Narayana Hrudayalaya Limited (NH) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Narayana Health Q4 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Debangshu Sarkar. Thank you, and over to you, sir.

Thank you, Stanford. Good afternoon, ladies and gentlemen. Myself Debangshu, and I run the Investor Relations and mergers and acquisition practices at Narayana Hrudayalaya. On behalf of the company, I welcome you all to the FY '20 Annual Earnings Call of the company. To discuss our performance and address all your queries, today we have with us Dr. Emmanuel Rupert, our CEO; Mr. Viren Shetty, our COO; Mr. Kesavan Venugopalan, our CFO, alongside Ashish Sukhija from the team. I'm sure you have gone through the investor presentation, along with our result release as well as the audited financial statements which have been uploaded on the stock exchanges as well as on our website. Before we proceed with this call, I would like to remind everyone that the call is being recorded, and the transcript of the same shall be made available on our website at a subsequent date. I would also like to remind you that everything that is being said on this call that reflects any outlook for the future or which can be construed as a forward-looking statement must be viewed in conjunction with the uncertainties and the risks that they face. These uncertainties and risks are included, but not limited to, what we have already mentioned in our prospectus filed with SEBI during the time of our IPO and subsequent annual reports on our website. Post the call, in case you have any further queries, please do feel free to get in touch with us. With that, I would now like to hand over the call to Dr. Rupert.

Good afternoon to all. We are pleased to close FY '20 on a strong note with significant uptick in our operational profit as reflected by the consolidated EBITDA growing by 33% year-on-year like-to-like pre India AS 116 basis, with consolidated PAT more than doubling at 136% year-on-year like-to-like basis the pre India AS 116. It's important to note that we have been able to achieve this despite the material impact of COVID-19 pandemic on our operations in March, which traditionally is our strongest month of the year. As against 11.9% year-on-year growth for the period of 11 months ended February 2020, our consolidated revenue for the month of March 2020 registered a degrowth of INR 0.45 billion as compared to March 2019. Notwithstanding the same, the momentum generated in the last few quarters ensured a healthy 10.3% year-on-year growth in our consolidated revenue for FY '20, adjusted for the Whitefield facility for like-to-like comparison. Our emphasis on consolidation of operations with portfolio rationalization through exits of operations at Whitefield and Durgapur units during the year has ensured all-round growth across the network. This has resulted in revenue of our Indian operations growing at 9.7% year-on-year in FY '20, with over 30% year-on-year growth in its EBITDA on like-to-like pre India AS 116 basis adjusted for Whitefield unit. Continuing its impressive performance trajectory, our international operations at Cayman Islands registered over 45% year-on-year growth in its FY '20 EBITDA on like-to-like pre India AS 116 basis, with over 12% year-on-year revenue growth for the same period. This comprehensive performance resulted in robust cash accruals from operations of INR 2.18 billion for the year, post servicing of capital expenditure and financial expenses. This has helped us to deliver healthy return ratios for FY '20 of 23% ROC, excluding the impact of the 3 newer units and 14.4% at consolidated level on cash deployed basis that is adjusted for accounting treatments of India AS 116 and deferred government grants, et cetera. Our all-round showing has helped us maintain a strong balance sheet with very healthy capital gearing and liquidity profiles. Adjusted for cash and bank balance of INR 1.1 billion and further INR 0.7 billion of liquid current investments, as on 31st March 2020, our consolidated net debt is INR 5.3 billion with FY '20 consolidated EBITDA of INR 4.1 billion on pre India AS 116 basis, translating into a net debt by EBITDA of 1.3x on a trailing 12-month basis. We believe this does provide us a lot of competitive advantage, especially in these testing times. The continued industry-leading profitability of our 3 flagship units, complemented by operations steadily ramping up in the 3 newer units and at Jammu unit facility helped this quarter to grow its EBITDA by over 12% year-on-year on like-to-like pre India AS 116 basis for FY '20. Amongst the newest units, in line with our expectations, our operations at Dharamshila Narayana Superspeciality Hospital at Delhi which had broken even at EBITDAR level in Q3 FY '20 has now broken even at EBITDA level Q4 FY '20. Continuing its strong growth momentum for the fiscal year FY '20, the category of our hospitals, non-flagship, 3 new hospitals and Jammu, delivered an impressive 58.9% EBITDA growth on like-to-like pre India AS 116 basis, resulting in a healthy EBITDAR margin of 14.7% when adjusted for the Whitefield unit. Our hospitals at Ahmedabad, Jamshedpur and Guwahati, which had collectively broken even at EBITDAR level in FY '19, continued its upswing in FY '20 while registering an EBITDAR margin of 9% with all the 3 hospitals being in the green on stand-alone basis. To further strengthen this category, we have planned investment across civil as well as medical infrastructure across centers. We are in the process of adding capacity at select units while beefing up the service lines with the radiation oncology program being already launched at our Raipur unit during the last fiscal. Separately, we commenced outpatient consultation at our latest greenfield heart center at Imperial Hospital in Chittagong, Bangladesh, in February 2020, with plans to kickstart inpatient procedures from March, which subsequently got affected by the COVID-19 pandemic-induced lockdown. We remain confident that this center being a strategic fit for NH shall act as an extension of our Eastern cluster leveraging upon the operational synergies emerging out of the region. The evolving case mix centered around short-stay and minimally invasive surgery and procedures programs, coupled with optimum usage of the existing medical infrastructure, has helped to register a healthy growth in numbers of our discharges of over 10% year-on-year for FY '20, along with ALOS coming down from 3.9 days in FY '19 to 3.5 days in FY '20 for India business. Our focus on performing high-end quaternary procedures like bone marrow transplants, heart and liver transplants, along with changing specialty mix and increasing international patient base has ensured our ARPOB growing by around 8% in FY '20. With this continuing focus on cutting-edge advanced clinical programs, some of the key achievements in the last quarter are Narayana Superspeciality Hospital in Gurugram successfully operating a very rare tumor in the trachea. It is -- it has an incidence of less than 1 per million of population. The cardiac hospital in Bangalore successfully performed a transplant on a 4-year old child, and the child went home with an uneventful surgery. And the Narayana Superspecialty Hospital in Howrah treated a very rare surgical procedure of cardiac surgery where the main coronary arteries arise from the unoximated -- the atrial systems. And the Gurugram hospital successfully performed endovascular procedure for a very complex fistula in the brain and -- for which the patient had a very severe hypertension of the cranium. Our digital focus -- recognizing the power of digitization over the last couple of years, we have embarked upon a host of initiatives, focusing upon driving patient safety, efficiencies, data security, amongst other things. A few key landmarks of the last fiscal are as follows: We have started rolling out an in-house custom-made, cloud-based, fully scalable hospital information system called Aatma across the network. Our data analytical product called Medha has been a valuable tool in helping hospital administrators cut down costs and doctors to make better clinical decisions. We have implemented a centralized data repository system to support online and off-line data capture for clinical research studies and related operations. In the end, I would take this opportunity to express our gratitude to you for all the confidence reposed in us which has resulted in a well-diversified, broad-based institutional shareholding of the company. In the backdrop of the unprecedented crisis the world is facing at the moment, there is no denying the short-term challenges for our industry. With Narayana's preeminent position in the Indian health care landscape, we remain optimistic about our business prospects in the medium to long term. While our -- with our unflinching commitment towards ensuring safety for our patients and staff at all times, we remain confident in our ability to deliver quality care during this testing time.

Stanford, we can now open the floor for Q&A.

[Operator Instructions] The first question is from the line of [ Sajal Kapoor ], an individual investor.

So first question is with reference to our Bangladesh cardiac care, which is an asset-light model, do you think that the hospital bed count as a lead indicator for future growth is kind of losing its relevance?

Yes. We have indicated on several calls earlier both bed growth as well as occupancy being not completely irrelevant. I think bed count's also an indicator of the size of the organization that we're dealing with, but it will not be a leading indicator. It will -- we don't honestly have a very good leading indicator at the moment. So we're using a combination of discharges, the average length of stay and the number of ICU bed days. But hopefully, in some time, maybe in a year or so, we'll -- as the system gets more mature, we will evolve something that will give a better proxy for what growth in our company would look like.

Sure. Viren. So I'm, yes, of course, joining your call for the first time. I was looking at your annual report where it says the bed count as 7,155, but the presentation says 6,597. So the bed count is lower. I mean have we decommissioned any facility or -- what has happened on a 12-month basis?

Yes. [ Sajal ], I can answer that. So what you are referring to is the capacity beds and not operational beds on the first instance. Separately, during the year, as we have previously mentioned, we have decommissioned our unit at Durgapur which was essentially a managed hospital as well as an associate heart center. Along with that, we have also exited operations at our Whitefield unit. This totals to approximately the number of units that you see reduction in -- from what you just described over the last year's vehicle -- position.

Understood. Understood. And secondly, looking at the improvement in the ALOS, the average length of stay, and is there a scope for further improvement? And I'm thinking along the lines of technology playing its role, so robotic surgery, faster turnaround. So is there a target that you guys have in mind? Or is this -- I mean what's the trend looking like going forward? And I'm thinking more from a 3- to 5-year perspective here.

Yes. It is very difficult. So we're already at 3.5, which is -- it's almost an industry-leading number. Now as long as we have a healthy mix of very complicated procedures that are long-stay and more short-stay daycare procedures that are minimally invasive, robotics, cancer and so on, this number will not reduce by the same amount what it reduced in the past years, where we went from a number that was closer to 5 to where we are at 3.5 now. But you're right in that we are constantly making investments in robotics and daycare procedures as well as improving our skill and clinical care, and the number should come down. Furthermore, a lot of the activities we have focused on, which is online health care as well a lot of daycare procedures, don't count towards the length of stay because the patients come in the morning, leave in the evening. So the number will go down, but I won't put any guesses as to why that will go down by a huge amount in a 3-year time frame. But in a 5-year time frame, I would agree with you. I think the number could hit closer to 3 once all procedures start to become minimally invasive and the number of drugs that are available have a much faster recovery period.

Sure, Viren. And finally, on the ARPOB, I see a 9% Y-o-Y improvement growth, that is. And we know what's happening in this fiscal because of COVID and everything. Assuming a more normal operating environment in the next fiscal, is there further improvement possible on that front as well, especially on the northern region, North and West?

Yes, it's very hard to imagine what life would have been like without COVID. In the best-case scenario, I would agree with you that we had done a lot of rate revisions and been able to turn a lot of contracts over. I would say half the number of payers we deal with are on a new price list. And in this year, we would have started negotiating with the other half and converted them to the new prices. But unfortunately, with whatever is happening now, a lot of those discussions have stalled. And a lot of the payers also are in no position to even have the discussion on the new rates. But it's something we'll keep pushing for. Independent of that, the quality of the clinical work we're doing has gone up in the sense that now, even though our total volumes are less, the few people who are coming are coming for cases that are much more serious. So by a natural sequence of just by case selection, the ARPOB of the kind of patients we're seeing is higher. But then definitely, if there is -- given the choice between high ARPOB and more occupancy, our preference would be, at least for this year, to drive more occupancy.

[Operator Instructions] The next question is from the line of Pritesh Chheda from Lucky Investment.

My question is, did any of our hospital was a COVID hospital during the past 60, 70 days that we have seen? And if you could help us with the occupancy and ARPOB changes that you would have seen in the past 60, 70 days, that would be really helpful.

Except for -- we have certain beds which have been allocated for the COVID, as per the state government's policies in various states, the children's hospital had all the ICU beds allocated to them. But COVID being a very -- it doesn't affect too many kids around, the utilization of the allocated beds also has been on the lower side. So we have been able to do non-COVID work as well in the Mumbai unit. But apart from that, one of the older units in the Howrah unit, the Narayana Multispecialty Hospital, has been taken up for a level 2 COVID facility. That means they are very mild kind of cases. So we have our occupancy of around 30 patients there. And we have a similar occupancy of around 30 patients in Ahmedabad and in our Dharamshila hospital as well. And around 20 beds occupancies in the RTIICS flagship and in our Jaipur unit. The prevalence is very low in South. So we are not seeing that kind of a patient inflow into our southern units.

So which means barring Bombay, which was a full-fledged COVID hospital, other places it's been some amount of beds which have been allocated, right?

Yes, that's right.

I would say, 10% of the beds have been kept aside for COVID.

Sorry?

Roughly between 10% to 20% of the beds have been kept for COVID purposes. But we don't -- other than this 1 hospital in Howrah, the rest of them are not fully taken over for COVID.

Okay. And on the occupancy trend, if you could give some highlight, occupancy and the ARPOB because we were hearing some industry call and that industry call seem to be suggesting that the occupancy drop would be more than half. And if it was a COVID hospital, then the ARPOB drop is more than 60%, 70%. So it would be really helpful if you could give some color because the cash loss calculation is really different if we tend to put some of these assumptions. And just to add here, did we incur a significant cash loss during the last 3 months of operations to give us a guess on some debt figure, eventual debt.

Thanks, Pritesh, this is Debangshu here. For the reasons that we have probably elaborated in detail in our previous calls and what [ Sajal ], the previous questioner, also touched upon and Viren responded, we have -- we are not actively monitoring the occupancy metric that much as much as we are doing it through revenue terms. And I'm sure you get the impact of what you want to understand through the same analysis through revenue in probably better terms. As a result of which, actually, if you refer to the COVID note that we came out sometime in late May, gave you a sense of the impact that our business had, at least for the month of April, wherein we had mentioned that the revenue level that we registered appears to be around 35% of what we did pre-COVID level. Just to avoid any doubts on the same, when we say pre-COVID level, we refer to the actual revenue that we achieved for the month of February at a consolidated level, which was around INR 260-odd crores. And this is factoring in that it was a 29-day month, unlike, let's say, a January or July, August, which were in absolute terms higher than those numbers. So referring as a base of INR 261 crores, I have already given you the sense of my April number, which was around 35% in the revenue terms. There has been some bit of improvement in my May run rate from there, but not a very significant run rate to speak of. As you would appreciate that the ease down of restrictions during the lockdown has been relatively slowly phased out and that too has not been very prominent, let's say, outside of Bangalore or for that matter, so to say. Having said that, as we speak in June, I mean, we have only the benefit of 15 days that have elapsed since the start of this month, the operational trends are optimistic as far as the Indian business is concerned. Just going back to your question on the profitability thing, again, because of the COVID impact, which Dr. Rupert also mentioned during his opening remarks, we did see a material impact in our March performance in itself, which traditionally is the strongest month of the year by far. So with that resulted, we have a revenue impact of anywhere close to INR 70-odd crores, give or take something, at a consolidated level and resulted possibly at an EBITDA loss of around INR 35-odd crores at a consolidated level for the last year. At the run rate that we spoke of for April and May, there has been cash loss without an EBITDA loss, I come to the cash bid separately. On the EBITDA front itself, obviously, there is no denying that given the higher fixed cost as -- in general that the industry sees, and in particular, in our case, which in good times gives us the benefit of a higher operating leverage, this impact us in terms of the profitability. Without spelling out the actual numbers, what I can guide you towards is, when I said that the 35% revenue achievement of pre-COVID level was for April, the breakeven point with the revised cost structure that we have put in place from 1st of April with the host of measures in terms of graded salary cuts and few efficiencies in terms of the overhead utility cost and all. It appears prima facie that the breakeven point at a console level is around 70% of all my pre-COVID revenue. And as things stand right now, in June itself, I might be pretty close to it while, obviously, I don't foresee us breaking even at an EBITDA level in June, but we might get pretty close to it as things stand right now. Detailing it even further, our Cayman operations, overseas operations that is, because of the impact that we have previously disclosed with you in your initial call in sometime in March itself, got impacted and registered an EBITDA loss in the month of March and subsequently followed it up again in April. But with the change in fortune, so to say, it has turned in the green as far as EBITDA is concerned in May and trends so far suggest that the same trend as of May is going to continue for June. And coming back to your question on the gross debt and the cash flow -- associated cash flow with that. As we have shared in our presentation, and if you have recognized from that, from our 31st December number, there is an increase of around INR 30-odd crores in my gross debt as of 31st March 2020, which was borrowed in the late phase of March to finance some bit of my working capital requirements with the cost that has been created for particularly the PPEs and other stuff. Having said that, as I speak at this moment, I have not borrowed single money penny beyond that. My absolute debt today is actually lower than what I have disclosed on balance sheet as of 31st March. And this has been possible because of very efficient working capital management which has been possible, aided by strong collections as well as effective creditor management, along with the ample liquidity that I had on books and I still continue to enjoy with the cash surpluses that I have been running for some time now in my books, particularly from the overseas operations.

Just confirming your net debt is lower than what it was in March, right? That's how you're saying?

I'm not saying net debt, I'm saying gross debt is lower than what it was in March. Part of the funding that I had utilized during the period of this 2 months has been through the cash that I had on my books and part has been financed by working capital management. So net debt-wise, I am -- I have increased a little bit, but gross debt is actually lower than what it was in 31st March.

But you just said that gross debt taken is INR 30 crores between March and June. You started with that.

No, no, no. INR 30 crores is from 1st of January till 31st of March. On normal run rate basis, as -- if you would have seen my financial strategy over the last 3, 4 quarters, quarter-on-quarter, my gross debt as well as my net debt was improving, which did not happen for the last quarter, but for the last 15 days impact of COVID for which I had to borrow that incremental INR 30 crores.

In June, you said you're running at a breakeven level, right?

No, I didn't say that we are running at a breakeven level. I said that our breakeven appears to be around 70% of my February revenue at a consolidated level. It appears given the current trends, please don't hold me -- us on to that. You would appreciate that in normal times we do not give this kind of detailed guidance. I understand where you guys are coming from, and these are unprecedented times. That's the reason, to help your cause, we are just telling you that it appears that we are running pretty close, if not achieving breakeven, but pretty close given the current run rate that we see in June as far as EBITDA is concerned with the revised cost structure.

And this analysis of yours is India analysis, right, whatever you're mentioning this...

Sorry, what analysis?

This is your India specific?

No, this is consolidated, consolidated. Like I mentioned, my Cayman operations have already broken even on EBITDA level as of May itself.

The next question is from the line of Shantanu Basu from SMIFS.

So in your COVID release, it was mentioned that there would be a reduction in employee and overhead cost. So just want to know for FY '21, what percentage of FY '20 costs would be there? I mean, how much percentage of FY '20 cost would be -- would actually be reflected in FY '21 for employees and overhead?

Shantanu, it's a little difficult for us to answer that at this stage. I'm sure you'll appreciate that a lot depends as to how this trajectory of the pandemic pans out. So as things stand today, we are not even sure if this revised cost structure will be there for the entirety of the 12 months or not or it will get elongated for even a higher period. So as it is, for the moment, it's probably better and the way we are looking at it on a monthly basis or a daily basis, so to say, practically speaking. So I have given you enough guidance through my previous responses as to how the things have changed from, let's say, late -- from March itself to April to May and as we speak on 16th of June today. Anything beyond that, it's a little difficult for us to comment at this stage on those kinds of details. As and when we have clarity, possibly the next call, which is due in Q1 earnings call sometime in August, I might have more data to come back to you on those kind of detailing. I hope you will appreciate that.

Okay. And another thing is the CapEx plan for FY '21 and FY '22 and how many beds addition?

We have not planned any significant bed additions for this financial year other than some 100-odd beds that are in commission in places like Raipur and a few expansions in Delhi and so on. As for CapEx, we -- obviously, given the sort of situation that we're in now, we have curtailed it to almost the barest minimum that is required for maintaining the steady state operation. And this is something we had been curtailing also from the last financial year, which we had deferred a lot of the CapEx. We cannot defer it forever, honestly. A lot of equipment is quite legacy equipment, and there are things that are on the verge of breakdown that will need to be taken up, but we'll be taking up on a case-to-case basis. But yes, one thing that at least as an organization we know for sure, whatever the CapEx is spent will be only emergency type CapEx and will be significantly less than the normal sort of INR 150 crore, INR 200 crore CapEx outlay what we normally have.

So would it be half of that?

It's hard to say. It's unlikely that half of my equipment will just comp off tomorrow. But the fact also is that if the situation improves, and if things get back to normal faster, then we definitely have to accelerate our CapEx expansion because then the numbers of patients coming in will justify us getting the newer generations of equipment. But in absence of that, it will be quite a low number.

Shantanu, just to add on what Viren said, just to give you a sense, last quarter fiscal year FY '20, and obviously, like Viren mentioned, we have deferred out certain CapExes that was planned last year. We have incurred a CapEx of INR 116 crores as against the plan of INR 140 crores to INR 150-odd crores.

The next question is from the line of [ Keshav Lahoti ] from [ Equality ].

Sir, looking at these trends, when do you think your business will be back to normal? When do you think international patients will be coming back to your hospitals?

So there's 2 different questions you asked, right? When do things come back to normal and when do international patients? I'll answer the international part first. There are some positive indications that the land borders from Bangladesh will open up soon. So that will go some way towards addressing that part of it, given that Bangladesh is a significant contributor for international patient flow. But fact is, it's really unclear right now because a lot of the Middle East, Africa traffic goes through hubs and we're not yet sure of what the requirements are. See, the thing is medical tourists are in the highest risk bracket of patients who should not be traveling. Even though they are the ones who most need to travel, they are also the ones that are the most vulnerable to succumbing to COVID, if they catch it during a flight. So we are on a lot of these government advisory boards, are telling them how to plan for these things. But on the sort of conservative side, I don't see it opening up for at least another 6 months, but I could be wrong also. There's just simply too much pressure to allow international flights to reopen, considering all the cost. Considering that it -- you may face an outbreak, but still it may happen. But conservatively, I would say, 6 months for international flights, given the current trajectory. As for when things go back to normal, it is not a sort of binary thing. You see April was the worst month we've had since I can possibly remember, May improved from April, June improved from that, July will get better while in-the-case count which in April was few hundred is now close to 3 lakhs. So what's happening not so much is that coronavirus is going away. I think it's worse now than it was then, but people are learning to accept it as part of life. And so there are certain behaviors that will be permanently altered, which means people will necessarily just delay, delay, delay getting the procedure for as long as possible. But a lot of the backlog of cases that get delayed will have to come, no matter what. Patients we've seen are not coming so much for the physical OPD. They're preferring the online. And that is the behavior that may be forever with us. A lot of patients are coming to our clinics rather than the hospital. So we're pushing more doctors towards the clinic. So in that sense, things will never really go back to normal in the way that it was in Jan, Feb. It will be a permanently new base is my sense. But then again, I'm very, very happy to be wrong. And in 6 months from now, this will all seem like a bad dream.

Okay. One last question from my side. Is it possible that some sort of domestic patients might not go to other countries to do their hospital work? They might come to Narayana. So in a way that can offset the revenue you are losing due to international patients not coming?

Yes, absolutely. See, one thing that it forced us to do is to start looking at more domestic sources of patients. So Central India, which never used to be a place that we thought we'd get large number of patients, during the lockdown, we had 2 chartered planes come and bring these patients who could afford to pay, got very complicated surgeries done in our Health City in Bangalore and flew back. So the definite need is there, and these people paid more than any medical tourist would have paid. It's not in the same numbers as it is because these are learned behaviors that takes time. So we will spend the next couple of months or even years building up better channels for treating patients within the neighboring states as well as offering very high-end care towards patients in other parts of India who would normally have gone towards, let's say, Delhi for treatment and to offer them NH as a very good alternative for that from the cost as well as a quality perspective. But it takes time. I'm not going to say we can immediately substitute the 10% of revenue or whatever you used to get from international with domestic patients tomorrow itself. It will take time, and we're working very hard to achieve that.

The next question is from the line of Ashi Anand from Allegro Capital.

I just had a quick clarification on the Ind AS impact. For the first 3 quarters, it was about INR 8 crores to INR 6 crores a quarter. And this quarter it has kind of risen to INR 18 crores. Just trying to understand why such a sharp jump in Q4?

Yes, Ashi, this is Debangshu again. This is on account of a late recognition at our end of around INR 11 crores, INR 12-odd crores of Ind AS rental impact at our overseas HCCI location, which got completely recognized in this last quarter. Ideally, it should have been amortized or charged INR 1 crore per month, roughly speaking, over the entirety.

Okay. So going forward, about INR 40 crores per year is the number we should be going with, right?

This is the current run rate, yes.

Okay, perfect. And would we possibly share how much of this kind of comes under depreciation and how much under interest and then what's the Ind AS impact on those 2-line items?

Already shared as a part of our investor presentation. Everything is addressed in detail with giving you separate impact on -- for Q4 as well as FY '20 in the investor deck as well as the press release.

The next question is from the line of [ Devansh Goenka ], an individual investor.

All of my questions are answered. Thank you.

The next question is from the line of [ Akhand Pratap ] from [ YES Securities ].

Sir, my query is related to Cayman Island. So in fourth quarter, the facility was like closed actually. So for how many days it was closed and when it will become operational, sir?

The Cayman facility was closed for 3 weeks in -- 2 weeks in March, and we had a tentative opening for the next week after that. And it became fully operational since mid of April.

Okay. And sir, in terms of the financial, what was the impact on the financial revenue front in the March month actually?

[ Akhand ], I have already addressed that as a part of my response, which I detailed out to Pritesh. But at the cost of repetition, I will again tell you. For -- so from a run rate of around $5.5-odd million of top line resulting -- translating to around $1.5 million, give or take something in EBITDA, pre-COVID, we went down to EBITDA negative for the month of March in Cayman Island, and the same continued for our April operations as well. Since April, that is starting May, there has been slight improvement over there in terms of the operational performance, which has resulted in the particular operations over there turning again in the green as far as EBITDA is concerned from May onwards. And June, as we speak, the similar trend as of May is continuing for the moment, which is around a run rate of around $3.6-odd million per month.

The next question is from the line of Charulata Gaidhani from Dalal & Broacha.

Yes. My question pertains to the ARPOB. Can you give me the ARPOB for Q4 in India and in Cayman?

Q4 for India is INR 99 lakhs. And Cayman is...

Yes, we've confirmed -- yes, it's $1.5 million in Cayman.

Yes.

$1.5 million? Okay. Okay. And my second question pertains to the Dharamshila, the exceptional loss that you have taken. Can you throw some more light on it?

See, actually, we had acquired -- or we have entered into an agreement for this unit effective April 2017. And possibly, the forecast which we made for that contract, based on which we recognize the contract financials, I think, were not holding good in terms of the last couple of years losses and the future projections. So to that extent, to possibly consider that or factor that as a part of our valuation of the goodwill and the intangibles what we took as a part of the contract, so we are -- recognized that part in the exceptional item as a write-off of goodwill and the intangibles. This actually has happened significantly because of the COVID situation, which has resulted in substantial international business not coming through for the next few months as well as having sort of a forecast which will be less than what was forecasted before.

Charu, just to add on to what Kesavan said, please do -- just to underline, we never made any cash investment in the CapEx initially while we did the transaction with Dharamshila, as you are aware, that was a asset-light transaction. This is a noncash financial lease entry as for accounting in the books. Towards that extent, even this -- the exceptional loss that we have booked is, again, a noncash entry. So we never paid for this in the first instance that we need to write-off anything in cash. So this is purely an accounting treatment that has happened, whereby we have impaired a noncash impact lease that we have recognized on our books, purely on account of what Kesavan just explained in terms of the business valuation impact.

Okay. Okay. Yes. Then just the last one to squeeze in. In case of Cayman, in the current quarter, do you think the ARPOB will be around the Q4 levels or it would have gone down?

Difficult to hazard a guess, Charu, but sense is given that occupancies across the board, be it Cayman or otherwise, is muted, you -- while the average realization per patient is definitely seeing a pressure given that a lot of elective surgeries are getting deferred. But given that occupancies also are muted for the reasons, I mean, people are not visiting, at an ARPOB level, you may not actually see much of a difference. If at all, ARPOB may actually see an upward bias.

Okay. Okay. But occupancies will be -- like you had 40 beds occupied in Q4. In Q1, how would it be?

As we speak, it's around 24, 25.

The next question is from the line of Manish Poddar from Nippon AIF.

This is Manish from Nippon AIF. Just wanted to have a few questions. So first is if you could give an idea on the Cayman entity. So despite this 2-week closure, the margins which you've clocked during this quarter are healthy. So what is -- why is that first? And what is the current going run rate, let's say, after things stabilize?

Sorry, Manish, we didn't get you on the margin front. What was the question?

So I'm trying to understand for the Cayman property, the margin during this year was -- during this quarter was healthy despite the 2-week closure. So I'm just trying to understand what is the reason for the same? And let's say, after things stabilize in Cayman, let's say, 6 months, 12 months out, would this be the normal margin trajectory going ahead?

I don't think there has been any unusual increase in our margin trajectory for Cayman for the last quarter, notwithstanding even the 15 days impact. This was what our run rate was -- I mean, close to, this was the run rate that we were seeing even in the last quarter itself.

Right. Sir, if you had a closure for 2 weeks, you would also have fixed cost obligations and revenue would not be flowing in. But despite that, you've been able to get a similar number, 4.1% versus 3.7% in the previous quarter. So just trying to understand the reason for that.

No. So while January, February, as was to be expected are -- I mean, clocked almost a similar kind of revenue that we did previously over there. Just hold on a bit. I think my Bangalore team has got disconnected. Just hold on a bit.

Yes, sir, we are reconnecting it, sir.

So they can't hear. I'm based out of Bombay currently.

This Q4 thing is mainly because of data at Ind AS.

No, no, no. I'm saying pre Ind AS basis itself. He is saying why our margins are higher?

You have to unmute.

I'm not on mute.

Hello? Hello?

Participants, we request you all to please stay connected while we reconnect the management's line. Ladies and gentleman, thank you for patiently waiting. The line is reconnected. Sir, you may go ahead.

Yes. Do you want me to repeat the question?

Yes, Manish, if you can repeat it because I think the Bangalore team did not get it at all.

Yes, no worries. So I was just trying to understand in the Cayman facility, despite the 2-week lockdown which was there in the month of March, our margins or you look at the absolute EBITDA is largely similar to what you did in -- it's actually higher than what you did in Q3. So just want to understand what is the reason for that? And let's say, whenever things stabilize, 6 or 12 months, 18 months out, would this be the trajectory going ahead?

Okay. Manish, there are 2 elements to that. One is there is, like we mentioned in probably one of the responses previously, we have recognized in this quarter itself as Ind AS treatment. So the numbers that you are seeing for HCCI for Q4 and thereby FY '20 is higher than like-to-like what it was for till the 9 months period that we had previously discussed. Because we recognized around $1 million run rate kind of a number per month basis on Ind AS that got apportioned or rather recognized in Q4 itself. So to that extent, one quarter, it's around $100,000 sorry, not $1 million per month. It's a $1.2 million per annum impact that has happened on the bump up of EBITDA, on post Ind AS EBITDA that you see for HCCI for the period of last 1 month. Having said that, obviously, even adjusted for that, there has been performance of that unit that did see normal operations for the entire month of January and February. And despite making losses at an EBITDA level, you see the run rate adjusted for the Ind AS. The run rates are what it was even prior to the COVID lockdown induced effect started.

Okay. These cost measures, which you have taken, roughly 20% cost reduction, if I believe, would -- after COVID stabilized, would this cost levels remain at similar levels? Or after 12 months out or 18 months, there will be again a cost bump up and one should expect similar margins during that time?

See, a lot of the things that we've done -- there's 2 parts of it. One is for the doctors, which were -- they have these high retainers which were converted to a variable pay. That is as per the terms of the contract. So will be revised on a sort of ongoing basis as and when. So it won't be an -- we don't get an immediate bump in the cost there, but it will happen as and when the operation stabilizes. The second part is on the non-medical costing, where everyone has taken between 5%, 10%, 15% and 20% pay cuts. That is not practical to keep going once things are stabilized. So as and when things improve, we will have to sort of get back to a normalcy in the payout. So that will see a bump in the cost.

Okay. And just 1 more, if I can, Viren. There's been pricing regulation which has happened in Maharashtra. I'm not sure if other states or, let's say, key state, Karnataka, has done anything. But -- and I understand you don't have any material operations in Maharashtra. But do you -- given the price log which has come across, do you see any sort of risk due to that for your operations?

I think what you're talking about is when they released the charges -- a list of charges on the GIPSA rate for all the cash-paying patients also in Maharashtra.

Yes, which is applicable to the August of this year.

Yes. I mean, anyway, our rates are more or less within 5% of that. So even in that situation, it wouldn't have really mattered too much. And since most of the work we do in Maharashtra is on the pediatric side, a lot of these are long-stay procedures that are usually not covered by insurers and aren't part of this price capping. But our prices are quite competitive. So at least from whatever they announced on the Maharashtra side, we're really quite comfortable with the rates that they decided, but we didn't take a strong stand whether to support or argue against it.

But if these similar, let's say, rack rates come across for, let's say, Karnataka?

No, it won't come about -- it hasn't come about in most of the other states. And even in Maharashtra, it's still a thing that's being fought over. The fact is that why this became contentious is the government wanted to fix the prices for non-government scheme patients, noninsured, the cash-paying patients. And the fundamental business model that all hospitals in India follow is cross-subsidy, which is someone pays less, and so that means someone else has to pay more. To unilaterally fix it for everyone coming to the hospital meant that everyone's entire base will need to be revised. So that's why it got logged down in more technical details. It's very unlikely to happen in most other places. At most what we predict will happen is they will fix the COVID charges. How much you can charge for COVID treatment, like it's happened in Telangana, and 1 or 2 other states. So in that, what we've done is, we've made our entire pricing system more transparent. We've gone for fixed packages for COVID daycare treatment as well as COVID ICU treatment. And we've made sure with very clear signing and transparency what the inclusions and exclusions are. And it's quite competitive, more competitive than most of the other prices in the market. So we got another appreciation for that. In case it should happen that they are fixed, I would say it would only be restricted to COVID scenario, not any of the other things.

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

So first, is doctor availability and paramedical staff, is that some sort of a constraint?

I mean, of course, Sameer. In every call you ask that, and it's always been a constraint. More so now because what happened is when the lockdown was announced, a lot of people were in either the -- in another city or in the native place and so on. So the travel back and forth was difficult. The other one is, particularly in Delhi, is that our hospital in Dharamshila, which is East Delhi, a lot of doctors were staying in Noida. So they were not able to cross the border. Similarly, for hospital in Gurgaon, a lot of our doctors are staying in Delhi, and they can't cross the border there either. So it's a lot of logistical challenges that have happened. Similarly, a lot of doctor burnout has been there. A lot of doctors have been very stressed, and they can't be as productive as they were earlier. Nursing, what happened is that we're not able to replenish the number of nurses that have gone through the natural state of attrition right now. And so that is a very serious problem, which, until things stabilize and flights resume and so on, it won't be easy for us to replenish on the nursing side, which is more of an issue for dealing with the day-to-day work than on the doctor side. But yes, it is something we're dealing with on a day-to-day basis.

Okay. And Viren, just to think about how and when the business will normalize, what is the biggest bottleneck as of now? In the sense that, is it intercity travel of the patients or is that they're just too scared to come? Or is there some other bottleneck before you get back to normal business?

I mean, everything that you said. I would say -- okay, so I'll tell you what is the -- based on which number I'm trying to achieve, right? If I'm talking about patient footfall, the biggest bottleneck is lockdowns as well as interstate transport and confidence. If I'm talking about on the manpower side, biggest bottleneck is what I mentioned earlier about the doctor availability. If I'm talking about on my profitability side, the biggest bottleneck is the fact that all the hospitals are mixed, doing COVID and non-COVID work. So COVID tends to drive away non-COVID cases, and it takes up a disproportionate amount of attention with a very low reimbursement, in the sense that there's very little that you can do for COVID patients. A lot of them are just regular fever patients. And it's not ideal for them to be in our sort of hospitals. But anyway, those -- we have to take care of them, and we are taking care of them, but this is not the intended purpose of the hospitals that we've built. So as long as there is -- as long as we have hospitals in states where there is a large number of COVID patients and those COVID patients are getting treated in hospitals -- in private hospitals, this will continue. In places where things have normalized, where the numbers are less, then we're starting to see a gradual pickup in the elective activity. But yes, this will -- I mean, now there's one study that's saying this will go on till November. I don't know how much to believe that or not. But most of our modeling predicts that it should only be like 3, 4 months more, but if it's November, then that's what it is.

Okay. And when you say lockdown is one of the -- I mean, actually, the first reason you mentioned, that patients can go from their homes to hospital. I mean, lockdown is not applicable to them. So what exactly was different there?

No, I'll tell you what happened in one city I wouldn't name. Yes, you can go if it's an emergency, but at every checkpoint our patients were stopped, and they were made to roll down the window and someone would -- policemen would ask them, where are you going? Why are you going? What is this for? Show me the medical report. Give me proof. And so this acts as a huge deterrent.

Okay. Got it. The second question is regarding Cayman Islands. What is the local conditions there like? Is it like India, which is like under lockdown and et cetera. Or is it more easier conditions there? And second, your plans of onco addition over there?

Yes. So Cayman, they had a case very early, and we overreacted a little bit and we closed down the hospital and took all the precautions. And of all the 40 people that came in contact with that Italian patient, only 2 ended up positive and both of those had a fever and they finished the thing. And so there are very, very -- there were very, very few cases on the island to start with. But what happened is they also overreacted and shut down all the borders and chased away all the expats and it went in that way. They don't have as many cases as India, neither as a percentage, obviously not in the total number. And things have improved. Now we are actually perversely benefiting also through the lockdown because historically a lot of patients who would have normally flown to the U.S. for getting the regular treatment and not -- that's not an option for them anymore. So they're coming to us even for the very standard procedures that we never used to get patients coming. The second part, you asked about the oncology. We're still going ahead with that. But we're just waiting until there's some positive signs that the flights are allowed to go. It's easy for us to get the equipment in and out. The logistics will be taken care of. Onco is still a very solid addition to Cayman. And regardless of the financial situation, that is something we're 100% behind, and we believe it needs to be done. But there are some practical considerations why we would delay it by a few months because we would simply won't be able to get people in and out to do the work.

Okay. Great. One final question from my side. And that is, for the India network, your slide showing higher discharges for fiscal '20 and higher ARPOB, is it all driven by lower ALOS or should we see them independent?

Yes. And high ALOS would have been one of the key drivers of that.

The next question is from the line of Siddhant Bhandari from Highwest Global Management.

My question mostly is centered around viability for sort of nursing homes and stand-alone hospitals. It sounds like there's a fair bit of operational complexity that COVID brought on and financial stress. So do you see sort of this vacuum in terms of the number of stand-alone operators reducing over the coming years? Or do you think this is -- that there won't be any material sort of market share?

Yes. No, these sorts of crises situations generally trend towards consolidation, just anecdotally. I mean, there's no sort of study I can quote, but from people that we know in the industry, a lot of the mom-and-pop shops have simply closed shop. So for them, the cost base is very less. It's just 1 or 2 proprietors who manage the whole show. And so for them, they've just not been able to pay salaries for their assistants and have closed down. It is quite hard for the single stand-alone hospitals because they don't have a very large diversified group that's able to manage things. So a lot of these single stand-alone hospitals will only have 1 or 2 very key specialties, and that's about it. So it is tough. It is extremely challenging time for them. We see the -- what's happening because of that, patients choose opting not to go for places where the hospitals are operating at such thin margins that they cannot afford to take the kind of precautions that we have. So in our hospitals, the entire place is zoned. We have all the staff in full PPE. We've reduced the shifts, we're willingly cutting down on the volume of work we're doing so that the few that we do we do very well. Whereas those that had single-digit margins to start with and they simply don't have the ability to invest upfront nor do they have the ability to pass on those costs to their patients.

Got it. And just one final question from me. So assuming that the lockdown sort of gradually is lifted, you will have a bunch of pent-up demand that needs get fulfilled in terms of electives have deferred. You'd probably have sort of this stigma associated with going to a non-branded sort of hospital chain just because of hygiene concerns. Maybe that's unfounded, that's just a story that we have. And then the third thing is, you'd have sort of some patients not going there and going to branded hospitals such as yours instead. So I guess coming out of this, on the domestic side, is it possible to believe that if volume -- if lockdown restrictions ease out, you may actually see a higher sort of patient footfall than before? Or is that sort of not the right way to think about it?

No, it's not the right way to think about it because this will still persist for many, many months even post the lockdown because even if the vaccine is discovered tomorrow, it's not that it can be rolled out to as many patients as possible. And this thing, even when it's -- it's not going to just disappear overnight. It will take weeks and weeks for that to achieve. The other one is, what the unorganized players have that larger hospitals don't is very low cost. Given that now people have been struggling economically, financially and so on, they may find that it's just simply too expensive for certain class of procedures to get it done in the larger, more-standardized organized hospitals. And so they will still prefer going to these other places to get the treatment done. So while I would count on definitely some amount of this flow being moved into our bucket, it's not something that will immediately translate to success when this is over, which is I would have permanently taken their market share. I think that's just a slow process of attrition that definitely has gone accelerated recently, but it's not a single transfer that will happen immediately.

[Operator Instructions] The next question is from the line of Jason Soans from Monarch Networth.

Just -- I mean, you did mention that it will take 3 to 4 months as per your estimates to -- for the situation to normalize. Would -- just wanted to ask you. I mean, in a post-COVID scenario, how do you look at demand panning out? And from an overall perspective, how do you look at demand post this crisis?

When you say demand, you mean demand for surgeries?

Yes, demand for surgeries, yes.

I think what will happen is that, yes, people who've been postponing will end up having to get it done. But 1 of 2 things will happen. Number one is what I just described, which is a lot of this pent-up demand, and that will get taken care of. But number two, the more unfortunate thing will be those who have postponed it for too long will present themselves with very advanced cases. So in all this time, all the cancer screening that should have been done would not have been done. And when you come 6 months later, your case is much more advanced than what it would have been or a heart blockage or any sort of kidney failure. So patients who are presenting with much more advanced diseases than they would have had pre-lockdown. Those people, it will be a lot more expensive and complicated to take care of them. In which case, either it counts as procedures that are done or it counts as people just deciding to give up and not get anything done post that. And also the other one is, we're not really sure what the overall financial situation for the country will look like when this lockdown lifts. Will people still have jobs, will they still have health insurance, whether the health insurance companies or the government will still be able to make payments and all of that. So the cash business may be unaffected relatively, but it's the insurance and the scheme business that we worry about.

Okay. And just one last thing. Any long-term outlook on your ARPOB or ALOS for both the Cayman Islands Hospital as well as the India business?

I mean the outlook we're doing here don't even last from Monday to Sunday. It's difficult for us to...

The next question is from the line of [ Pranav Jain from IDEN ].

Yes, sir. I want to get a sense of the payer...

Excuse me, this is the operator. Mr. [ Jain ], may we request you to use your handset please, your voice is echoing.

Right. Does it -- I hope it's better now. I want to get a sense on the customer profile as in how much of our paying customers are insurance customers, cash customers?

That we have mentioned in our presentation, so it'll give you a split of the payer profile.

Okay. And also, sir, on the asset-light model, how many of our current facilities would you say are asset light? And what is the outlook going forward for that?

We have detailed out which assets are asset-light previously. And what specifically do you want to understand? In terms of outlook, I mean, business outlook doesn't change basis whether it's asset heavy or asset light. But anything specific that you want to understand on that?

No, no, I just wanted to get a general sense.

[Operator Instructions] The next question is from the line of Jayesh Gandhi from Birla Sun Life Mutual Fund.

Most of the questions got answered. I guess, the only question that I was looking some view on was on international patients. What will -- of course, the international travel needs to come back, that is the important criterion. But apart from that, is there anything that the industry can do or needs to do to rejuvenate the international flow of patients that was coming to India?

Yes. A couple of things we're doing right now is we've opened up online counseling to patients in Bangladesh. And after working that for 2 weeks, we started it in Africa and Middle East. So at least even though they may not physically come here, we can consult with them and give them the comfort that -- so they have more clarity on what they need to get done for whenever the flights start to reopen. The other thing is, we would have to go to them. So one of the big reasons why we gone to Chittagong is because Bangladesh is a massive market for us. It's a growing market, and we believe that it has space for several health care players. And a heart center was a way for us to, in a very low-cost way, explore that market. Similarly, we have tried something in Africa earlier in a project with Abraaj Global Fund, but that didn't work out for other reasons. But we're still exploring those, again, with very minimal capital deployment and asset-light ways to go into those geographies because, I mean, flights and international travel, these things are completely beyond our control. Other than petitioning the government and saying that it's a huge ForEx earner, there's very little we can do. And the government also recognizes that because the flights are not just filled with medical tourists, it's filled with businessmen, it's filled with investors. It's filled with all kinds of people that you want to come visit the country. So they are under a lot of pressure. I think reasonably, flights will open sooner than we think. It may not be 6 months as what I said earlier. But I just -- I want to be conservative on that, given what I know about the health and frailty of international medical tourists.

Fair enough. For us -- just to double check, for us, the international patient flow was 10% of revenues. Is that number correct?

Yes, roughly, yes, Jayesh.

And that is another bit of deficit that probably doesn't get filled up that quickly and probably takes time?

Yes.

Yes.

It can't immediately be replaced with something else that pays the same amount and pays in foreign currency.

Exactly. Understand. Fair enough. But a 3-year outlook for this would be good, you think?

Yes, of course. You have to be optimistic, no?

The next question is from the line of [ Sumit Aria ] from [ Valuable Asset Management ].

Sir, one of the previous participants, you highlighted that you have certain concerns on the insurance and the government scheme patients. So are you witnessing some delayed payments or some stuck payments from the governments or from the insurance companies?

From the insurance, not really so much. But from the government schemes, I think there has been quite a lull in, I would say, at least in the last 45 to 60 days. We suspect that there is not much money to pay in the government schemes at the moment. I think all the funds, resources, I think, everything has been possibly diverted towards COVID. So we expect that, that situation might ease in the next at least a couple of months and hopefully collections might be better. But we don't see any major concerns from the insurance side.

So sir, out of this, your pay profile you have 18%, but what will be the government outstanding from that, as of March?

See, government outstanding, out of the INR 200-odd crores, we would have around 60% of it from the government.

And will that amount be substantially changed in last 2 months given the COVID part of it or something?

Not really because the billing also has not happened so much in the last couple of months.

So sir, can you just walk me through how it happens in terms of COVID? When you say the billings have also not happened, so in case of a government scheme, patient comes in, so what is the typical turnaround period in terms of from the patient discharge to the payment -- all of the billing in this particular piece?

See, generally -- I think each one of them have a little different sort of cycle time. The CGHS generally face with no major processing problems, but it pays within 4 to 5 months. ECHS, while the processing can be easy, but it's always subject to allocation of funds separately from the government. So as and when they get the money from the government as an allocation, they can pay. So we have waited in some -- many cases, even for a year to get our payment. And ESI is one such thing where the collections happen within 4 to 5 months generally. But certain locations have chronic problems in terms of bottlenecks with regard to payment. So each one of them have a little bit of a variety with regard to payment cycles and processing times.

Okay. Sir, lastly, just one small clarification. When you say that billing has not happened, so does that mean you book it in -- on your unbilled revenue or something or...

No, no, no. When I say billing didn't happen, there were no referrals from the government agencies to our hospitals because no one had maybe very significant emergencies to get referred by the authorities to the hospitals. Of course, our exception will be where, for example, our Delhi Dharamshila Hospital would have still had CGHS and ECHS business coming in, but many other hospitals didn't have the same type of volumes what we would have had initially during the pre-COVID period.

The next question is from the line of Siddhant Bhandari from Highwest Global Management.

Sorry, my questions have got answered.

[Operator Instructions] The next question is from the line of Charulata Gaidhani from Dalal & Broacha.

Yes. I just wanted a sense in terms of what proportion of the total business would be having normal operations currently?

If you define normal by what we were doing in Jan, Feb, then nothing barring, I would say, some like Shimoga and one Jamshedpur which are small hospitals in places where there are not that many cases over there, the footfalls have returned to normal levels. But in terms of the inpatient stuff, that really has not picked up to the extent that it has. But yes, I would say, no significant part of our business has achieved normalcy yet.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Debangshu Sarkar for closing comments.

Thank you all for your very active participation, as we can see from the sheer number of participants that participated in this call, which has been overwhelming response. And I thank you all wholeheartedly for being so active. We understand that these are unusual times. And so to that extent, you might have further follow-up queries and clarifications to seek from us. Please do feel free to reach us any point of time, we'll be more than happy to address it to the best of our ability. Thanks, once again.

Thank you very much, sir. Ladies and gentlemen, on behalf of Narayana Health, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.