Shalby Limited (SHALBY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Shalby Q2 FY '21 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Param Desai from Elara Securities Private Limited. Thank you, and over to you, sir.

Thank you, Aisha. Good afternoon to all the participants in the Shalby Limited Q1 -- Q2 FY '21 Earnings Call hosted by Elara Securities. Today, we have us from the Shalby management, Dr. Vikram Shah, Chairman and Managing Director; Mr. Shanay Shah, President and Senior management from Shalby. I will hand over the call to Mr. Mahesh Purohit, who is the part of the Corporate Strategy and IR team. Over to you, Mahesh.

Thank you, Param. Good afternoon, everyone. Our earnings presentation is uploaded on the stock exchange website and our company website shalby.org. We do hope you have already had the opportunity to go through the presentation. Please note that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. Kindly refer to Slide #20 of the earnings presentation for a detailed disclaimer. Now I would like to hand over the call to Mr. Shanay Shah, President for his opening remarks. Thank you, and over to you, sir.

Thank you, Mahesh. Good afternoon, everyone, and a warm welcome to our second quarter of FY 2021 earnings call. I hope you and your dear ones are keeping well and keeping safe during these times. On this call, I will start as usual with a quick overview of the company's performance during the quarter and then hand over to our CFO, Mr. Prahlad Inani, to discuss the financial performance in detail. During the quarter, the company has shown agility and exemplary resilience, as a result of which we have seen a sharp rebound in both our business and key financial performance indicators. However, the most important responsibility continues to be managing both COVID as well as non COVID facilities, cases simultaneously. One of our top priorities was to respond to the COVID-19 pandemic across all our hospitals, except SG Shalby and have continued to treat COVID-19 patients, and we have provided the required infrastructure support and medical facilities and services needed to try to address this ongoing unprecedented health crisis. So far, we have treated over 3,250 COVID-19 patients in total across our hospital group. In these conditions, the company delivered total income of close to INR 112 crores, registering strong growth of 174% on a quarter-on-quarter basis. The profit after tax was INR 24.2 crores, with profit after-tax margins at 21.6%. Quarter-on-quarter growth was supported by both COVID-19 cases and resumption of elective surgery. Though the share of elective surgeries like arthroplasty and orthopedics have declined, but the number of surgeries have increased on a quarter-on-quarter basis. Critical Care and General Medicine contributed 46% of revenue due to increased focus on COVID care. Total number of surgeries performed have doubled 1,622 in Q2 compared to Q1, and we have achieved the highest ever occupancy in Shalby as of quarter level in this quarter. There was also increase in number of patient footfall, inpatients stood at approximately 7,500, day care patients were close to 5,000 and outpatients were close to 56,000. The increase in patient count across all care format reflects Shalby's strong brand recognition. The ARPOB increased to INR 24,837 in quarter 2 FY 2021, which was primarily driven by increase in arthroplasty and orthopedic surgeries. We continue to see rise in non COVID-19 patients and many of the elective surgeries that were postponed during the first quarter will spread over coming quarters. Furthermore, we have received a great response for Homecare service offerings especially with respect to COVID-19 packages, and we will continue to provide high-quality and cost-effective Homecare, health care services to the patients. Also an important thing that has happened this quarter is that each and every facility of Shalby has been EBITDA positive and to a large extent. The COVID-19 crisis is far from over, and I would like to acknowledge the efforts of our entire team of doctors, paramedics and hospital staff and would like to thank them for their outstanding commitment. Lastly, to update you on the recent fundraising announcement made by company in compliance of regulatory requirement to increase public shareholding to at least 25%, the Board of Directors of the company have approved the resolution to evaluate various fundraising options and take necessary measures to ensure compliance. We are evaluating alternatives present before us and will adhere to the regulatory time frame work. Now I would like to hand over to Mr. Prahlad Inani, our CFO to comment on the financial performance. Thank you.

Thank you, and good afternoon, everyone. I will discuss financial performance and key indicators of the company for the second quarter. As you know, the impact of COVID-19 clearly means that the performance of the quarter is not comparable to the previous year on a year-on-year basis, but sequential comparison highlights the recovery in the company's operations. On a stand-alone basis, the company registered total revenue of INR 1,118 million in Q2 FY 2021 compared to INR 408 million in previous quarter and INR 1,284 million in the same quarter last year. EBITDA for the quarter is INR 314 million compared to a loss of INR 25 million in the previous quarter and INR 307 million in the same quarter last year. EBITDA margin improved significantly to 28% as compared to 23.9% in Q2 FY 2020. This margin improvement was primarily driven by higher occupancy from COVID-19 patients, coupled with lower consumption of materials and consumables and doctor fees. Net profit was INR 242 million for the quarter compared to the loss of INR 86 million in the previous quarter, and INR 129 million in the same quarter last year. PAT margin for the quarter stood at 21.6%. Our average occupancy rate was 41%, with 489 beds occupied, the highest ever reported. Our ARPOB was INR 24,837 in the quarter and our annual average length of stay for the quarter stood at 5.94 days compared to 4.07 days in the same quarter last year. During the initial part of pandemic, patients were deferring their planned treatment surgery. But now we have seen improvement in potential footfall for elective and semi-elective procedures though critical care and general medicine still continues to be largest contributor to patient count as well as revenue. We continue to maintain a strong balance sheet with net cash of INR 503 million at the end of September 2020. Thank you very much. We will now open the call to questions you may have. Thanks.

[Operator Instructions] The first question is from the line of Sarvesh Gupta from Maximal Capital.

So first question, sir, if I look at your numbers, it appears as if most of the performance has been contributed by the fact that you guys were able to reposition yourself quite well for the COVID surgeries -- sorry, the COVID patient care. So if I exclude that, I see almost like a 60% drop in the inpatient volume if I exclude 3,500 odd COVID patients from 11,000, you have dropped to like 4,000. So what's the sense going forward? I mean, when can we expect to normalize in terms of our ex of COVID performance because it looks like still 50% of the patients are not coming to us?

Yes. So I think the 3,250 COVID patients are not only the ones that we have treated in Q2, that's a combination of Q1 and Q2 both, right? That's one thing. Apart from that, I think what has happened is that if you look at our numbers, the arthroplasty work has grown 3fold. So if you look at Q1 versus Q2 the arthroplasty work has grown 3fold, and we are 35%, 40% level compared to the pre COVID level. So what we internally estimate is that we'll be able to get to about 65%, 70% levels of pre COVID for arthroplasty in Q3 of this year, right? Apart from that, all the other work has also kind of grown more than twofold. So if you look at all the non COVID work, excluding arthroplasty also, that work has grown twofold from Q1. So things are coming back on track. And I would say that contribution to revenue from COVID has been between 30% to 35%. So the balance is coming in from all the other specialties put together. And essentially, this is happening because a lot of work cannot be postponed, and it cannot be indefinitely postponed. And that's the reason why we will see the numbers bounce back. And there has been some kind of demonstration in the Q2 numbers, if you look at it.

And if you just take the September month data, September month of this year versus last year, how do they look?

It will be more skewed towards more non COVID work, right, because people and the travel restrictions and all those still there in the early part of July and August. And in September, we've largely seen patients able to travel freely, et cetera. So it has been even more skewed towards non COVID work in the month of September.

Okay. And secondly, I mean, I'm not that well aware with the company. So one question was that if I look at your overall bed count, it looks to be very high compared to your utilization, of course. So what is the strategy? And if you can give some color because right now, to me, it looks like we are currently at a very low utilization level overall?

So that's right. And that's where we see the opportunity, honestly, because if you look at last year, if you look at last year FY '20, we basically had an average occupied bed numbers of about 450 beds through the year, whereas the total bed capacity that we have is around 2,000 beds. So what we believe is that we will be able to -- within the existing capacity, we can grow 2.5 fold from the FY '20 numbers in top line and slightly more probably in bottom line because of the operating leverage kicking in, right? Why we are at this position is because it's very important to understand the majority of the bed cycles within the company. So about 1,000 beds out of the 2,000 beds, so that's about 50% of the capacity for us is around 3 years of age, right? And essentially, we all know that within the health care space, the operational breakeven usually comes by 3 years. So these units are yet to fire. For us, they've been EBITDA accretive from 1, 1.5 year onwards. But there is a lot of potential yet to be unlocked in these 1,000 beds out of the 2,000 beds. Now the balance 1,000 beds, about 500 beds are roughly 7 years old, so you can call them mature beds, which are growing in about 30%, 35% EBITDA margins. But having said that, there have been other 500 beds, which are around 4 to 5 years old now. And there is still an opportunity over there to basically kind of increase your earnings potential. Now if you look at most of the -- so when you look at our blend of new versus mature bed, you'll see that about 70%, 75% are not yet mature, right? And if you look at any peer, you'll see that this situation is exactly reverse. So 75%, 80% in fact, 85% would be mature and the balance 10%, 15% would be the new beds, which have been launched over the last 1 or 2 or 3 years. So essentially, even despite that, we have been able to maintain the highest EBITDA margins in the country. So I think we do believe that there is a lot of work now, why will this revenue grow 2.5 fold from here, is because of several things that we have initiated within the company, right? So we have a full-time doctor model that we do have. On top of that, over the last 12 years, through this full-time model, we have been able to achieve a revenue split of 50 and 50 for arthroplasty and nonarthroplasty. Now we are going to have the additional business coming in from visiting doctors because we are working on that at full throttle and we do believe that we have already started seeing a lot of response from some of the top leading visiting doctors from across the areas wherever we are present. So that is going to be one major revenue driver for us going forward. The other 2 things are essentially the thrust on Homecare and the Shalby Care Card. So essentially, the Care Card is a loyalty program that is going to bring in a lot of customer stickiness across the regions where we are present through the gold and silver cards that we have launched. And the other thing is that there is going to be a lot of consumer stickiness because of the Homecare services that people have used during these COVID times. So a lot of treatment across diagnostics, providing attendance, nurses, COVID care, providing medicines, et cetera, a lot of work has been done for Homecare. And we do believe that this will also improve the customer stickiness. And essentially, we do believe that these are the 3 areas which will help us kind of drive the occupancy levels in the next 2 to 3 years.

Understood. And finally, one question on this fundraising part, since you hold like 79% promoters hold, 79%. So wouldn't it be better to just go for OFS, given that we don't have any CapEx plan and given then -- given that you already is a net cash company. So why not just go for an OFS for the 4.5% to comply with the shareholding norms?

See, we have 1,200 operational beds and basically the bed capacity is at around 2,000 beds, right? So basically to operationalize these balance 800 beds, we'll be requiring CapEx of between INR 40 crores to INR 50 crores, right? So that is one part of it. Although the other thing is that to operationalize these 800 beds, it will not take us more than 2 to 3 months because these are essentially, all the infrastructure work has been done, it's just that some of the hospital furniture and other things have to be brought in, right? So that is one. The second thing is that we are having a project coming up in Nashik, which will be operational in the next 12 to 18 months. It got slightly postponed because of the entire COVID scenario. Again, we are looking to spend around INR 25 crores to INR 30 crores there for the medical equipments over there. The other area is also the Asha Parekh Hospital where we are going to basically demolish the existing structure and make a greenfield project there. So there we have projected a capital outlay of around INR 150-odd crores, right, for a 160-bed facility. So essentially, if you look at the current outlay of these 3 projects, we are looking at anywhere in excess of INR 200 crores. So we are looking at anything in excess of INR 200 crores. So it's not like we don't require funds, but essentially, these funds can be used for some of these projects.

So you want to raise this INR 200 crore in one go?

Sorry, can you repeat?

You want to raise INR 200 crores in one go?

No, we are not trying to raise INR 200 crores. See, we are already sitting on a net cash of INR 50 odd crores, right? So basically, essentially, we are looking to raise only the amount that is required to comply with the SEBI guidelines, that is to have a minimum shareholding, minimum public shareholding of 25%. And the balance I think will be funded largely by internal accruals and if required, we will take on debt.

The next question is from the line of Aditya Khemka from InCred Asset Management.

I have a couple of questions. Firstly, following up from the previous participant's question on fundraising. Just if you just look at your business, right, so you have a cash balance of, whatever, INR 30 crores, INR 40 crores. And then you generate EBITDA of INR 30 crores a quarter like you did in this quarter. So assuming full year EBITDA of let's say, INR 100 crores to INR 120 crores, and if I just make it post-tax and consider taxation and everything, you would still be generating about INR 70-odd crores of free cash flow in a given year before CapEx. And given that this INR 200 crores of CapEx that you are talking about is not going to be done in 1 year, you're going to be basically split it over the next 2, 3 years, if I'm not mistaken, and correct me if I'm wrong. Then your internal accruals should be sufficient to service all your CapEx requirements over the next 3 years, if you plan to do the INR 200 crore CapEx over 3 years. So what am I missing here?

So what will happen is that for the FSI requirement, initially, a small chunk will have to be given in the first 6 months, right? So essentially, I think all the other things that you mentioned are absolutely right.

Okay. So out of the INR 200 crores, do you expect INR 100 crores CapEx to come like in the next 1 year? Is that how it will be?

Not really. I don't think we'll require INR 100 crores. I think we'll take that off-line if you don't mind.

I don't mind. We'll take that offline. And the second question, Shanay. And I think this is something which I have asked you earlier as well. But when I look at the location of your facilities, right, so you have facilities in somewhat, I would say, Tier 2 towns versus like metros, right? I mean -- and you are now doing some CapEx in metros. And Nashik is again like a Tier 2, let's say, but Mumbai, Santacruz facility is a Tier 1 metro facility. So as a company, what has your experience so far been? So you have had hospitals in Ahmedabad heart of it, you have had hospitals in the neighboring regions. What has your experience been with the hospitals in the Tier 2, Tier 3 cities versus a metro like -- or almost a metro like Ahmedabad? What is the experience been in terms of profitability, occupancy, if you can talk a bit about that?

Yes, essentially, that's a good question. We have largely got presence in Tier 1 towns, if you look at it, and there we also present in some of the Tier 2 towns. So our experience has been that in a city like Vapi, it is not easy to get some of the top super specialists, et cetera. But having said that, in a city like Jaipur, in Indore, Ahmedabad, Mohali, corporate hospitals are there since the last 15, 20 years, availability is -- availability of doctors is high, medical staff is high. And essentially, the internal benchmark that we've kept is when a city has a population in excess of roughly 20 lakhs, it makes it extremely viable for us to put up a 200 bed hospital, right? And which is what our model is. Now having said that, Mumbai is something -- so we believe that metros have a lot of potential. The only thing with metros is that the cost of the project becomes too high, right, and which is where the Asha Parekh Hospital is a very lucrative option for us because that is one property, it's roughly a one acre property. And most of the hospitals, like if you look at our competitors, they would have spent between INR 2 crores to INR 3 crores a bed in Mumbai, right? And then kind of breakeven at a fixed cost level, it takes at least 10 to 12 years, right? Because you're not able to -- because again, the revenue that you generate is largely market-driven. So in our case, we have never looked at an opportunity for this reason that our internal benchmark for fixed asset recovery is much, much higher and much quicker. So this is one opportunity that we got where this is a plot of land where it’s a 1 acre plot of land where the market rates would be close to INR 250 crores. We have received this land for 60 years lease on a purely revenue sharing basis, right? So now if we are going to invest INR 150 crores for about 160 beds odd, we are looking at close to INR 1 crore of investment per bed, right? And that is what makes this opportunity very attractive. So that is the reason why we are going for this hospital. Apart from that, we do believe that the demand supply gap is largely present in the Tier 1 towns in India where we are able to provide good care. So we are continuing with that opportunity, and we see a huge scope of growth in the areas where we are present.

Understood. Just one follow-up. Sorry. Yes, go ahead.

We have chosen our locations in a very strategic way. So if you look at our geographical presence compared to our peers, it is not scattered. So we have largely concentrated on the Western Central and Northwestern India because we do believe that this is the area where we have a big brand recall, we have treated innumerable number of patients from some of the towns that we are now having hospitals in. They have initially come or had experiences in our Ahmedabad hospital and from there we have expanded to some of these other areas where we saw a big potential, and we had a big brand recall because only then your occupancy ramp up be far faster, right? So I'll take an example of the city of Surat, right? So again population of about 70, 80-odd lakhs in Surat. And we are the first corporate hospital to have a presence in Surat. And we all know that GDP per capita in a city like Surat is higher than even Ahmedabad, right? And in Ahmedabad, I can at least name 15 hospitals, corporate hospitals on my fingertips. So these are the kind of areas, and these are the kind of towns where we have chosen to put up our hospitals.

Got you, Shanay. So on that, so let’s say, when you have a hospital in Mumbai versus having the same hospital in Surat or in Vijayawada, would a given procedure be priced differently in these 3 facilities or would you follow a routine pricing mechanism across your hospitals?

So basically it's market driven. So the schedule of charges of Ahmedabad for Shalby would be slightly different than that of Jabalpur and similarly, the Vapi would be different. And so essentially, Ahmedabad, Jaipur, Indore would be on a similar trend, Jabalpur being a Tier 2 would be slightly lower. Whenever we come up with Bombay, we'll see that the prices there could be about 30%, 40%, 50% higher than Ahmedabad as well.

Makes sense. Just one last question on the cost side, so I was looking at the Slide 10 of the presentation that you guys shared, so you have the favorable cost as a percentage of revenue marked out, right? And what I've noticed is that while obviously, understandably, your doctor cost in 4Q and 1Q as a percentage of revenue went up because revenue itself was depressed. What explains the sharp decline in doctor cost as a percentage of revenue in 2Q versus, let's say, a 4Q? I'm not comparing to 1Q, I'm comparing 2Q to 4Q [indiscernible].

I got your question. See, what happens is that the contribution of COVID care towards the revenue in Q2 FY 2021 has been close to 46%, right, which was almost nonexistent in Q4 FY 2020, right? So essentially, what happens is that in -- when you're looking at particular Super Specialties, the doctor fees there take up a slightly higher chunk of the revenue compared to the patients who come for COVID treatment or for that matter any kind of medical treatment. So that is the main reason that explains why the doctor cost is lower. So if you look at any medicine brand for Shalby, forget COVID, you will see that the doctor cost is between 18% to 22% there.

Right. Then, let's say, Q2 FY '20, why is the total doctor cost 25% or 24% in Q2, Q3? If all medicine branches is between 18% to 22%, why in Q2 and Q3, the percentage of doctor cost to the revenue was 24%, 25%?

So 24%, 25%, again, is because the specialty mix, right because like you were talking about FY '20 right? FY '20?

Yes, yes, yes.

Yes, so see, this is a blend of basically your medicine doctors as well as your surgical doctors, right? So basically, there would be some doctors who would be taking a higher charge, some doctors taking a lower charge, and this is the blended average that you see, Aditya.

And the surgical doctors would be closer to 30%, is that understanding correct?

It depends on the brand also Aditya, it doesn't only depend on whether it's a medicine or a surgical doctor. It depends on the brand of the doctor, the volume he is contributing to the hospital, et cetera.

I got you, Shanay. The same explanation of COVID would stand for consumables as well in terms of percentage of sales in consumables dropping, so COVID patients won't require many consumables. Is that correct?

That's right.

[Operator Instructions] Next question is from the line of Dixit Doshi from Whitestone.

A couple of questions. Firstly, in our Q1 con call, we mentioned that the Q1 occupancy was low. But at that time, you mentioned that July, August, the occupancy at pre COVID level of 36%, 38%. But the blended for the quarter is almost 41%. So I assume the September occupancy would be much higher. So if you can just explain how much the occupancy was in September or -- how do you see going forward, let's say in this quarter? Or how it is in October?

Correct. So on an average last year FY 2020, we hit an average occupancy in terms of bed count of 450 beds, okay? In this quarter, Q2 of FY 2021 the average bed count was at 480 beds, right? In the month of September, we have clocked and touched 750 levels also, right? So average would be around 650. But I think on the higher side, we've touched 750 also in the month of September.

Okay. And do you see that this will continue even though recently the COVID patients are coming down?

Yes. So we do believe internally, I think our doctors and our management does believe that this will continue -- this will continue to stay with us over the next 2 to 3 quarters, if not more.

Okay. And secondly, so there was a sharp increase in the number of surgeries from almost 800 to 1,600. And if I see the pre COVID, it was more than 4,000 to 4,500. So by when do you expect that we can reach those kind of levels, by Q4 or maybe next year?

Yes. I think Dr. Vikram Shah would want to comment on that, please.

Good evening, everyone. As far as the COVID is concerned, it is going to be there in more or less number for at least 4 quarters from now, number one. Number two, as the fear of COVID is going down, the routine surgical work have started increase. The peak of COVID has gone. So what Mr. Shanay Shah was talking about 750 occupancy -- an average of 650 of September now coming down to 600, 620. But simultaneously, for COVID, surgery which people were not traveling, have started traveling now and people from distant places have started coming to the hospital for bypass surgery, cancer surgery, joint replacement surgery, all other surgeries are now happening in more and more numbers. And as I'm saying this, this month, we are doing much more than last month, COVID, surgery. This month, we are doing a little less COVID work. So it is going in that mix, but this will continue to see picking up for entire this quarter. At the end of this quarter, we think that we will go -- get back to normal COVID work which we have made in pre COVID times.

Okay. Okay. Just one suggestion, sir. I think this quarter, in the presentation, we have not given the margins and ARPOB hospital wise. So if we can continue doing that, that will be very helpful.

Yes, sure, Mr. Inani is part of this call, he will look into it.

The next question from the line of Jason Soans from Monarch Networth Capital.

Just wanted to know, I mean, in terms of percentage that you see on your consolidated numbers, you saved around 250 bps for your raw material and even employee expenses also have come down on a Y-o-Y basis, which has led to better profitability. So just wanted to know the reason for that?

See, because of COVID in Q1 and Q2, there have been a lot of optimizing measures taken by the company across all fronts, whether it is our inventory, whether it is material, whether it is doctor cost, whether it is employee cost. We have kind of gone into introspection of what we were doing and how best we can optimize it. So I would say that it is a result of that.

Okay. And just wanted to get it right. I mean, in the earlier part of the call, you have mentioned that around -- you have around 2,000 beds and around 70%, 75% of the beds, you said are still to mature and contribute to profits in a sizable way. Is that understanding correct?

That's correct.

The next question is from the line of Prafull Rai from Arjav Partners.

Yes. I have 2 questions. One is -- and the question on occupancy, you are currently operating at 41%. What is the peak occupancy you can achieve in the current facility? And what is the time frame you have in mind to get there? That is question #1. Question #2, in the previous con call, you had mentioned that you are looking to manufacture some medical equipment. Can you just throw some light in terms of what those achievements are and what is the time frame and what are we looking at exactly? And what is the kind of money you're going to spend for doing that?

Dr. Shah just expressed the other day, his vision of going into medical devices and that too largely for the knee and the hip replacement implants, and we are internally talking about it. And as and when there is something concrete that we can come out with, we'll be happy to share with you. So it's not going to be possible to share numbers for that on this call. The second thing is regarding the speed at which we'll grow for the next few years. So again, looking at COVID and looking at things right now, they are much better than what it was 3, 4 months back. So as I said, we can grow 2.5 fold in terms of top line over the next 3 to 5 years. So essentially, I would say anywhere between 3 to 5 years, we can grow to about 2.5 fold from here.

And will it happen at the same ARPOB levels? Do you expect ARPOB also to go up?

See, it will happen, that's largely the pre COVID ARPOB levels.

The next question is from the line of [ Tarun Shah from PhillipCapital. ]

Hello?

Yes, we can hear you.

Sir, my question is pertaining to the average length of stay, quarter on quarter, it is going up. And I believe higher the length of stay, maybe it will have a negative impact on our revenue. So where do you see this number settling out at?

We missed a part of your question, if you can please repeat.

Okay. Okay. Sir, my question is pertaining to the average length of stay, okay. So quarter-on-quarter, that number has gone up to almost 5.9, almost 6 days, okay. So because I believe the higher the length of stay, it will have a negative impact on our revenue, we can't able to see more patients then. So where do you see this number settling at and why it is going up?

See, it is going up -- it has gone up largely because of the COVID work that we have been doing. A COVID patient needs to be admitted for slightly longer compared to some of the elective work that we used to do. Having said that, it will not impact the revenue because we are not in any hospitals rejecting any patients. Yes, it will have an impact on the ARPOB. And essentially, that's the nature of COVID patients where they have to stay for longer. So we can't really help with that. But having said that, Dr. Shah just mentioned that we have been seeing that COVID work has gone slightly lower in this quarter, quarter 3, and some of the other work has picked up. So you'll automatically see that this ALOS will drop.

So what are pre COVID levels are, ALOS?

Pre COVID levels it was about 4 days.

Okay. And sir, when we have almost 50% of our capacity, which is unutilized, so what was the rational for expanding our capacity, going beyond the existing regions?

See, it was an opportunity that Dr. Shah saw at that point of time to put up hospitals across the different areas because there was a period between 2010 and 2015, where a lot of capacity was not added, the company was extremely cash rich. So in order to make up for time, he had expanded heavily between the 2015 to 2018. But you must have realized because if you are watching the company since the last 3 years, even though we have been net cash positive, we have been extremely prudent, and we have not made any acquisitions over the last 3 years because we understand the importance of consolidating what we already have. And we do want to go to a much higher ROC, ROE levels before we start expanding again.

Okay. And sir, by when you are expecting this new capacity to commence? Nashik and the Santa Cruz one?

I would say that it will take -- so the Asha Parekh Hospital will take 3 years from now. And the Nashik facility will take 1.5 years from now.

Okay. Okay. And sir, lastly, what is the average occupancy rate for our maturity hospital? And what is the same figure for the new ones?

So basically, I'm not able to share the numbers hospital wise, but the mature hospitals are doing more than 60%, 65% kind of occupancy levels. SG, of course, has been slightly lower right now because of the fact that a lot of elective work got postponed and in SG we're not treating COVID patients. But some of the other hospitals have a bigger opportunity to ramp up from here. At group level, you know that we are at about 41% odd occupancy levels.

Okay. Okay. And sir, lastly, by when you are expecting the promoter holding to reach to 75% as we have a resolution now?

So the deadline given to us is by mid-December. So it will happen any time prior to that.

The next question is from the line of Jainis Chheda from Dimensional Securities.

Congratulations for excellent set of numbers. Am I audible?

Yes, yes.

Sir, I just wanted to have the information on the mature bed numbers that you gave. So in total, there are 2,000 beds, right?

Yes.

And of which more than 7 years are?

About 500 beds would be mature beds.

Okay. 500 mature, 500 are 4 to 5 years and 1,000 are less than 3 years? That's right?

Correct.

Okay. And in terms of your -- I'm sorry, in terms of your occupancy, what is the peak occupancy? It will be 60%, 65% over the next 5 years?

Sorry, you're talking about the group level occupancy?

Yes. Group level, yes.

See, as I said, we have the opportunity to grow 2.5 fold within the next 3 to 5 years from here.

Okay. And currently, all your doctors are on the payroll or you have visiting doctors as well?

So that full-time model that we used to have since the last 15 years, we continue to have that model as is. On top of that, we are also welcoming visiting doctors to come and bring their patients to operate on them, that will add to revenue stream.

The next question is from the line of Ashish Thavkar from Motilal Oswal Asset Management. [Operator Instructions] The next question is from the line of Ashok Ajmera from Ajcon Global Services.

Yes. Thank you for very detailed answers to many of the questions which are asked by various other colleagues. And I have a lot of clarity from your answers. But I would, even at the cost of repetition, I would like to know that you said that within 3 to 5 years, the top line will be almost about 2.5x when the entire 2,000 beds become operational, am I right in understanding that or listening to that or?

Correct. Correct. Correct.

So like you said, Asha Parekh Hospital will take about 3 years to commence the activity and some of the hospitals are taking 1.5 year or 2 years. So can we know what would be the '21, '22 and '22, '23 top line growth?

No. So as I said, as a company, we are not giving guidance on that. So I'm unable to comment on that.

Okay, in that case let us stop, from the average utilization of the -- I mean, average occupancy, so your peak, you said you have achieved 650 and now average is around 600. So say, maybe in '21, '22, are we talking about, say, 100 --1,000 average occupancy?

No, I don't think I've commented on 1-year forward or 2-year forward occupancy levels or top line. I'm just talking about the potential that we have in the existing facility.

Yes, that is 3 to 5 years, you said.

Correct, correct.

All right. And then this plan of bringing down your promoter holdings, have you already worked out? I mean, it's a concretized plant because the time is very short for you within the time limit. So have you been summed up already or you're in negotiation or [indiscernible]?

So Mr. Inani is also with me.

Yes. So we are continuously discussing and talking with the investors. And we are close to coming to close with the investors in, say, a couple of weeks or, say, 4, 5 weeks' time, yes, we are looking at it and we will be closing that.

We have already received the Board approval, and we are awaiting for shareholders' approval after which we will close the transaction.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

So I was referring to this slide.

Sir, I would request you to speak a little louder, please?

Is it better now?

Yes. Please, go ahead.

Yes, I was referring to Slide #15 where you have put the CapEx and ROC information. Now given where we are, would you say that given that we still have INR 200-odd crores of CapEx lined up, so have we achieved the bottom of ROC? Or do you think that we can still go down given that the CapEx is still coming in the coming years? Or do you see the ROC improving consistently from this year onwards?

So as you are seeing the business, which is growing and the EBITDA margin and the profitability, which is now increasing. So this ROC percentage here, which you are seeing is completely, we are looking that this is at the bottom level, we are seeing a positive growth in that side. And certainly -- and another thing is, right now, the INR 200 crores CapEx is compared to my total FX pool and my capacity is not that big, which will just like give some pushback to my ROC. So I'm seeing a positive growth in my ROC from here.

So when you have a target of, let's say, 2.5x in revenues over the next 3 years, so what can be this ROC number look like?

So we are not saying right now that how it will look like, but I'm saying that my pressure is not that much. Because now our earnings are coming good, our cash and all other things are supporting better, our EBITDA margin is better. So it certainly will go into the positive side. And the track record, which you have seen that how we have moved from 13% to 11% to, again, 40% to 48%, and then again, we came back and we are at 14%. And then -- so this way, it will bounce back. And it will show you a good positive percentage.

See, we said that the occupancy levels, as and when they ramp up, in the given facilities, basically, we said it can take 3 to 5 years to get there, right? And essentially, at those levels, these hospitals can do at least 20% ROC.

Okay. Okay. And given that we get so much revenues from arthroplasty. So my question was that, of course, a lot of people may not have traveled to your hospital per se. But is it -- I mean, what percentage of that revenues will be lost forever? And what percentage of revenue would probably go to maybe other facilities because they might have done it in a smaller city, for example, closer to where they stay and all that. So there will be 3 buckets: One is, people who will decide to not do it at all; second, would be people who would have done it somewhere else closer to where they live; and third, would be people who would eventually return to get it done from Shalby. So what would be the rough split between these 3 buckets?

See, essentially, I'll tell you what, most of this work is going to come back, okay? Because this is elective work and it can be postponed, however, cannot be postponed indefinitely, #1. So we will not lose them, it is not like these patients are not going to get this surgery done, #1. #2, this is still considered a highly technical surgery, so which means that people will not largely resort to getting it done locally. They will wait and still go to their preferred choice of hospitals, whether it is Shalby or whatever hospital they have shortlisted. So people will wait to get this, the surgery done. So we do believe that most of this work will come back. The question is, how quickly will it come back, whether it will be Q3, Q4, it's hard to say.

Understood. And for the remaining part of this year, one, of course, things that we are looking at is that COVID work will get reduced maybe to a certain extent, and that would get replaced by the non COVID work. So that is one mix change for us. But apart from that, what are the growth levers for this particular financial year for the revenue growth, apart from just the mix change between COVID and non COVID?

So largely, what we have seen is that most of the hospital revenues, I mean, most of the revenues that we are generating at the moment are coming in from hospitals, right? So basically, the franchisee model that we have earlier spoken about is yet to take form and shape. So they will not be able to contribute in FY '21, right? Homecare and the Care Card in itself are a very small percentage of the revenue at the moment. So it is largely the non COVID work that will drive the revenue growth in the current financial year as well as whatever COVID work we are able to do.

And finally, for a very long time, we have been relying on our in-house doctor model. Now once you allow maybe because we are underutilized, so maybe you guys have decided to also allow the outside doctors, especially the star doctors to perform their surgeries at your place. But apart from that business being probably a lower-margin business, have you also considered any sort of impact on the HR issues because, of course, there can be some tussle between the in-house doctors as well as the outside doctors. So there can be some human or the software issues, which are related to changing of the model. So if you can briefly comment on that, that would be helpful.

I don't think that is an issue because largely, most of the hospitals that we know of, they work on both a full-time and a visiting doctor model. And only when there is a conflict of interest between the 2, at that point of time, it can create issues. But if you are having visiting doctors, star doctors coming, and they are not getting the regular OPD of the hospital, and they are only seeing the full-time doctors, the full-time doctor should not have an issue, right? So as long as there is no conflict of interest, it should be fine.

The next question is from the line of Kunal Mehta from Vallum Capital.

I'd like to admit, this is the first time I'm attending Shalby's call. And so pardon me if my question is somewhat fundamental. So sir, I have -- so just wanted to -- I wanted to understand only one thing from you. When I look at the capital allocation decision to invest in the Asha Parekh to revamp that, to set up a unit on the same premise where the Asha Parekh Hospital is there in Santa Cruz -- I'm sorry, west. So now I have had some time to understand this catchment area just because being in different capacities, actually. So as a resident, as a past patient and also in some other professional capacity, I understand that this catchment area may not be as lucrative as -- I mean, I just wanted to understand what is the thesis for setting up this hospital and investing roughly INR 150 crores because I mean if you have to just -- if you have to -- because this catchment area, essentially, is in my opinion has been somewhat overcrowded and plus it would not even suit the core skill set which Shalby has. So just wanted to understand if you think of -- if you're evaluating the decision from a fundamental basis, first on basis, sir, can you just help us understand the rationale here. I mean, so is the reason that just that we have been able to get this very, I would say, sweet deal of having to pay just these charges of the hospital and is that what makes it efficient? I mean, your view would be very helpful.

Okay. See, there are 2 things. One, we treat hundreds of patients from Mumbai every month in our Ahmedabad facilities. And I'm sure that a few more hundred are not able to come in and they actually want to get their treatment done in Mumbai itself. So that market will be completely tapped upon. The other thing is, if you look at Asha Parekh Hospital, and if you look at the 8-kilometer radius, the 6 to 8 kilometer radius to that hospital, you barely have 1 or 2 corporate hospitals, right? And you and I would understand the density of population in Mumbai in a 6 to 8 kilometer radius, right? So essentially, the potential is tremendous. The paying capacity of the people in that 6 to 8 kilometer radius is something that I may not need to talk about because you very well understand what is the potential over there in that area in terms of the paying capacity of the people.

Sure, sir, but this area essentially is pretty well supplied. I mean, I understand in the 6 to 8 radius diameter -- I mean 6 to 8 kilometers radius, they may not be a reasonable hospital but there are a few, but there is -- but you can set up one. But I mean, in terms of the people living in this residence -- in this whole area, I mean, it's pretty well supplied. And I'm sure, of course, I'm not -- this is just my perspective. And secondly, just wanted to understand that what are -- when I look at the present utilization and the present metrics at which we are running. Sir, don't you think that the right strategy right now would be to work first on the optimum improvement at utilizing across our facilities and then maybe look at adding more capacity in whatever measure which we're doing or this simultaneous addition of capacity will also -- will still -- despite of this, we would still be able to produce a good return on CapEx 3 years down the line as you are thinking. So how do you see that, sir?

Probably I've tried to explain this earlier, I'll try and do it again for you. So since 2017, if you look at our IPO and until then -- from then until now, it's been 3 years, we have not added any facility, right? And we have not made any acquisition because we consciously did feel the need to consolidate what we already have, right? This is one. The second thing is that the Asha Parekh Hospital, I spoke to you about what kind of potential we believe it has. And it is going to come in after 3 years from today, right? By then, we are hoping that -- and we're working towards the occupancy ramp-up of the existing facilities, right? So I'm not talking about any acquisition of any other hospitals for the next 2 to 3 years.

Understood. Understood. And this Asha Parekh Hospital, you are planning to have the unit in both the premises. I mean the original premise where the hospital is right now and the premise on the opposite end of the land, the same -- the whole premise, right? I mean for those hospitals?

So it is a very old building. It is a 30, 40-year-old building. So we will have to break down the existing structure and make a new building there in the property.

Due to time constraints, we'll take the last question from the line of Ashish Thavkar from Motilal Oswal Asset Management.

Yes. So like we are maintaining one of the best EBITDA margins in the industry. So 3, 5 years down the line, whenever you double your revenues, would you be comfortable saying that we can still maintain 20% EBITDA margin?

Yes. So I think we are maintaining that margin while we are at about a 41% capacity utilization. We believe that the margin has a capacity to expand. And considering that no other units will be coming in, and if we are able to get to an ideal occupancy level, at a group level, we can achieve a 25% kind of EBITDA margin.

Okay. Okay. Fair enough. And any incremental buyouts you're looking out in the market?

You mean acquisitions?

Yes, acquisitions like something like Asha Parekh or some tie-up or JVs.

So I think we believe that our hands are full for now, and we are basically having a lot of work in terms of increasing the occupancy of the existing hospitals. And of course, the new projects, we are very excited about both of them, the Asha Parekh Hospital and the hospital coming up in Nashik, both hospitals will add about 300 beds to the existing capacity.

Okay. Just one last question from my side. Sir, the OPD numbers that you mentioned in the call, were they online consultations or physically the patients are -- and even the doctors are there present in the hospital?

It's a mix, but most of them have come into the hospital. The online consultations are still a very small part of the total OPD consultations.

Okay. Sir, do you guys have an app for this, some digitized mechanism by way of like -- for pulling the customers in?

Yes. We have an Android as well as iOS app for online consultation. Great. So thank you, everyone, for joining our Q2 FY 2021 earnings Call. I think if you have any further questions, if anybody did not get a chance to ask their question, please feel free to connect with our IR team and e-mail us, and we'll be happy to get back to you. And please continue to stay safe. Thank you.

Thank you.

Thank you. On behalf of Elara Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.