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

Ladies and gentlemen, good day, and welcome to Max Healthcare Institute Limited Earnings Conference Call. 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, Mr. Poojari.

Thank you. Good morning, everyone, and thank you for joining us on Max Healthcare's Q1 FY '27 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 Plan of the company. We'll 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.

Good morning, everyone, and thank you for joining us for -- today for Max Healthcare's Q1 FY '27 Earnings Call. We started the financial year with healthy momentum across the network, recording year-on-year growth of 16% in revenue and 15% in operating EBITDA. We continued to execute well on our ongoing capacity expansion plans. At Max Smart, we have currently operationalized 50% capacity of the 400 barebone feet tower. The remaining 50% are expected to be handed over to operations during the course of the current quarter. At Nanavati Max remaining 50 beds will also be operationalized in this quarter and work on the Phase 2 expansion has commenced. . Coming to our recent acquisitions, the integration of Max Bones into the network is proceeding as planned. The hospital contributed INR 19 crores in revenue and INR 2 crores in EBITDA during the post-acquisition period in Q1 FY '27 with an occupancy of 50% and ARPOB of INR 35,000, both of which provide significant levers for growth going forward. Prior to the acquisition, the hospital generated revenue of INR 154 crores in FY '26. Going forward, our focus is on integrating operations, renovating infrastructure, upgrading technology and enhancing clinical programs to turn around the hospital over the next 12 months. In relation to the Pune Greenfield, we have acquired the SPV, and it is now a subsidiary of the company. To further strengthen our existing network, the Board has approved a capital expenditure of INR 425 crores for a new brownfield tower at Max Super Specialty Hospital, Vaishali. This will add 202 improved beds to the hospital's existing capacity of 387 beds. The building plans have been approved and the construction activities have already commenced. The project is expected to be comisioned before FY '30. Alongside our capacity expansion, we continue to strengthen our research and academic ecosystem. We have recently established a stand-alone Max Research Center, marking a landmark milestone in our research journey. Over the years, we have built an integrated clinical research ecosystem and have conducted over 750 clinical trials completed over 2,200 investigator-initiated studies, published nearly 3,500 papers in index journals, secured over 30 competitively funded research projects generated patents and established capabilities that translate scientific discovery into better patient care. In recent months, we have secured several research grants and awards from the prestigious institutes, including ICMR Center for Advanced Research and Precision Diabetes, the ARF, MAH MedTech Mission, the DBT European Union Dengu program and India AI initiatives and the National Cancer Grid, amongst others. Our research capabilities are complemented by a dedicated education arm, the MAX Institute of Medical Education. This institute trained over 12,000 health care professionals annually, spanning across 180 programs and our post-graduate ecosystem has over 600 BNB students across clinical specialties, emboldened by the above and the change in recent guidelines of the National Medical Commission we have decided to embark upon the medical education business and have received in-principle approval from the Board for the same. We believe this to be a significant line of business in years to come. Now moving on to the Q1 performance highlights. Average occupancy for the network continued to be more than 75% despite the 13% increase in operational bed capacity year-on-year with most units continuing to operate at near optimal capacity. Occupied bed days were up by 10% year-on-year and 5% quarter-on-quarter. Average rental stays reduced by 4% over trailing quarter, reflecting consolidated efforts on this front. Average revenue per occupied bed for the quarter stood at 81,900 growing by 5%, both year-on-year and quarter-on-quarter. Network gross revenue stood at INR 2,982 crores compared to INR 2,574 crores in Q1 last year and INR 2,664 crores in previous quarter. This reflects an increase of 16% year-on-year and 12% quarter-on-quarter. Due to the discontinuation of select high-value chemotherapy drugs for institutional payments, the share of oncology for inpatient revenues dropped to 22% from 26% in Q1 FY '26. Excluding oncology, gross revenue grew by 20% and ARPOB grew by 9% year-on-year. International patient revenue was INR 247 crores, registering a growth of 18% year-on-year and accounting for 9% of the revenues from hospitals. Digital revenue from online marketing activities, web-based appointments and digital lead management was INR 941 crores, accounting for approximately 32% of overall revenue. We have set up across 97 lakh sessions during the quarter, growing by 41% year-on-year. Network operating EBITDA stood at INR 704 crores, reflecting a growth of 17% year-on-year and 3% quarter-on-quarter. Network operating EBITDA margin was 24.8% for the quarter compared to 24.9% in Q1 FY '26 and 26.8% in trailing quarter. [indiscernible] relatively muted due to the recent commissioning of new brownfield capacities and the acquisition of Kalinga Hospital. Annualized EBITDA per bed for the network stood at INR 7,100,000 versus INR 6,800,000 in Q1 FY '26 and INR 7,300,000 in the previous quarter. Profit after tax per net worth was INR 357 crores against INR 345 in quarter 1 last year and INR 387 crores in the previous quarter. The network generated free cash flows of INR 397 crores during the quarter INR 386 crores was deployed towards the acquisition of Kalinga Hospital and Lowara Property Private Limited and INR 337 crores was invested in ongoing capacity expansion projects. Net debt for the network stood at INR 2,384 crores compared to INR 1,908 crores at the end of March 2026, while the net debt-to-EBITDA ratio continued to remain below 1. The increase during the quarter includes INR 153 crores towards Kalinga and the put option liability for the balance stake in Jawara, which is the Pune project. Continuing our efforts to support the local communities, we provided pretreatment to over 56,000 patients from economically weaker sections of the society worth INR 78 crores as hospital tariff. We also spent around INR 6 crores towards various CSR initiatives during the quarter, which include provision of medical scholarships to underprivileged students, promoting maternal and new pot health, vocational skill training and environmental projects such as bond rejuvenation and transplantations. Both our strategic business units continued to deliver steady growth in revenue and profitability. Max at Home reported revenue of INR 78 crores, reflecting a year-on-year growth of 32%. It offers 16 specialized service lines across 15 cities with over 56% repeat transactions. And reported revenue of INR 58 crores, reflecting a year-on-year growth of 20%. It provides services in over 60 cities and served over 6 lakh patients during the quarter. . Now moving on to the status of our expansion projects coming on stream over the next 2 to 3 years. 100 beds at Max Lucknow, additional 100 beds in the existing 468 bed facility will be commissioned over the next 2 quarters. 500 beds at Sector 56 Gurgaon, we expect to start create commissioning of this facility by end of this year. 250 beds at Bhuvaneshwar renovation of existing facilities should be completed within 12 months. 100 beds in Nagpur project will continue to be on track, and we expect commissioning by FY '28. 400 beds at Jaipur Mohali project is on schedule, and we expect to commission it in FY '28. Onc block at Max Dwarka. This is the second phase project work is complete, and we are awaiting occupancy certificate. It will be commissioned by FY '30. 200-bed Pizza Pura project is on track, and we expect commissioning in FY '29. 271 beds at Nanavati in Phase 2 project was started and will be commissioned in FY '30. 400 beds pans Bear work has started, we expect commissioning by end of FY '29 and 450 beds at Pune, we have received IOD project is expected to be commissioned by FY '30. With this, we open the floor for any questions that you have. Thank you. .

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

My first question is, if you can share your thought around the resin parliamentary outstanding recommendation for the health care sector. So any initial thoughts on the recommendation, which came .

I think the recent committee report speaks about affordability. But I think 1 needs to look at another important aspect, which is going to be a need for new hospital beds and viability I think both need to go hand in hand. So I think once you take that pace into account, I think while mines will think otherwise.

Okay. And are you like involved in some of the discussions, which could have gone for these recommendations? Or do you think it will be more in the future? .

No. I don't think there's been any reach out to hospitals on this committee. I mean I've read it as much as everybody else. It speaks about certain FDI caps and so on and so forth. So like I said, it's a sector we believe that we require a lot more capital. And you have to have an environment which is both liable and conducive to investment hospitals to be built. I think all in all, this report is about -- this is 176 report by the committee. And I think you'll need to look at it in the balance and I'm sure the industry is well located in the balance.

My second question is your plans for turning around of Kalinga Hospital. So you mentioned around 12 months to set up in social, et cetera. So once these changes are implemented, what is the headroom to improve in terms of the profitability profile ARPOB at this point of time, it looks very low compared to the corporate updates. .

Yes. I think there's -- because there's -- the occupancy is 50% and ARPOB is INR 35,000. I think there's significant room in these. We should be able to effectively have a 50% to 80% enhancement in both of these. And in order to do that, we have a current hospital. So you have a head start, which makes a marginal amount of profit. But we have to renovate it, you have to get the technology, you have to get the clinical programs we include all of this over the next year or so. And then, of course, alongside, we'll be building another 200 beds over here, 250 beds here. So we've been through this route before whether in Lucknow or in Noida with our acquisitions, we've done it many times. So it's the same sort of got that we intend to sort of follow .

Okay. My last question is on Maslak where you commissioned 50% of that, and you mentioned 50% per tonne this quarter and beyond. So on the commission bank, what is the current occupancy? And which is the focus segment or focus specialties which are offered in this particular.

You have oncology, I mean, it's running whatever been opened is running to 80% occupancy quite full. And the rest of the beds are not going to come in this quarter and the next quarter. They are all coming in this quarter. So we'll have all the bad operations in this quarter. And yes, so I think we're expecting good occupancy there. Like I said, whatever been opened is already at 80%. But it's been opened in a phased manner through the quarter also. I mean I'm talking about half the beds are open now. A lot of them got opened in the last 1 month. And as they are coming on stream, they're getting occupied.

Okay, so one last question. So in terms of your insurance empanelment renegotiations et cetera anything pending in the near term?

So there are ongoing in and some other insurance companies. Also, the insurance company that we had a discussion last time. So those are for renewal in September to her. So we hope we will get some price increase going forward in the sort segment.

Okay. So when reverse. .

This is demand last time when we had this stalemate with the insurance pen. So we had agreed a 6% automatic price reason and that's what going to happen. Also, on the CI side, there have been engagement with the Derandalso. And there, more or less, we have agreed that the level of inflation that hospitals have and some kind of recommendation to IDA in terms of automatic price reasons.

Yes. So we have -- at the end of this period, we have automatic renewal at -- and price inflation, which is built which is a part of the previous negotiation.

Like 6% revision, which was earlier agreed upon, that will come in. p.

That's right.

Next question is from the line of Neha Manpuria from BofA Securities.

Abhay, on the Max Smart bed, given that we are seeing such good bump up in the bed that you mentioned that they're already at 80% occupancy incremental EBITDA from these beds be very high, and therefore, are contributing to EBITDA significantly starting from quarter itself. When should we start seeing that EBITDA improvement from these new .

What happened is a very standard sort of any new hospital brownfield otherwise or whatever. -- the trajectory is very simple. First, you ramp up occupancy, right? You ramp up that occupancy using low ARPU or any ARPU, whatever is sort of coming your way, but you focus on revenue. while you're bearing the cost of the place. And as you sort of ramp up, you start also improving your RPO. So you hit breakeven with occupancy. And once you do that, you start improving your sort of bottom line, everything keeps as you kind of distill your payer mix, it starts coming down to the bottom line. And we've been through this in Targa. We've been through it in other sort of brownfields that we opened up. The trajectory is the same. First, revenues, then the profitability is sort of this thing. So -- I mean the revenue also, the occupancy will be high. The revenue ramp-up will be lower relatively, and EBITDA ramp-up will be more even more so relatively, right? Then the second thing will start happening, your revenue ramp-up moves beyond your occupancy ramp-up cost and your EBITDA start picking up and then your EBITDA RevPAR is going to overtake your revenue ramp up as well. So that's -- it's a very standard sort of operating book as far as occupancy is concerned.

1 Okay. So in which case, when do I start seeing the revenue ramp up. Like you said, a couple of quarters, should that start happening, let's say, by third quarter for what or is it a little more phased out in .

By the second, third quarter of operations you are there. .

Understood. And my second question is on MAX Nanavati. I think you mentioned that the selling to be built with the operations. If you could give us some color on how the beds are that the commissions are doing Phase 2, when do you expect to fund that given that we're just starting activity. So when that should that be ready in commission?

So look, the Phase I, again, whatever we opened up it at about 80% occupancy, it's already waiting for the 50% 50-odd beds, which are remaining over there. soon as they come up, hopefully, we'll have that occupancy also done. It's a little further out on the of the trajectory compared to maximum in the sense that there's already a significant pickup in -- I mean, of occupancy before revenue. And now EBITDA is sort of catching up and is going to surpass that soon. So we already at that curve. And with respect to the second phase, what that means is we need to kind of shut the 100-odd beds over there, which we have, and we've sort of increased -- I mean, we started the works on the second phase. That will take us about 2.5 years. .

Okay. So and crematory was lower type of patients that we were able to serve the limitation of capacity -- so the improvement in national at should therefore come once the Phase 2 comes through a meanie improvement, or you start expecting that if you catch up the corporate average, let's say, with the plays?

No, with the Phase I itself. We already see the ramp-up over the -- so we'll have that I mean it's a very high ARPOB business, your EBITDA is already sort of ramping up that you get there, yes. .

Next question is from the line of Viraj Shah from PJM India Mutual Fund. .

I just have 1 question.

Viraj, sorry, can you speak louder?

Am I audible now?

Yes.

Yes, Okay, perfect. So I just have 1 question. If you could explain a bit about the changes proposed in the National Medical Commission with respect to you guys setting up the medical colleges, what is the kind of capital commitment or what are you seeing in this area specifically.

Yes. So basically, there's been no infection to say that now even for proper companies than open medical policies. Before that, the renovation was that it's only not for-profit enterprise, which can get into medical. So I think with the draft change, which we assume will also become the law for profit companies and also open etiologies. Now we've done some in actions. And our city that for 150 the medical collar, you need around tones of spend. right? And this is what is the repair. This will be sell in the existing hospitals, right? So for example, we have a 20%, 70%, 17% now. So our plan is to start on a -- and then we come to the other hospitals where we have vast pieces of land and try and create this infusate there.

Okay. And just my understanding perspective, what would be the kind of margins which 1 can make why are this for-profit medical area?

We are seeing ROCs of more than 25%. I mean you've been following the leasing meat and the thing you're aware that less than of students who qualify for need to example find places in medical qualities. I think this is the government's impetus to increase seats in medical colleges. Previously, for-profit organizations were kind of curtailed from so also, there were restrictions on the sort of charges, which could be applied to what bills attached to medical colleges as well as the kind of awards and places. There are some infrastructure limitations that were there in the previous listing and all of that being removed. Now effectively, what that means is that if you have a hospital you're committed to have a certain amount of seats for medical education attached to it. So the prerequisite for this business becomes to have a positive because the tools have to train in the hospital, right? The second thing is that at the back end, we're already treating DSD students. So we are already doing the we're already teaching MBBS students. Once you become a doctor, you come and train and sort of we already have the faculties, we have the caticulums and so on. So for us, it's very natural. It's almost cotton for us to get into medical education. We have the campuses in multiple locations in Delhi, in now in Bugleshwar, in other places because we have the campus we have land and we intend to start to get into this business. We are seeing more than 25% to 30% ROC at present. And we intend to do this at scale.

Next question is from Lena Bino [indiscernible] or Capital.

Just a couple of quick questions. One, we have taken the Board approval for additional tower and 200 beds in vessel -- if I look at your earlier presentations, there were already 200 rules for 9 and Vishal, the same? Or is it a fresh down? That is the same one. Okay. . Second, make acquisition in Pune Kalinga. After that, we have seen some litigations started immediately up with the previous promoters. So could you briefly describe what it is about? .

Motors, these are 9% equity the group that sits out sort of in their own issues, there are regulation proceedings going on against themselves in the parent setup and UAE market. Their shares that per our legal counsels are not transactable. -- their request or suggestion and peas to buy their shares also part of the transition, which we are very okay to and they have gone to the court debt back their shares. And our counter is that Keches of nondutiable please get a court order to buy a discussion going on, they want to force it to us. But motor is not an issue party. We have bought the shares from promoter only. We have the control of the company.

Next question is from Karan Vora from Goldman Sachs.

So the first 1 is with respect to the educational institutions. So -- and is this -- so we have highlighted in the past that doctors or availability of doctors is not an issue, but is getting into medical education coming from the fact that maybe 5 years or 7 years down the line when all the large chains would have expanded meaningfully, we might see a shortage of doctors. And is that a response to that, so that in the future, we don't such an issue? And also, this whole thing to be a part of the consoles, the whole medical college set up? That's the first question.

No. absolutely. It is going to be all part of the list cost's going to be -- I mean, there are no leakages over there. It's 100% all the economic interest is when we sit in. I think that's one. Secondly, unless we do some -- 1 was to do a private equity round or something else outside of that, that may be different. But yes, this is going to be 10 of the list core. So that's one. The second thing is with respect to what supply doctors supply of doctors. So this is a little too far for that. What happens is that you get a good stream of resident doctors, DNB doctors to start with. I mean, obviously, there's no bond which makes them sort of continue at a later stage, they get better opportunities somewhere else. If we are not growing. For us, growth is imperative, okay? Because if you don't grow tomorrow, you don't give opportunities of career growth for clinicians as well as management, then you want to have a problem, people will move out, right? So I think all those things are going to happen. But yes, it gives you a good base of quality resident doctors and DNB who come to your hone.

Okay. Got it. The second question is with respect to CJ's benefits. So are we on track to that INR 140 crore number for this year? And how much have we realized in Q1.

So we are on track in the sense that number is flowing ever since, right? So there was some left out part, which are the super specialty rates that also have started to flow from outside June onwards.

Got it. So are we like 140 divided by 4 kind of a run rate numbers.

Yes. From June onwards, yes.

Okay. Got it. And the last thing is maybe 1 request. So till quarter to understand what's happening in or different states for us. So maybe if we can reinstate that from the next quarter, it could be helpful, that's just a request. And also, if possible, to share for this quarter as well.

Yes. The reason that we sort of pulled it out, I'd be happy to discuss that because a lot of it east, the new cos Bhuvaneshwar. There's 1 hospital that we have over there. So there was too much actual information at the hospital level because some states had only 1 step as of now. And given the competitive request data that gets used there. We can give you other -- some part of it I do think can react. We can do that. I would avoid sold to hospital data, I mean, as you can well imagine. .

Sure. That's fine. Maybe others is a good idea.

Next question is from the line of Vivek Agrawal from Citigroup.

In IP revenue growth, actually, if you look at non-onco business has done well, but Encore business continues to remain under picture and some kind of challenges. So just want to understand when are you saying the growth of 1 segment back to earlier level or a less the industry peers . And second part is that why we are seeing significant issues only in MAX will give us for reporting healthy numbers, especially in onco.

One is that So one is that oncology will start to level from quarter 3 onwards. That means mid of quarter 3 is when we took the exception of not supplying the -- or not using the overseas drugs for the CGHS this new MOA was signed in. So I think that means quarter 4 onwards will be fully normalized and quarter 3 will start to normalize. So that's one. The fact is that we have -- our franchise from oncology was the largest. We got 25% plus revenues coming from oncology. So to that extent, the impact was higher on us. Also High amount of CGS highest amount of institutional business was us. So you have -- we also have the largest share in terms of CGHS. I think that is because of our presence in Delhi, et cetera. So I think that's the reason you see more impact here in.

And second question is related to your payer mix. We have seen that, again, institutional sales came down this year. So going forward, how we should look at the share of institutional revenues? Is it going to go back to, let's say, earlier level, 22% or so? Or is it going to come down meaningfully even from here on?

No, it is coming down. We believe it to come down. .

Yes. So it's a result of a concerted effort. It's not -- I mean we already put something in play.

Next question is from the line of Abdul Kaderanwala from ICICI Securities.