Shalby Limited (SHALBY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day. And welcome to the Shalby Q3 FY '20 Results Conference Call hosted by Elara Securities (India) Private Limited [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Param Desai from Elara Capital. Thank you, and over to you, sir.

Thank you, Ayesha. Good afternoon to all the participants in the Shalby Limited Q3 FY '20 Earnings Call hosted by Elara Securities. Today, we have with us from the Shalby management Dr. Shanay Shah, Director International Operations; Dr. Nishita Shukla, Chief Operating Officer; Mr. Prahlad Inani, the Chief Financial Officer. I will hand over the call to Mr. Shanay for the opening remarks. Over to you, Mr. Shanay.

Hello, everyone. I'm Mahesh Purohit. And today, with me, Mr. Prahlad Inani, Chief Financial Officer; Dr. Nishita Shukla, COO; Mr. Babu Thomas, CHRO; and Mr. Shanay Shah, Director of Shalby Limited, are here. Our Director and CFO will make some formal comments, and then we'll take your questions. Please note that today's earnings release and slide presentation accompanying this call are posted on our website at shalby.org under the heading Investor Presentation. During today's conference call, we will make certain predictive statements that reflect our current views about Shalby's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. The actual numbers could differ materially from such statements. Shalby Limited undertakes no obligation to publicly update or revise these forward-looking statements, and participants of this call are cautioned not to place undue reliance on such statements, which speak only as of their dates. We believe our plan for rest of the year appropriately balances our improved performance, our need to sustain business growth and the uncertainties that exist in a fairly volatile world. Our outlook for the sector is quite positive. Health care service delivery will continue to grow at double-digit rates for the next decade. Organized sector will grow at even faster pace, thereby constantly eating away the share of unorganized sector as the insurance penetration is also shooting up. Health care sector is under the focus of central government. As we saw in the budget 2020, we got an increase of 10% in the budgetary allocation as compared to the last year. And here to give you his detailed thoughts is our Director, Mr. Shanay Vikram Shah.

So good afternoon, everybody. On behalf of Shalby Hospitals, I welcome you all to the earnings call of Q3 FY '20. I hope all of you had the opportunity to go through our quarterly results and investor presentation. I'm happy to inform all the shareholders of Shalby Hospitals that your company has been recognized as the Medical Value Travel Specialist Hospital Award in the category of orthopedics at the 2019 Advantage Healthcare India summit. Now let me take you through all -- some highlights of the quarter. Q3 of FY '20 proved to be a healthy quarter for all of us on the operational and financial parameters. Corresponding to Q3 of the previous financial year, we witnessed a 12% growth in our inpatient count at 9,838. Our outpatient count grew by 12% again at 80,500. Our day care patient count grew at 18% at 5,701. And the surgery count in third quarter rose by 2% to 4,738. On the financial front, corresponding to the Q3 of the previous financial year, our total revenues for the quarter grew at 7% to INR 122.9 crores, and the EBITDA grew by 13% to INR 24.07 crores. Our profit before tax increased to INR 13.9 crores. This is a robust growth of 23% on a year-on-year basis. Our profit after tax for Q3 FY '20 was seen at INR 8.2 crores, which is a fall of 36%. And our CFO will throw some more light on this fall. I am also very happy to share that Shalby Hospitals has performed over 15,000 -- 1,500 surgeries per month and recorded 32,000-patient footfall per month for the quarter in review. This is a result of our continuous focus on our patient-centric approach and the increasing operational efficiency. Now I would like our CFO, Mr. Prahlad Inani, to take you through the numbers in detail. Thank you.

Thank you, Shanay. Good afternoon, everybody. Now I'll show some more detail regarding the financial for the Q3 FY '19/'20. In Q3 FY '20, our company achieved a total revenue of INR 1,229.1 million compared to INR 1,151.1 million in corresponding quarter of the previous financial year, and we have achieved a 7% growth from year-on-year basis. EBITDA for the quarter grew to INR 240.7 million compared to INR 213.3 million in the corresponding quarter of the previous financial year, implying a good growth of 13% on a year-on-year basis. We were able to maintain strong EBITDA margin of 19.6% for the same Q3 FY '20 compared to 18.5% of the quarter corresponding to the previous financial year. On the year-on-year basis, Q3 margin saw a growth of 105 bps. Profit before tax for the quarter stood at INR 139.1 million compared to INR 113.5 million for the corresponding quarter of the previous financial year. We achieved a strong growth in profit before tax by 23% on year-on-year basis. Corresponding to Q3 FY '19, our PBT margin extended to -- for Q3 FY '20 by 146 bps to 11.3%. And now with respect to profit after tax for the current quarter stood at INR 82.8 million compared to INR 128.9 million corresponding the Q3 of the previous financial year. I would like to state here that the PAT margin stood at 6.74% compared to 11.2% for the Q3 FY '19. And this fall was mainly because of Q3 FY '19. INR 150 million capitalization was done in Mohali unit and that was considered in the income tax law, and the impact was given in DTA, direct tax asset calculation, that was adjusted on account of 35AD. Here, I would like to state that this is not affecting our cash flow, and this is deferred tax calculation, which is showing our book entry. The company cloaked an ARPOB of INR 29,299 for the quarter compared to INR 31,517 in the same FY '19, depicting a slight decline of 7% on a year-on-year basis. Occupancy grew by 15% in Q3 FY '20 with 456 occupied beds compared to 397 occupied beds in Q3 FY '19, which is a good sign over here. Our ALOS, average length of stay, for the quarter stood at 4.26 days compared to 4.15 days in Q3 FY '19. Now let me provide details as part of our maturity profile. Let me tell you here that our 6 years plus mature hospitals, which includes SG, Krishna, Vijay and Vapi, that has been contributed 46% of total revenues. And EBITDA margin for the same bucket hospital stood at 31.9%. For the quarter, IP count for the 6 years plus bucket was at 3,323; day care count was at 975; OP count for the bucket was at 33,607; and surgery count stood at 2,154. So this was really a good performance for us on all the operational parameters. We are able to clock an ARPOB of INR 40,757 for our 6-plus years bucket. Our 4 to 6 years mature hospitals that are Indore and Jabalpur contributed 22% of the total revenue. EBITDA margin for the bucket stood at around 9.36%. IP count for the 4 to 6 years bucket was at INR 2,830. Day care account was 612. OP count was at 21,503, and surgery count stood 1,131 for our 4 to 6 years bucket, and our ARPOB was INR 21,403. Our 2 to 4 years bucket, which includes Jaipur, Surat and Naroda, that has contributed 27% to our total revenue, and EBITDA margin for the bucket stood around 16%. IP count for this bucket stood at 3,330. Day care count stood at 4,078 while OP count stood at 21,762 and surgery count stood at 1,233, which brought us an ARPOB for the bucket at INR 25,761. Our less than 2 years bucket, which now includes just Mohali unit, that has contributed 4% to our total revenue, and EBITDA margin for the bucket is a bit negative, 12.14%. IP count for the Mohali unit stood 355, day care count at 36, OP count stood 3,962 and surgery count at 220, which brought an ARPOB INR 31,455. I would like to add here that we are very positive about Mohali unit. And going ahead, since we are [indiscernible] there at a high rate on all the parameters and which should eventually turn nearby -- near or soon as EBITDA positive. This is all from my side. Now I would love to have questions from your side for further clarification. Thank you.

[Operator Instructions] The first question is from the line of Ashish Thavkar from Motilal Oswal.

Could you explain the 300 basis point Q-o-Q drop in the gross margin for the quarter?

See what has happened is that if you see the average revenue per occupied bed has slightly dropped. And because of this, the high value-added elective surgeries have been postponed because of a very heavy winter this time. And essentially, because of that, we have seen more emergency cases, more day care cases, where the cost of material is usually as a percentage of the revenue that you generate is more. And that is the reason why we see that the cost of materials has gone up from -- by 300 basis points.

And given the fact that the winters were also prevalent in the month of Jan, would you be like at the similar levels? Or you feel you'll be able to make up the ground?

Yes, I cannot talk about January on this call, but yes, you are right that the winter has extended into the first half of January.

Okay. And I would like to have your comments on the payer mix. I was just -- Y-o-Y, I was looking at the comparison. So self-pay contribution has decreased from 63% to 51%. At the same time, the corporate government part had increased from 18% to 25%. So I would like to have your -- some of the color on this side.

What has happened is, if you look at last year the same quarter, yes, the self-pay component was higher. It was also because a lot of the insurance companies that we were still kind of negotiating with them. We were taking money on a self-pay basis and then we were trying to ask -- we were asking the patients to recover that money from the insurance companies. Now since the empanelments are in place, you see that the insurance companies' business has gone up. But to be honest, it has been more or less the same.

Okay. Okay. Fair enough. And sir, it would be helpful in order -- so like from a forward perspective, if you go to see the proportion of beds, which are falling in the 2- to 4-year bucket, so there are approximately 145 beds out of 1,962. So that implies just 7% of the operational assets are in the 2- to 4-year bucket. And the rest of the bucket is moving towards the maturity. So would it be fair to assume that gradually the EBITDA margins for all the payers would tend to move towards the 25% mark?

Yes. So you're talking about the EBITDA margins, am I correct?

Yes, and [ indiscernible ] other income, yes.

Yes. Yes. So the EBITDA margins will continue to expand because as we see that most of the costs are absorbed by the existing units because there are doctors in place, there are employees in place, there's other paramedical staff in place. So essentially, any incremental revenue that will be generated will have a much higher margin because of these costs, which are already absorbed by the existing revenue.

[Operator Instructions] The next question is from the line of Dharmik Prajapati from ProsperoTree.

Congrats for good numbers, sir. My question is about the Mohali unit, like Mohali, by what time is we're going to achieve a breakeven for the Mohali unit? Is there any time line?

So we feel that -- I think, in this quarter, we've not been able to have a breakeven, but we feel from now on, about between 3 to 4 quarters from now, we'll be able to achieve operational breakeven.

Okay. And as we see, in Q3, the ARPOB has gone down by 7%. So any specific reason why the ARPOB is low?

Yes, that's a fair point. And as I said earlier, this is because the number of surgeries have grown only by 2%, and the reason is we had a very extreme winter and most of the elective cases have been postponed. And essentially, when you talk about day care procedures or when you talk about emergencies, the ARPOB is usually lower. So that is the reason why there is a dip in the ARPOB.

Okay. Okay. And my next question is like -- and the government business does contribute about 25% in this quarter, as we see. So what is the management outlook for the growth in that business area?

See, yes, the business has been growing because a lot of our units are still very young. But having said that, we feel that it will not grow beyond this level because we are focusing, to be honest, on self-pay and the insurance business, the private insurance business. In fact, one of the reasons why we have seen a lower growth is also because in one of our premier units in Ahmedabad, we have stopped doing the CGHS business. So that's another reason. So we are consciously working on this, and we are constantly trying to work on profitable areas.

And what about the collection from the government in times like?

So the collection from the government is usually -- it takes time, it takes longer than insurance company. So private insurance companies pay you in about a month. And the government insurance business -- usually the corporates pay you on time. But when it comes to these schemes, it takes slightly longer. So you can take an average of 4 to 8 months.

4 to 8 months. So what are the -- what -- anything, guidance about the overall growth outlook?

Well, honestly, we've stopped giving any kind of growth guidance, but we feel that we have significant capacity, and we are working, and we are making a lot of marketing efforts so that we can continue to grow at the historical rates at which we have been growing, which is high double-digit growth.

[Operator Instructions] The next question is from the line of [ Shweta Jain ] from [ A&S Wealth ].

Sir, I just had a follow-up question on the ARPOB. You said it has declined [ this year ] because of number of -- the growth in surgeries have been little muted. So do you see this trend? Or where do you see the ARPOB settling at in next few quarters?

Okay. Yes. Usually, winter we have always observed this trend year-on-year the surgeries are less. Because if you see our Mohali unit, it was very cold, and a lot of surgeries which were booked were canceled due to this cold weather. So the trend is always there, and we have seen it year-on-year. For the ARPOB, I think, as we told, by next quarter, it will be there in line, right?

So as you know we will be back to the normal levels that we have seen in the previous quarters.

[Operator Instructions] The next question is from the line of Ashish Thavkar from Motilal Oswal.

Sir, last quarter, we did have some onetime impact from Rajasthan, right, because of ongoing range? And we were expecting some recovery in the current quarter, but currently -- clearly, the top line growth isn't showing that. So any comments here?

No. So we believe, see, we have 1 unit at Rajasthan, that is Jaipur, and the Jaipur unit has been doing well. But what you see is the aggregate of all 3 new units in the 2- to 4-year bucket. You are looking at Jaipur, you're looking at Naroda, and you're looking at Surat. So for us, the 1 unit in Ahmedabad, which is Naroda, has not done too well, but the Jaipur unit has definitely outperformed.

Yes, this quarter, Jaipur unit has outperformed, and that has contributed higher ARPOB for Jaipur unit this time.

Okay. Okay. Fair enough. Sir, any update on Asha Parekh Hospital and the Nashik one which is also going to get operational?

Yes. So the Asha Parekh Hospital, we are very close to obtaining the permissions that are required. And after which, we will demolish the building. So we have a target of 3 to 6 months for that. And then I think it will take about 2 to 3 years to make the building. So I think it will be operational after 36 months from now. So we have some time before we can start operations on that unit. Nashik will be operational most likely in the next 3 to 4 quarters.

Next 3 to 4 quarters. Okay. And post these 2 -- so these are the 2 assets that we have with us. So any other major CapEx that might come up?

No. So we don't have anything in the pipeline as of now. There are a lot of opportunities that come to us because, as you are all aware, there is a lot of consolidation happening in the sector. So we do get lot of opportunities, but we are not talking to anyone at advanced stages as of now.

Okay. Fair enough. And so putting these Asha Parekh and Nashik hospital together, what are the number of beds that we might add up?

See, Nashik will be 150 beds and Asha Parekh will be close to 160 to 180 beds. So those will be major CapEx areas. But what we are working on right now are 2 areas as well. So we have 2 business heads now who are looking at 2 opportunities. One is the home care business, where we have clocked about INR 75 lakhs in the last quarter. And that business is growing fast for us, for which there is no additional CapEx required as such. And we use the existing resources to build that business. And the second one is, of course, we are building -- we've built a franchise model, where we are, anyway, the #1 player worldwide when it comes to knee and hip replacements. So the idea is to capitalize on this niche that we have and work on our asset-light model with existing infrastructure in towns and geographies where we are not currently present in. So this is something which is going to be kind of an additional revenue generator for us, where we'll be sending our doctors, who we have in-house, and they will be going and operating in the existing infrastructure, and they'll be taking away that doctors' revenue from the total package, and they'll be helping to build the orthopedic practice here. So this is another thing that we are -- we have already worked on, and we will hear from the partners very soon. And as and when there are announcements to make, we'll do that.

So to add to Shanay's saying that already that 3 to 4 places like Pune, Varanasi, Nagpur and Kolkata. We are planning to have this asset-light model. And we are hopeful that within this quarter itself something will happen. And our next year is also that we would like to do that type of business model where we don't have to invest [ in these ] assets more. So this is the way we will be just growing, and then margin and revenue will be coming and adding to our kitty. Right, Shanay?

Yes.

So these asset-light models are typically would be like a faster breakeven, right?

Sorry. Come again.

The asset-light models are typically, they would achieve the breakeven in a faster time.

There's no breakeven, right? Because these doctors are anywhere paid by the hospital by Shalby, right? And this is only going to be an additional revenue generator for us.

Revenue and EBITDA.

Okay. Okay. Got it. So last question from my side. I would like to hear from you on the Ayushman Bharat because also during the budget the government has emphasized on this program and to open more of such hospitals. So your comment on what is the current contribution of this program to our overall revenues.

See, Pradhan Mantri's Jan Ayush Yojana (sic) [ Pradhan Mantri Jan Arogya Yojana ] has already allocated about INR 6,400 crores this year to the budget. And that number is growing. However, having said that, they've still not come up with the new rate. So we are already working with Ayushman Bharat. And of course, it's not a very, very big part of the revenues that we generate. We believe that -- we are confident that at some point of time, the doctors will -- I mean, the yojana will come out with much better rates for private hospitals, which makes it very lucrative for private hospitals to take up this scheme patients.

The next question is from the line of Dharmik Prajapati from ProsperoTree.

Yes. So as I can see, there is a growth in OPD, which is -- generates less remunerate -- which is less remunerative, then the surgery which is high remunerative. So when we can see the growth in the surgery count?

See, what is happening is that, as a multi-specialty tertiary care hospital, we accept all kinds of patients with acute and chronic problems, right? So what happens is that there are months in a year where you have more surgical cases, there are months in a year when you have more acute kind of cases, and you have more emergency cases. So as we see that this trend has been going on for several decades now, and we will see the uptick in the number of surgeries from Q3 onwards.

Q3. Okay. Okay. Okay. Fine. And one more question on the EBITDA level, like now this 4 to 6 years bracket and 2 to 4 years bracket level, when -- at what time we can expect them to contribute for more than 20% of EBITDA?

See, as we said in the previous call, you know that there were management-level issues that we were facing at Indore and Jabalpur about 4 quarters back, which has kind of been resolved in the last 2 to 3 quarters. So by the time we see an uptrend here, we will take about 1 or 2 quarters. But having said that, we have improved quite a bit. So if you look at the numbers of the first 9 months of last year and the first 9 months of this year, we have done much better than last year. So things are on the positive side. And when we talk about the company as a whole, we have seen that the OP numbers as well as the IP numbers have gone up by 12% and 18% for the day care patients. So from that perspective, the company has done well for this quarter.

The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.