Narayana Hrudayalaya Limited (NH) Earnings Call Transcript & Summary

Good afternoon, everyone. My name is Nishant Singh, and I welcome you all to the quarter 2 FY '26 earnings call of Narayana Hrudayalaya Limited. To discuss our performance and address all your queries today, we also have with us Mr. Mr. Viren Shetty, our Vice Chairman; Dr. Emmanuel Rupert, our CEO and MD; Ms. Sandhya Jayaraman, our Group CFO; Mr. Venkatesh, our Group COO; Dr. Anesh Shetty, MD of our Overseas business; Mr. Ravi Vishwanath, CEO of NHIC; and Vivek Agarwal, Senior Manager in the function. Before we proceed with this call, we would like to remind everyone that the call is being recorded and the transcript of the same shall be made available on our website as well as on the stock exchange at a later date. We 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. We would also want to highlight that for U.K., we will not be in a position to answer any of the questions for this quarter. We will consolidate the numbers by Q3, and then we can have set a call on the U.K. asset as well. For the acquisition matters, we've already had a call in the recent past. So we would just request to skip any questions on U.K. for now. With that now, we would start the Q&A session. [Operator Instructions]

Congrats on good set of numbers. Let me begin with Cayman first. Anesh, this seems to be doing exceptionally well with 70%-ish kind of revenue growth. So if you have to look at insurance, the revenue has doubled compared to the previous quarter. Could you explain how the product is being received? What is the market size? And what are we aspiring for with the market share in the medium term.

Yes, Prithvi. So the response to the insurance product has been very, very good. We have most of the large employers, who have already moved to us or are considering -- actively considering moving. That's why we're seeing the very aggressive revenue growth. It will take some time for us to decide on what is the market share and where we want to stabilize. We may take a calibrated call depending on how the insurance product is integrating with the hospital. Maybe in about 2 to 4 quarters, we'll have a view on what the steady state will look like. But for now, it's progressing very well.

Is it possible to quantify the market size in Cayman for the insurance?

So that information is available on the monetary authority website. It will be approximately including the government and private sector, it will be closer to about INR 300 million, INR 350 million or so, but that does include the government insurance as well. So an adjustment needs to be made for that, which is -- which can be done.

Understood. Now if I have to look at the insurance losses, losses have come down significantly in this quarter. Given the way the scale-up is happening, should we expect the insurance business to breakeven in Q3 and move to profits from Q4?

A bit tough to say. So as the size of the book grows larger, definitely, the underwriting performance will stabilize. Having said that, quarter-on-quarter movements in loss ratio is a little unreliable in insurance business. So let's look at a rolling 3 to 4 quarter performance and then take a call. But yes, as the size of the book is growing, it is stabilizing definitely. But too early to say whether this will be the last -- that we will break even and then profits from Q4, given the variation quarter-on-quarter for underwriting performance.

Okay. And on the hospital side, after commissioning of the new hospital, the revenue went up from $25 million to $40 million at this point of time. Are we largely done with the complete scale up and then should we expect only high single-digit growth rate on this base? Or do you think there is some more room for higher growth in the next few quarters before getting moderated to high single digit?

So between pre and post Camana Bay Hospital, and just if you look at the volume terms, we're looking at 50% increase in discharges, a little more than that in outpatients and day care, et cetera. So we have seen a significant jump post the commissioning. I think we -- there is still a couple of quarters of growth left before it starts to moderate and we focus on restoring the profitability to where it was. But let's take -- let's see how it plays out. We have started a few services more recently. They're still playing out. Let's reevaluate maybe in a quarter or 2, and then as we've always said, it will go into a sort of a high single digit, but then earnings growth will be different because we have some levers to improve our cost structure still. But from a revenue side, let's take a call in 1 or 2 quarters.

Okay. So just a follow-up on this. When you say some more levers to increase the cost structure, I think the hospital margins are roughly around 42 to 43 percentage. Do you see a further upside to the margin number?

It will depend on where we stabilize from a revenue standpoint because right now, we have certain costs to grow business and to add new services, et cetera, which we are incurring the cost and the revenue is not yet playing out. Maybe in 2 quarters or so, we'll be able to have a better view on this. Once we sort of commissioned all the services, we know the trajectory they're heading, they're in sort of steady state with just incremental growth, then we can consider that.

Okay. Moving on to the India business. Even here, we are seeing a decent scale up in the clinics and insurance revenue. And for the last couple of quarters, losses have been declining. Can we expect this trend to continue going forward? And hopefully, FY '27 will be a much lower loss number for the clinics and insurance?

Ravi, if you can fill up.

Sure. So yes, thanks, Prithvi. Yes, we've had good momentum on both the clinics and the insurance business. I think on the insurance business, we -- while our retail business is growing, we've also had a lot of incoming interest on our SME offering, which integrates our clinic and our insurance offerings. And so we expect that to grow. And obviously, with insurance as we grow, we would be seeing better overall results and so on and so forth. In terms of clinic business as well, yes, the clinics themselves are performing well. And I think it will be a balance between the profitability of the existing clinics versus future growth and investments in those [ growth ] because clinics will take a little bit of time to break even. So I think you'll see a balance of those 2 things in the coming years and quarters. But yes, I do expect that -- I mean, luckily, touch wood, the momentum is heading very much in the right direction. So we're hoping that, that trend will continue.

Okay. And just one last question on the Mumbai hospital, are we still just breaking even? Or did we start making profits? And any update on the conversion of the hospital?

I'll answer the update on the conversion. Venkatesh can talk about the performance. We are in discussions with the trust. We do get and there are a few children who have grown up and they had congenital conditions, but when we operate them, they are adults. So those few cases have been done here and there, and we'll slowly start opening up the birthing program. But as of now, it is something we're working slowly towards on the breakeven. Venkatesh?

Yes. See, for Mumbai, it has been a little bit of up and down in terms of its performances. It was somewhere in the early single-digit negative EBITDA for this quarter. But what we have seen is in October, the trend has improved and the performance has been very good in October. Hopefully, with the trend continuing as it is indicated in November, we should have a much better and a positive Q3 in Mumbai.

Nitin, can you go ahead?

Congratulations to the team for a pretty solid set of numbers. Viren, on the India business, I think we've had a 20% EBITDA growth this quarter, which is quite remarkable. And in a broader sense, I think we've been able to do -- our growth is coming through despite we're not really adding too many beds literally over the last few quarters. So 2 things. One is, a, I mean, what really is driving this, our ability to grow profitability without adding capacity? And how much scope do we have? I mean, is there enough scope still left in the current network to really -- to make it -- to extract more juice out of it from a profitability perspective?

Nitin, just to clarify, we've reduced the total number of beds we run in India from the time we listed till today. But on the scope for capacity, I'll ask Venkatesh and Dr. Rupert to answer.

Yes, we are continuing to work on our optimization, right. From the last 6 to 8 quarters, we've been working hard on that and things are working out well for us, and we continue to do that. But what we have seen here in this particular quarter is that in our flagships, we've seen the impact of our transformation initiatives, which we have been working on in the last 2 years. It's kicking in positively. We witnessed patients opting for higher configuration beds resulting in increasing in the realization, keeping the occupancy intact plus coupled with technologies, we also worked on case mix, high-end work, robotic cardiac surgeries to keep us apart and define new benchmarks, which has also led to a higher realization revenue achievements. So this even with the volume being the same or stagnated at this point of time, realizations have actually helped in substantially increasing on the EBITDA. And even for the rest of the regions, rest of the units across the group, we have been focusing constantly on the payer mix optimization. With this payer mix optimization, we've seen improved realization across hospitals. While we are still working on catching up on these numbers through improved payers, the substantial incremental realization, which you've got from these payers, actually have boosted up your realization and that has improved the EBITDA by a big amount. Our endeavor will be to maintain on these margins and even try to improve, obviously, subject to cyclical issues and headwinds, which may come up, but we remain positive from this.

And doctor, on the -- from a capacity which we have in the current network, I mean, is there -- I mean, do we have enough to really to continue to grow in the business, both through the optimization measures that you have for the next couple of years before [indiscernible] come through?

Yes, Dr. Rupert will answer this.

Yes. So just like what Venkatesh had mentioned, we have been slowly ramping up the niche work and mainly in the subspecialty, Venkatesh did mention about the robotic cardiac surgery. In the month of September, we did 97 robotic cardiac surgery and in the whole quarter, we did around close to 200. This is a very large number. And all this pushes the niche work that keeps going up. This is just one example of a subspecialty work that is constantly growing and increasing number. And we are slowly ramping this up across the entire network. And we are fairly confident this ability for us to do more and more niche work will always be there within the existing bed capacity and the existing infrastructure that we have built.

Thanks, Nitin. Sunaina, if you can have your question.

So I'm speaking from behalf of Chola Securities. I just have one question. This is relating to the Cayman Islands operations that are there. So like it's been reported in -- for the India business that the margin is about 23.8% for this quarter. Would you be able to talk a bit about the margins that are seen in the Cayman Islands business?

That information, you should be able to derive by looking at the console and adjusting for the India margin, which is separately reported. But just to give you some broader guidance, the hospital does about 43%, 44% here and there in that range every quarter. That's the hospital business. The insurance company is yet to break even or just slightly broken even this quarter. We've separately disclosed that in a footnote on the same slide, and you'd be able to derive a console figure for that. It's a little tricky to -- I mean, to talk about a console because they are 2 very different businesses, the insurance and the hospital. But if you add it up, you should get to what you're looking for.

Vinay, can we have your question please?

Just wanted one thought. When I'm looking at your Slide #8, your ICU occupied days have gone up, ICU bed occupied days and your patient footfalls have also gone up, while the AOLS (sic) [ ALOS ] is the same. But yet your average revenue per patient is also more or less the same as Q1. Is that the efficiency kicking in? Is it more high-ticket surgeries getting done in the same time? What exactly is driving this?

Yes, it's -- I mean, all of the points we mentioned is all kicking up here because some of the niche work obviously has less length of stays, but also there are certain very complicated work, which increases the overall length of stay. Though we have marginally come down on the length of stay, but the major impact will be there. But we are pushing more and more for short stay and the day case surgeries. You would have seen that significant number of our -- even our coronary angiograms are done in -- as a short stay. That means they get moved out of the hospital within 4 to 6 hours. So we are constantly working towards wherever it is possible for us to keep the patients safe at the same time, reduce the length of stay to constantly move towards in that direction. But there are a certain subset of patients, especially the elderly and those who need medical management, who do require a long length of stay. So when you start averaging it out, the movement of length of stays, the ALOSs will not be moving in a very substantial manner like that. But our hope is that we should be coming down to somewhere around 3.9 or something like that.

Yes. But I'm a little intrigued by the average revenue per patient remaining the same with such a great increase in your revenues.

Between the quarter, we don't take much way of price increases. And every patient who comes for high-value procedure has to be balanced out against those that are very, very affordable. We cater to nearly 18%, 20% of our revenues to government patients. The reimbursement for that haven't changed in more than 11 years. So when you average it out, it does have a bit of a flattening effect.

Okay. Just last question on -- I can see some international business returning. What exactly -- where exactly is it coming from?

Venkatesh?

On the international -- our focus will continue to be there on the domestic only. We've done very well in the last 8 quarters on the domestic business, and we are very confident because we've seen a lot of traction. International business is not our main area of focus at this stage. There has been a lot of fluctuations. And the issue started from last year Q3. And as we see, we should look at somehow stabilizing in terms of the volumes in Q3 of this year, from which we can see and set a base for that. But having said that, we will continue to focus on our domestic numbers going forward for both.

Our international business is primarily Bangladesh, but this is a business we're looking to wind down over the next couple of years.

Yes. That's why I was a little surprised by the 27% Q-o-Q increase in international.

That's purely on Bangladesh.

Om Prakash, can we get your question?

So I had mainly a question around the Cayman area, right? So this quarter, we have seen excellent growth in terms of revenue and EBITDA margin as well. So if it is possible for you to give some guidance on how this is going to pan out in next -- maybe not just in short term, medium term as well as what the question is also on a comparative basis of the population as given in India domestic business, there are a lot of population where that would be a bit of limited in that region. So I just want to understand that how this growth is going to be sustainable in medium to long-term basis.

Yes, Om Prakash. So the first part is related to the hospitals that we've said before as well. We've commissioned the new hospital. So we've seen this tremendous revenue growth. After a few quarters, we will have a better view of where that will settle down and slow down to a single-digit sort of steady-state growth. The insurance business is still in the early days. The market is -- we're just getting started. There is substantial room to grow. Having said that, we will take a call after a few quarters, whether we want to keep growing that business, the insurance business or we want to maintain it at a particular level. That will depend on the strategic fit with our consolidated integrated care plan in that market. But there is room to grow in the insurance business. Like I said, the market size is about $350 million or so, including the government insurance, and we're still in the first 3 quarters.

Shivam, can we have your question?

I have a question regarding the acquisition we are doing. It is more related to finance rather than operations. Are you okay answering it?

Did we do the acquisition in Q2? Yes, I'll tell you what, let's finish all the Q2 performance-related questions, then we can come back to this if we have time. Would that suit?

Yes, yes, sure.

Rajit, your question?

Just a small question on the digital transformation initiatives. So there is a mention of service rendering management rolled out in Kenya and Saudi compliant patient portal enabled. So I mean, are we looking at doing something more in these regions? How did these 2 regions happen? Can you throw some light on this?

We've created -- created 2 to SPVs called Medha AI and Athma Healthech. These are for commercializing the investments that we've made in our significant software expenditures. So as part of the work, a lot of hospitals come to us and ask if we can roll out the system that we have in their clinics as well. So the Kenya and Saudi are these small contracts that we've taken. The revenue is not that material. This is a business that we like to encourage and grow because we do have very good technology and those that want to adopt it, we would not say no to that. But it will -- I wouldn't say that this would be a massive and significant contributor to the overall top line. It's something we will pursue, but running the hospital is our main business and building extremely good technology for our doctors and nurses is the purpose of our ventures.

Right. So it was more like an inward query rather than any sales personnel reaching out to these hospitals in these regions. I'm just trying to figure out how did these 2 regions happen? And if we are looking to expand within Africa or within Middle East or something like that, even if it just means these 2 products?

Yes. No, we are looking to expand. Obviously, any business is a good business. We've developed quite a reputation for having extremely good and affordable technology that scales quickly as built on the latest platform. And a lot of people who have worked for us have moved into those regions, and they know how good our software systems are. So they inform the CIOs and CEOs of those hospitals and they come and we do POCs for them. There is a slight amount of effort that we take in doing the POCs and explaining the products, but it will grow very slowly.

All right. And just one more question, even I had one question on the acquisition of Practice Plus. So at the end of it, if you can allow.

Deekshant, any questions relating to Q2?

Yes. Sir, firstly is on Cayman. Is it right that we have actually seen $1 million dip in our revenues, $42.6 million versus $41.6 million. What would be the reason for this dip in the revenue?

Deekshant, are you referring to the hospital revenue quarter-on-quarter?

Yes, sir.

Yes. No. So I mean, quarter-on-quarter, as if you've been following Cayman for some time, there will always be variations like that. We recommend looking at a rolling 3- or 4-quarter average to get a sense of the trend. But specifically, Q2 is the season for school holidays, summer vacations, et cetera. Even historically, every year, if you see, that tends to be a slower quarter. $1 million, $2 million up or down is we don't think would be indicative of any long-term trend. Please consider a rolling few quarters.

Sir, I completely understand the reason for asking this is last quarter, we have just ramped up our second hospital in Cayman. And ideally, you should now start seeing that top line kicking in just because of some sort of utilization being better. Is that a fair assumption for us? And I understand there is seasonality to it. We are still doing very well. But what is the indicative outlook that we should have for the coming, let's say, 2 to 3 quarters?

Yes. So the new hospital was operational from January 2025. So Q4 actually is when you would have seen the first big jump in hospital revenue. And then Q2 and Q3 is -- I'm sorry, Q1 and Q2 is that continuing. We've commissioned 90% of the departments in the new hospital, a little more than that. There are a few that have just been commissioned recently that will start ramping up. So we obviously will -- the biggest jump you would have seen is from December of last year to Jan, Feb, March of this year. And after that, we'll -- the quarter-on-quarter trend that we are seeing will continue until these new services start growing into a maturity phase.

So is it fair to say that this sort of -- we are now being operationally more efficient and now it's statically falling into our net profits. So from now on, whatever you see a larger operating margin will inevitably be an outcome? Does that mean...

Yes, we'll try to refrain from giving that kind of definitive statement. But we still do have room to grow in the hospital revenue front. It just won't happen in the 30%, 25% quarter-on-quarter increase, obviously, that we saw the first time we commissioned the hospital. But there is still room to grow on the revenue front in the hospital -- core hospital business. Operational efficiencies relating to margin, obviously, will continue. It is a profitable asset, a highly profitable asset that we'll continue to do. Once the revenue starts sort of getting into a steady state, then we will focus on maintaining or trying to increase those margins with further optimization. But we're not yet there. We're still a few -- we're still a while away from tapping out on growth.

Great. So second is on the insurance revenues and total business. You have mentioned that you are now...

Sorry, Deekshant, there's quite a bit of disturbance at your end. I'm not able to hear you very clearly.

Is this better, sir?

Okay, go ahead.

Sorry. So on the insurance revenues front, like is this the $9 million, is this the breakeven that we should consider on quarterly? And what has been the sort of acceleration that we are seeing because we have mentioned that we have started to push. So what sort of outcomes are we seeing on our insurance business now that we are ramping up on...

Yes. To the first question on the breakeven, please don't consider any 1 quarter performance in insurance as indicative of a trend. Claims, there's a lot of volatility in high-value claims or in loss ratios quarter-on-quarter. We highly recommend looking at only a rolling 3- or 4-quarter period to get a sense of the loss ratio of -- sustainable loss ratio of the business. That is tricky to do now because every quarter, we are seeing significant growth in the size of the book. So it's still very early quarters. I don't think it will be reliable for some time. It's still a very dynamic growing business. We'll take a call in a few quarters once we have a better idea of where things settle down, and then we'll be able to answer that question.

So sir, but on our sales front, now that we have started to accelerate our sales, what kind of response are we seeing? And what is the total policies are in force right now?

Yes. So I mean, we have -- I can only give you a broad subjective guidance that we have a lot of interest from the large employers. We've moved many marquee accounts, and we continue to have a good strong sales pipeline. We'll stay away from commenting on any odd GWP number quarter-by-quarter because that's not helpful. You will -- every quarter, we will -- we can discuss the further outlook, but there's still room to grow, considerable room to grow. And we'll take a call every 2 quarters about when we decide to slow that down if we want to.

Sorry to harp on this again, but we have been giving out the number of total policy in force up till the last 2 quarters.

No, I don't think we say that we talk about the GWP, the revenue. I don't think we -- that maybe you're mixing the India Insurance Integrated Care business with Cayman. I can hand over the question to Ravi...

I'll answer this. Cayman is entirely employer-sponsored insurance. So the companies take it as a large book. India, it's mostly retail. That's why the numbers may be confused.

We definitely don't disclose the number of lives covered or the number of policies for Cayman. What we do disclose is the number of subscribers and number of policies, I think, in India.

Okay. Got it, sir. Can I ask one more question for Q2?

Yes, please.

So the 100 beds that we are seeing now in Bangalore that might be coming up, what's our progress on that? Because it seems like we are near completion. And can we see it in FY '26 itself?

Yes, it's progressing as planned, and I think we should be able to commission by quarter 1 of FY '25.

Thanks, Deekshant. Nitin, you have a follow-up?

Yes. Viren, I just quickly want to check on -- since you mentioned the government scheme part of it, have you guys done some work on what is the possible impact of the CGHS rate hikes and which likely will be followed by other central agencies on our business?

Yes. Venkatesh, can you answer that? The CGHS rate hike impact?

Yes. The CGHS and a few of the other corporates, which follow the CGHS state, they -- I mean, the pure CGHS out of those account for around 60%. The rate revisions have come into force. What we have seen is that we expect around a 30% benefit on the packages because of this revision. But on the non-packaged part, we would not see any benefit beyond 12% because most of the component on the non-packaged part of the medicines consumables, which is around 55% of the numbers, we won't see any impact because it's on cost to cost. All in all, we could see because of this improvement around a 1% benefit on the revenue -- monthly revenues and maybe 70% to 80% of it flowing through into the EBITDA. But of course, we also expect the revisions of these corporates, which also follow CGHS eventually in due course of time.

So Venkatesh, what would be a ballpark absolute revenue impact that you can look through basis on what we -- on the central government schemes that we have right now?

See the ballpark number from pure CGHS will be roughly in the range of INR 2 crores to INR 2.5 crores per month. If we have others also to follow up with this, the other players like PSUs, then probably that number may increase a bit. But for us, for now, the ballpark number is INR 2.5 crores per month in revenues.

So about like INR 30 crores to INR 50 crore impact on the revenues, including the other schemes, somewhere in the ballpark?

Yes, that's more or less, right. But that is when all of them come in line. And that may happen by, say, Q2 of next year, around about that, but there are many moving parts in this overall things. We will have to wait and see how things flowing. But as of now, this is what it looks like.