Park Medi World Limited (PARKHOSPS) Earnings Call Transcript & Summary

No, the central government health scheme and the central government patient beneficiary is constantly increasing, one. And also the rate hike, generally in the past track record, if we see, they have been hiking the rates every 2, 2.5 years. So this has been happening on a regular basis. So this time, the rate hike has been very, very handsome. But I believe going further also, as the health care requirements are constantly increasing and the government allocation of the health care budget is also being proposed to be increased from 3.8% of the GDP to 5.5% by 2030. So I'm sure the allocation for the central government health beneficiaries will also have a major contribution into it.

It means that the ratio remains here and there only 35%, 30%.

Our focus -- see, Mukesh, we are not going for any government insurance or government schemes. Our focus has been on the affordable side. So we have been focusing on the bottom and the middle of the pyramid -- largely the population of 128 crores out of 140 crores, which cannot afford health care. Now incidentally, this segment is being largely supported by the government. And in that too also major aspect is coming from the central government. So our focus will be in this segment only. But per se, the insurance penetration has been increasing. So obviously, a lot of people from this segment will also translate into the private insurance. When we came for IPO, we started at around 84%, 16% distribution. Today, we are 83%, 17%. I believe by the end of this financial year, we'll probably be 80-20. And going forward in a year's time, we'll be 75-25, 75% from the government insurance and 25% from the private insurance. So our focus remains there, but a lot of patients are translating from this affordable section to the private insurance.

The next question is from Shreya Chatterjee from Aegis Capital.

Congratulations for a good set of numbers. My first question is on the payment mix itself. Like you have mentioned that it will be always -- like government insurance will always be a majority of your payment. So how does it impact your receivable cycle? Because I understand that it's a bit on the higher side versus your peers. So where do we see the receivable days going forward? What is current receivable days and where do we see it going forward?

As far as receivable -- Dr. Sanjay, you want to answer it? Please go ahead.

No, no. Please go ahead, Rajesh.

As far as receivables are concerned, first very important part is because they are mostly 93% related to the central government. So when we say central government, it's like a sovereign bond, and we have never seen any of the money got bad debts. So we received money. But historically, what we have seen that government, they have a very, very well-defined process to clear the payment. So there are 2 verticals. One is that to pass the bill and second is to release the payment. The [ company ] passing because when the patient gets discharged, we have to upload our bill on a third-party portal. And it is absolutely faceless and transparent. So this process takes about 3 months' time, wherein a couple of normally back and forth happen when that we have to immediately respond to their queries. And this process takes about 3 months' time to settle the bill. And thereafter, they take about 45 days' time to clear the payment. So historically, we have seen -- we normally get our payment within 4.5 months, 5, 10 days here and there. But in the last couple of months, we have seen improvement. Even the government is also pushing it very hard and what we are expecting by end of this financial year, I'm hoping this 4.5 months TAT will come down to 4. And maybe going forward, it will be close to 3.5 months. So this even -- and I think the other important point to mention, somehow this becomes one of our strengths because that we enjoy sort of a monopoly in this domain because the kind of ARPOB that we have, the receivable cycle that we have, it is practically impossible for a player -- a bigger player like Medanta, Fortis -- there to come down to our area. And it is practically impossible for a smaller player to compete with us. So somehow this become one of our strength.

Got it, sir. And sir, my second question would be you have a very unique strategy of CapEx per bed, which is like very low compared to peers. So going ahead with all the acquisitions that you do, so what is your strategy to select the hospitals? And do you expect the CapEx per bed to remain at these low levels only? How do you think about that? If you could just give a bit more color to that?

Dr. Sanjay?

See, when we have been generally seeing the distressed assets, largely, if I talk about the brownfield acquisitions, these assets have been in severe distress. And we see a few things into it. One is the strategic location. How much is the distress that can give us compelling values and deep discounting into it? The kind of medical services, which are available in that area. And fourthly and the most importantly, the headroom to grow in that area. Based on that, we do a multiple, you could say, valuation of the property, and then we arrive at the buying price. And generally, because we pay upfront, we get a deep discounting, and that is why we have been able to maintain a very low CapEx.

And sir, going forward also, you expect this level to continue or like the ROE, ROCE levels will sustain going forward?

I'll answer this question. As Dr. Sanjay also mentioned, the other point is because when we built our hospital, we know we are here to provide the best of the health care services to the affordable segment. So we keep a couple of things in mind. One is 40% of our beds, we set aside as a general bed, and we specialize in critical care. So 30% bed, we set aside for ICU bed. And balance 30%, that is mainly 20%, 22% is a twin sharing wherein 1 room has to be shared by 2 patients and rest is single room. So this allows us to have more bed in less space. So this is one point. Second, your question in terms of going forward. So we are adding 6 more hospitals by March 2028, which we have already disclosed in our RSP. That was part of our document with SEBI, wherein we are adding -- the first unit that we are adding in Agra that will be up running from Feb 2026. Panchkula, we are adding that will start operation from March '26. Kanpur, next year, we are expecting to add 500 beds, one in Kanpur and second in Delhi. And in FY '28, we are adding 3 hospitals, Gorakhpur, Ambala, Rohtak. Together, we are adding 850 beds. So we are adding 2,010 beds in next -- by March 2028 and on a CapEx of INR 700 crores. So we will remain on our CapEx per bed of INR 35 lakhs. So we have done historically. We are currently doing it. And going forward also, we will remain on this model.

My last question would be more on the employment side, majorly related to doctors. So you have so many specialized procedures. So what's the split between your specialized consultants versus full-time doctors? And what's your hiring and retention strategy, if you could just give a bit more color to it?

Shreya, all our consultants are full time. And if we employ only full-time doctors, there is no visiting consultant policy with us. And all these doctors which we hire, there is a future growth map, which is mapped for them and told beforehand when the hiring is being done. There are a lot of things which we -- from the HR point of view, also we ensure for their social well-being and settlement. HR helps them in getting good accommodation. HR helps them in getting their children into good schools. These aspects we take care of to settle them. Within the system, we have this thing that these doctors are accounted not for volume or revenue at all. In fact, they are accounted only for 2 verticals largely. One is the patient and attendance satisfaction and the other is clinical outcomes. And based on that, they are rewarded based on a graded percentile system. And this reward is every month. And if anybody is scoring more than 90%, 95 percentile, this reward can even go higher than their remuneration package per month. So there is a great satisfaction level at the consultant level. Vice versa, the Park Hospital also gains mutually return in a symbiotic relationship that the patient and attendance satisfaction is also very high because all the patients, especially the critical patients are a number of times counseled in the trajectory of the treatment, in the prognosis, in the outcome. All these aspects give them a lot of satisfaction because doctor gives them a lot of time. They're not visiting their full time, so they are dedicated for this thing. So this is a major thing which is unique from the other hospitals. In the consultant level, our attrition rate has been the least in the industry, which is about 18.9%. So most of the consultants, which have been there with us, they have been there for 15 years, 12 years, 11 years, 10 years, so forth and so on.

And sir, any specialized hiring strategy that you use to attract special talent in the -- for the consultants like a special heart surgeon or someone from the oncology care? Is there any other like special strategy that you follow?

Yes, the large bed strength and by virtue of being the second largest in North India and one of the listed companies, we by itself are a huge brand to reckon with. When we take out an advertisement for hiring, we get the cream of cream from the clinician point of view. If I give you a recent example, in Panchkula, when we started hiring for 300 bedded our greenfield project, which is upcoming, as Mr. Sudesh mentioned, in the first week of March, we got a footfall of about 4,500 to 5,000 people coming in. And the best of clinicians in the Tri-City and around came to get hired with us. That is because they have been aware that how Park takes care of their clinician, not as an employee, but as partners as part of the Park Medi World family. And they enjoy all the benefits in the growth, sustainability, profitability and the growth prospects for future.

When we look at hiring medical staff, it's 4 things combined that become -- that have -- if I can use the term sort of magnetic charm attracting which enables us to attract high-quality talent. One is Park offers a very attractive remuneration policy, including both fixed and variable remuneration. Second is for incoming doctors, there is a chance to -- opportunity to work on a large number of cases drawing on the Park, so very specific strength in the middle and bottom of the pyramid population segment. Rajesh-ji just now shared with you our IPD number in the 9 months was nearly 75,000. And Dr. Sanjay Sharma shared that we have 1,200 doctors, of which 75% are specialists. Just imagine that number of specialists getting to work on that many number of patients. So a large number of -- opportunity to work on a large number of patients. Third is an opportunity to assume significantly higher serious gravitate responsibilities early on should the doctors show that potential that opportunity is there. And fourthly, because some of our hospitals are located in Tier 2 and Tier 3 locations, I can safely tell you that Park has industry's most robust plan to assist the doctor. So should they have to relocate to any of these locations to assist them in adjusting to this location in terms of community support we provide, adjustment support we provide. So a combination of these 4 factors, attractive remuneration, opportunity to work on a large number of patients, opportunity to assume higher responsibilities at an early age. and fourth, a strong support to adjust to new locations should a doctor have to relocate. These 4 combination -- combined factors play a big role in attracting very high-quality talent and requisite numbers that we require.

[Operator Instructions] The next question is from Aniket Bepari from Otis Wealth.

Just wanted to know sort of like your business understanding like you have highlighted earlier in this call as well, a lot of our revenue basically comes from government schemes, right? And ultimately, our core focus is on the middle income and lower middle income sort of 128 crores of patients in this country. But I wanted to understand how do we sort of reduce our dependency and diversify away and sort of increase the revenue that's come from other sources of private insurance or great walking sort of patients. So could you please just highlight how are we managing this?

No, Aniket, firstly, I would like to reaffirm and put a viewpoint again that our focus has always been in the affordable section. Now whether they are being covered by any government insurance or they are self-pay from that point of view, either way, we will be focusing on the affordable section because that is a huge section. It is nearly 90%, 92% of the population of India, and we have a huge headroom to grow in that. We are not going for government insurance or government schemes per se. In this section, if anybody is being covered by the government insurance, they also come to us because the other premium segments are not entertaining them. We have a system in which we have -- we have already accounted in a rolling manner for this 4.5 months of gestation period of the payment. In fact, as Mr. Rajesh Sharma mentioned, this becomes our moat for any new entrant to come in such large-scale structured format and to be catering to this affordable segment. So we are unique in this manner that we are one of the largest player in this section, which is giving them high-quality affordable health care with the most, you would say, the best clinical outcomes.

Think of it like this. We are as a business model not making a selection of patients in terms of their socioeconomic status or their location. Our business offers a value proposition, affordable, high-quality services. So we do not choose the patients on the basis of how they will pay for these services. Matter of fact remains that at the macro level, 90% patients belong to bottom and middle of the pyramid, 10% if we can call it that relatively affluent segment. In Park, the mix of patients is similar. It is 83-17, 83% belonging to bottom and middle of the pyramid, 17% to relatively affluent, what is known as the cash TPA segment. So business model is regardless of how patients will pay for them, it is not oriented at payment mechanism. It is oriented at patients. And I think you will agree that for longevity of business for long-term health of business, it is really very good if your patient mix is somewhat reflecting the reality that exists at a macro level. If the patients -- 83% patients who are from bottom -- middle of the pyramid, should they want to pay us by means of cash and TPA, we are most welcome to do that. It is really coincidental that these patients covered by government insurance scheme and that becomes the payment mechanism. But we per se and our business model do not make collection of payments by distorting our business model, choosing patients belonging to certain socioeconomic status. That is the answer to your question.

Right. And sir, last one question from my end. We are incurring around INR 700 crores of CapEx, right, till FY '28. So how much are you incurring FY '27? Could you like give us a time line of this distribution?

So as far as the CapEx is concerned, out of this INR 700 crores, so this year, even the hospital, which is coming up by next -- before 31st March 2026, we are adding 2 units. One is Agra, second is Panchkula. So there together, because it's Agra that we are acquiring. So wherein we are paying INR 245 crores. And Panchkula, it was a greenfield where the construction is going on for last 2 years. So the additional amount that we have to incur is about INR 35 crores. So together, you can say about INR 280 crores will go in the current year. Next year, FY '27, we are adding 500 beds, where in Kanpur, we have to invest about INR 30 crores and Delhi is about INR 80 crores. So only INR 110 crores next year in FY '27.

The next question is from Nitin Agarwal from DAM Capital.

Sir, 2 things. One is, a, on the CGHS rate hike, which you said will progressively get rolled out. By what time do you think the entire impact will be visible -- will be there and be visible for us? How much time will it take?

Nitin, this is Dr. Sharma. I think the effectivity has started percolating. But in totality, if we see all the organization being able to effectively implement it, it takes about nearly 3 to 6 months. So we are hoping by next financial year, the actual total implication of the rate hike will be coming into our financials.

Sir, is it safe to assume by the second half next year, we should see the full impact of these rate hikes beginning to reflect in our numbers?

Nitin, hopefully, before that, but it will be safe to say by second half of the next year.

And sir, on an average, if there is a way to sort of classify like that, what is the proportion of revenue hike that you've got on an average -- on a weighted average basis through the hikes for -- if you were making INR 100 earlier on government schemes, what is the weighted average increase that you've got through this scheme -- through this rate hike that has happened?

Nitin, just to let you know, there are about 4,500 to 5,000 line items in the central government rate hike. So for each line item and their implication on the finances will be difficult to predict prematurely. But generally, the overall rate hike, what we envisage has been about 12% to 15% and the effectivity of that will come probably in the -- as you said, second half of the next financial year. And also, what we see is this that we will be still conservatively accounting for it. We'll not be going for 12% to 15% search the entirety into it. We will be looking at about 7.5% increment in our revenue and EBITDA. That is conservative figure.

Got it, sir. And sir, on the UP that you mentioned is going to be a key focus area for you going forward. So there is a hospital in Kanpur, Gorakhpur and Agra. Which are the other sort of areas that you would typically be looking for from an entry perspective as we go forward strategically?

It's a very, very interesting question. You will have noticed that one strategic plan of Park, whichever state we get into is to reach a critical size. We have a critical size. We are largest in Haryana. We will have 2 units in Delhi now. We have 2 in Rajasthan. In Punjab including Tri-City, we will have 4 units in Bathinda, Patiala. We have 1 in Mohali, 1 launching in Panchkula. So as we enter the state of UP, we always had a plan to launch a unit in Gorakhpur in FY '27 and Kanpur in FY '27, Kanpur and FY '28 Gorakhpur. So we had an opportunity and under a very propcious set of circumstances to acquire a unit in Agra 360 bed capacity. So if you visualize the map of UP now, we have 3 pivots covering the entire span of the state. On the western side, we have Agra as a pivot. Somewhere in the central, we have Kanpur and Eastern side, we have Gorakhpur. UP also, as you are aware, is known as highway capital of the country. It has a very good infrastructure of highway scripts crossing the state and a huge TAM population of nearly 26 crores. So with these 3 pivots, we believe that leveraging on this infrastructure and potential of the market, we will be able to form maybe 2 or 3 clusters going forward and expand our business in UP. It is very striking to note that from literally 0, we will be 1,060 bed capacity in UP by FY '28 in 24 months' time, which is quite remarkable.

Right, sir. Right. And sir, since you mentioned for the Agra transaction, if you can just give us a little color on what is the valuation that you paid for this transaction?

The total value for this transaction is INR 245 crores for 360 beds.

And sir, these 360 beds are commissioned beds?

Yes, it's already operational.

And sir, did we share the EBITDA number for the hospital or the last 12 months EBITDA for the hospital?

Can you just repeat the question once again?

So the EBITDA number, the annual EBITDA number for this hospital that when we acquired it?

No, because that currently, they are not operating at a decent occupancy. So even historically also that during our road show, we presented to the investor, we acquired the hospital when they were doing a top line of INR 50 lakhs, INR 60 lakhs or INR 1 crores. Now currently, they are giving us a top line of INR 21 crores, INR 22 crores, INR 23 crores per month. So when we come on the board, we do put in our effort, we put all the specialty from the day 1. So there also that currently, they are doing INR 4 crores with an EBITDA which is close to 20%. But once we come on the board, then we are expecting a good growth in the revenue.

It happens that in Agra, currently, they are operating within 180 beds only, though they have 360 beds, but they're operating within 180. And there also, they have about 30% of occupancy. And 3 major specialties are there, cardiology, urology, nephrology being the second one and third one, gastroenterology. When we are opening up, we are opening up with all super specialty, including the neurosciences, including the other specialties and onco sciences. So all put in together, when all major super specialties will be opened, and we'll be operational 360 functional beds, the patients' requirement will be catered to under one roof only. So we definitely see a huge number coming in.

So when we start, we will start with 360 beds.

Got it, sir. Got it, sir. And sir, the acquisition price that you mentioned, INR 240 crores for a 360 bed is typically higher, a little higher than our traditional INR 35 lakhs, INR 40 lakhs per bed, right? So is there...

Reason again, I'm saying it depend on the transaction. As Dr. Sanjay also brief about this transaction, it is there in the densely populated area. And because we acquired this asset, keeping headroom in mind, even historically, let's say, if I talk about our blended CapEx, we made acquisition of Mohali that was together costed us close to INR 275 crores. And the same thing is happening here. The CapEx that we are expecting per bed is about INR 68 lakhs. But if you see the 2,000 beds that we are adding in the next 2 years, my blended CapEx will be INR 30 lakhs, INR 35 lakhs only. So here, we have done keeping headroom in mind.

Looking at Agra, the closest parallel is just so that you understand this is our Mohali acquisition, where our CapEx per bed was similar. So it is a case-by-case assessment. Mohali asset delivered when we assess its potential, it over exceeded our expectations. It delivered a 36x jump in revenue in 30 months' time. Looking at Agra, we looked at Agra asset in 2 ways. One is, as an isolated case, it is the largest asset in the city of Agra, which is 21 lakh captive population. influence area should be double of that. So as an individual asset, it has a very high potential for growth in a highly promising micro market. And secondly, we looked at it as also an important cog in the wheel for pushing our UP strategy. It gives us a pivot in the Western part. So we have one, as I said earlier, in Western part now, one in the center of the state, one in the Eastern part. So as an overarching strategy, it made a lot of sense. In Bathinda, our CapEx per bed is lower than historical. As Rajesh-ji just shared on a blended basis, it still works out for us. We are at INR 34 lakh per operating bed number.

And sir, just a quick last one on this. Is there ability -- do we have a space to add more beds in this hospital at a point in time?

Dr. Sanjay?

See, currently, our main focus would be that in 360 bed, we reached the optimum occupancy of about 75% to 80%, which is what we call is our best foot forward. So there is a long way to go into it. We would have a number of other acquisitions also as you could say, the permanent [indiscernible] between Agra, Gorakhpur and Kanpur, Lucknow, Banaras and other centers would also be there in our mind. And we'll be looking for further acquisitions of brownfield and greenfield in between. So currently, we are not envisaging enhancing beyond 360 bed, but we look at ramping up the occupancy to about 75%, 80% in coming 3 years.

Got it, sir. And sir, the last question from my side, on the business, is there a way for you to characterize our revenues in, say, secondary care, tertiary care, quaternary care? I know this is a huge definition, but is there a way to say typically, how does our revenue really fall in these buckets?

See, generally speaking, when a human body falls in, there is nothing primary, secondary or tertiary to be very honest. The criteria is seen from the services which are being provided by the institution. So we are currently a tertiary quaternary institutions. All our hospitals are based on that. Now if somebody is coming and taking probably a tetanus injection or bandaging that comes into primary. If somebody is having fever or something and taking secondary care, that is also there. If somebody is coming for cardiac surgery or joint replacement or you could say, organ transplant, that is also there. So our hospitals are equipped for higher tertiary and quaternary care. But per se, different patient mix comes depending upon the requirement.

Due to time constraints, we have to take that as the last question. Participants whose questions have been left unanswered may reach out to Saloni from the AdFactors IR team. On behalf of Park Medi World Limited, we conclude this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.

Thank you very much. Thank you.

Thank you very much.