing hospitals growth will be -- ARPOB 7%, 5% in the OBDs and overall growth in the revenue would be 13%.

And of course, the occupancy would be, any which case, going sort of 80% plus, right? I mean because the headline occupancy itself is at 75%, 76%.

Occupancy in the base level, hospital will be around 79.9% in this quarter.

But if I -- 79.9% is almost 80% in the quarter base hospitals. But if you add Lucknow and Nagpur to it, okay, then it comes to 78%. But then if you add the other 2 which we did last year, then it comes down to that 76%, which is similar to what it was last year.

Got it. Yes, fair. I mean the further extension to this is that if I exclude this new whatever that got added over last year, then the base hospitals -- may given that we've already grown in this year as well, and we are already at 80% occupancy...

That's right. But I just want to tell you -- no, I want to just tell you see we are calling existing hospital, the 2 hospitals, which were added in the last 12 months, right? But if I extend this argument to 15 months, then it becomes 4 hospitals. So therefore, I'm just telling you from the existing hospitals, we are only counting the 12 months. In spite of that, the occupancy has gone up from 75% to 78%. But if I take out the 2, which were added in the month 13th, 14th, 15th last March, then it goes to about 80%.

Got it. So subsequently, new growth because of these new additions is very much intact as we for FY '26 to '28 or '29. Just trying to understand if I exclude all these and only on the base hospitals, probably now the base, it's been dynamic in nature. So I can't do much about it. But let's say, if I exclude last 12 months additions, then subsequently whatever there's a recent comment and we're reaching at 80% occupancy -- in the next 2 to 3 years, is there still scope to grow and further increase the occupancy, or that becomes more or less the base, and so the addition of beds is what is going to drive the growth going forward?

No. See, your base hospital itself, the nomenclature changes. You see whatever has been added really over the last 12 months or the 15 months has been an acquisition in greenfield, right?

Yes.

So for example, what we are going to be growing in the next 30, 60 days, the 3 brownfields, which are coming through, okay, in the next, let's say, 30-odd days, is going to be brownfields. So they add on to the existing facility. So then it's difficult to say that, look, in a brownfield, the earlier beds are growing by this much and the newer beds are growing that much.

So I am just trying to...

Yes, so I think -- yes, so the take-up of this should be -- although it's brownfield, the take up should be very quick.

Understood. And sir, just secondly, on this international patient flow, which all other geographies we've been sort of engaged with to get this kind of high growth?

So I don't want to actually go into details of other countries, et cetera, okay, because I don't want all the players going into those countries as well. But yes, there have been newer geographies in some of the developing countries as well -- developed countries as well, right? But of course, some time back, we had guided you to the fact that we were opening direct-to-fly offices, right? And in other countries and so on and so forth, that there was a focus towards international marketing, and business is something we had called out much earlier even a few years back. And I think what has led is we've got increased traction through that strategy. And we've been doing more of that and being able to drive more and more patients.

Got it. And just lastly from my side in terms of net debt, given the projects at hand, without considering any inorganic opportunity at this point of time because that will be as and when it comes, how net debt one should sort of think of at the end of FY '26?

Yes. So I think we -- net debt will go up to some extent because we have tied up some funds for the projects underway. So if I really pay by the end of FY '26, we may have probably addition in the net debt to the extent of around INR 400 crores to INR 500 crores.

INR 200 crores, right?

INR 400 crores to INR 500 crores.

INR 400 crores to INR 500 crores. It will become net debt to EBITDA maybe then still less than 1 I believe.

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

My first question is on your focus on the oncology segment. So this is largest for you. And year-on-year also, I think it has gone up. So it's already 25%, 26% of your total hospital revenue. And I understand in newer hospitals also you are trying to offer these services. So in terms of further growth from current level, what kind of headroom do you think is available here?

So I think, first and foremost, some of the newer hospitals, particularly Dwarka and Lucknow both don't offer radiation oncology at this point of time, right, because the bunkers are not there. But in the third quarter, we're expecting the bunkers to sort of come through in both of these hospitals. And so therefore, you see a larger share of oncology, certainly in these, and that will make an overall sort of this thing as well. We don't believe that there is any sort of reason for the growth in oncology to abate. These are structural and we are essentially catering to the market. Essentially, the market is growing at what it is, and that is what is leading to increase in our share of oncology.

Okay. And do you think the kind of demand out there in the market and your leading position here, this therapy could be upwards of 30% in, say a few years from now. And why I'm asking because I guess what we are hearing from your peers also, they are focusing a lot more on oncology compared to a few years back, from that perspective?

I think to a large extent, we can say we are focusing on it, but we're also all reacting to what is happening in the marketplace, right? And yes, we've seen growth in numbers in oncology, perhaps more than other specialties. And if you compound it at that, then certainly you will start increasing the market share of oncology, and it will be a higher sort of market share. It has been growing. And it's not necessarily that the new facilities that we acquired that has led to growth in oncology alone because the newer facilities, like I mentioned, have a lower component at this point of time because the radiation-oncology not being there. For example, Nagpur does not have radiation-oncology. Lucknow did not have the radiation-oncology. Dwarka does not have a radiation-oncology. Okay, Jaypee has, but that's really 1 out of the 4. So I think as and when -- and like I said, when we are able to expand our suite of services, which is in Q3, in at least 2 out of those 4 hospitals, then the share should go up.

Got it. My second question is on your newer hospitals, which will open soon. Say, Nanavati will start in next few weeks or so, and then Smart is also coming up by end of this current quarter. So what is the status right now on the doctor hiring part? Like when do you onboard most of the doctors, like before start of the unit or you will add on gradually as you offer more and more services? And what kind of numbers you are looking here?

So all the brownfield expansions pretty much offer the entire suite of services. So like I mentioned in my speech also some amount of whatever was required for augmentation of these has already happened, particularly with both Nanavati as well as -- Nanavati, Mohali and Saket, but -- all 3. And -- but incrementally, as -- and when you open more beds, so we definitely have whatever we believe because then you open 400-beds, you're not opening 400-beds in day 1. As and when you get the floors, you kind of open it up but we have more than adequate sort of clinicians who -- and already onboarded to be able to support what it is. Then incrementally you'll keep growing thereafter as well. But that will be incremental, so you won't feel it. So whatever has been absorbed is absorbed. You will not see any impact because of that.

Next question is from the line of Shaleen from UBS Group.

So one question which I want to understand, you made a comment Abhay also that direct cost has gone up, and it's largely because of the New Units. So -- but is this going to be stable from here? For example, I can see that your direct cost is INR 1,000 crores right now from INR 917 crores to INR 1,015 crores. So now the growth would be -- of this unit would be inflationary or there will be more additions will be that? And the subsequent impact on the margin. So from Q4 to Q1, I understand this is seasonally weak. But if direct cost shouldn't go up, then one should expect margin to expand from here onwards meaningfully?

So look, as far as direct cost is concerned, the significant majority of it is manpower cost. And on 1st of April we have increased -- so you get that step up because from 31st March to 1st April, you have that one little bump up because of salary sort of this thing. But we also happen to be at this point in time, we always maintain that brownfields don't really impact. But 30 days before or weeks before when you're doing trial runs, et cetera, you have staffed. It may not necessarily only be clinicians, it's also people down the line. You staff for those sort of this thing and you are kind of carrying that cost. So yes, I think going forward -- at present, that cost -- that little bit of cost may not be generating extra revenues, but it will do so as and when over the next few weeks, these brownfields kick in. Coming to your point, theoretically, it should increase, yes.

On the direct cost specifically going to about 1,000, yes. So a bunch of doctors have joined, which is the part of the system that was prebuild up for the new [ devices ] coming in. But a lot of them will join alongside when the [ devices ] get commissioned phase by phase. They will go in tandem to the revenues kicking in as well.

Yes. But there's no negative impact on the...

No, nothing.

Shaleen, also as we get into the new quarters, as far as these hospitals are concerned, the share of the PSU beds will come down, right? Because you know that our strategy is to fill up the beds and then distill -- this ratio should improve, right? Because -- I mean, you know that the PSU share has gone up because of the new beds, et cetera. And as we speak, the occupancies in hospital like Dwarka, which has started only 12 months back, I mean, is 81%, 82%, right? It's because we said let's fill it up with whatever we have, right? So once that ratios kind of improve, this -- the percentage will also come down, the direct cost percentage.

Sure, sir. Because typically from -- when we move from Q1 to Q2, there is a sequential reasonable jump of 5%, 6% happens on the revenue. It may be more or less depending upon ramp-up of the new facility. I hope it's more. But I don't expect -- we should not expect direct cost to also move up in the same line, right? It may not move up, right, so...

Yes, as a percentage, this should be moderate, yes.

You're right, hypothesis is correct.

Correct. All right, sir. So we should expect a decent margin expansion then. This INR 12 crore thing, is it part of your CSR expense? Or is it outside of that?

No. So CSR expense is generally made by the companies, right? It's not made by the trust. So this is a money which is gone out of the DDF society, right? So this has been on the recommendation of the Board of Governance, et cetera. So there will be some benefit that the network hospital will get out of this. But I think nevertheless, it's a onetime donation that has been made from the [ DDF ] society.

So this is a part of our indirect cost?

It's part of the indirect overhead, yes, at this point of time.

It's a onetime.

Onetime. So net-net, yes, so I just wanted to ask because it is CSR then it's not onetime. So -- but it's ex of CSR, then it's onetime. So ideally...

CSR in a society. In a charitable society, there's no CSR. CSR is only -- it applies to companies, right? That money has gone out in the DDF society. So that's the reason why donation is not CSR.

Basically, when I think about it, let's say, everything remains same next quarter, then I should add back this INR 12 crores to the revenue, right, to the EBITDA.

That's right. INR 12 crores will never happen again, yes.

Yes. So yes, so that's my INR 12 crores, which I can add back to my EBITDA, right, next quarter?

That's right. That's right. And all subsequent quarters.

All subsequent quarter. Absolutely. Absolutely. And the last bit, any color if you can give us on the 2Q? How has it been going for you guys, right? How is the season on the vector-borne, et cetera Typically, it's a strong season for us.

I'm going to avoid giving any forward-looking statements.

Okay. But...

I mean this year -- normally, I'll just sort of tell you normally what happens is that towards the end of monsoons, okay, the vector season this year has been a long monsoon. So only at the end of monsoon, we'll start seeing it. You may have to have stagnation of water for vector-borne diseases to kind of set, right? So it normally happens when your monsoon kind of starts going down. But right now, I mean, it's been going up, or not going up, but sort of continuing. I think the important thing, Shaleen, to look at is existing hospitals, okay, prior to any additions that we did over the last 15 months, there's a 7% growth in ARPOB and there's, I think, a significant increase in revenue and EBITDA as well. And occupancy has certainly gone up to 80% of those, right? Second thing to look at is the 2 hospitals which were added 15 months ago. Both those will have obviously a better sort of sense of maturity about them because they've been longer with us. Both of these have also contributed to higher increase in their occupancies. And in spite of both of them, you still see ARPOB move up by maybe 5% and occupancies go up by a couple of percentage points. And then if I add the 2 hospitals which -- one we really acquired in October, November, the other was a greenfield in July that we started, okay? Those have -- in spite of those, we see flat occupancies on an overall basis. So it's not -- I mean, even the newer facilities haven't really dragged down our operations or our numbers by any significant this thing. And yet they provide us an opportunity as they mature.

Next question is from the line of [ Raj Shah ] from PGIM India.

Am I audible?

Yes, go ahead, please.

Yes. So I just wanted to know regarding the growth trajectory of the acquired hospital on revenue and EBITDA basis. How has it been post the acquisition?

You're talking about Nagpur and Lucknow?

Including Lucknow, Nagpur and also Noida, Dwarka.

Yes. So Lucknow has been doing very well. On a Y-on-Y basis, the revenue growth is 97%. EBITDA growth is 191%. Nagpur, we've grown the revenues by 27% Y-o-Y. The EBITDA growth is also in the same range. Noida has been a bit subdued. So the revenue growth is Y-o-Y. Again, this is based on the -- numbers that we have of the last year. This is not our numbers, but basically the numbers that we look at from the [indiscernible] management. That's around 14% growth Y-o-Y and EBITDA growth is 32% Y-o-Y. So that's the numbers.

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

First question, Abhay, when does Nanavati the new block fully become operational? You said that we are currently operationalizing one of the floors and I think the basement. When can we see the unit becoming, let's say, fully operational from a bed perspective?

No. So the basement is not just the basement. Basement is also used for onco services and so on. So it's like the nuclear medicine department is in the basement. So let me kind of rephrase that. Yes. So we will be starting over the next few weeks a couple of floors. And then we will transition towards -- by October, November, we should be starting the rest of the beds, including OT, et cetera.

Okay. Understood. And my second question is, if I look at the New Units numbers that you have given for fourth quarter versus this quarter, it seems like the -- it's broadly similar to what we did in the fourth quarter. Is it because -- I thought that Dwarka had achieved breakeven last quarter, and that should be positive. So is it just a seasonality thing? Because I thought the seasonality isn't as stark quarter-on-quarter from fourth to first. And I would have expected that we see -- or should I assume till the time we don't see onco come in, in Dwarka, you won't really see that big ramp-up happening?

No, no, no. I mean, on the contrary, seasonality, you're right, are there. But for a new unit, there are no seasonalities because your growth momentum itself takes care of the seasonality and beyond. So we've seen very high ramp-up of occupancies and everything at Dwarka. So no, I don't think we are waiting for anything to come in. In fact, we are already planning brownfield at Dwarka because we are getting out status over there.