Narayana Hrudayalaya Limited ($NH)

Good afternoon, everyone, and welcome to the quarter 4 FY '26 Earnings Call of Narayana Hrudayalaya Limited. Thank you all for joining us today. On the call with us from the management team are Mr. Viren Shetty, Vice Chairman; Dr. Emmanuel Rupert, CEO and MD; Ms. Sandhya Jayaraman, Group CFO; Mr. Venkatesh, Group COO; Dr. Anesh Shetty, MD of the International Businesses; Mr. Nishant Singh, Vice President, Finance and Investor Relations; and Mr. Vivek Agarwal, Deputy General Manager, Finance and Investor Relations. The results presentation and financial statements have already been uploaded on the stock exchanges and are also available on the company's website. Before we proceed with this call, we would like to remind everyone that everything that is being said on this call that reflects any outlook for the future, of which can be construed as a forward-looking statement must be viewed in conjunction with the uncertainties and the risks that they face. Please note that this call is for a duration of 1 hour. We will address questions pertaining to the India business in the first 30 minutes, followed by the international business. [Operator Instructions]

With that, we would like to start the Q&A. [Operator Instructions] We'll take the first question from [ Krish Bhanushali ].

[indiscernible].

Yes, [indiscernible] are you able to hear the question?

There is -- that person has dropped off. We'll take the next question from [ Sajal Kapoor ].

Am I audible?

We can hear you. Yes.

Excellent. Excellent. Excellent. Okay. So 2 questions. One is, given the increasing importance of integrated care models globally, how should investors think about the role of pharmacy within the broader Narayana ecosystem over time? And whether there is a scope for deeper economic integration of pharmacy within the listed platform, given how central it is to the overall care proposition, that's my first question.

By pharmacy, you mean retail pharmacy or you mean pharmacy as like a department?

And so Rodale, where it's a partnership model, the listed entity doesn't own it outright today. But they are on our hospital premises, and they use the [indiscernible], yes.

So we run pharmacies in all our hospitals and in all our clinics. We run it when it's in the hospital, it runs under the P&L of the hospital when it's in the clinics, it runs under the NHIC for now. They fulfill the dispensing functions for people walking in. People who come with a prescription, people who walk into our clinics avail services, we are able to offer them pharmacy services. As part of the integrated care model, this is also something that's a tremendous value for patients. And for those who subscribe to our [indiscernible], they get access to home delivery services, where on our own expense, we undertake the expense of taking the medicine to their house as well as doing pickups and so on. But we are not yet at this point, thinking to create a separate stand-alone pharmacy vertical similar to, say, [ Apollo ] Pharmacy, which only does retail pharmacy and a branded franchise model on a stand-alone basis. Product of pharmacies, [indiscernible], primary fulfillment center for our internal needs in the clinic and hospital.

Right. So within the shareholders of the listed entity don't get the benefit. That's where I was coming --

You do. Pharmacies of all the hospitals and all the clinics are part of the P&L of the NHL listed entity.

All right. That's helpful. That explains. -- right. And then second question is, as Narayana expands into adjacent health care services over time. I mean how does management think about the strategic and economic alignment between the listed platform and the newer ecosystem initiatives that leverage the Narayana brand, the clinical infrastructure or patient network globally. If you can just elaborate what is the thought process, not just here and now, but let's say, a 5-year view because the group will be expanding into several and ecosystem services because we want to be not just seen as a hospital or a physical hospital, but a technology-enabled ecosystem of preventive to maintenance and to corrective health care, et cetera.

Yes. Sorry, [indiscernible], just to clarify for me, which adjacent businesses you're referring to?

And -- in future. So for instance, if we decide to expand the services and to introduce something new above and beyond, let's say, hospitals above and beyond, let's say, [ practices ] here in the U.K. So I'm from U.K., by the way. And so on, right? And how -- what is the sort of overarching thought process? Because ours is a differentiated model, which is unlike other hospitals, for the simple reason that we do insurance to conflict of interest was our primary objective to introduce the insurance services. That's again within the listed platform, so the shareholders get benefit. But -- is there a thought process? And so I'll give you an example. There is a procurement related party, which does the procurement on behalf of Narayana.

Sorry, is this suming up health care?

Yes, yes.

This is a subsidiary of the listed entity. All the related party companies that you see are owned by the listed company.

Okay. So it's not very clear in [indiscernible] the annual report, I think we need to be just clarify a bit because -- so I run a [ substack ] channel, and I'm very active on Twitter. I get a lot of these queries because I've been a 10-year-old shareholder here in Narayana, right?

So there's a contact person subsidiary -- actually, this has been clarified in the annual report. It is a 100% subsidiary. What we can do, [ Sajal ], is that given that many of these are little fundamental. You can take a separate call with you from the IR team.

That's very helpful.

They will answer all your query.

Yes, I've got many more strategic questions, but in the interest of the time, I will drop you an e-mail and we can -- or the IR team rather, and then we can take it from there.

Next question is from Prithvi Raj.

I have a couple of questions on India business. One, if you look at [ ATP ] for the [ Bandar ] cluster, I think it's north of [ 2 lakh 50,000 ], if you have to ignore the NCR region, I don't think there's any other hospital chain that makes this kind of RPP in any cluster. So we're just trying to understand what explains this probably a bit more detail on the kind of high-end surgeries that people are doing at your Bangalore center. It's also how large is Narayana Bangalore facility with respect to transplants, robotics kind of advanced [indiscernible] in India. As a follow-up, where is Kolkata cluster in this journey?

Yes. Dr. Rupert will answer this.

So if you really -- we have been mentioning over the last 3, 4 quarters about the complexities of the cases that is being delivered at Bangalore. So if you see that we have gone very high in the robotic cardiac surgery, we do almost 100 cases per month okay? Many competing hospitals do probably that in 1 to 2 months. We -- I mean, 1 to -- in a year, we do it in a month. That's the scale at which we operate. The -- so are the percutaneous [indiscernible] valve implantation which has suggested a couple of hours in the cath lab for an [ ioticvale ] replacement, which generally is to happen with the surgical program is happening in the [indiscernible] nowadays, and we do a very large number. We did around 160 procedures of that nature in the [indiscernible] and if you look at the other noncardiac work, we do the highest number of pediatric bone marrow transplants as well. So the complexities of work that happens here is quite on the very high [ quarternary ] range and that brings in the financial gains which you are talking about. Capital journey -- if you look at the kind of infrastructure that we have in -- in Bangalore, it's extremely large facilities which we have to support the scale of the clinical work. [indiscernible], we have limited in scale because we can't expand within that small campus of around [indiscernible] acres in rentage hospital. So that's where when we come up with the [ Rajarat ] project, we will have many integrated quarternary care facility all in 1 place. That's where they are. If we have 45 beds in bone marrow transplant in Bangalore, we have 10 such bids in calcite. So that's the difference around 30% of the scale of the infrastructure is what we have in compared to the [indiscernible].

Okay. Got it. My second question on the India business. If you look at the clinics and insurance losses, it has remained flat around INR 66 crore loss in FY '26. I think the initial impression was that the losses will keep coming down as [ Phoenix ] will turn 3 years kind of maturity, et cetera. So how should we look at these losses for the next couple of years? And why is there a delay with respect to decline in losses?

So it is a factor of the number of new clinics that we are setting up. If we have more clinics coming in, every clinic takes an 18-month period to turn around. So the [ cliff ] that we set up about 2 years back, they have broken even and the losses that you're seeing are mainly because of the corporate overheads that are being incurred to sustain the integrated care infrastructure. Now as we had new clinics, which we intend to do in the coming year, we will have cash burns coming in the new clinics, though the leverage that we will get for the fixed costs will also increase. So therefore, some of the cash burn will moderate because of that. So you have to assume that a similar run rate of cash burn will continue on the clinics going into next year as well because we still have significant ambition in terms of growth of clinics in our core geographies.

What we are doing is a little bit of consolidation. And if you have the corporate overheads and we worked in a way that we share resources with the parent, and we'll be demerging the clinic business into the core that should help with a lot of that. But we've seen a lot of positive aspects of running these clinics. We are accessing patients domestically that historically would never consider coming to Narayana. We've generated a lot of inpatient referrals, so very advanced therapies for the main hospital. So they act as an excellent feeder for all the hospitals and build up that long-term relationship for patients who tomorrow will subscribe to our one [indiscernible] clients insurance plans and then become our Narayana customers.

Got it. One final question on India business. If you look at the India business, say, hospitals margins, getting over the last couple of quarters, margins have expanded significantly. Do think there is still scope for further margin expansion in India hospital business?

On an absolute basis or a percentage basis?

Percentage stops?

As you know, we don't give guidance on those. But a lot of the things we put in place that have brought us to this journey still have room for growth, and there's still a fair amount of work that we've put in place that we'll start to see. But of course, you have to balance that out against the new center losses that will start coming in from the mid to end of this financial year and going forward. So one would temper the other.

Next question is from [indiscernible].

Am I audible?

You are.

So trying to so much for the great care at the affordable prices that you are giving. So as a customer and as a patient, we appreciate it. So regarding the business updates, Sir, when do we expect the breakeven to be achieved in the insurance business? And sir, on the U.K. side of things, are we planning to get into insurance there as well?

I'll answer the India insurance business, and Anesh will answer for the U.K. business. For India and the insurance business, this is still the early days. We have very reasonable control over our overall claims ratio. What's happening right now is that once you combine it with the expenses, it is what's causing the losses, but this is to be expected for any new business that is being built up here. We've had a lot of positive momentum in growing our group business with small and medium enterprises. And we're doing a lot of things on automation to bring the overall admin cost down. So definitely will start to reduce over the coming years. But at this point, we can't give a date for when the losses would subside. Anesh, would you be able to address whether you're running in U.K.?

No, no plans for that.

Just to clarify, in for U.K., we're not planning to get into the insurance business where currently only operating insurance in India and the [ Cayman ] Islands.

Okay, sir. And sir, regarding our pharmaceutical business, the pharma business, so are we planning to white label the basic formula and selling out of patent drugs under our own brand name to expand our margins in that business by any chance?

No. Like I said, we don't have retail pharmacies. All our pharmacies are fulfilling internal demand. What we do have is a very large purchasing network and a formulary that is able to get very good deals with suppliers. There are certain antibiotics that we're talking with suppliers the listed in the very early stages, but these won't be branded per se. These are just unbranded generic medicines that are coming directly from the manufacturer to our facility and these have meant mostly for inpatient activities, not for selling in the outside market.

Okay, sir. And sir, why do we not consider that?

We don't have sufficient scale at which it makes sense. If a manufacturer has to put a dead [indiscernible] line for you and the packaging and so on. That's only in your brand. They will not take returns. And there is a certain amount of volume guarantee you would need to give them, which from an outpatient perspective, does not make sense for us.

Okay, sir. And sir, going forward, what would be the ARPU growth that we are expecting?

Again, without giving forward guidance, we have seen healthy [ ARPOB ] growth over the past couple of years based on the efficiencies on reducing length of stay and changing the payer mix. We expect to be able to continue the performance that we've had so far. But the one thing to note is that year-on-year, the track rate and the price increases that we take, however, in the low to mid-single digits.

[indiscernible], I request you to join back the queue, please. [Operator Instructions]. We'll take our next question from [ Jared Singh ].

Am I audible?

Yes.

So my question is on the acquisition that we have done. So my question is what like you to believe that you will [ resto ] this asset? And you will -- this acquisition will be value creation not value destruction. And my question is on the acquisitions.

Yes. What is the question, [indiscernible]?

I want to ask how will you own these assets?

Sorry, how will we?

I mean this -- you have to increase our efficiencies and technology increased the payer mix. What led you to believe that you will [indiscernible] on this acquisition in value creation?

Okay. Okay. Okay. Fine. Anesh, if you can you just talk about things.

Yes. Thank you for your question, [indiscernible]. So essentially, we have 2 prime areas of focus. The first is to increase the proportion of patients coming from private sources, that is self-pay or private insurance. Those patients inherently pay more for the same service. The second is an implementation of our entire technology platform that will allow us to meaningfully lower the cost base for all operational processes similar to what we have done in the Cayman Islands.

What is the purpose behind the effect [indiscernible]?

So once we had stabilized our operations in Cayman, we were looking for a second jurisdiction or a second country with a larger base and a larger potential because our software platform and technology and the systems we had developed to make Cayman in a very profitable operation, we are scalable in other markets as well. And outside India, in certain Europe and U.K., British mature markets. the acquisition multiples are quite reasonable relative to the opportunity we have to lower the cost base and improve earnings.

There are also some other risks like cultural difference, like culture in Narayana will be different to what this past culture and your resources will also get diverted your focus will also change the obvious and integration risks are also there. So how do you see the risk?

Yes, definitely, you are right. These are all things we have to be aware of and cautious about with any acquisition in a different geography, cultural integration risks, understanding local nuances. These are things we have to work through.

Yes. We'll take our next question from [indiscernible].

Hello, sir. Can you hear me?

Yes, [indiscernible]. Please go ahead.

Yes. Sir, my question is with respect to your U.K. business as well. So when we did the acquisition call, the U.K. business reported EBITDA margin was around 7% to 8%. And now at the end of the Q4 -- for the quarter ending this -- for the previous quarter, the margins have increased to 10%. So can you just give me a ballpark figures on where did the cost cutting come from? And is this margin going forward sustainable?

Sandhya, do you want to take that because I think we're not looking at apple-to-apple comparison in those numbers.

Actually, when we acquired, we only had 2 months of data. So the cost bookings were not complete. And we still are not fully grounded in terms of how our costs are coming through because we still have transition costs, et cetera, coming in the P&L. So in the first quarter 3, which was our first quarter, we did have slightly higher overhead costs coming in. And we also don't have a full handle of all the costs that we're getting booked. Now we have a slightly better handle and most of the savings for us have come on the overhead cost side. However, what we need a few more quarters to be able to fully baseline and be able to give consistent commentary on the movement of the costs because we still have many moving parts we have not fully separated from the seller. [ IT ] separation is still underway. And costs are still getting grounded for us. We also had some pre-deal costs, most of which we called out separately and explained, but there were costs that were getting booked because the deal was in progress. So I do think that you should give us a few more quarters, and we'll be able to explain these cost movements with greater clarity.

On a more steady state basis, what we can say at a high level is that now that we are running the company as an independent entity, there are some costs -- cost increases with regards to certain IT costs, vendor costs, et cetera, compared to when it was part of a broader company. At the same time, now that it is part of NH, there are cost synergies as well that we bring to the table. So as Sandhya mentioned, in a few quarters, the overs and unders should neutralize, and we will get a better sense of the trajectory improvement in earnings.

Understood, sir. And my second question is with respect to the margins of the Indian business that has been consistently increasing, like, let's say, for last year's same quarter, it reported 21.5% margin, and now it's 25.1%. So I just want to understand the incremental margin improvement in the Indian business. Is it because of mainly you're bringing in more technology, more automation, more robotics into the picture? Or is it because of the complex increase in revenue share from complex surgery or something else? Can you just give me where is this margin expansion coming from? And are we -- is this 25% of stable margin or can we expect a further room of margin improvement?

You already answered your own question. It is all the things that you mentioned, but Venkatesh can elaborate on what exactly we're doing to be able to do high-end procedures.

Yes. So this is typically -- I mean, the increase in volume, which has happened year-on-year now typically because we've seen the impact of our transformation initiatives infrastructurally and also, while we have worked on the payer mix optimization initiatives, alongside whether patients have opted for higher configuration bits, keeping our volumes and occupancy obviously intact. So the hard work which we have put in terms of the transformation and the pay mix initiatives are actually kind of reflecting now on the bottom line. This over and above that, we've also coupled it with technology as you are raising this question through increased volume of [indiscernible] surgeries through high-end transplant work across our flagship centers, primarily in Bangalore and a few other high-end procedures, which have also resulted in increased realization leading to a higher revenue achievement and better margins. So all these initiatives together have actually helped us in increasing realizations and improving on the bottom line while another thing which you're saying about the sustainability of this, we are very confident in terms of the margins, and we can see that the gains are sustainable. But we also need to see that currently with a lot of headwinds, including the environment being volatile, with several moving parts around us in terms of the cost of crude and the dollar. So obviously, we're very watchful while we are being optimistic in terms of sustaining the gains.

Next question is from Aditya.

Yes, first of all, congratulations on the strong set of numbers. So my question is regarding the Raipur hospital specific given that you are committing significant CapEx there. So I just want to understand the current state of the hospital, like what are the occupancy levels, what's the specialty mix and payer mix? And in terms of capacity addition, what clinical capabilities of specialties we are building that doesn't currently exist at the facility.

The [indiscernible] Hospital, Aditya?

Yes, ma'am.

Okay. We have shared information relating to Eastern period we've shared information relating to our CapEx and expansion plan for Raipur. We don't share hospital-specific data. But what we can say is Rajpur is a full-service hospital and all the capabilities which we have in the rest of the centers and in [indiscernible] are also available in [indiscernible].

The only thing that we felt we had to expand on the existing facilities, the existing building is quite old, one of the oldest hospital structure that we run. So one model we have with the trust. And while we have refurbished the interiors a lot in the trend that we've been there, it doesn't match up to what people expect when they go to other hospitals. So the new investment is I think on the tower that can offer a much more differentiated experience locations coming in.

Next question is from [ Akshay Taker ].

Am I audible?

Yes. Please go ahead.

Congratulations on good numbers. My question is related to the new CapEx, which you have announced. So this CapEx is on the higher end as compared to the old annualize. So my question is, so you're expanding in core areas like cost within the city limits, not earlier like early days. So we being a low-cost model, a low volume player. We try to cut down our expenses on OpEx and CapEx rent. Now the CapEx front has increased as compared to the previous model. How do we plan to -- so the only impact would be on the OpEx front? So how do we plan to follow the same model but at the different locations, which is on the higher expensive CapEx.

So the CapEx is higher for 2 reasons. One is just naturally construction cost to date is 60% higher than it was 5 years ago. These are post pandemic-related cost increases, that is beyond our control. No matter where you are building, if you're building in the more small town in India or if you're building the largest capital of the country, the construction cost has gone up significantly. So that cost remains the same what [indiscernible]. Cost of land acquisition yes, that is much higher in the big cities, but that is a onetime cost. It will be amortized over the 100-plus years that this hospital will be there. The most important value proposition we bring in as a low-cost, highly efficient provider of health care is that a matter where we operate, our pricing will be the lowest in the market for the similar levels of policy that you get in any of our facilities. The things that we are putting in place in all the [ half ] we were setting up to reduce the cost involved a huge amount of automation, being able to eliminate a lot of the manual work, taking away all printing and paper, making the patient experience a seamless journey. So less space inside the hospital is wasted for nonclinical activities, less people are acquired inside the hospital for doing nonclinical activities. And so all the space and attention that is there inside the hospital is dedicated entirely to patients. So that would include with robot that would increase a lot of the flow that exists in the -- for the patient journey. And thus, in turn, lower their operating cost and that we can pass on to our patients. These already exist in all our hospitals. That's why we are the only listed group that has not added a single bed from the time in listing and still been able to deliver revenue and margin growth. Because all our effort has been on moving the way how hospitals function.

That was helpful. So primarily on the efficiency front and the tech plan. That is how we are going to drive the same result with different [indiscernible].

Thank you. We have a follow-up question from [indiscernible].

So on the U.K. business, third, the expenses, is it showed under some other heading because I'm unable to figure out where the doctor expense for the U.K. businesses?

Yes. No, we don't break it down into doctor and nondoctor.

Okay. So because in our Indian business, we are giving out the profitability snapshot. It's not there for the U.K. business. Is there a reason why we are not giving that out?

It will take us some time to decide what are the relevant metrics to display and discuss quarter-on-quarter. Having said that, the predominant method of engaging with doctors in the private sector, the U.K. is also very different from India, wherein most of the doctors are visiting consultants and their revenue is booked separately. That's not the case for PPG. That's the case for the other private providers, and we are moving towards some hybrid between that model where doctors submit their own invoices and reimburse themselves differently. We currently have an employed model, but we are working out a hybrid structure.

Okay, sir. And sir, if I'm not mistaken, we took out the GBP 150 million loan for 7 years for the U.K. business acquisition, right?

Yes, correct.

So our profit numbers from the U.K. business is not sufficient. So how are we hedging it for the currency risk?

The loan has been taken in GBP, and it is being serviced locally in the U.K. So there is no currency risk on this loan.

But Narayana profit numbers are not sufficient to pay back below, right?

At the moment, we believe that we have adequate cash flow to pay back the loan. Currently, you are not able to see the full effect of the PAT because there are a lot of transition-related costs that are getting booked in -- it's not the steady state number that you are able to see. In fact, in our deck, we have clearly called out the movement between the numbers. On a cash flow basis, if you see cash PAT, we are able to service the loan. The net negative PAT you are seeing is because of the amortization of expenses, which is not a cash expenditure. So we are currently able to service.

Ma'am, could you give us some --

May I request you to join back the queue, please? Next question is from Rajit Aggarwal.

This question is related to U.K. P&L. If I look at the Slide 21, it shows FY '26 without U.K. and then a column on FY '26. So I'm assuming the column FY '26 is with U.K. Is that right?

Yes, that's correct. I'm laughing because Sandhya and I had this debate before it made and sense to say without and with U.K.

And if I were to -- so if I subtract the 2 columns, I'll get the U.K. numbers for Q3 and Q4?

Yes. For full year, you will get FY '26, which we have given 5 months of U.K.

Correct. And if I refer to the similar slide of your last call, then it had 2 months P&L.

Yes.

Right. And if I subtract those 2, then I get this quarter's numbers for U.K.

And they are adjusted for the 6 or 9 days in November. SP27792675 Let's see a little bit of just an [indiscernible].

But some of these numbers don't -- somehow don't make sense in this. So I'll give you an example. If you look at your doctor's expense sales, the row doctors expenses here, it's INR 67 crores increase. So U.K. had INR 67 crores of doctors expenses as per this Slide #21 of current PBT.

Yes. Actually, Rajit, some reclass has happened. We reclassed some expenses because when we reported out in Q3, we didn't have a full handle of the way the P&L was being reported in the U.K. Now we are slowly aligning. So for example, your specific example of doctor expenses, there is a reclass in the P&L from doctor expenses line to the manpower line because of which you are seeing the number to be not like-to-like.

Right which is -- okay. So I get at that. Now I mean, if I were to include doctors expenses and employee excluding doctors' expenses, will that be a correct way to look at your total expenses for everyone, employees, I mean, including doctors and others, right?

Yes.

So now if I compare that. Those 2 numbers itself with what you had given in the last slide, as a percentage of sales, that number seems to have gone down by 200 basis points.

Correct. That is correct.

So how has that been achieved?

So like I was explaining to the previous caller, because we took a part quarter handover, so the costs on the baseline of Q3 are not representative of the underlying cost structures which is why we requested a couple of more quarters for us to be able to report these numbers more accurately and be able to explain the movements.

So basically, we should just -- we should not delve too much into these numbers.

No, you should. It's just that Q3 is not representative of a whole quarter and not representative of all the expenses. So only when you have 3, 4 quarters of numbers to look at, can you see movements.

There's no movement in the total head count, right?

So there is no movement in the total headcount, but the booking in Q3 was slightly on the higher side in percentage terms vis-a-vis revenues. The absolute cost has not changed. It is just that the booking percentage terms, it is different because like I said, it's not even -- it was not even cut at a month. It was cut in the middle of a month. So we really couldn't exactly allocate the cost.

So I guess, I mean, we should just wait it out to understand the absolute and percentage margins as well, because it seems a lot of pieces are moving between heads also. Fair enough. So I guess -- and in terms of net profit on a --

[Operator Instructions]. Next follow-up question is from Prithvi Raj.

Yes. Sir, I have a couple of questions on [ K&I ] lens. One, if you look at the insurance business, I mean you are surprising to see the extent of losses, units of $5 million seems to be quite high. So I think over the last couple of quarters, initial guidance seems to be that maybe by Q1 FY '27, we might even reach breakeven. So you're trying to understand what exactly happened with the insurance business? And how should we look at losses going forward?

Yes. Hi, Prithvi. I think the first comment is in terms of the losses relative to the scale of the business. So when we started in January 2025, initially selling policies in the open market, we didn't expect to reach by this time around annualized 60 million premium revenue rate. So the ramp-up in the insurance business has happened far quicker than we anticipated. We always knew that it would take a couple of quarters for the initial book to stabilize as well. I think we made great progress on growing the number of clients. We have, the profile of the clients, most of the premium clients and the higher paying clients are with us in the market. Having said that, the quarterly losses are not where we want them to be, and we don't think this is going to be an ongoing thing aside from [ AB ] we may have, I think, another quarter or another quarter or 2 of losses in this range. But we have price increases kicking in, in June for about 30% to 35% of the accounts. The end of that period also gives us the opportunity to urge certain accounts we no longer want which have been priced unfavorably. So we should start seeing these come down significantly over the next 3 quarters or so.

5 Is it possible for you to give the claims ratio here? Is that anything you saying?

No, we are -- I would say the loss ratio, I mean, we don't disclose specifically, but if you look at our -- the [ CMA ] statistics, you can find out. So it's approximately about 110% to 112% is the loss ratio which is essentially claims paid divided by premiums collected net of the insurance. So for year 1 insurance book, that's not very bad. I mean it's not great, but it's not horrible. So with the price increases midyear as well as exiting some accounts, we hope that, that has settled in.

Okay. One last question from my side on Cayman again. If you look at the hospital side, the scale-up has been really phenomenal from less than $30 million revenue to almost $50 million per quarter kind of run rate. So can we assume that the scale-up is largely done and from here on, the growth will slow down to mid-single digits for Cayman hospitals? Or do you think still there is scope for a few more quarters of double-digit growth before it tapers down? And also how much of this incremental [ dot ] came from the other Caribbean Islands?

Sure. So before I answer your question, [indiscernible], I do want to call out here for all the participants that we request people to analyze the Cayman business as one and not disaggregate insurance and hospital. The whole idea behind the integrated care model is that the insurance helps drive CR into the hospital and they work as a whole. So if you are going to see earnings, let's say, losses in, say, the insurance business in isolation, but contrast with very good growth in earnings and top line in the hospital business, it does give a bit of a confusing picture. So it's always helpful to look at it as a consolidated hold because that's what we're trying to achieve. To your specific question, yes, definitely, I think the significant growth in the hospital top line has been driven by 2 factors: one, the new campus, which is a little old story now, but also because of [ One Health ] and all the benefits and synergies that [ Integrated Care ] play has. It will be in that market, unsustainable to continue to see quarter-on-quarter double-digit growth in top line. That will be -- that's not physically possible. Also, given the claims experience in the insurance business, we are slowing down with new client addition. We do have to balance it out and observe for a few quarters. So you're not going to be seeing the same pace of growth in the revenue. Of course, the hospital margin has been preserved pre [indiscernible] Hospital post [indiscernible] and even now through integrated care. So that is stable. But yes, you won't see the same rate of growth anymore. To your last question around what percentage is international. I think we don't get into those specifics, but international, especially some of the core markets where we've been investing for quite some time are starting to bear fruit. And we think once Cayman significantly slows down and the opportunities exhausted, the growth will be driven by international. But we're not there yet, but someday soon.

We have a follow-up question from Aditya.

Just one small question, a bit digression from broader on the health care industry. There are a lot of new health care and of startups like [ super healthy ] even coming up with standardized pricing, smaller hospitals, lower CapEx per pad and a wider model, which we are also doing. So like Viren, just wanted to get your view on these models and are they sustainable? And can they scale up?

Are they sustainable? I mean that -- we'll see. The thing is these are all with a lot of start-ups. They bring very interesting viewpoints. And they are the closest to what we can get as almost cost-free R&D. And so it is good that the market is moving towards the direction where payers and providers work together and provide a more unified experience for a customer because that's not happened in the Indian industry so far. So in as much as these things become more popular, it increases the relative attractiveness of what we are trying to do.

Next follow-up question is from [ Akshay ].

My question is on your hospital information system. I believe you also get some revenues from this part of your business. But primarily, it's your own internal news. Can you throw some light on the -- how important was this in bringing in the efficiency for your Cayman as well as your India business?

So the business that we acquired in the U.K. runs several interconnected systems, none of which talk to each other very efficiently. So there is a human layer that has to not just translate and type, but sometimes even print out and retype information between one software stack and another. You will be shocked at the number of hospitals, not just in the U.K. but across Europe and the U.S. that have these. In India, we're very lucky to have access to a large group of engineers who are able to take this problem first hand and be able to tackle it so that we can not have to worry about silly things about how the hospital runs and how data should be entered. So the problem that we are solving is data being in a single source of truth is fixed. But what we do with that data? We're able to go through the medical records and find out if patients are suffering from diseases that they don't know they are suffering from, are working with the doctors to be able to do research and all the patients who are available. So these are huge amounts of efficiencies that can be unlocked because of our [ Atma ] system. And a lot of other hospital groups have seen the benefit of this and want a similar system for themselves.

Can you also share some of your plans for the clinics? How much do you want to expand what exact spend on those and strategy [indiscernible] bank?

Yes. The clinics, we are 11 clinics in Bangalore. We will be expanding in Bangalore. And this year, we -- this year, meaning FY '27, we will also be expanding to Kolkata. We have a plan to double the number of clinics that we currently have, but the speed at which we do it would be balanced on the other side against the acquisition of those properties, negotiating the rent doing the fit-out and also maintaining a steady amount of cash losses in the business so that we don't go overboard. But the clinics are in a very important channel for us to be able to be closer to our patients.

We have a follow-up question from Rajit Aggarwal.

Yes. So coming back to the numbers. Now there seems to be a difference of about INR 10 crores to INR 12 crores in the net loss of U.K. entity between Slides 21 and 19. So GBP it says GBP 1.9 million net loss. And in rupees, if you look at, it's around INR 34 crores.

Yes. See, the conversion may be the point because what happens is that when you report out, you report a conversion rate for the quarter. But when you for the you do a --

So you would be doing a conversion at the RBI reference rate?

No. Actually, what happens is that we -- of course, we may be doing it the reference, but we catch up for the year, the conversion rate. So in quarter 4, you'll also have the catch-up effect of the Q3 conversion.

Okay. Maybe I'll just come back to you offline again. My understanding was Q3 would be at RBI reference rate in Q4 at RBI reference rate and whatever the difference should be in --

Yes, it was always caught up YTD actually reduced.

Right, right. I mean that's not such a big thing. And there is a INR 10 crore other income in U.K. entity, around INR 8 crores. Can you explain that other income, please?

The other income essentially comes from interest on cash that you are holding in the bank, some scrap sale that could have happened for the size of the U.K. business, I think it's like a rounding of number. [indiscernible] come from bank interest because we are having cash in the entity, and we'll be placing them in some sort of an instrument and earning interest on that.

All right. If I may ask a very quick question on numbers again.

Yes.

On the acquisition cost, in the last quarter, about INR 40 crores was booked in U.K., but that seems to have been now reclassified into ex U.K., is that correct?

So yes, so there are a lot of reclass items, Rajit. I think what we will do is we will set up time with you separately. We can explain the numbers to you so that you are able to see them clearly. You can reach out to us. You have our e-mail idea. Our IR team can actually explain to you all these items on a call. Because these are like small items, and I think we are holding everybody else on this.

We have a follow-up question from [indiscernible].

Sandhya or anyone, I mean the question is on the U.K. operations and the overall debt that we have I mean what is the current thinking around the free cash? So you will get operating cash flow. I think it's a wrong idea to compare PAT and think the PAT is paying the loan. Ultimately, it will be the operating cash is [indiscernible] the free cash, right? Because there will be some cash requirement in the maintenance and making the changes that we want to make -- to get the operational efficiencies like [indiscernible] was explaining the paperwork and demand well effort and is quite right. I mean, this is a problem, not just specific to U.K., but wider Europe and U.S. as well. So the question is, and over the next 5 to 7 years, what is the thought process in terms of reducing the debt or swapping it over and showing the material improvement in the operations and backing it up with the operating cash flow, what is the broad thought process as on today? Of course, that may change tomorrow.

Yes, [ Sajal ]. So it is a leveraged buyout. So the entire acquisition debt is on the books of the target. And therefore, the free cash flow that is being generated by the target, a significant portion of it will be used to pay the debt in the books over the next 7 years.

We take one last question from [indiscernible].

Ma'am, I just wanted to understand what was the --

[indiscernible]?

Am I audible?

Yes, please go ahead.

So ma'am, NHS pays once every month, that is on 26th, right?

Are you talking about the NHS in the U.K.?

Yes.

No, no. It's -- that may be the payroll date, but we, as a contracted vendor, we don't follow that cycle.

And how many the payers, is there a cash flow understanding that I can get, please?

Sure. There are 2 kinds of payments. The bulk of payments will become advanced quarterly or the anticipated work ahead of that. There's a small percentage of payments that they do after about 30 to 45 days.

We will now take the text questions. Over to you.

[indiscernible] will read them up. First question is, please, what do you think the SG&A would be as a percentage in the FY 2027, given the U.K. Group acquisition?

Yes. So in health care, it's not SG&A, but it is more overheads as we would call it. So U.K. comes in at an overhead structure, which is lower than the group overhead structure. So we were -- we believe that whatever numbers you are seeing right now. So without U.K., we were operating -- overall, all overheads put together at about 28%. And with U.K., we'll see a 23% number.

Yes. So the next question is, while the PPG acquisition provides a great secondary currency hedge and scale, the baseline EBITDA margin has dropped by over 500 basis points this quarter. What is the precise road map, synergy extraction plan and timeline to bring the U.K. it's [indiscernible] closer to our core India [indiscernible]?

Yes. Just on -- just quickly on 500 bps, almost 200 bps dilution has come because of the costs relating to the acquisition itself. Those are one-timers in nature, and those will not repeat. So the effective dilution is about 300 bps. So normalized margin around 22%. And Anesh, I think, spoke about the various plans that we have to improve the payer mix and improve the mix. U.K. will not come to the levels of India or Cayman. Each market has its own profit profile. And U.K., we will try to catch up more closer to where the market is than where the group is.

Next question is [ RPO ]. My question is about ARPOB in Q4 FY '26 and full year FY '26, what is our occupancy level in quarter 4 and the full year?

See, we don't report out occupancy, but we typically operate between 60% to 65% in terms of occupancy. We do not believe that either [ ARPU ] or occupancy is a correct measure of performance. The right measure is [ ARPI ], which we report and also throughput, which is evident from the way we are able to do incremental volumes through the same facility.

And the other part of the question is asking about EBITDA margins for Cayman business.

We don't specifically report our EBITDA margin for Cayman business, but I think all the numbers are available. India EBITDA -- overall group EBITDA is available. India is available, U.K. is available. I think it is possible for you to work that number if you are -- if it's interesting for you to understand.

Next question is the other income stand-alone for Q4 is [ 127 crores ] what is it comprised of? And how does that translate to [ INR 25 crores ] at the consolidate?

That INR 127 crores has a INR 94 crores of dividend that has been received from came in to India. So because of that, you are seeing that number not coming in concern that the intercompany gets eliminated. The rest of it is the real other income for the group.

Slide #15 of nd India ops for FY '26 in spite of a 10.2% Y-o-Y growth, the other expenses in percent stays at 8% of revenue. Why is operating leverage not showing up here?

See, actually, with the 10% revenue growth, our overhead has gone up by about 8%. There are a few factors to this. There is a certain part of the overheads, which is purely variable in nature and therefore, that moves in tandem with the cost with the revenue. Now in addition, it is a very high inflationary situation that we are working with. Power costs have gone up across the board and minimum wages have gone up across the board. So there are a lot of underlying cost inflation, which we are absorbing in our overheads with the leverage that is being created with the revenue growth. In addition, there are some onetime costs in there because we are going through a certain merger process. So there are legal stamp duty and other costs in them, which will normalize in the next year. But largely, we are seeing a very high inflationary situation, which is taking away the operating leverage we otherwise would have been able to generate in the current environment.

Next question is what [ we ] the CapEx for next 2 years for Narayana, maintenance plus growth? Is there any capacity requirement for international assets for payment and U.K. PPG [ PS ] the quantum, please?

So for the India CapEx, I think it's part of the IR deck itself. We have split out the CapEx and shown the details. There is no additional CapEx planned in Cayman. It is too early for us to talk about U.K. So when we have greater information about our CapEx plan for U.K., we will share.

For FY '26 regions for hospital discharges across regions and IP volume footfall drop, but the average industry is showing Y-o-Y growth.

Venkatesh, you want to take that question?

Yes, yes. So we have been kind of prioritizing on our optimization of payer mix and case mix together and also working on a few things to focus on more advanced procedures. We already discussed a while back. So what has happened is this has led to a good increase in realizations and revenue. And as a result of which, the ARPP is still growing. But these are done, keeping the volumes intact. Obviously, the volumes have stagnated. But because of the optimization of paid and payer mix and case mix, and doing advanced procedure, we've been able to increase in the realizations and the revenues. Also, we had to play a fine balance between serving customers across payers and also trying to manage the receivables with certain payers. But going forward, we will also, through our continued investments in clinics, digital marketing insurances, we will start seeing gains in volumes too in the coming quarters as we keep building on our realizations and revenues on a -- in subsequent quarters.

Yes, private pay was 7% of PPG revenue and acquisition. Where is it now? And what is the realistic to your target? Maybe Anesh can take this.

Yes, sure. It's still early days, but we have seen an increase in absolute terms of private revenue. we are making a lot of progress with our relationship with the private insurers as well as visiting consultants. We hope the benefits will play in over the next 3 to 6 quarters or so, a realistic 2-year target. It's still early days to see. We may have -- able to share in a couple of quarters.

Yes. So the next is in [ clinic ]. Could you provide some color around how insurance and clinic business and the concept of providing integrated health care has helped us to drive growth for our business as a whole? Like if you could quantify or provide some metrics that have significantly improved.

Ever since we took a call on improving our domestic focus and deemphasizing on growing international revenues, the clinic business has been the sole driver of the increased referrals to our hospitals from the cities in which we operate. So the entire replacement of international business with domestic business would have been a lot harder if we didn't have the clinics to be a place where patients would be the first point of contact to see an NH doctor. And should they require any procedure be referred to a hospital for treatment. We do expect the growth to come in line. In fact, going forward, the vast amount of patient preference for being treated will move away from the hospital towards the clinic. And so a large part of our expansion in the cities where we operate will be underpinned by first running clinics, gauging what the doctor engagement model will be there, getting a good sense of the patients and their clinical requirements and then building a hospital to service that. The clinic will be a very important part of our business going forward to accommodate changing patient preferences. But going forward, it will be harder for us to say what is attributable to clinic alone and what is not simply because a huge amount of the manpower and expenses and doctor talent will be shared between the 2. So doctors will be splitting time between the hospital, between the multiple hospitality and the multiple clinics that we run. So the attributability will become harder and harder as we go forward. So from this year onwards, FY '27, the clinic business will be rolled in with the overall hospital business because that is its best reflection of the contribution to the performance of those hospitals.

Next question is Kolkata being one of the core geography with 26% revenue share that has grown only at 5%, 6%. This is because of the lower international patient. If we [indiscernible] how much is the international patient share in [indiscernible], do we expect the growth come in line with the bundled growth?

Venkatesh?

See, when it comes to international marketing, we're not doing any active marketing around international patients and neither do we have any type of price differentiation. But we welcome any patient in the system coming into the system. Basically because of the uncertainties around deration marketing, which actually made us focus more on the domestic patients and convert -- we focus more on domestic and get numbers replaced to the mitigation. This journey has been very fruitful and successful journey where we are more or less compensate to these numbers without any dent in the revenue and the EBITDA levels. Then again, a little bit of prioritization of the payer mix and case mix was also a journey which was varies without again any dent in the volumes and revenue. So we have set up a very strong base and consistent -- strong and consistent base as we speak. Now with the investment in the digital marketing with the -- as Viren had mentioned earlier also with the integrated care and the clinics coming in with the insurance and also trying to strengthen the clinical team across the region in [indiscernible] care and treasury are work. We will start seeing these volumes growth in the future. So with this base and incremental volumes, I'm sure we will be able to cover this growth deficit, which we have seen over these last few quarters, successfully in the coming up 2 to 3 quarters here Eastern region.

The next question is on plans to expand our footprint and patient volumes for the North and Western clusters.

No plans as of now. We have the existing cluster in the North and West. We will start expanding in SRCC Hospital in Mumbai and adding the adult programs in FY '27. So there is sufficient headroom within the existing setup to be able to add patients. Infrastructure for [indiscernible] geography is not the priority for now we're focusing on South and East.

Next question is in which areas of specialty provider do you see [ IML ] help you going forward to replicate what we have done with [indiscernible].

Our radiology department is completely powered by AI. A lot of the radiologists use software that implements image guidance for helping them make the diagnosis. So this is something that's been very standard in the medical field for a long time. There are a lot of efforts that our [ Meta ] team is putting in to use AI to improve not the patient services to detect anomalies in clinical data provide risk core for our doctors to help choose which patients in the ICU are having trouble or not. So this will just become part and pass it of the overall way in which our hospital functions. AI is not to be considered separate from all the transformation efforts. It is an integral part of it.

The next question is FY '26, greenfield capacity is on INR 109 crores against INR 4 crores planned, 75% to 74% miss, what specifically caused the slippage? And does the FY [ '20 ] commissioning time and for [indiscernible] still hold?

Lot of the projects have started. The miss was due to a lot of the election-related issues in that it was impossible to get construction workers to come for a large amount of time. A few delays in commissioning the project for not getting permissions and so on. The FY '28 goal still remains the case. And a lot of this work can pick up now that things have normalized.

The other question is the -- I think we [indiscernible] that when you said [ Beta ] maintained, does it mean you will maintain margin of 20% At the consol level?

Yes, we are not giving any guidance, but what we have explained is that the 20% margin, which has come at a consol level has onetime impact on it because of the acquisition costs relating to U.K., which normalizes to slightly over 22%. So that is the base at which we are starting, and we have to work with improving on that.

The next is based on the [ CAD ] disclosures on Slide 22 of the deco total CapEx for project proposes INR 3,000 crores. Same site also mentioned greenfield organic CapEx is INR 460 crores. All projects are expected to be combined commissioned by FY '28, '29. Does it mean FY '28, '29, we'll have INR 1,000 crores each.

That's correct.

The other next question is what is the long-term target of top line growth for 2, 3 years?

And we're not giving guidance, but we're trying to maintain the pace of growth in our business. There will be a jump when new hospitals get added.

The next question, Northern cluster grew 7%, 5% in FY '26 with the NCR competitive intensity, is there a rethink on the NOR strategy? Or do you expect organic recovery and how soon?

So yes, it is no surprise to us to the investor that [ North ] has been extremely challenging region for us. We are one of the latest entrants to this market, and it is extremely competitive. We have carved a fair niche for ourselves both as [indiscernible] as a very leading cancer hospital doing a large amount of bone marrow transplants and robotic surgeries and Gurgaon being a very domestically community-focused hospital doing high-end work. But it is not sufficient because the other hospitals have much more aggressive ramp-up strategies. As of now, we will continue the way we are, keep our cost advantage there, and more patients and be able to offer good services for the customers would come to us.

So the question is on what is the status of Mumbai on EBITDA profitability, Sandhya?

So Mumbai has broken even in quarter 4. We are working towards the adult program starting in Mumbai. We are in stages of discussion with the trust for approval and it's in advanced stages of condensation. We do believe that we will be able to turn around the profitability profile of the Mumbai Hospital once the adult program comes in. As far as the next question, which is looking at the FY '26 consolidated PAT, it has been diluted by U.K. So return on equity and return on capital are being diluted as well. So you want to understand the 3-year IRR or acquisition case. So when we did our acquisition call, we had given a very detailed rationale and the business case for the acquisition, the valuation metrics and what levers we think are available for us to be able to create value with this acquisition. So I would request you to refer to the transcript of that call in which a very detailed explanation is available. At a very broad level, we are going through an expansion phase right now. We have put in $100 million CapEx and came in for expansion. We're putting in INR 3,000 crores in India. So overall, we are going through a phase where we will be diluting ROCE for growth. And eventually, this will come back because the mode of acquisition, which we have chosen -- mode of investment which we have chosen are longer-term ROCE accretive. Most of them are greenfield in nature. And most of them get on the underlying business the cost of the business coming in with operating leverage. So we do believe that eventually the ROCE and ROE will recover on all 3 businesses put together, but we have to go through that Phase II fuel growth and fuel expansion.

Also talking about that. Next question?

Impact of oncology revenue, Q2. I assume that OPD, he means --

Diagnosis -- outpatient department coming down 5 to 6, okay. So this is a clear impact were we impacted by the same No, we did not see any impact on oncology outpatient volumes.

Why is the EBITDA margin coming down for the quarter has been answered in detail in earlier also. How do you plan to expand in Kolkata has also been explained as part of our IR deck, we have given or Kolkata expansion plans.

Yes. So I think we've answered all the questions on the chat. If the Chorus team can conclude.

Yes. Thank you. Thank you, everyone, for joining the call and for your continued interest in Narayana Health. We appreciate your participation and support. Should you have any further queries, please feel free to reach out to the Investor Relations team. Thank you, and have a good day.