Rainbow Children's Medicare Limited (RAINBOW) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Rainbow Children Medicare Q3 FY '25 Earnings Conference Call, hosted by IIFL Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jeewani from IIFL Capital. Thank you, and over to you, sir.

Yes. Good morning, everyone. I'm Rahul from IIFL Capital. I welcome you all to the third quarter earnings conference call of Rainbow Hospitals. From Rainbow, we have with us today, Dr. Ramesh Kancharla, Chairman and Managing Director; Mr. Vikas Maheshwari, Group CFO; and Mr. Saurabh Bhandari, Head Investor Relations and Group business Analyst. Over to you, sir, for your opening comments.

Thank you, Rahul. Good morning. So wishing you all a very happy new year, and a very warm welcome to our earnings call for the Q3 and the 9 months of the FY '25. I will discuss the company's progress, vision and exciting opportunities ahead. Before that, I would like to take a couple of minutes to share that we have successfully concluded the silver jubilee celebrations of Rainbow Children's Hospital. Being an young organization with an average age of 32, the events were energetic and electrifying, featuring outstanding performance from employees. It was an immense joy to celebrate this milestone with an entire range of family, and I was deeply touched for the love and strong bonding the team shares with the Rainbow. We have recognized and honored hundreds of employees for their outstanding contributions. Over the last 25 years, this incredible journey has touched millions of children for their health care needs and saved thousands of lives, hundreds of doctors being trained and creating value for all the stakeholders. I would like to take this opportunity to thank all of our medical, paramedical and support teams for their unwavering commitment in delivering exceptional medical care for children and women positioning Rainbow Children's Hospital as the India's leading children's hospital group. Now I would like to focus on the results of Q3. Here are the key highlights of the first 9 months of the year. We had a strong Q3 performance with our growth across all operating metrics, including our new hospitals launched in Hyderabad, Bangalore and Chennai 3 quarters ago. These new facilities have now well integrated within our Rainbow hub-and-spoke model. Our IVF services have shown good progress and gaining traction, reinforcing the potential as a key growth driver for future. Recently, we have added a new IVF clinic close to Rainbow unit Bannerghatta Road, Bangalore bringing our total number of IVF clinics to 12. As highlighted in the last quarter, we have launched Butterfly Essentials, a dedicated retail store, offering a comprehensive range of baby and women care products. So we have successfully opened Butterfly stores in all of our 15 hospitals. This initiative is progressing well with a good footfall with an enhanced patient experience. Rainbow opened a state-of-art Child Development Center in the last quarter at Banjara Hills, Hyderabad, setting a new benchmark in a pediatric care. This facility now serves as a central hub, consolidating child development service system all the Rainbow Hospitals in Hyderabad to ensure comprehensive and efficient care for children in one location. We are still encountering challenges in our international business, particularly in countries like Bangladesh, Oman, Kenya and Sudan. There has been a significant reduction in the issuance of health care permits for patients seeking medical travel. Now drilling on to those numbers, for the Q3 FY '25, our revenue has registered growth of 18.5% amounting to INR 398 crores. Similarly, our EBITDA increased by 14%, reaching to INR 134.3 crores, while PAT registered a growth of 10.2% to INR 68.9 crores. Our overall occupancy rates for the quarter was 53.2%, with the mature hospitals achieving 60.2% occupancy and the new hospitals, including a newly launched hospital, recording a 39.6% occupancy rate. Coming to projects update. We opened new outpatient clinics in the busy residential area of Attapur in Hyderabad. This clinic operates in conjunction with the Banjara Hills facility, ensuring a wider coverage for the hub hospital. The regional hub hospital in Rajahmundry, Andhra Pradesh of 100 beds is nearing completion and is expected to commence operations by May '25 of the calendar year. The project work at the spoke hospital in Electronic City of 90 beds and the Hennur, Bangalore of 60 beds are progressing well. Both hospitals are expected to commence operations by end of the Q2 FY '26. The project work at -- commenced with a regional hub hospital in Coimbatore of 130 beds. The project is running slightly delayed with our operations anticipated to commence in about 24 months' time. The company has obtained official building plan approvals for the land parcels in Sector 56 in Gurugram and -- while approval for Sector 44 is probably a few weeks away. Our project team is busy in the tendering process. In addition to our growth plans, I would like to highlight some key achievements that reflect our -- the commitment to delivering the high-quality pediatric and perinatal care. Over the past 9 months, we have successfully treated a number of children in intensive care services and also at the group level and managed complex pediatric specialty cases. Here are a couple of notable examples, which I would like to present. Our cardiac team at Rainbow Children's Heart Institute performed a world's first fetal balloon aortic valvuloplasty with a pioneering closure device. So I will expand a little bit about this patient. It's an interesting -- a 35-year-old lady, who was carrying a fetus of 27 weeks, with a severe aortic stenosis and left ventricular dysfunction and flow was reversal in the aorta. So our multidisciplinary team including the cardiologists, led by Dr. Nageswara Rao, fetal medicine specialists and obstetricians, have successfully performed a fetal balloon aortic valvuloplasty on a 27-week baby of 700 grams within the womb for critical aortic stenosis. The groundbreaking aspect of this procedure was usage of closure device to seal the puncture site, making it the first known globally with this innovative approach. What I'm trying to say is that the heart size of this baby of 700 grams will be about a large grape size. Normally, we have to approach this heart through the puncturing the ventricle in the bottom of the heart and then go and do the balloon valvuloplasty. So this baby is so small, if we do a small puncture, the balloon would not go through. Therefore, our team has decided to use a large bore and wide open, so that the balloon can go and do the valve -- finish to complete procedure. So that will lead to the massive blood coming into the -- around -- surrounding the heart, so will compromise the life. So therefore, closure of this hole was done by the device. The heart was actually being closed with the device closure. This is what groundbreaking in this particular case. This is done first time in the world. So obviously, this pioneering success marks a milestone in fetal cardiology, expanding the possibilities in-utero interventions and also bringing hope to the families worldwide facing severe fetal heart conditions. This case was wide -- gained wide interest in national media and almost all major national publications carried the news article, perhaps Honorable Prime Minister Modi acknowledged this groundbreaking procedure. The second case is successful keyhole surgery for a rare brain tumor, a 7-year-old child, who was experiencing persistent headaches for 10 months and gradually losing the peripheral parts of the vision along with the 2 seizure episodes. The family consulted our pediatric neurology team, the MRI revealed a cystic tumor in the sellar and suprasellar parts of the brain, extending into the frontal lobe. A biopsy confirmed it to be adamantinomatous craniopharyngioma, a rare type of surgically treatable brain tumor. The child underwent minimal access -- minimally invasive keyhole surgery and our surgeons could manage to excise completely the tumor. So doing a keyhole surgery in this child reduced the complications like -- reduced complications and ensured a short stay and also provided a better cosmetic outcome. So 2 weeks post-surgery, the child was discharged with a complete neurological recovery. So this case underscores our critical role of a multidisciplinary team in managing tertiary and quaternary care patients. So with that, I will now pass the mic to our Group CFO, Mr. Vikas Maheshwari to take us through the financial update. Thank you once again for joining us today. We look forward to your questions and insights as we move forward. Thank you.

Thank you, sir. A very good morning to all of you, and thank you for attending this investor conference. I'm pleased to brief you on the financial performance and the key developments of Rainbow Hospitals for the third quarter and the first 9 months of current financial year. Our operating revenue for the quarter stood at INR 398 crores, reflecting a growth of 18.5% when compared to the corresponding quarter of the previous financial year. For the first 9 months, our revenues stood at INR 1,146 crores, reflecting a growth of approximately 20% when compared to the 9 months of the previous financial year. Our EBITDA for the third quarter amounted to INR 134 crores, marking up 14% growth compared to the same period last year. For the first 9 months, our EBITDA stood at INR 375 crores, reflecting a growth of 16% when compared to the 9 months of the previous financial year. For the 9 months of the current financial year, EBITDA is slightly impacted by close to INR 7 crores due to one-off events related to 25th year anniversary celebrations. The EBITDA margin for the current quarter is 33.8%, while for the first 9 months, our EBITDA margin is 32.7%. The profit after tax for the quarter is INR 69 crores, marking a growth of 10.2% in comparison to the corresponding quarter of the last financial year. For the first 9 months, our PAT stood at INR 188 crores, reflecting a growth of 12.2% when compared to the 9 months of the previous financial year. In terms of the operational performance, both outpatient and inpatient volumes witnessed a growth of 12% each when compared to the corresponding period in the last financial year. Our payer mix continued to remain robust and balanced with 51.3% of the revenue coming from the insurance and the balance, 48.7% coming from the cash patients. For the first 9 months, the payer mix stands at 48% cash and 52% insurance. Furthermore, international business constitutes now approximately 2% of our total business for the third quarter. As highlighted earlier by our Chairman, we are facing some headwinds in the international business, and we are working to mitigate the impact. I'm pleased to inform that our company's balance sheet remains very robust with a net cash position of INR 667 crores as of December 31 of the last year -- 31st December of last year and will support our ongoing capital expenditure plan. Given our current cash and anticipated internal accruals in the coming quarters and the years, we remain confident in our ability to complete all planned capital expenditures through internal accruals without any debt financing. During the quarter, the company has invested approximately INR 22 crores in the capital expenditure. With these insights, I conclude my financial updates. I now invite questions and suggestions from the participants. Thank you very much.

[Operator Instructions] The first question is from the line of R Sen from MAS Capital.

Happy to see a good set of numbers that you've kind of reported. So just wanted to understand, we spoke about the largest pediatric training program. If you can just share some light about the opportunity size? And what kind of market do we see this kind of turning out to be?

Yes. So we train -- we have about total DNB seats of about 200 across the group to train. This is the full scale training for the pediatrics. And it's competitively selected through the NEET examination. And the Rainbow being the premium institute and the seats get over in first tranche itself, well within about a few thousand rankings. So we also do a lot of super-specialty trainings for the neonatology and pediatric intensive care, pediatric hepatology, hemato-oncology and cardiology. So we have a neurology. So we do a lot of -- we have large training centers today to train people.

Okay. Okay. Sure. Sir, just drawing parallel with some of the other hospital chains, not in the pediatric region, I mean, space, but especially in the eye space, I see, there's a ultra asset-light model that they have kind of used, especially for penetration into Tier 2 cities. Now the question was, is there a school of thought with the management to kind of explore this model to enter Tier 2 cities with the ultra asset-light model, which acts as a catchment area and feeds into the Tier 1 branches that we have?

For a rainbow operating model, so ultralight may not suit, whether we go to the main cities or even the spoke hospitals or even the districts also. That's because we are a complete health care model. We are not kind of a part of segmental health care model. So especially children's health care and also when you combine with maternity, we require a space required for the woman as well as children with emergency services and the outpatient department, you do surgical, you do intensive care works, you do birthing. So it's a largest [indiscernible]. So how much ever we kind of comprise -- the 50 beds is the lowest. About 35,000, 40,000 are the kind of at the lowest kind of the space, which will be required. That's what actually what we look at it always. Going ultra small, we're actually compromising some of your the -- offerings to the patients. As an emergency hospital, this is going to be difficult for us to operate and satisfy the people and gain the traction.

Got it. Got it. Sir, if I may just ask one last question. This is at a macro level, 1,935 beds as on 2025. Can you share your aspirations till 2030, where do we see how many beds and at a long-term goal?

We have a trajectory, which has already been discussed, about 1,000 beds in the next 3.5 years, Sen. About 400 beds are going to be in the NCR, which is already planned in Gurgaon, 2 hospitals. And the 600 beds are going to be in the regional spokes as well as at the spoke hospitals in the south. And some regional spokes which are new like Rajahmundry and Coimbatore and those are the new geographies.

[Operator Instructions] The next question is from the line of Damayanti Kerai from HSBC.

Sir, my first question is on your Gurugram site. So can you update us like what are the pending approvals? And as you said, like some work has already started, but -- when are you expecting to start the construction work and now like what should be the time line for completion for the Gurugram site?

We are almost there. Actually, the permissions for one of the sites have come, and we heard that the other site permission is just on its way about a couple of weeks' time. And we are actively engaged kind of with the -- we have built our projects team. They're all busy in tendering process and trying to kind of float the tenders, inviting people to kind of -- for the base building construction. So we are quite active now, probably a kind of a -- we start the site construction in about 4 to 6 weeks' time.

4 to 6 weeks?

Yes. Yes.

And you mentioned approval for Sector 44 is a few weeks away. What about the other site?

Other one is already there. We have received the permission for the Sector 56.

Okay, okay. So very broadly, say, you start on the construction, et cetera, in another 4 to 6 weeks. So reasonably, we should be looking at FY '28 as the launch time line for this Gurugram facility?

Yes. We are also taking some kind of steps to kind of how to speed up the construction and also going more with the steel structures and those things. Now there are a lot of things which we are trying to see that how to speed up the process to construct the base building, then once we have the base building constructed within a year time, then we can set our pace more aggressive to complete it. So we expect about 2.5 years from now to start.

Okay. That's helpful. My second question is your international business. So right now, it's small, like, 2% of your total business. But what are your aspirations here and especially in light of what we heard about this Heal in India program for promoting medical tourism. So I just want to hear your thoughts on this -- this part of the business.

So we started our international business post-COVID actually. It was going pretty well. Perhaps, we budgeted about 4% of the top line to come from the international business about this year. Last year, we clocked about INR 44 crores. We were quite ambitious about it. Unfortunately, that geopolitical situations and also the Bangladesh and some of the areas, like Oman, is also has problem, and the Somalia, which is our largest contributor, which has got -- Sudan, they're all into kind of a serious internal problems. So that's why there is a significant reduction in the health care business for all the [indiscernible]. I'm not sure about other groups, but we have seen almost a reduction of 40% in this business from the last year.

So you said -- you earlier budgeted for 4% of revenue from this segment, but due to macro uncertainties, there has been some 40% reduction from your initial anticipation. So where should we end for FY '25 in terms of contribution?

I think the end of this one, I think, it's probably about INR 34 crores or something we are expecting it to close it now. Last year, we did about INR 44 crores. And we'll -- waiting for actually things to open up. It's -- our international journey is in a very early phase, which is why kind of it's a building story. And once things have opened up, we are also exploring other countries opportunities at the moment actively, things like Philippines, Mauritius and Uganda and other areas, Zimbabwe. So we are kind of hoping that it's in early phase building story. We also wanted to kind of have a closer connect with the doctors in those African and also Indian neighborhoods in those countries to have a better relationship with them and try to build up and engage to have a better referral system.

Okay, sir. And my last question is, in this quarter, the staff costs, we have seen around 8% sequential decline. I understand there is a bit of seasonality related factor as well. But in your staff costs, like what percentage will be variable in nature and which can just be adjusted according to the top line performance?

So Damayanti, it's a good question. It's a good observation. If you go back to quarter 1, our staff cost was also at around INR 49 crores. In the quarter second, which is seasonally very strong, so we had nurses, paramedic staff, extra on the contractual basis, cleaning, et cetera. So the costs slightly goes up, and there will be some OT payments because nurses, et cetera, has to work a little harder on the patient handling, et cetera. So I think this is a normalized one, which has come back to the normal level. So that should be the cost on the current debt capacity, which we are operating.

Around INR 49 crores, INR 50 crores kind of staff cost...

INR 50 crores is what it should be. In the quarter 4, obviously, there will be some slight adjustment on the gratuity, et cetera, but will not impact much of the things.

[Operator Instructions] Next question is from the line of Sumit Gupta from Centrum Broking.

Sir, just now -- so on the CapEx part, like now that this Delhi-NCR project, Gurgaon hospital has now moved to FY '28. So I just want to understand on the overall capacity plans for the next 2, 3 years. You said, the same INR 550 crores that you guided for?

So see, we have already listed out our CapEx plan in our presentation. So in FY '25, '26, we are coming with 250 of the beds, and these are all asset-light, means these are leased assets. And similarly, on FY '26, '27 is 130 beds. So roughly 380 beds, or close to 400 beds, which will come in next 2 years. Since these are on the leased assets, roughly INR 60 lakh, INR 65 lakh per bed, you should assume on that as a CapEx. As far as the Gurugram is concerned, we have already spent around close to INR 180 crores to INR 190 crores on the land acquisitions and related registration and permissions, et cetera. Now you should budget at around another INR 400 crores in the next 3 years' time, starting from FY '25, '26 to FY '27, '28. But most of this CapEx will happen post 1 year because right now, once we have the approval, the groundbreaking and then foundations, et cetera, will not take much of the cost. So most of the costs will come after 1 year. So that is what is the trajectory. The exact trajectory of Gurgaon, once we start the project, we will come to know. But that is the more or the less INR 400 cores in the next 3 years for the Gurgaon.

Understood, sir. And sir, lastly, on the -- like how the overall new centers, which were opened in the last 2 to 3 quarters, they are trending in terms of occupancy and profitability. Like what has been the trend that you're seeing?

So for the 9 months, if you look at -- because we have opened our units sometime in the March last year, right, 9 months before. So if you look at 9 months, our new hospitals occupancy at around 37%. I think that is a good -- and a blended basis, which is a few units, which was opened 2 years back and so on and so forth. If you look at, I think the occupancy level is at a good level. The new units are doing well. It is on the given trajectory. We have already guided our -- for the Hyderabad, we breakeven in 12 months' time. For the Bangalore, it takes 15 months' time. And Chennai take some 18 months' time. I think these are all on the same trajectory. There's no change on that.

The next question is from the line of Alankar Garude from Kotak Institutional Equities.

Sir, at the beginning of the fiscal, you had alluded to focusing more on volume growth in FY '25, especially with all the new hospitals, which became operational in 2024. Now given that we are seeing decent volume growth across both these newer centers as well as the existing centers, how should we look at ARPOB growth in FY '26?

Okay. Alankar, this is a good question. See, always, we have kept on guiding for the last -- at least for the last 2, 3 quarters. say, ARPOB is a little bit of a different complex subject because there is a 2 variability. One is the seasonality. Second is ALOS. If the ALOS goes up, your ARPOB gets suppressed, right, though the occupancy goes up. So what we are guiding or requesting all the analysts and the investors is to look at what is our ARPP growth. I think ARPP growth has been consistently between 5% to 8% depending upon the quarter-on-quarter. So I think this trajectory will continue because of 2 things. One is that the new centers, which is getting matured, we have got a little bit of the pricing power. Thus the mature centers, start operating the more complex cases and more clinical difficult work where the ARPP, et cetera, is high. So I think -- if you look at ARPP, I think you should look at something like that 5% to 9% growth on ARPP, which is real growth because that eliminates at least one portion, which is easy, which is ALOS. In our this case, the ALOS has gone up by 12%, right, which has got impacted. ARPOB -- if that would not have been, the ARPOB would have been higher.

Actually, that was my other question. I mean, ALOS, both in new and existing, has increased meaningfully in 9 months. So let us know the reasons, at least for the matured hospitals, what is the reason for the sharp increase?

Because of the operational issues, sometimes as the insurance business is 50% for us, sometimes the insurance approval comes late, it automatically gets delayed 4, 5 hours. So these are -- most of the things are operational efficiency related plus if the more complex cases, the patients are staying longer at the hospital. So it's a combination of both. But the operational related, whatever is there, obviously, we can improve ourselves.

So how should we look at ALOS then going forward? Should it come back to the 2.6, 2.7 number?

9 months median is a good average to take up. So I think it is at 2.8, 2.9, and 9 months average should be good. We should improve from here, but you should take that average.

Yes, traditionally, Alankar, our ALOS will be anywhere between 2.6 to 2.8. So depending on actually how the seasonal, if there is a lot more seasonal, a lot more [ opposite ] side, then ALOS will come down. This is more of a -- little more of on the complexity, more of specialties, more of NICU admissions, the ALOS get tweaked more towards a little longer length of stay. So this is the dynamic that keeps going on. So typically, in Q2, Q3, the ALOS usually will be below. But this quarter, the seasonal business is not that higher. So therefore, the ALOS is kind of little more tweaked. I will definitely look into that now, are there any other factors that ALOS have increased. So even then, I think the ALOS of 2.7, 2.8, that's what generally will settle down to a pediatric -- a matured pediatric hospital, that's what my thought would be.

Got it, sir. And one last question. You had spoken about evaluating certain M&A opportunities in the past. Can you update us on the progress on that front?

We -- Alankar, we continue to look at those fronts. And I mean we will continue to work on these opportunities, and I'm sure we'll let you know once it comes to some degree of kind of a conclusion.

The next question is from the line of Nitesh Dutt from Burman Capital.

My question is related to the new hospitals that we added in Q4 of last year and Q1 this year. I think we have added close to 230 new operational beds. So what was the EBITDA drag because of these new beds this quarter?

Yes, it's a good question. It is a single-digit high number of EBITDA drags. So it is close to INR 8 crores to INR 9 crores for the 3 hospitals together for the first 9 months.

Understood. Got it. Second question, the delays in 3 hospitals that you mentioned. Just wanted to understand the reasons for the delays. Gurgaon one, I think, you mentioned due to approvals. But for the remaining ones? And also any chances of further delay? Or do you think the stated time lines -- by those time lines, the hospitals should become active?

I think there's very -- a couple of months delay in Rajahmundry, not much of delay, just basically going slow. It's a tier 2 city. Obviously, the challenges always will be there because our teams are all located in the cities, so our project teams and also the vendors. So that is a couple of months delay in Rajahmundry. In Chennai, Coimbatore, there was a kind of a redesign of plans has happened because of what -- there's some change in the government rules and the regulations on the offsets and those things. So that's why you had to resubmit the plans and then get a re-approval process. So being in Coimbatore, all the process runs in Chennai city. So that was some degree of delay. So otherwise, they're all ready to construction and doing things. Now execution is going on. I think we want to kind of fast phase it now.

Understood. Great. One more question. Can you just give some sort of outlook for FY '26, both on occupancies and ARPOB?

I think it is a bit early to kind of look at it, still we are in the current financial year. So probably we'll kind of discuss in the next earnings call.

[Operator Instructions] The next question is from the line of [ Nathan Subramanian ] an Individual Investor.

First of all, wishes for your excellent performance. Okay. I just want to know -- I am a new investor. I just want to know how do you differentiate a new hospital and mature hospital? And that means how many months after you consider a new hospital as a mature hospital? And my second question is, what are the likely growth drivers?

Okay. So how we classify the matured hospitals in the new hospital is based on the tenure from the date of we start the operations. So the new hospital we categorize, which is less than 60 months, which is 5 years, and the matured hospital is, which is commenced operations more than 5 years. So this is how do we differentiate on this. The growth drivers will be 3. One is that our matured hospitals will keep on adding the doctors and the new specialties. So the growth will come from one vehicle of that. The second growth is our new hospitals or the non-matured hospitals, which is less than 5 years. They will keep on growing at the faster pace than the matured hospitals, that growth will come from there. The third growth will come from the new hospitals, which we are adding. Next year, we are adding, FY '25, '26, 3 hospitals we are adding, and we are adding close to 12.5%, 13% of our capacity, close to 250 beds in the next financial year. So that will also drive the growth in the coming quarters and the year.

The next question is from the line of Anshul Agrawal from Emkay Global.

Great. Sir, any reason that you would want to call out for the different gross margins in the current quarter? I believe this quarter would have lower surgical mix.

Yes. So Anshul, if you are comparing it with quarter second, yes, the mix will be slightly better in case of quarter 3 because the quarter second is a seasonally strong quarter, and there will be a lot of low-ticket normal businesses, which comes due to the season. So the quarter 3 compared to the quarter second will be more of surgical or the clinical mix better.

No, I was trying to look at it, sir, on a Y-o-Y basis as well, we've seen a gross margin decline of almost 80 bps. And I thought considering that there are more medical cases in this, there should not be any reason for gross margins to sort of dip.

So on year-on-year basis, what has happened is, Anshul, that last quarter, March, we have added 3 facilities. And those 3 facilities, the drag has come into the P&L. This is one. And second, as I have informed during our opening remarks, that close to INR 7 crore is the one-off item, which we had spent for our 25th years of the anniversary. If you knock off these 2, probably we are better off on the same EBITDA margins.

Got it. Got it. My second question, sir, is on EBITDA margins going ahead. And now I believe we'll about start to see breakeven on certain new facilities that we added in Q4. And at the same time, these new facilities should also start coming up in Coimbatore, et cetera. So would our margins sort of remain stable? Or do you see that -- do you feel that it will dip for probably about 2, 3 quarters in FY '26 as well?

So as a business, in the hospital, whenever the new hospital gets opened, there will be always some drag. The question, how much is the drag and how much is the capacity is being opened, right? So if you look at the last year March, we have opened 3 hospitals, means from April to December, the 3 hospital drags are coming, but it's still our EBITDA margin has been stood at 32%, 33% or for the 9 months, it is 32.7%. I think going forward, 3 hospitals, which we are adding obviously, there will be some drag, but our effort is that we keep the range plus/minus 1%. From there, whatever we are at 9 months, the range should be plus minus 1%, because what will happen as we progress the new hospital, which we opened, they will also start contributing on the EBITDA side, though on the lower side, but it will -- from the negative, they will move to the positive, and the new hospitals will be slightly -- drag will be there. So more or the less, we should be able to balance it between plus/minus 1%. This is a good percentage to maintain 32.7%. I think it's a good margin to maintain.

Got it. Just one last question, sir. Sir, once the Gurgaon facility comes online or in the runup to that, I believe our return profile would sort of get hit because of the asset-heavy nature of this facility. Any insights around how do we see this? Do we intend to get back to our 30% plus ROCE profile for, say, 1 or 2 years of this Gurgaon facility commencing? Any thoughts around this, sir?

See any capacity, which is the large one, gets opened, by nature, by arithmetical matter, the ROCE will have the impact, right? Now it is a question, how much is the impact? So I'm giving the perspective, the exact numbers will work it around or you can also work it around, right? Right now, we have 200 beds. And by that time, we hit the Gurgaon starting, we should be of the size of whatever the beds we have told it is getting added, we'll be at around somewhere 2,500, 2,600 beds because some new other opportunity -- acquisition opportunity will get integrated with us. We'll be at the size of -- from where we stand, we should be 25%, 30% higher than the current base. And those should be EBITDA generating and contributing whatever the capital we have invested. So that will offset to some extent of the Gurgaon. But obviously, as the Gurgaon starts, there will be some drag of the ROCE, but that is the nature of the business. We have to keep on feeding the capital for the future growth and drive the efficiencies to make sure that the Gurgaon facility matures early and then it starts contributing. So that is what is our effort.

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

I have 2 questions. So one on the mature hospitals at 60% OR in 9 months, what is the further room in this occupancy ratio?

Yes. We can actually clock up to about 68% to 70% in our mature site. We still have room to grow further in these mature hospitals. So within the mature hospital bucket, you still have kind of a -- some of them are kind of -- occupancy is about 50%, 55%. Some of them are kind of doing about 68% to 70% occupancies. We still have room in the matured bunch of hospitals, a lot of headroom in the new hospitals.

Okay. And wasn't that versus a typical multi-specialty tertiary hospital, our children's hospital -- in your earlier calls, you had always mentioned children's hospital have lower occupancy. So am I confusing something here or there is some revision in this OR number?

No, sir, let's not confuse ourselves with -- comparing with the multi-specialty hospitals because multi-specialty hospital is a different game. It's -- multi-specialty hospital is a hospital which treats wear and tear problems, right, for life. Children's hospital is a hospital, which is for -- is a medical hospital, which treats the children who require hospitalization, admissions and acute illnesses, majority of them. Some of them are chronic illnesses. The proportion is inverse compared to multi-specialty hospital. So therefore, you have a seasonal impact, you have a differential areas in the hospitals, and -- and on top of it, we do not have a fixed government business coming and occupying our beds. So it is 50% insurance, 50% out of pocket...

Yes. So sir, then by that logic, versus 70% occupancy of multi -- of the adult hospital, shouldn't the children's hospital be a lower occupancy?

Yes, definitely, we are clocking a lower occupancy because even if you look at the matured bucket, we are having over 60% occupancy and very unlikely that we cross 70% occupancy because of the differential areas of the beds and as well as the seasonality, combining these 2 factors, without having a government fixed business. So we will always have a kind of a percentage occupancy about -- let me put it this way. If we do occupancy of -- blended occupancy of about 60%, we will deliver our results. So that is how we kind of positioned it. Do we kind of look forward to increase the kind of occupancies? Yes, we always would like to do that. But because of these factors, children's hospitals traditionally will have a much lower occupancies compared to adult hospitals. So that's why we don't say that let's compare ourselves with adult. It's a different domain.

So is the -- so then that number is still 70 or the number is not -- will be less than 70 for mature?

Sir, it's growing -- it is only first children's hospital in the country, which is operating at that level. It's a learning story. I think if you ask me what -- at what level we can do it, maybe about 65%, 68% of that -- beyond that is going to be difficult to clock it because of these factors.

Okay. And my second question is on the Gurugram CapEx. So you mentioned that INR 180 crores is spent on land plus INR 1 crore per bed incremental. That's how it is?

Yes, that's correct. Yes. [indiscernible]

So then it becomes INR 180 crores, even INR 200 crores. So then your CapEx is -- it's INR 145 lakhs per bed, right?

Yes, close to INR 1.5 crores per bed. That's correct.

So then the ROCE in this hospital will be less than 20%. So any observation there, the ROCE profile will be really different here?

It will be a little different because it's a heavy assets, and it is a large facility, which is coming up. So when we are looking at ROCE, we should look at for the long term, how does it pans it out. And it is going to be something a state-of-the-art which is being built in India to cater to the whole India, particularly for the North India international businesses and everything. So if you look at all other multi-specialties, we are putting up the hospitals at that reason, their cost is also similar INR 1.5 crores to INR 1.75 crores. Since its land and building belongs to us, it's a little heavy asset. It will cost the same, but from the 0 day, we'll start as a superspecialty hospital with all the equipment, whatever is required and the doctors, especially the [indiscernible].

Hospitals are going to be more like a multi-specialty because we are positioning this as a kind of a pediatric multi-specialty hospital of the highest standards in the country, so that -- which is why this as a greenfield project, which is being built for future of the country. And the cost per bed is going to be the same, including the medical equipment, it's going to be kind of almost [indiscernible] with any multi-specialty hospital of today's standard.

So how is it different from your Hyderabad cluster, where you have the large hospitals there? So you must be having a multi-specialty hospital even in Hyderabad cluster, right?

That's true, sir. That's the...

So how different is it by a CapEx, let's say, you have a Banjara Hills hub, how different it will be from that hub?

So we have spent about INR 75 lakhs, INR 80 lakhs per bed Banjara Hills about 7 years ago. Today, we...

Including land building or excluding?

Excluding base building and land. Here, this building -- the land and the building is our own, and we're going to spend the CapEx on top of it. So obviously, that now 7 years to today, the cost escalations are almost 30% to 40% times. If you calculate that way, that's [indiscernible] INR 1.5 crores is kind of -- what has been coming.

Okay. So excluding land building, Banjara was INR 65 lakh. Today, that same INR 65 lakh is about INR 1 crore per bed for a hub. And over and above that, in Gurugram, you have the land and building also coming in. That's how we should interpret it?

Yes.

The next question is from the line of Sumit Gupta from Centrum Broking.

Sir, 2 questions. First is on the ARPOB. So how do you plan to increase or optimize the ARPOB over the near and the medium term? And secondly, on the Gurgaon facility, like once the Gurgaon facility gets opened, I hope I expect that international patient mix will change for the better. So how will we expect that to improve the overall case mix as well as an improvement of overall ARPOB?

Yes, it's a pretty long shot about Gurgaon. See, obviously, this is going to be in a different class of hospitals. It will have definitely a better price point. And also it is the ability to treat patients are more complex, and we would definitely be positioning and very differently in hospital. So closer to that, we can discuss about how the ARPOBs, how the revenues are going to play out. It's too early to talk about it. So overall, our ARPOB trajectory [indiscernible] earlier in the call, Mr. Vikas mentioned about it. ARPOB has got so many other variants to influence. So therefore, I think the ARPP is something which is actually -- we've been working for internal purposes, we look at ARPP as a significant factor than ARPOB. You have seen in the last 8, 9 quarters, our ARPP's are growing about 6% to 7%. So this is how we track it because ARPOBs can be completely very variable based on the ALRs and based on the seasonality. These 2 factors keep changing in pediatric health care because the seasonality is always there, the Q2, Q3. And also the business, we can't anticipate the business mix, how it's going to be. So it's not consistently that this is how the business will do it 360 days. So therefore, we need to see -- I mean, while we look at the ARPOB and we actually again, look at the ARPP, as long as the ARPP is growing, we know that the revenue generation is -- we know that it is pricing -- overall, your business is improving in quality.

So sir, just on the ARPP point only, so like your insurance has been consistently around 52% -- hovering around nearly 52%. So how -- like regarding the price hike, what kind of -- what is the time frequency in which you take price hike to improve the ARPP? And what are the overall drivers driving that?

One is the price hikes. Number 2 is the case mix. These are the 2 things would drive ARPPs, provided you're consistent through the similar set of patients, just put it that way. Then we can fix that. You will have ALOS to be more or less kind of not much of a variation. So pricing is always be done everywhere. So you will adjust anyway to the kind of inflation. And also the quality every hospital looks at the kind of being a better quality year-on-year and adding more and more complexities for the business.

So what is the magnitude of the price hike that you have taken over the last 2 to 3 years?

See, the price hike was at around -- on the 2 fronts is the blended basis we have to do. On the cash side, last year, we have not taken price hike. We have just corrected. To the extent the competition was higher, we had adjusted ourselves. This year, we will take some price hikes. So the working is going on. We are benchmarking also the competition, et cetera, looking at this one. So probably by March, once we are finishing our budgets, we'll take a call and then inform whatever price budget is being taken. As far as the insurance is concerned, they take a 2 years price and then fix it. But generally, they keep dragging, and it takes some time 3 years also, maybe more also sometimes. But on an average, once we do it's -- we consider that it is going to be 2, 3 years' price hike. So the adjustment should happen at around 12% to 15%. So roughly 4% to 5% price hike from the insurance. And cash, we have to work it around because we are in the competitive landscape. And at the same time, we should not charge more with our patients. We have to be health care. So we will balance ourselves, including the cost inflation, whatever is coming, and balance ourselves to protect our EBITDA margin.

Understood. And sir, lastly, so in the 9 months FY '25, so just -- so your ARPOB growth has been like -- there's been a decline of 6%. So what was the major reason? Like did you take any price hike or was it not taken and subsequently, there was an inferior case mix. So what really happened in that?

What has fallen 6%, sorry, I could not understand.

ARPOB, 6% Y-o-Y growth.

If you adjust the ALOS, you will not get it because ALOS has gone up, right? Ex of ALOS, your ARPOB would have gone up. Or if you look at ARPP, it has gone by 7%, 8%, basically.

So we should look at you saying ARPP and then adjust through ALOS?

Yes, yes. So we are disclosing ARPOB and ALOS. If you multiply, you will get the ARPP. Consistently, we have seen year-on-year basis, seasonal adjustments leaving up on. So you have to see the year-on-year basis. We have seen the ARPP growing actually.

The next question is from the line of Deven from Marcellus Investment Managers.

Sir, what's the extent of price correction that we have taken? You just referred to it while answering the previous question.

Price corrections, okay. So the last year, for the cash patients, we have not taken across the board price hike. We have just taken up wherever we have benchmarked ourselves with the competition and increased it. The net impact may not be more than 1% or 2% basically if you look at. As far as the insurance is concerned, every year, some cluster, et cetera, will keep coming for the renewal. And the impact of that as we have just informed, once we take up one cluster or one hospital when we started, it should be 12% to 15% price hike. And generally, it is for 2 to 3 years' time. So it is a blended basis, it should be 4% to 5% basically. This year, since the budget is going on, we will review with our management and what the other hospitals are doing based on that, and what other cost inflation is expected to come because in our case, 40% is the manpower cost, including doctors and the other paramedic staff and the corporate staff. Considering that whatever the cost inflation is there, we'll adjust it and take a call on that.

Got it. And this 1% to 2% price correction that you have taken, in which cities or which cohort of hospitals have you done it?

It is across. Once we take, we take across clusters, sometimes some were higher, some were lower. So that way.

Okay. So like this is, let's say, even in Hyderabad, Bangalore, which are your, let's say, core or old markets as well as new markets across the board, you have taken a price correction?

Correct, correct.

And it's mainly OPD or IPD or both?

Both, across all.

Okay. Got it. And my second question, sir, while answering an earlier question, you said that the mature hospital can do around 65%, 68% occupancy. I remember that when we used to discuss this a year ago, you used to say that a mature hospital can do 60% occupancy at peak. Now today, that number seems to have gone up to 65%, 68%. So has anything changed in the last 1 year that we have increased the occupancy cap earlier we used to expect 60% and now 65%?

It's the overall trajectory you see, every kind of hospitals maturing. More and more hospitals coming into a mature stage. And also, some of them are becoming a kind of a very -- almost decades businesses. They will clock a higher occupancies definitely. So if you look at the blended -- what I've said is that it could go up to up to 68%, but it cannot go up more than 68%. For example, I have a few hospitals in Hyderabad, they do about that much of occupancy. But those are the hospitals, which I have a [indiscernible] problem with the beds, okay? So that's why basis on that I have told, but we will never come to a 60% of occupancy at a group level. It's a possibility, but it can never come to because we always have hospitals adding into the mature group. So the blended occupancies will come out to kind of around 60%, maybe 62%, 63%. What is the maximum possibility a hospital can clock is that 68%. That's what I was saying. At a group level, would that be possible? I don't think it's possible because -- see, I mean what's important is that it's not checking the patients. Children's healthcare is a different domain and different ballgame. Nobody would like to stay few hours extra in a hospital than required. That's all drives the children's health care. So because of young parents and the children's, nobody wants to stay in a hospital, even few hours beyond required compared to adult hospitals where people are happy to stay few days extra. So therefore -- that's why, we never compare ourselves to adult hospitals. It is an evolving story. We are still a pilot project. We are discovering the new parts, new benchmarks all the time. So the answer to question what I've told you is that how much it could grow up to lease up to 68%. But at a group level, the matured hospital will it go to 68%, means it is at -- at a yearly or quarter level, this is going to be a very difficult task. But anyway, what is a throughput is something which is you and I look at it. If you are doing about the 60-plus percent of occupancies in matured hospital, a blended occupancy of about 55%, you're delivering results. What else you want? You want results, right? 56% of the blended, you will deliver it. If you do it 60% blended, you'll do fantastic. So that's how it is the dynamics of the children's hospital. So we can't keep people for -- in the hospital, more than few hours required.

Understood. Understood. And finally, sir, when I'm looking at your mature hospitals performance for Q3, it seems like the IP volume growth is 0%. In Q2, this number was 8% positive. So that's like slowdown from 8% to 0. Any reasons behind it?

So on the matured sites, the occupancy you must have seen has gone up by, right? On the sequential basis, it has come down, right, I think, sequentially, right? 68.6% to 60% occupancy. Obviously, quarter second is a seasonally strong quarter, and we feel -- you see the influx a lot of patients on that quarter. And if we have maintained the same trajectory in the quarter 3, I think we have done a good job basically.

No. So I'm actually looking at year-on-year. So let's say, the occupancy has increased from last year. So last year, it was -- no, just Q3 to Q3. So then last year, it was 56.5% occupancy, and this year, it's 60%, but at the same time, ALOS has gone up from 2.6 to 2.9. So net-net, inpatient volume seems to be flattish.

That's true. That's true. That's correct.

Yes. So -- so the exact number, if you look at Q2, that number had grown at around 8% Y-o-Y, and Q3 is low percent growth. So what has happened that the growth has come off?

In very particular time what happens is that you keep moving from the mature -- non-matured hospital to mature hospitals. So that trajectory, whatever you're looking at is the moving trajectory, right? So if you look at on a like-to-like basis, if you are comparing probably, we have seen the IP number growth of roughly -- by roughly 9% basically.

Okay. Okay. Yes. Okay. Good. So...

So there is a movement of the beds which keeps happening. So that is the way you are looking at. But on the stand-alone basis, if you look at matured hospitals growth only, it is roughly 9% basically. It's a little confusing data because we are looking at the moving data and looking at the static data also of the last quarter. So that is the difference.

The next question is from the line of Nitesh Dutt from Burman Capital.

Just a quick clarification. The INR 7 crore onetime impact that you mentioned, was it for Q3 of this year or was it during previous quarters?

So quarter 2 and quarter 3 is evenly distributed, you can say, almost evenly. So INR 3.5 crores roughly in this quarter and last quarter is the similar amount. So total INR 7 crore in 2 quarters.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments.

Yes. Thank you. We appreciate your participation in today's conference call and the insightful questions. Your support plays a vital role in our strategic progress, and we truly value the time each of you has taken to understand our business in the future plans. For the further information, if any, please reach out to Mr. Saurabh Bhandari, our Investor Relationship Head at [email protected]. With this, I close the conference. Thank you for participation. Thank you.

Thank you.

Thank you. On behalf of IIFL Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.