Shalby Limited (SHALBY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Shalby Q3 FY '21 Earnings 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, Mallika. Good afternoon to all the participants in the Shalby Limited Q3 FY '21 Earnings Call hosted by Elara Securities. Today, we have with us from the Shalby management, Dr. Vikram Shah, our Chairman and Managing Director; Mr. Shanay Shah, the President; Dr. Nishita Shukla, Group COO; Mr. Prahlad Inani, our CFO; Mr. Murari, our Principal Advisor to the CMD; and other senior management from the Shalby. I will hand over the call to Mr. Mahesh Purohit, who is a part of the Corporate Strategy & 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 #23 of the earnings presentation for a detailed disclaimer. Now I would like to hand over the call to Mr. Shanay Shah, our President, for his opening remarks. Thank you, and over to you, sir.

Thank you, Mahesh. Good afternoon, everyone, and a Happy New Year to each and every one of you. A warm welcome to the earnings call of third quarter FY '21. I am pleased to announce that the company has recorded the highest ever revenues and EBITDA in the company's history amongst such challenging times. During the quarter, we saw beginning of normalization of the overall economic and business activity as the society develops a much better sense of how to deal with the pandemic in a more effective manner. In Q3 FY '21, we continued to deliver sequential improvement in key financial and operational performance indicators for the company. On a stand-alone basis, our total income for the quarter was INR 1,317 million, registering a robust growth of 17.8% on a quarter-on-quarter basis, which is in line with the expectations. All our hospitals have contributed positively to the EBITDA, and we expect this trend to continue going forward. The quarter growth was supported by both increase in elective surgeries performed and treatment of COVID-19 patients. Around 2,700 COVID patients were treated during the quarter. For the month of December '21 (sic) [ '20 ], around 616 COVID patients were treated out of the 2,700, contributing to only 13% to the bed occupancy, signaling a rapid decline of COVID work and substantial growth in the non-COVID and surgical counts. Total number of surgeries performed were 3,082, a sequential growth from the previous quarter. During the quarter, share of arthroplasty surgeries to total surgeries count increased to 34% as compared to 27% in the previous quarter. Recovery in elective surgeries will be rapid as patients are no more postponing their surgeries and the backlog over the last 9 months is quite significant. Patient footfall has also increased on a quarter-on-quarter basis. Inpatients count was at 8,945, an increase of 18.1% on a quarter-on-quarter basis. Day care patients was flat and outpatients at 68,310 showed an increase of 20.3% compared to the previous quarter. We continue to see increase in bed occupancy levels. Q3 FY '21 occupancy stood at 537 beds as compared to 456 beds in Q3 FY '20 and 489 beds in the previous quarter, driven by an increase in both of COVID-19 patients as well as elective surgeries. From the technology advancement point of view, our senior management remains fully committed in delivering highest quality of health care services with the use of the latest technology. Recently, in one of our main hospitals, SG Shalby became the first hospital in Gujarat to use image intensified television in spine and orthopedic surgeries. Furthermore, at our Mohali unit, we have recently collaborated with a renowned orthopedic surgeon, Dr. Manuj Wadhwa, to enhance our arthroplasty business over there. Overall, we have been taking various strategic initiatives at each hospital level to drive operational efficiency and occupancy level. Now moving on to our recent initiatives, I would like to update you that our Homecare services and Care Card are receiving good traction among patients, especially COVID-19 patients, due to high-quality and cost-effective solutions. Development of franchisee business model is definitely one of our top strategic priorities. However, the rollover is slightly delayed due to the ongoing pandemic. We have also set up a sizable in-house L&D team and focus of the team lies towards building people capability by ensuring continuous focus on patient care. On the information technology front, we are also making great strides. We have recently concluded the SRIT, the New Hospital Information System implementation across all our units. Upcoming IT projects include, but are not limited to, the Chatbot, the CRM, a new call center, a brand-new website and a mobile app as well as the implementation of SAP. Now I will hand over the call to Mr. Prahlad Inani, our CFO, to comment on the financial performance.

Thank you, Shanay, and good afternoon, everyone. I'll brief financial performance and key indicator of the company for the third quarter and present comparisons on both quarter-on-quarter, that is sequential basis and also on year-on-year basis, to project holistic assessment of company's performance. On a stand-alone basis, the company registered total revenue of INR 1,317 million in Q3 FY '21 compared to INR 1,118 million in the previous quarter, a growth of 17.8% quarter-on-quarter and INR 1,232 million in the same quarter last year, growth of 6.9% Y-o-Y, year-on-year. The third quarter is usually subdued part of the fiscal year due to various holidays and festive seasons falling in this period. Yet we were able to deliver growth on both Y-o-Y and Q-o-Q basis. This growth was supported by increase in patient footfall, number of surgeries and higher bed occupancy levels. EBITDA for the quarter, as already mentioned by Shanay, that it is the highest ever EBITDA in the history of company, which is INR 323 million compared to INR 314 million in the previous quarter and INR 243 million in the same quarter last year. EBITDA margin was 24.5% compared to 28% in FY '21 -- Q2 FY '21 and 19.7% in Q3 FY '20. The year-on-year margin improvement was due to higher occupancy from COVID-19 patients, having lower uses of material and consumables. As the number of elective surgery increases, we also see an increase in the costs returning to the average level. Net profit was INR 163 million for the quarter compared to INR 242 million in the previous quarter, and INR 83 million in the same quarter last year. PAT margin for the quarter stood at 12.4% as compared to 21.6% in Q2 FY '21 and 6.7% in Q3 FY '20. So it should be noted that there is a tax reversal in Q2 FY '21 while we file our tax return and due to specified and nonspecified business categorizations, which resulted in higher cash margin during that period. Our average occupancy rate was 45%, with 537 beds occupied, which is also the highest ever occupancy in this quarter or even till today. ARPOB was INR 26,660 in the quarter, and our annual average length of stay for the quarter stood at 5.52 days compared to 5.94 days in previous quarter. ALOS declined marginally due to change in the surgery mix as number of arthroplasty surgeries which require comparatively less time -- less hospitalization time. We continue to maintain a strong balance sheet with net debt of INR 598 million at the end of December 2020. Thank you very much. We can now open for the call to any questions you may have.

[Operator Instructions] The first question is from the line of Swechha Jain from ANS Wealth.

I have a couple of questions. The first one was with respect to the Asha Parekh Hospital. I think we are planning to do a CapEx of close to INR 200 crores in that hospital. And also, there is some CapEx lined up for the setup in Nashik. So can you throw some light as to how do we plan to raise fund for both these structures, sir?

Thank you. See, the thing is, I'd like to make a small correction there. We are looking at spending around INR 150 crores in the Asha Parekh Hospital, and another INR 30 crores are basically put aside for the Nashik hospital, right? As our CFO mentioned in the call earlier, we are sitting on INR 60 crores of cash reserves as we talk as of 31st December. And over and above that, we believe that because this investment will be in a stage-wise manner, we will be able to fulfill most of the requirements through our internal accruals only.

Okay. Okay. So we don't plan to take any debt for this?

It seems like it won't be required with the way things are going on.

Okay. Okay. And sir, I think there is a revenue-sharing model with respect to Asha Parekh Hospital. So can you share some more details about it, sir?

So basically, it is -- we have signed an agreement. So all our revenue share arrangements are such where there are -- where it is a pure revenue share and there is no minimum guarantee, minimum guarantee payments that are required to our partners. So most of the agreements are very low single-digit numbers. So across the hospitals, they are all lower single-digit numbers.

Okay. Okay. Okay. That helps. Sir, another question I had was, can you throw -- can you give us some guidance or some light on where are we with respect to reducing our promoter holding, sir?

So we have received all the necessary approvals that are required to be taken from the Board. So we are good to go with that. And we have also -- basically the documents are also ready from the company's perspective. Even the investment banker is on board. And whenever there is additional information, we will be reporting the same.

Okay. Sir, I have last question, then I'll join back the queue, sir. So on a Y-o-Y basis, if I look at the numbers for our day care patients in OPD surgeries and ARPOB, all have reduced to a certain level. So how do you see this trend going forward? And can you throw some light on this, sir?

See, the day care patients saw the lowest dip even during the quarter 1 and quarter 2 compared to some of the other work because most of it is very essential work that has to be done, like chemotherapy or the dialysis or something like that. So essentially, what we have seen is that we are at 90% levels compared to pre-COVID. So compared to last year, we are at 90% already. So the dip has not been big compared to last year. So even if you look at our quarter 2, the previous quarter, we have done the same numbers as quarter 3.

Okay. Okay. Okay. And sir, now most of our hospitals, like how many hospitals are dedicatedly taking COVID patients?

See, all our hospitals except SG Highway, the main hospital are taking COVID patients. However, as I mentioned earlier, the number of COVID patients that are admitted, as we talk, are not even 5% of the occupancy that we are having. So basically, it is a very negligible number. So we have reduced the number of COVID-allocated beds, the reason being that the emergency footfall that has been coming to the hospitals in Q3 has been significantly higher, 3 or 4x compared to quarter 1 and quarter 2. And hence, all of these patients, most of them, in fact, require intensive care unit facilities, so which is the reason why we've had to convert them.

[Operator Instructions] The next question is from the line of [ Divyansh Kalra ] from Perpetuity Ventures.

Can we request him to come back in the queue and can we move on to the next question?

The next question is from the line of Pushkar Jain from Sequent Investment.

This is Pushkar Jain. So my question is regarding because of the COVID, is there any shift from Tier 2, Tier 3 hospitals to branded hospitals like yourself as patients are more aware about the health care facilities and stuff like that? Any visible trend as such?

So I'll tell you what. Most of -- if you talk about Gujarat, and if you take out Ahmedabad, Surat, Rajkot and probably Vadodara, the number of ventilators and the number of BIPAP machines across the other districts are not sufficient for that particular population. So your -- what you said is absolutely true that during the pandemic, we treated a lot of patients from across Gujarat, Madhya Pradesh, Rajasthan, as well as Punjab, from the other towns over there, and because of which, it has given us a good branding across these 5 states where we have operated in.

[Operator Instructions] The next question is from the line of Swechha Jain from ANS Wealth.

Just a couple of follow-up questions. Sir, can you give us a breakup of surgeries and OPD patients for 9-month FY '21 and 9-month FY '20, if I can have that figure?

Sure. So I think what we will do is we will take this question off-line.

Okay. And the second follow-up I had was, if you could give me a breakup of occupancy rate, if it is possible, between the COVID-19 and elective surgeries for 9 months? I know you said for Q3, I mean, currently, it's just 5 -- less than 5% is occupied by COVID. But if I can have the breakup of 45%, which is for Q3. And if you could give me the same breakup for 9-month FY '21, sir?

See, quarter 3, it has been 65% non-COVID, 35% COVID, okay? And in terms of quarter 2, it has been 55% non-COVID and 45% COVID.

Okay. Okay. Okay. And obviously, as we go ahead, this will increase, right? I mean non-COVID will definitely go up?

Non-COVID one will increase. Non-COVID -- and quarter 1, we did not treat a lot of COVID patients. I mean we did, but compared to quarter 2 and quarter 3, the numbers were very small.

Okay. Okay. And sir, you mentioned in...

As I was saying, in the ongoing quarter, the COVID percentage of beds are, I would say, 4% or 5%. So that is very, very small compared to Q2 and Q3. And more importantly, the absolute occupancy has been more than the entire year of FY '20. So you can just imagine that some of this backlog that was created over the last 9 months has started coming back in a big...

Right, right, right. Sir, and also, in your commentary, you mentioned that there is -- people are really not fearing now and they're coming back for surgeries, and there is a lot of backlog. So sir, do you see the proportion of pent-up demand being huge? Or do you see -- like how do you see the trend for next even if I have to -- if you can share something, how do you see the trend for next 2, 3 quarters? Do you think it's going to be a lot of pent-up demand? Or do you think the proportion of business as usual is going to be higher as compared to the pent-up demand?

See, what is going to happen over time is that you will see that the backlog that was created over 9 months will be well spread out over the next 8 -- 6 to 9 months. So you will see significant growth from the previous year as well as the year before that in the ongoing year. The other thing is most of this influx will be driven by the fact that everything is opening up, flights have started, the railway system has opened up, and a huge portion of our revenues is to come from the patients who are not living in the same town where our hospital is. So now all these patients will be traveling, will be coming and availing the treatments.

Right, sir. Right, sir. Sir, and 1 last question, if I may ask. Sir, we had a senior doctor, Dr. Ranjit Singh, I believe he is no more associated with the organization. So can you just let us know, did he leave? Like when did he move on from our organization? And with which hospital he was associated? And do you see an impact of this?

So he was not -- the doctor that you mentioned was not kind of contributing a big deal to our top line. And what we have done is, as I mentioned in my commentary earlier, Dr. Manuj Wadhwa has joined us. And he basically -- I just want to give you an idea that he's among the top 5 orthopedic surgeons in the country in terms of volume. So the Mohali unit will be benefited by this in a very big way.

Right, right, right. Sir, can I ask 1 like final question, if it is okay?

Sure.

Okay. And I was just reading somewhere that in terms of technology, the knee replacement is happening more towards computer navigated kind of a program, I think, so robotics and all. So how do you see this overall industry shaping up? And where do we see ourselves in this entire gambit of play?

So that's a good question. We have Dr. Vikram Shah with us also. So he'll answer this.

Good afternoon, everybody. Probably you might be aware that I'm the pioneer of knee surgeries, hip surgeries in this part of the world, and we do highest number of joint replacement in entire world. And as far as computer navigation is concerned in the joint replacement surgery, it is a definite marketing tool, and it has not reached to the level that it can surpass the surgeon's skill. But in the coming time, in 5 to 10 years' time, there will be some lead by artificial intelligence, and we actually -- which we are -- we have started to work on that. And we will be again pioneering that. The present tools available are nothing more than marketing tools.

The next question is from the line of Sabyasachi Mukerji from Centrum PMS.

I have a very basic question. When I see your Y-o-Y numbers, now I think one of the earlier participants also asked, but I'm not very clear on this. Your inpatient count, day care patient count, outpatient count, surgeries, ARPOB, everything has -- saw a decline on a Y-o-Y basis. But I mean your revenues and EBITDA, both -- I mean EBITDA margin as well has seen a jump on a Y-o-Y basis. So is it fair to assume that or fair to conclude that my COVID ARPOB is little lower, that is what's pulling the blended ARPOB down. But I earn higher margins when I treat a COVID patient. That is why my margins are better. Is it a correct understanding?

Yes. So I'll tell you, essentially, what you have noticed is right. But on the other hand, the ALOS is up by 30% compared to last year, right? So it was 4.3 last year and it is 5.5 in the ongoing year, right? So essentially, which is why you see an increase in revenue because even though the IP count has gone down slightly and ARPOB is also lower slightly, even then the revenue has gone up, and that is largely due to the average length of stay, which is 30% higher. Now what you mentioned is right that the COVID patients generally give you a much higher EBITDA, and the ARPOBs are generally lower. So which is why if you see the Q2 ARPOB was INR 24,000, where the COVID contribution was about 50%. Now when the COVID contribution is 35% in Q3, you are seeing an ARPOB of INR 26,700, right? And as we basically see this COVID revenue coming down, we'll continue to see the ARPOBs going up significantly, inching towards INR 30,000, and you will see that the EBITDA margin from 28-odd percent will basically consolidate at around 24%, 25%.

Okay. Okay. That's helpful. Secondly, on -- this is just for a good understanding of your operations, so I see your -- when I looked at the hospital business update with revenue contribution and number of beds occupancy in the presentation that you mentioned, so I see there is -- I mean there are a number of hospitals where the occupancy level is somewhere between 30%, 40% or 45% in spite of they are into operations currently 5 years, some last 8 years. But I mean, still they are into 45%, 46% kind of an occupancy level, which is lower than the industry standard as far as my understanding goes. What am I missing here? I mean why so low occupancy level?

So I think, first of all, all the hospitals have their own way of calculating the occupancy, number one. The other thing which is important to note is that all the hospitals, if you look at it, the majority wise beds as a percentage to total beds are different. We are one of the, I would say, youngest hospital group where about 1,000 beds out of the 2,000 have been added only 3 years back, right? And we all know that the gestation period of hospitals is typically longer, which takes around 6 to 7 years easily. The other thing is that the occupancy that you see is a nighttime occupancy. And generally, it should be seen as 20% higher because you have day care patients who are getting treated during the day and then being -- then they are allowed to leave by the end of the day, so that doesn't get captured in the occupancy. The other thing is very important, which is the seasonal effects. There are times because most of the corporate hospitals rely a lot on quaternary and tertiary care operations, and because of which all of these can be planned because most of them are elective. And because of this, also, there are seasonal effects because of which the numbers go down. Having said that, I think we see this as an opportunity, and we see this as an opportunity that we have such a big leeway to grow over the next 3 to 4 years. What are we doing differently to ramp up this occupancy is something very important. So we are now, as I mentioned in my call earlier, that we are now attaching ourselves to top consultants across all the different specialties, over and above the full-time doctors who are already operating at the hospital. So this is going to drive the occupancy going forward from now.

Okay. Okay. Yes. I mean I kind of sense that probably, from a longer-term outlook, I was about to ask you that I wanted to understand that probably we have around 2,000 beds and 1,200 of that is operational. And we have occupancy -- I mean occupied beds of 500 plus. So there is -- and we have done the CapEx. I mean the major chunk of the CapEx is behind us. Only 2 hospitals, roughly -- it's roughly INR 150 crores plus INR 30 crores, INR 180 crores is there. So major chunk of the CapEx is being done. I sense that a large amount of operating leverage is getting idle which will probably come into effect when we kind of ramp up all these hospital beds. So to that point, my question here is, when do we kind of see this occupancy number to move somewhere between 60% to 65% of the total beds? How much will it take time? And what kind of stable operating margin you are looking at on a blended basis?

See, across corporate hospitals in India, you will generally see a double-digit growth every year. Shalby has always been one of the highest EBITDA generators. So we have the highest EBITDA margins in the industry, number one. The other important factor here is that, as I said, we are taking various initiatives to ramp up this current occupancy. So I think it would be safe to assume that we will continue to grow at 15%, 20% year-on-year for next 4 to 5 years. And this is without adding any additional CapEx that will be required because, of course, we already have the capacity to grow at that level.

And 24% margin would be fair to -- I mean factoring in my estimates for a stable long term?

Yes, yes.

The next question is from the line of Tushar Sarda from Athena Investments.

My question was on actually similar line to the previous participant, and you have given a very detailed answer. So I just want to know what is the return on capital employed in these hospitals which are in smaller towns, like Indore, Jabalpur or the one coming up in Nashik, Surat, Vapi. Because the occupancies are low, contribution to revenue is low. How much money we would have invested in this? And what is that return that we are earning on these hospitals?

See, at a group level, we have shown you in the investor presentation where we stand in terms of ROCEs, correct? And essentially, I think what is important to note there is that there was a major capital infusion into the company in 2017, and -- which is why, after that, you see a dip in the ROCE. However, we are still at about 7-odd percent in the last 2 years. The way we see things, we believe that we will quickly go on to double-digit ROCE numbers in FY '22, and further grow from there. So I think one thing needs to be appreciated that even though we are basically a cash-rich company and even though we have, as I said, come out with good results over the last few years, we have not made any major addition over the last 3 years into our capacity, reason being that we do know that any additional CapEx will bring down the ROCE numbers. So our focus will remain towards driving the ROCE and ROEs going forward. We believe that in the existing capacity, we have the potential to reach about 20% to 25% ROCE and ROE levels.

No, that I understand that at overall level you'll achieve, and that probably will be driven by your flagship hospital in Ahmedabad. I'm asking about the smaller towns. Are they really viable? Because I spoke to another hospital group, and they said, in the smaller town, the issue really is, you don't get good doctors. Doctors don't want to stay in smaller towns. And therefore, those hospitals don't generate so much revenue. So I'm actually asking from that point.

That's a valid question. But unlike some of the other hospitals, most of our hospitals are either in metros or Tier 1s or maximum Tier 2s. And where -- except for Vapi, of course. So we have made our first acquisition in Vapi, and that's a very small town, and we did find a lot of challenges to attract good doctors over there. And henceforth, after that, we have largely gone to the towns where the population is in excess of 2 million people.

Okay, because these hospitals, like the previous participant also asked, they have been in existence for 7, 8 years. And I think 8 years is a long enough time for hospitals to ramp up and start showing good occupancy, which has not happened. And therefore, this question on what is the really return earned on investments in these towns. And now you're going into Nashik also, which is another small town. So from that point of view, if you can provide a little bit of clarity to the investors on how much money has been put in these hospitals? And separate ROCE as compared to, say, your flagship hospital? That would be helpful.

[Operator Instructions] The next question is from the line of Mitesh Shah from ICICI Securities.

Congratulations for the good set of number. I just have 1 question about, you have said that you can see the pent-up demand in your elective surgeries. But arthroplasty, if I can see that, it's just 17% of total sales. I mean even absolute amount I can see then it's a INR 22 crore compared to INR 50 crore in Q3. So can we see the normalizing the absolute amount of revenues in at least arthroplasty from the next quarter onward as you see the pent-up demand on this?

So I think as you see in quarter 4 FY '21, where the COVID number -- the COVID count is very less and COVID occupancy is very less, you will now see that the arthroplasty number, which has itself been growing month-on-month since March, will now start contributing between 30% to 40% of revenue. So we are already at, I would say -- in the month of Jan, the way things are going, we are already at a 75% to 80% level of pre-COVID.

The next question is from the line of Swechha Jain from ANS Wealth.

Sir, just 2 follow-up questions. One was, I think in the last call or last to last call, we had mentioned that we are setting up some equipment manufacturing facility, and we had, I think, purchased the land already. But if I'm not sure if I'm correct on the land piece. But I think we had spoken about setting up a subsidiary for this. So can you throw some light on this as to where are we?

So Mr. Murari Rajan, who is the Principal Advisor to Chairman, is also on the call, if he can please take this question.

Sure. So with respect to this, what we are currently doing is we're evaluating opportunities, and there are some very interesting ones that we have now basically are looking at very closely. And I think most probably in the next couple of months, we should have something to share with you with respect to this. I think this will be something which will be very well received by the investors and more importantly, will place and differentiate Shalby from its competitors.

So can you throw some light as to like what kind of investments are we looking to make into this? And where are we in terms of the entire structure? I mean as in the subsidiary structure is in place, I believe, but with respect to the land parcel, so if you could just share something about it, sir?

Right. So there are 2 different parts to it, right? One is something that we are looking with respect to overseas where a subsidiary will be most probably set up at the appropriate time in order to capture this opportunity and acquisition. And with respect to the subsidiary in India, once we are able to identify and execute the transaction overseas, from there on, through a technology transfer, the subsidiary in India will start to benefit from that. In all likelihood, that facility will be set up somewhere in Gujarat and will take into account the technology of the U.S. to be used and -- for the manufacturing plants in India.

Okay. Okay. Okay. And just 1 last thing. It's just a follow-up question from a previous participant with respect to the hospital units and the revenue contribution and the occupancy rate. So I think we did discuss about Vapi. But if you look at the other -- one more hospital, which is the Vijay Shalby Hospital in Ahmedabad, I think it's in existence for 26 years. But even if I look at the data, the revenue contribution that we have from this hospital is just 0.4%, and the occupancy is just 11%. So can you share some details around it, sir, as to what are our plans for this hospital and why do we see such low numbers?

See, Dr. Shah used to practice in this hospital from '94 to 2007. And in the meanwhile, he also started practicing at some of the other corporate hospitals. Now once this hospital started operations in 2007, the SG unit, right, what happened is that most of the work shifted here and that particular hospital acted as a feeder for some of our Ahmedabad hospitals. So Vijay Shalby is a feeder for our SG unit. It is a feeder for Krishna, and it is a feeder for our Naroda Hospital in Ahmedabad, so across all the specialties.

[Operator Instructions] The next question is from the line of Ankeet Pandya from Elara Capital.

Sir, I have 2 questions. The first question is, in the last call, you had mentioned about the visiting doctors across all the facilities. So can you give any update on that front?

We usually are into multi-specialty. So doing tie-ups with brand specialty also we go multi-specialty wise, either it is neuro or onco surgeons, which are leading doctors in market. So we are in doing tie-ups with that specialty doctors.

Okay. And the second question is on the cost front. Now things are getting back to normal, so how much of the cost is -- like compared to second quarter and the first half, how much of the cost is coming -- has come back in this quarter? And what can we expect in the coming quarter also, in the Q4?

For doctor payouts?

No, in overall operating cost.

Operating cost usually is as per the occupancy and the doctor payout. I think that would be remaining the same. Once the occupancy is increasing and with the same doctors or adding a few doctors, the operating cost remains the same. It won't be going high.

So I'll just add to that, the -- in the current quarter, you have seen an increase in the material and consumable costs, the reason being that a lot of elective work has come back. Also, you would have seen that the doctor costs also would have gone up because their contribution to the revenues, apart from COVID also has gone up, right? And some of the other HR costs, so we had basically done a lot of streamlining in the operations and -- essentially, because of which we were one of the only companies in the health care sector to be EBITDA neutral in quarter 1, whereas most of them suffered huge losses. And those efficiencies continue to remain with us.

The next question is from the line of Ashish Thavkar from Motilal Oswal PMS.

Sir, on the medical devices part, you had earlier said that you are expecting commercial operations to start soon. And you had also given a guidance of around INR 30 crore EBITDA coming from this part of the business. So by what time lines can we get to see this contribution panning out?

Again, I would request Mr. Murari Rajan to take this up, please.

Yes. So again, as I just said earlier, with respect to the medical devices, we are in the process of finalizing an opportunity. And I think once that gets done, most probably we should look to -- in the next 2, 3 months to having completed that transaction. And at that point in time, when that gets integrated into the Shalby group, one will start seeing the revenues and profitability coming from that -- from those operations.

But would you -- would it be fair to say that in the first year of operations itself, you would be EBITDA positive?

Well, one would certainly hope that it would be EBITDA positive because, clearly, we are looking at a situation where there is significant potential for operational efficiencies to be achieved. So we -- it should be the situation where it should be EBITDA positive, yes.

Okay. This is very helpful. So just 1 last question on the guidance. Just wanted to course correct myself. You said a 25% EBITDA margins and a double-digit ROE, ROCE. So that's the vision you have for the company, right?

Yes, that's right.

Okay. And just 1 more, if I may squeeze in. So on the joint replacement side, if you could help what kind of utilizations are we currently working at?

Sorry, can you repeat your question?

On the joint replacement side, in terms of number of patients, what is the kind of utilization rates we are currently working at?

See, the hospital beds that are used for joint replacement are also used for some of the other specialties, right? So as I said earlier, we are at around 70% to 75% pre-COVID level when it comes to the number of joint replacements that are done. And we are very confident that in quarter 4 we will inch towards almost the same levels as pre-COVID.

As there are no further questions, I would now like to hand the conference over to Shalby management for closing comments.

So thank you, everyone, for joining our quarter 3 FY 2021 earnings call. If you have any further questions, please feel free to connect with our Investor Relations team, and please continue to stay safe. I wish you all a Happy New Year once again. Thank you.

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.