Narayana Hrudayalaya Limited (NH) Earnings Call Transcript & Summary

Good morning, everyone. My name is Nishant Singh. I head the IR and Strategy for the group. I welcome you all to the special call organized to discuss our latest acquisition, PPG Hospitals U.K. In this call, we also have with us Dr. Emmanuel Rupert, our MD and CEO; Mr. Viren Shetty, our Vice Chairman; Dr. Anesh Shetty, MD of our International Operations; Ms. Sandhya Jayaraman, our Group CFO; and Vivek Agarwal, Senior Manager, IR and Strategy. With this brief introduction, I will hand over the forum to Anesh to take you through a brief introduction of the target, post which we can start the Q&A.

Thank you, Nishant. Thank you, everyone, for joining us. We thought we'll begin the call by spending the first 5 minutes just giving an overview about why we decided to enter the U.K. market and within the market, why we decided on Practice Plus Group Hospitals. So as most of you who have been following the company for a while know, it's been about 12.5, 13 years since we first entered the Caribbean in the Cayman Islands. The asset has been operational for about 11 years now. And once we overcame the initial 3 to 4 years of settling in into that market and things started looking very positive, we've always been on the lookout for our next international operation -- our next international opportunity. Through that process over the past, I would say, 5 to 6 years, we have been to almost every developing -- sorry, every developed country, which has an opportunity for private healthcare. We've considered definitely every market in the vicinity of Cayman, which is in the Caribbean as well as most other markets elsewhere as well. And it is challenging for us to settle on something simply because home is in India, a market we are most familiar with, which many would agree is currently one of the world's, if not the world's most attractive investment market for healthcare globally. So whatever else we found, it has a very, very high bar to compete against. It has to be meaningfully more attractive than us deploying capital in India, which makes us very, very selective. So even though we came across several opportunities over the past few years that were good across all sizes and shapes, we never did anything meaningful until today. We're very happy to report that after a long search, we believe we've arrived on not just a country that is very, very interesting and attractive, but also an asset within that market that we believe will be very, very accretive to our larger picture. Coming to the U.K. market. What makes this attractive for us aside from the obvious aspects of being a stable country, a developed country, clear rule of law, business certainty, policy certainty and things that are more common across various industries for us, particularly in the business of private healthcare, it is very reassuring to know that across political cycles, irrespective of which party or which orientation was in power, the role of the private sector in being a key pillar of addressing the healthcare needs of the country has been widely and universally acknowledged and is now seen more as a matter of fact and one that will take on an increasingly important role in the years to come. Within that industry as well, we are also comforted by knowing that there have been meaningful success stories with the other large operators, many of which -- or I would say most of the top large players are owned by international multinational corporations or international investors. So this is -- we find an interesting market, which not only has growth potential, but which is stable in its broader conditions, which has a track record of other operators who are doing wonderful work and who have seen good success as well as a long-term future where we can build essentially a multi-decade business scaling and operation. Within that market, within the U.K., we considered several assets. Some of you may know over the years, we've spoken or had fairly early discussions with a whole range of providers, some of whom are very small, some of whom are very, very large and some in between. We believe Practice Plus fits into the sweet spot in terms of its size. If the asset is too small, then there's not much we, as NH can do to add value. At the same time, if it's very, very large, there are certain other complications where it becomes unwieldy. There are other complexities in running that. In terms of size, this is a good, sweet spot where we believe it is large enough for us to not only own 100% of it, but large enough for us for it to have the critical size for us to make a meaningful difference with what we bring to the table, which I'll come to shortly. Yes, we also note that this asset has certain aspects of the business in terms of its payer profile that are meaningfully different than other peers. We see this as an interesting opportunity. There were certain assets we consider that we had a very, very privately oriented payer mix, which is great from a profitability standpoint, but that also leaves less room to improve and less value for us to add. More importantly, it is very, very important for us that we buy a business which has a management with a proven track record that is safe and secured with the new ownership. And we're happy to report that the fantastic management, the entire senior leadership of this organization is going to be staying with us even though we are buying only one division out of the three. It's a company with three divisions. We're just buying the Hospitals division, but we've secured and aligned the key people in the senior management. And we're very confident in our ability to work with them, and they're very bought into the larger vision of what we bring to the table as well. I'm just going to request Mr. Rakesh to go on mute, please. Yes. So continuing. So we're very confident and eager to get started with the new -- with the management team under new ownership. And this is the capable group of people who've been running the business so far, and we feel that there is all the ingredients in place for us to essentially make a good attempt at replicating what we have done in Cayman, but on a much larger scale and in a much larger market. So I think that addresses the two largest questions we got, which is why the U.K. and why this particular asset. But also happy to get into the question-and-answer session and answer any specific questions or take this any other direction that you guys want. Nishant, maybe we can start...

Before we move to the Q&A...

Yes. Sorry, Sandhya, go ahead.

Before we move to the Q&A, I just wanted to clarify one more financial point, which wasn't there in our earlier deck. So the numbers which we had shared in our deck earlier was pre-IFRS. So when we reported GBP 20 million as the EBITDA, it was pre-IFRS, which means after adjusting the lease costs. So if we take the like-to-like post-IFRS EBITDA, which is before the lease costs, it is GBP 29 million for FY '25. So we have since added this in the deck, and we will be uploading the revised deck shortly.

Nishant, how do you want to do this?

Yes. So we can start the Q&A session now. [Operator Instructions] I think we already have raise of hand from Ravindra.

Hello? Am I audible? Hello?

Yes, you're audible.

Yes, we can hear you.

Yes. This is Ravindra from Bangalore. So I'm a retail investor. Actually over the weekend, I got hold of the annual report of the acquired company, right? So I was going through that. I have a few questions around that. So firstly, I want to clarify that we are going to acquire only the Hospitals division, that's the secondary care division. Am I right?

That is correct.

Right. Okay. So I'm looking at the revenue for the financial year ending, okay? So as per that, the revenue in terms of Indian rupees is around INR 2,668 crore (sic) [ INR 265.64 crore] comes. I'm taking an exchange rate of INR 116, okay? So in million terms, it's GBP 229 million, that has been reported in the annual report last year. So in your deck, I think the numbers are not matching as such. That's the one thing. So am I correct on that?

Yes, we're happy to take that question offline. Nishant and the team will reach out to you to reconcile the currency conversion.

Not just the currency conversion, it's GBP 229 million, and also the EBITDA numbers, everything looks very, very different, because I'm looking at the annual report of the reported company.

Sure.

Okay. So based on that, I have a few questions, right? Because I think it would have been better if the deck had been prepared with the updated numbers so that it could reflect real value of the company as such because when I'm calculating all the numbers, for example, the secondary care margins, it's coming around 11.8% for me, based on the annual report, reported numbers of September 2024. So when we look at the deck, it doesn't give me that a bullish stance as such.

Ravindra, if I may. The thing that was announced was of the overall holding company, yes, the one with three business verticals.

Right, right. I'm just taking the secondary care...

We understand. Yes. The thing about disentangling a business that has three verticals into one is that there will be cross charges. There are certain things that reflect across multiple balance sheets. So the company is in the process of disentangling, which may lead to slight adjustments here and there. As we close down this process over the next quarter and so, we'll be able to give you a much better picture of the Hospitals only business. But right now, the businesses within themselves also render services to the subsidiaries. And so that may be part of the reason why some few million here and there may be a discrepancy. But as far as the audited numbers that we have, this is what is there. But the next quarter will give us a much better picture.

What we have given you, Ravindra, is the -- in our deck, what we have given is the carved out financials that has been diligenced by our diligence partners and extrapolated for the full period. So therefore, this is the number that we will be acquiring and integrating with our balance sheet. What you see in the public domain has, like Viren said, other hospital -- other than Hospitals data also mixed up, and therefore, you will not be able to reconcile it. You should take the number we are presenting as the correct number.

Because we have [ bifurcated ] everything. So that's why I'm having this question because it gives a lot more bullish stance than what has been reported. I don't know, but it should have been better that you have....

Any other questions, Ravindra?

Yes. So if I -- again, going on -- a few questions, say, for example, what happens to the liabilities on books? So how much liability? Because as you say, you are taking only one division.

Yes, that's fine. We can answer this now.

Yes. So Ravindra, we are -- other than the liability for the leases and the regular liabilities for creditors, we are not taking on any liability on our books. So we are acquiring the company on a debt-free basis. So whatever liabilities you are seeing in the balance sheet, which is uploaded in the Companies House, those will be left behind. Only the regular creditors and lease liabilities we are taking over. This also answers Rushabh Doshi's question on the chat.

Okay. That means the term loan as such, we'll be repaying, or we will not be taking over the term loan as such. That's what you're saying.

The seller will take care of the repayment. We are acquiring the company on a debt-free basis.

Okay. Okay. So again, if I take that point, it's giving a very bullish stance as such. So okay.

Any other questions, Ravindra?

I think what about the dividend distribution as such? Because company has been paying regular dividends. Is there any stance on that like how that will be accounted for, whether you'll get some part of dividends as such?

Yes, we can answer that. We can answer that.

Yes. So our current plan, we do intend to continue with our current dividend policy.

No, no, I'm not talking about the NH as such because this company has been paying a dividend regularly. Last year, they paid around [ GBP 34 million ] as a part of the entire company. So we are taking a part of the companies. That means there is an embedded dividend within that. So as there has been...

We haven't taken a call yet on what the intercompany dividend would be between the subsidiaries and the main. We are still in the process of merging and acquiring these companies and consolidating the account sheets and taking over the finance department. We will have a much better sense of this over the coming quarters. But as of now, it will be hard for us to comment.

Okay, okay. It's fine. Apart from that, yes, actually I had a lot of numbers related since you...

It's fine. Maybe we can move on to the next person. And if the queue exhaust, you can join back again.

Can we have a question?

Yes. Anesh, just a couple of questions. Obviously, the first one, you mentioned about U.K. saying stable government or stable policies, growth, or track record of international investors, et cetera. But this might be the case with even other European nations, right? So why particularly U.K.? How is U.K. market different? Or what kind of growth levers are you looking in the U.K. market?

Sure. So we did consider other opportunities in various other markets. So just with regards to the country itself, there is a -- we see a track record of every larger -- if you take the top five healthcare providers, barring one, which is a not-for-profit, the others have demonstrated consistent growth in revenue terms as well as in earnings, with some volatility, and they're all owned by international investors as well for the most part, barring one or two. The second thing is that in terms of the total health spend, the percentage contributed by the private sector is still in its infancy. There is, we believe, a long journey ahead and meaningful change that could happen in the decades to come. So if you combine the entire spend on by the private sector, it's approximately 16% to 17% of the grand total. So it is still relatively the benefit of a low base. Having said that, it's not just the market that is the country, it's also the asset. There are certain other markets that also have certain similar favorable dynamics or certain other favorable aspects. But it's also a question of identifying the country as well as the asset within that country that fits our criteria. And for most part, Practice Plus within the U.K. was a good intersection of many things that we were looking for.

Okay. Got it. So you're mentioning that the country might incrementally move from NHS to private, and private sector will benefit from that?

It's not -- I mean, it's not something that one would obviously be able to predict in the short term. There are periods where it's taken the other way as well. And if you look at historically, there are periods when the dependency on the private sector increases, there are periods where it decreases. But for the large part, we think that this is a relatively low base. So there is certain safety that we're not going to see a drastic reduction in the levels where it is right now because we don't want to be fighting against the headwinds of a decreasing shrinking market. That's always hard to do. So from that perspective, this is an option we narrowed down on.

And one of the key reasons why Cayman has done exceptionally well for you people is that you were able to replicate more or less Indian cost structure for the international realizations. So how should we look at U.K.? I mean, can you take Indian doctors, Indian medical staff to U.K.? How about the loss there? Can you import equipment from India? So how does the entire cost structure work? Also because the hospital is currently at 8% EBITDA margin, how do we look at margins in a 3 to 5 years down the line?

Sure. So just addressing the comment on Cayman. We do have clinical as well as nonclinical staff from every other country as well. But even if we -- to the extent that we are able to take people from India, we can't pay them an Indian salary, obviously. They earn just as much as they would in any other equivalent opportunity in that market. So we're not looking at essentially an on-site labor arbitrage opportunity. In healthcare services, that's very difficult to do. So for example, for decades now, India and other South Asian countries have been sending thousands, tens of thousands, in fact, of nurses to the U.K. And obviously, they earn just as much as any other nurse. So it's not -- the reason we were able to drastically alter the cost structure in Cayman and have a lasting competitive differentiation in cost compared to peers in the region is because of the entire ecosystem of operational changes we were able to begin, which is all, the most part, underpinned by our technology platform, which does scale across markets. So we run, as you know, in Cayman. We operate on an entire technology platform that's built and owned by us. That gives us the opportunity to perform every single transaction with far fewer human touch points or far fewer people involved and far less steps than competitors. So whether it's a revenue cycle process of processing an invoice, whether it's processing payroll, whether it's admitting or discharging patient, every individual process is done with fewer touch points. And when you add it all together, we just get a very different, simpler, leaner operation. We think a lot of this is replicable in the U.K. Obviously, the scale is different. The market is larger. We'll have to go through that learning journey in Cayman. It took us a while to get there. That was also the first time we were doing that. We're confident we won't take as many years as we took in Cayman. But very -- you are right in the broader sentiment that with what we've done in Cayman, which is meaningfully alter the cost structure on the backbone of our technology and other broader capabilities. That's also what we hope to do in the U.K. And through the process of our diligence on this asset, we've developed a good degree of conviction working with the management as well that this is possible. So we had senior members of their team come to Cayman, see what we have done and really pressure test the hypothesis that can we replicate this or largely replicate this in the U.K. And there was a unanimous agreement that many elements of this, what we've done in Cayman from an efficiency standpoint, can be replicated here. Of course, they have to be adapted. But directionally, I think you are right.

If I have to ask you for a number, right, some broad-based number, say, 5 years down the line, once you implement all these things, where should we look at EBITDA margin as well as revenue growth?

Yes, I think it's a little -- very, very early to say that you -- but what would help is you do have the historical growth rates of the company in both revenue and margin. It's early days for us to comment on that. We hope to develop a view that we'd be happy to share in the years -- I mean, in the quarters to come when we meet next time. But I think, for now, the direction that we have is, we are internally quite confident that there are advantages we bring to the table, both from a revenue trajectory as well as earnings. The management is confident in the path they are on. They've started many things even predating us. So even if we did not close this transaction, they are already at an inflection point with certain investments and changes they are making to improve their revenue trajectory, and we're lucky to be entering at the right opportune time.

Okay. So let me put it this way. If you have to look at ROCE, right, eventually, everything has to translate to returns. Given that it's such a large investment and you have India as an alternative market, so what kind of ROCE are you looking at?

Yes. So just -- I mean, our conservative base case is by FY '29, '30 or so, we want to be in the range of 20% to 22% from an ROCE perspective, is where we see. And a lot of that is driven by the entry price, which we know, certain assumptions around the trajectory the company is on as well as certain assumptions around the difference we can bring to the table. But we are -- we do -- we wouldn't have entered this if that wasn't a high conviction thesis that we had that by FY '29, '30, approximately in that range, we'll be within the 20%, 22% ROCE level. As you saw -- the reason you said, because of the alternative opportunities for us, yes.

So one final question before I get back into queue again. Will this be -- I mean, after assuming the interest cost for the entire GBP 150 million debt, will it be EPS neutral in the first year and then it will turn positive? Or will it be earnings dilutive in year 1?

Yes. There's a little bit of nuance to that question. I'll hand it over to Sandhya to walk you through that, our thinking there.

So as far as EPS is concerned, it will be neutral, maybe mildly favorable also in the first year. How it picks up from there, we'll have to see based on the performance of the business.

Harith, can we have your question, please?

So in the presentation, you've talked about attracting more private pay patients. So currently, the mix is around 93% coming from NHS. So if you can talk about how this mix has trended over the last few years? And do you expect this to change or improve materially in the next few years? And what are some of the steps that you're looking at in terms of attracting more private pay patients?

Yes. No, thank you. So if you just look at the competitive landscape, so if you look at the large -- the only publicly listed asset that's available where robust data is Spire. So Spire currently has about, as of the recent half year, about 35% of their payer mix being NHS, the rest, combination of self-pay and PMI, which is their private medical insurance. The other assets have -- the other equivalent assets at Circle, which is ADQ-owned, around the similar range. Ramsay Health, which is, I would say, closer to PPG than the others, has about 60% to -- between 60% to 70% NHS. So Practice Plus is definitely an outlier being at 93%. But this is a factor of where they've started off, the journey in the origins of the company and where they have trended. So to your question, they started up being 100% NHS. This movement to 93% is a little more -- 90%, 93% is a little more recent. And it is our intention as well as the management's intention, Bridgepoint, the erstwhile owner as well, even if this transaction did not happen, they are on the trajectory to increase the percentage of their payer mix from private sources. And we are definitely going to enable that journey. It's a little hard to give you a hard number as to where we'll be in 6 months and the year, et cetera. It's still early days for us, but that is definitely the intention. And they've taken some very concrete steps and decisions, not just on individuals, but also on asset selection and certain assets they've recently acquired as well to enable that.

Okay. Within the NHS part of the business, given pricing is set by the government, how -- what are the steps that we can undertake from a margin improvement standpoint?

Yes. So it's a very fair system to be honest. Broadly, in a nutshell, NHS England would pay you that is a private hospital, the same as they would pay themselves, which is their own hospital. And this is also largely inflation-linked, accounts for changes in wages. So aside from HCA, which is, I would say, next to zero NHS, all the other players that are privately owned as well as publicly listed do vocally state that there is a role -- a meaningful role for an NHS in a broader payer mix because it is stable, it is secured, it is sustainable, and it is largely inflation linked. So it's not something that we would individually do to influence reimbursement, et cetera, because we're just a very small COG in a very large wheel. But in terms of improving margins within an NHS framework, you have all the levers of cost around cost structure and operational efficiency because in some way, the price is set to be largely sustainable or close to sustainable for the government themselves. So as long as we can have -- execute on a strategy that improves our day-to-day operations and our cost structure and differentiates ourselves compared to peers, both public and private, then the profitability even being a predominantly NHS payer mix starts looking very, very different from what it is now.

Okay. One last one, more of an observation. When I look at the specialty mix, it's skewed towards orthopedics, and I understand that NHS backlog could be a reason here and the high number of elective procedures in the ortho specialty. Are there any other specialties where you think a similar dynamic exists where there's a high proportion of elective procedures, which you can target and, you see as an opportunity?

Yes, that's the right way to think about it. So the existing specialty mix, not just for us, but other private providers as well, is largely reflective of what the NHS chooses to outsource as well as their backlogs and the other factors as well. So this is a lot of heavily skewed towards orthopedics, ophthalmology, general surgery, these kinds of things. There are certain other services and specialties where other providers have a good chunk of their revenue mix coming from, which Practice Plus doesn't. So that's an easy opportunity for revenue enhancement without any additional investment in infrastructure. So to your question, there are several services that we've already identified where it is possible to start in the existing infrastructure without adding hard infrastructure, just some operational execution and some people and teams and clinical orientation. We definitely will be assisting the company to start these services and grow within the same property footprint.

Raman, can we have your question, please?

Yes. I just have two to three questions. First is, I just want to understand -- it's more or less like a follow-up on the previous participant's question. So majority of our revenue comes from NHS. I just want to understand the payment cycle. And are we shifting towards -- are we -- is there any plan to shift towards -- more towards private players? And because my understanding is the margin mix between NHS and private player, private players have better margins. So if you can help me clarify that?

Yes.

Sure, sure. Yes, go ahead.

Yes. So in terms of payment cycle, NHS pays within 15 days on an average, so the company almost operates on virtually zero working capital. As far as the private pay piece is concerned, I think Anesh just explained to the previous speaker, the dynamics around that. So I think that question is answered.

Okay. But happy to -- yes, happy to essentially just answer it quickly. Essentially, yes, you are right. The private payers do pay a rate on a like-for-like basis that is more than the NHS, but each has its own attributes that would make it attractive. And a good mix between all would be the ideal outcome. And to your question on whether our intention is to increase the non-NHS sources, that is PMI and self-pay, yes, that is our intention, and we hope to make good progress on that.

My second question is, our total bed capacity is 330 beds with respect to the acquiring entity. What's the operational bed out of this?

So they're all operational. In fact, the way the market is oriented there because the procedures are more shorter stay day care, lower in acuity. Unlike in India, which is the market we're all familiar with, the bed isn't the fundamental unit of measuring capacity, et cetera. There are other units that are more reflective of capacity. So yes, in our balance, when we say capacity and operational beds, all these beds are operational.

So are we having any CapEx to increase the number of beds?

No, we don't need to increase the number of beds because the bed wouldn't necessarily be the bottleneck or the driver of throughput or capacity. But in the current footprint, we don't anticipate any CapEx being spent on a bed addition.

But to the larger question of can the existing infrastructure do more? The answer is yes. There is scope for significant throughput enhancement, both through the existing specialties, adding more volumes and adding more bolt-on specialties.

And my final question is with respect to the Birmingham center. When will it achieve breakeven?

Yes, Raman. So that's a center that was recently acquired by one of the other peers as part of a merger and disinvestment. So it's in a great location. The center is our newer center, I would say, the newest center. It's still in a sort of a pre-commissioning phase, and that's why you have operating losses. Some aspects are commissioned, some haven't. We hope to update you and the rest of the callers maybe in a quarter or 2 once we get a better sense of where we are in that.

And sir, I just have one question with -- a technical question. What's the difference between center EBITDA and adjusted EBITDA?

Yes. So essentially center EBITDA would just be the profitability at the business unit in aggregate, combining all the business units. But then between the center EBITDA and what we would finally land up with is our corporate costs, the things like our IT contract, central staffing, payroll, everything that forms a central shared service. These hospitals, unlike what we see in NH in India in isolation are small units. They're relatively small. So a lot of their costs are shared across the entire organization. So that would be the difference. Sandhya, do you want to add anything there?

Yes. So there are divisional overheads and corporate overheads that come between the center and the adjusted EBITDA. The only item on the adjusted EBITDA is the adjustment for the Birmingham losses, which we have called out. Other than that, the adjusted EBITDA is equal to the EBITDA as we measure pre-IFRS and NH parlance.

Yes. Go to the next one.

Yes, Kaustubh, may we have your question, please?

Sure. Firstly, congratulations, guys. I think it's very heartwarming to see an Indian entity make global presence. And so kudos on that. I have a couple of questions. The first question is, NH in India is known for its focus on throughput, the DNAs of throughput, which is very counterintuitive to the industry versus what the other peers track, right? What will be the -- a, would it be essentially the same kind of DNA and focus that you'll be able to -- that you guys will be able to implement in the U.K. entity? And what will be the benefits that you guys can derive from integrating Athma, which is your tech stack, in the U.K. acquired entity? Is there any quantitative versus qualitative target or some projection you guys have made internally to determine the benefits that come from integrating Athma?

Thank you, Kaustubh, not just for your initial kind words, but for asking our favorite question. But yes, so one reason we like this company is because there is a very good philosophical alignment and match in terms of the importance of operational efficiency and throughput. So I will call out an important fact about this company that we really, really admire. There is no private provider at this scale and above. So they may be smaller, but at this scale and above that we know of that can operate at a 90%, 93% NHS payer mix and have the margins that this asset has. So even before we come in, this is a management team and a company that is efficient, that is focused on throughput, that understands the value of simplifying processes and automating either with software or with other interventions. And that's very much how we like to think of it. So it is very, very heartwarming to see that, and that really attracted us to this company because we're not trying to bring in a very large culture change. We're just enabling them with our platform, with our tools, with what we bring to the table to just turbocharge what they're already doing. So to your second question around the Athma technology platform, yes, absolutely. It's very similar to what we've been able to do in Cayman. We believe that in time, hopefully sooner than later, we are able to infuse our technology and digital capabilities to automate away things that don't need to be done to simplify the way a lot of processes happen. In markets where -- which like Cayman, like the U.K., like Europe, there are many, many, many steps to take a patient from admission to discharge that have nothing to do with the clinical care, that have nothing to do with their disease or their -- it's just administrative steps and functions to either record the care, document the care and get paid for it. And this is ideal fertile feeding ground for us to come in with our broader capabilities and what we've already built to identify opportunities for improvement and efficiency.

Splendid, splendid. My next question is, in India, Narayana is known to be one of the most efficient and most capable hospital for robotic surgeries and robotic capabilities. Do we have any plans -- or if you can comment on the same robotic surgery capabilities of the U.K. entity?

So it's slightly different market dynamics. So in India, private hospitals, especially the larger private hospitals, generally tend to do tertiary care and complex care, organ transplants, open heart surgery, et cetera. In the U.K., for the most part -- there are exceptions in some of the London hospitals. But for the most part, the private providers are doing work that isn't that high in acuity, but they're doing it at scale at throughput, largely helping the NHS with their backlog. So your robotic work, your organ transplants, these kind of things would still tend to happen in the NHS, not in the private sector. So it's a meaningfully different level of acuity that we would see either compared to Cayman and India. And it's nothing wrong about it. It's just the nature of the market, and we're happy to identify where we can add value in terms of enhancing the scope of services they have with our clinical background. If it leads in a direction where it leads to more complex work and someday robotic and advanced work, so be it. But I don't think that will be the initial focus.

Sure. Got you. My next question is, is price discrimination subsidizing the lower end of the pyramid? A, is it even relevant in U.K. given it's a developed market with essentially well distribution that is not as skewed as India? So is price discrimination subsidizing the lower end of the pyramid in terms of customers? Is it possible? Is it on cards for you?

No. That's not really how it works because the NHS has essentially a tariff that you get paid. You don't decide that. That's what you get paid. You can obviously influence volume and quality, et cetera. But that's essentially decided tariff. There are self-pay patients, which are essentially like in India, they're paying cash. They're shopping around because they don't want to wait on a waiting list, et cetera. So they're paying cash. So over there, yes, there is more of a free rein in pricing, which within reasonable limits. Then on the other end, which is privately insured, again, it's like in other markets where you have a negotiated tariff with the insurance company, and the patient is not responsible for that. So in the non-NHS, there are two buckets, self-pay and PMI. In the self-pay bucket, there is some element of what you're saying, but it's not that as prevalent. But in PMI, it's also a fee schedule.

Understood. Fair enough. My last question is, since we already have been operating in Cayman, which is a U.K. administered territory and now we are in U.K., do we have any benefits in terms of our learnings from our operations in Cayman, dealing with the U.K. regulator, do we at all have any benefits in that direction?

I don't think so because they're differently regulated. I mean, Cayman is a British overseas territory, but that doesn't slowdown in any meaningful way in terms of clinical regulation. Of course, all providers in the U.K. are wonderfully regulated by the CQC and related bodies. And it's a very robust time-tested fare system in our experience. And another good attribute about this company is it's one of the -- in a good group of -- selected group where every asset we operate, every unit is rated good or excellent by the CQC, which are the top 2 ratings. So every asset that this company operates is good or excellent. So they're doing a phenomenal job with regards to their regulatory requirements and compliance, and we definitely look to continue that.

Take the next question.

Yes, Ramesh, please go ahead.

Ramesh, I think, already asked.

Ramesh has already asked. So we'll move to Shivam. Shivam, can we have your question, please?

So if we could just request if anybody has asked a question and wants to get back in the queue, if you could lower your hand, please and then raise it again so we can keep track of who's next.

Yes, Ramesh here, I haven't asked the question yet.

Yes, Ramesh, go ahead, please.

So just to understand the transaction.

We're not able to hear you, Ramesh. Can you please be a bit louder?

Just hold on. Can you hear me now?

Not well, Ramesh.

Just hold on.

Yes, yes, it's fine. Go ahead.

Yes. So if you look at your overall transaction cost, is it all in cost? Is there any other adjustment you expect? And in terms of other charges and asset valuation, everything is included in the valuation?

Yes, Nishant?

Sandhya, do you want to take that? And Nishant, yes?

The cost is all in cost. However, typically, as is in every deal, there is a 4% to 5% deal cost, which comes for diligence, for stamp duties, for lawyers, et cetera. So that will come on top of the costs that we have indicated.

Okay. So this cash cost is already paid, and/or it will be done in the second quarter?

In quarter 3, yes. We will pay -- we have signed, we have not closed. Closing will happen by end of week. At that point in time, we will make the payment.

Okay. Fair enough. So that means your 3Q results will show the consolidated impact of this acquisition, right?

Yes, from the date of closure.

Okay. So if you look at the value of this acquisition, now obviously, you must have done the homework. You would have possibly assessed similar acquisitions elsewhere in the world or in India. So have you also considered similar acquisition opportunities in India? Because that's your home market. That's the reason why I'm asking this question. And why is the private equity firm, which has owned this asset selling out? Is it just because they're catching in on their value over the years? Or is there any other structural reason why they are getting [indiscernible]? The NH itself has been going through a lot of political debate in the U.K. So in terms of your own value proposition, what is it that you're adding to that business? And why is the existing investor selling, if I may ask?

So the second question first, Ramesh. The investor is a Bridgepoint, which is the U.K. private equity fund. They reach the end of their life cycle. So they have to return money to the investors, and they need to offload this asset as well as the other two that are part of Practice Plus Group. So that is why they are selling, and that's why we are taking up. To the question that you asked first, are we looking at opportunities in India? Yes, of course. We look at opportunities constantly in our core markets. We've identified quite a few. We've tied up with real estate developers. We bought land. We are building in Bangalore, Kolkata, Raipur in the projects that we've disclosed. And here and there, M&A opportunities do come up. But a lot of the time, private equity-backed M&A opportunities in India tend to be priced very, very aggressively. And in all the valuation -- in all the calculation that we make, the payback tends to get quite stretched. And so that's why it's still something we do consider, but either they are too small and not that we're able to do much with it or the few opportunities that get written about in the newspapers, the ones in India, are beyond our ability to afford.

Okay. So if you look at the manpower cost for the U.K. assets, is about 39%, doctors plus the [ adults ]. So what are the controllable levers you have in terms of pension liability and given that there's also a currency risk involved. So when you look at your overall ROCE target, have you built in any increase in this manpower cost, assuming that consumables and the other operating expense is something which possibly is within your control. So -- and to the extent to which you're talking about the NH patients accounting for more than 90%. So is all the increase in the cost built into this overall revenue mix? And to what extent can you make up any increase in margins required to the self-paying patients?

Yes. Anesh, if you can talk about the inflation-linked tariff, please?

Yes. So to Ramesh's first question, the composition of the P&L to various cost heads is not very different from what we see in India or in other larger markets. And as Viren mentioned, the NHS sets its tariff the same for all providers largely. And it does reflect -- a tariff increase does reflect the cost of inflation of medical goods, wages and other services. So there is that element of being insulated from that. That's also passed on to the private insurers as well with some delay.

So is it fair to assume that your Indian asset -- U.K. assets is going to be something of an annuity business over time?

It's a bit early to say that, but let's address that maybe in a couple of -- once we're settled in there, yes.

Shivam, can we have your question, please?

Yes. Am I audible?

Yes.

Yes. So actually, I was asking that there's a shortage of healthcare workers in U.K. And given that the NHS isn't very keen on letting people come from outside, what chance do we have on that?

As a private provider, you are slightly more insulated from the workforce shortages compared to the public employees who have a lot of other factors to consider and wage constraints. So for the most part, because of the acuity of services not being tertiary and above and because of the attractive workplace that private workplaces offer compared to public workplaces, the shortage -- the larger shortage is not that much of a concern for the private sector and particularly for PPG.

And given the NHS is very tight on the budget, do we have a process in which we can get away from the NHS payer mix?

Yes. So we answered that previously as well. The intention is to move away with certain changes that have been made on the ground with regards to people as well as asset selection and marketing efforts. We'll continue to do that. And the intention will be to increasingly attract more private and self-pay patients.

The way we have started the insurance -- providing insurance in India, will we be doing that business as well there?

No. We're just entering as a provider now, and it's still early days.