Shalby Limited (SHALBY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call of Shalby Limited hosted by Elara Securities. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Kashish Thakur from Elara Securities. Thank you, and over to you, sir.

Thank you, Manav. Good morning, everyone. This is Kashish Thakur from Elara Securities. We welcome all the participants to Shalby Limited Quarter 1 Financial Year 2027 Earnings Call hosted by Elara Securities. Today, we have with us senior management representatives from Shalby. We will start the call with performance highlights from Group CFO of Shalby Limited, Mr. Amit Kumar; and Mr. Deepak Anand, Chief Executive Officer of Shalby MedTech. After that, we will open the floor for question and answer for all the participants. I will now hand over the call to Mr. Jigar Todi for important disclaimers regarding any forward-looking statements that may be made in today's call. Over to you, Jigar.

Thanks, Kashish. Good morning, everyone. Our investor 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 #2 of the investor presentation for a detailed disclaimer. Now I would like to hand over the call to Group CFO, Mr. Amit Kumar, for his opening remarks. Thank you, and over to you, Amit.

Yes. Thank you, Jigar, and good morning, everyone. Welcome to the earnings call of Shalby Limited for the Q1. Now I'll walk you through the consolidated financial performance of the company for the quarter 1 of 2027. This performance, I'll explain in crores and on a year-on-year basis. For the quarter 1, the company delivered a healthy improvement across all key financial parameters, starting with our consolidated revenues stood at INR 338.6 crores as against INR 330.4 crores (sic) [ INR 303.4 crores ] in the quarter 1 of the last year. This is with a strong growth of 11.6% on a year-on-year basis. The EBITDA improved to INR 49 crores as against quarter 1 of last year of INR 48.5 crores, which is reflecting a growth of 1% on Y-on-Y basis. Our EBITDA margin stood at 14.5% compared to 16% in the corresponding quarter. Consolidated PBT stood at INR 19.7 crores compared to INR 22.7 crores in the quarter 1 of the last year with a PBT margin of 5.8%. The consolidated PAT has been higher at INR 10.5 crores with a PAT margin of 3.1% in the Q1 as against INR 7.7 crores with a PAT margin of 2.5% in the quarter 1 of FY '26. The group continues to maintain a healthy balance sheet with a comfortable gearing ratio of 0.46x and a net debt of approx. INR 463 crores. And we'll further walk you through the stand-alone performance of the hospital segment. The stand-alone revenue for the quarter 1 stood at INR 259 crores as against INR 242 crores in the quarter 1 of the last year, registering a growth of approx.. 7% on a year-on-year basis. The stand-alone EBITDA approximately stood at INR 47.8 crores as against INR 52.4 crores in the quarter 1 last year with an EBITDA margin of 18.4% versus 21.6% in the corresponding quarter last year. The stand-alone PBT stood at approx. INR 34 crores as against approx. INR 40 crores in the quarter 1 of FY '26 with a PBT margin of 13.1%. The stand-alone PAT stood at INR 25 crores compared to INR 25.7 crores in the quarter 1 of last year. This has a PAT margin of 9.7% in the quarter 1 as against 10.6% in the quarter 1 of the last year. At the net debt level, this stands for the hospital segment for INR 54.5 crores at the end of the quarter. The stand-alone ROCE for the quarter has been at 9.4% at an annualized level. Operationally, our ARPOB has been INR 44,711 compared to INR 45,673 in the corresponding quarter last year. The ALOS has stood at 3.69 days as compared to the quarter 1 of the last year at 3.53 days. The number of occupied beds has increased to 701 in the quarter 1 as against quarter 1 of the last year at 639. This shows a growth of 9.8% year-on-year basis with an occupancy rate has been at 51%, excluding Shalby International, which stands at 54% during the quarter. The payer mix for the quarter had been 30% self-pay, 38% insurance and 32% government business. Importantly, now coming to Shalby International, our Gurgaon unit. The revenue stood at INR 26.2 crores as against quarter -- last -- quarter in the last year at INR 23.2 crores. Our ARPOB has also increased to INR 91,326, while ALOS has stood at 3.8 days during the quarter. International revenue contributed about 42% of the operating revenue of the Shalby International in the respective quarter. Importantly, we have to also mention that the Gurgaon unit has achieved its EBITDA breakeven for the first time since the acquisition, and this is a sustainable and a growing EBITDA we look forward from -- in the subsequent quarter. Overall, international business for the Shalby Group has been about INR 13 crores, which comprises about INR 2 crores coming from the Gurgaon unit and rest INR 11 crores coming from the other unit of the Shalby Hospital. We are also pleased to share that during the year, the group successfully completed 47 transplants, including 41 kidney transplant, 5 liver transplant and 1 bone marrow transplant. This has been the summary of our hospital performance and the consolidated performance. Now from here, I'll move forward to our MedTech performance during the quarter at a consolidated and stand-alone level. So we have started FY '27 on a very stronger note in our MedTech business with encouraging performance across our all key business units, importantly, a [ meaning and power ] improvement in our profitability. The first quarter demonstrates the progress we are making in building Shalby MedTech into a more diversified, scalable and profitable medical technology platform. Also to brief you now how the performance has been at the top line and EBITDA, to start with the top line and revenue performance. At the consolidated level, Shalby MedTech as a whole delivered a revenue of approximately INR 47 crores in the quarter 1 of the FY '27, registering a growth of 17% as compared to the quarter 4 of the last year and 53% strong performance if we compare it on a year-on-year basis. Moving to the -- this performance was driven primarily by strong momentum in our Shalby MedTech Limited at India level, which delivered a revenue of approximately INR 36 crores, registering a growth of 29% sequentially and 98% on a year-on-year basis. We are particularly encouraged by the performance because it reflects the increasing traction for our products, improving execution across our business units by the team. At the SAT U.S. level, we also remained stable, delivered a revenue growth of INR 30.8 crores (sic) [ INR 32.8 crores ] with a modest sequential growth of 9% on a year-on-year basis. Our Singapore unit, the SGTPL reported a revenue growth of INR 9.9 crores, while this is lower sequentially, but the business remains strategically important to our broader MedTech portfolio, and we remain focused on improving our profitability from here. Overall, the consolidated business is showing increasing scale. We believe the underlying growth opportunity remains very attractive. And importantly, to mention, this CAGR of [ 15% ], which we have been maintaining from quarter-on-quarter and year-on-year, we are confident to see the same level of the growth in the coming quarters also. Moving to the profitability performance. Most encouraging aspect for Q1 is the improvement in the EBITDA. And at a consolidated level, EBITDA has been posted positive, and this has been our fourth consecutive quarter for MedTech as a whole reporting EBITDA positive performance. Moving to entity level. The SMTL, our India-level entity, approximately reported INR 22.9 crores compared -- INR 2.9 crores revenue as compared to INR 10 million in quarter 4 of FY '26 with INR 12.8 million in Q1 '26. This represents an approximately growth of 191% sequentially and 130% on a year-on-year basis. This is a very important milestone for us. The improvement is not merely a functional revenue growth. Rather, it is also the benefits of operating leverage, better business mix and improved execution over the period where we have been consistently working upon that. At the SAT U.S. level, the EBITDA has been marginally negative during the quarter at a stand-alone level. We are actively working on improving the profitability and confident to see that in the coming quarters through our operational efficiencies and the business initiatives we are taking across. At the Singapore-entity level, the SGTPL, on the other hand, delivered an EBITDA of approximately INR 5.8 million, a significant improvement compared with the previous quarters. At the consolidated level, as I mentioned earlier, the EBITDA has been posted positive at about INR 1.7 million in the quarter 1 of the '27, and this has been the fourth quarter consecutively reporting a positive EBITDA. While we recognize that there is still considerable room for the improvement at the consolidated level, however, we are confident the direction towards which we are working and execution would reflect a more better and stronger number from here on. Now to mention about our inventory levels, which has been a key parameter to evaluate and drive business. The good part is our inventory level has been on an improving trend. Our inventory at a consolidated level is declining, showing a significant [ decrease ] in our DSO holding period. And as per our estimate, we expect a 30% improvement in our DSO -- in our inventory holding days, which has been a significant focus area for us in the recent quarters. At the same time, our consolidated revenue has increased to -- from FY '25 (sic) [ FY '26 ] at INR 1.3 billion to FY '26 (sic) [ FY '27 ] at about INR 472 million. And just in the -- sorry, I'm repeating it again. Our revenue at the consolidated level has been INR 923 million in the FY '25, INR 1.3 billion in the FY '26. And now just with the first quarter, it has shown a number of INR 472 million. This shows a strong performance and also gives us the confidence to improve our inventory level and its holding period from here on. We will remain highly focused on working capital discipline throughout the year. Looking ahead, we enter the rest of the FY '27 with our priority remaining unchanged. Importantly to mention, first would be we want to sustain the strong growth momentum in SMTL. Second, we want to improve profitability and operating leverage across the portfolio. Third, we will continue to focus on inventory optimization and working capital efficiency as already covered. And finally, we'll also continue investing selectively on our products and technologies that can create sustainable long-term growth for the Shalby MedTech as a whole. We believe the underlying MedTech opportunity in India and globally remains very significant. Importantly to mention, our objective is not to simply grow the top line, we want to build a business with a stronger margin, higher asset productivity, better cash conversion and a sustainable long-term growth. The Q1 FY '27 number give us confidence that we are moving in that direction. With that, I would like to thank our employees, customers, partners, shareholders for their continued support. We'll now hand over the call to participants, and we'll be happy to take any questions.

[Operator Instructions] We have our first question from the line of [ Raja Kumar ] from [ RK Invest ].

First of all, congrats for the good set of numbers. Good to see that your -- the Hospital segment is doing well this quarter. And I think you kind of kept up your promise there. So I just wonder whether now this segment will continue to be steady state and the margins will continue to improve from here on. There are no one-offs and there are no headwinds on this segment? That's my first question.

Sorry, could you come again with your question? We could not hear you properly.

Yes. No, no, my question is on the Hospital segment. So it is good to see that your margin performance is kind of back to year-on-year levels. So this is in line with whatever you -- the commentary that you gave in the last 2 quarters that you are expecting to see a better performance. So it's really good to see that. So the question is whether these margins will sustain or will it improve further from here on?

Yes. Thank you for your question. And on to the margins, to reflect, we feel confident -- we are confident to see an improved margin from here on. And the reasons are -- the underlying reasons are very obvious that if we mention it about -- importantly to include that we had deployed bunkers in our units already in the last year, which got activated also in the quarter 1. But we see the more uptrend of that to come in the current -- in the subsequent quarter and which would flow to our EBITDA margin straight away. That would be the significant part of the upside of the revenue where we are confident. Another to include, our new TPA renewals are also actively underway, which would give us significant upside on to the renewals, which holds a potential of 5% to 7% jump on to our revenue with the TPAs and other tie-ups which are in active discussion. Another to include as an overall, at the hospital, we have already mentioned that the Gurgaon unit, which has been underperforming, has posted an EBITDA positive, and we are confident to see a better margin from there on because it's building on a better top line from there. Another to include, our other units like Krishna, Mohali and Naroda had been posting a year-on-year growth of about 30%, and we are confident to see that trajectory to also follow. There had been a few units which had been -- which had underperformed, including Surat and Indore, where the active work is on to recruit the right set of the doctors and the close discussions are underway. So all these set of things, we are confident to see a better top line and major part of it flowing directly to EBITDA and ultimately resulting in a better EBITDA margin from -- in the subsequent quarters.

Okay. That's good to know, sir. Sir, the second question is on the manufacturing and trading of implants, that segment. Why the bottom line has deteriorated despite your revenues have gone up year-on-year, INR 28 crores -- from INR 28 crores, it has gone to INR 42 crores, but the bottom line has deteriorated? And in the last 2 calls, we have been saying that the COGS has been coming down significantly, but why then the bottom line is bleeding?

So yes, thank you for your question here. While we see our CAGR has been growing on to the bottom line, we had been posting an EBITDA positive numbers. And more importantly to include is, if you notice in the earlier years, this is as a result of -- that we had been earlier investing, which has been resulting into an interest expense, which is now not significantly increasing. Our debt had become stable. The differential reason is also the depreciation on to the intangibles and other products which we have done -- other CapEx we have done in the earlier year. And the full year effect is coming into this quarter. We do not see our bottom line to worsen off from here. Rather, we are confident to see a better bottom line in the subsequent quarter, also importantly, by the reason of the upside on to our gross margins, which has been -- which is expected to increase about 100 basis to 200 basis points each quarter from here on.

Okay. Sir, what is the reason, quarter-on-quarter, the bottom line is -- I mean, the losses have gone up, like INR 7.4 crores to INR 11.4 crores this quarter from Q4 to Q1. So is there any one-off hitting here? Or is it going to be like this?

This is also by the one-off. If you would have noticed, the earlier quarter had some impact of the ForEx gain, which -- of the ForEx, which had been otherwise in the current quarter. So once that stabilizes, we would see that the one-off would not be there into the P&L, and we would see the improving trend of the bottom line from here.

Okay. Okay. And last question is to the CFO. Sir, why we are not recognizing the deferred tax on the losses because otherwise, your tax rate is getting vitiated. It looks like you are providing higher taxes. So when do you think you will start recognizing the DTA on the tax losses?

So we are already recognizing our DTA wherever required in our Hospital segment. On to the U.S. MedTech operation, that is an accounting call. On a conservative basis, we are not recognizing a DTA currently. But as soon we see the profitability improving, we would reconsider and revaluate it out.

[Operator Instructions] We have a next question from the line of Kashish Thakur from Elara Securities.

Sir, regarding MedTech business, our MedTech business revenue has grown around 53% Y-o-Y, but EBITDA was around INR 1.6 million. So what is driving this weak profitability, particularly at like U.S. front? And what can we expect sustainable double-digit EBITDA margins -- from when can we expect that?

Yes. So see, there are a couple of things. So as our CFO mentioned, a large part of the profitability decline has been because of the foreign exchange changes in terms of the dollar to INR, right? In terms of the volume, the volume has grown significantly in India. As you can see, there has been a growth of over 100% in terms of the volumes of sales in India. In terms of the U.S., we have been predominantly stable in terms of the volumes of sales in the U.S. business. So that has remained flat for us. And there are multiple initiatives that we have taken to grow that sales number, right? Coming to the cost of -- the EBITDA margins improving. So I think there are a couple of initiatives which we have taken -- significant initiatives taken in the quarter 1 of this year. And because of those initiatives, we are going to be investing -- our total inflow into the company is going to reduce by about INR 3 crores a month, right? So that is the impact of all these initiatives that we have taken in terms of working with the right vendors, et cetera. And the other thing is that there is another significant project which is underway where after which, if it is implemented -- which is going to be implemented and executed by the quarter 4 of this financial year, we will see that the cash flow requirement will go down further by another INR 3 crores per month. So there are these significant initiatives which are taken. And we will be achieving a double-digit EBITDA margin from there on because these are the important changes which we have to make. And like we have discussed in our earlier calls and as you all are medical and pharma analysts, you would understand that any changes that we have to make within this segment, where it concerns the U.S. FDA and other regulatory bodies, it takes about 6 to 9 months, 1 year often, to kind of make these changes. So this is all underway. Half of the progress is already made. The other half is expected in the next 6 months from here on.

Sir, next question is on our hospital business. So hospital occupancy has improved to 51%, but stand-alone margins were broadly like -- declined by around -- somewhere around 320 bps to 18.4%. So what was the margin pressure? And again, can you reinstate your FY '27 EBITDA margin guidance?

So on to the -- you are right, the occupancy has significantly improved about 600 basis points. And on to our EBITDA margins, see, our top line has increased, our units, which I mentioned, like Krishna and Naroda had shown a jump of year-on-year basis about 30%. This is -- the EBITDA margin is -- the pressure on the EBITDA margin is temporary because we have deployed new doctors and new specialties which had come in. So it takes sometimes about a quarter or so that the doctor reflects its complete profitability. Into the subsequent quarter, we see the EBITDA margin to improve by that reason. And also by the reason which I covered previously that the new TPA renewals and the bunker revenue, which to flow into the subsequent quarter, giving the full effect, would be reflecting a better EBITDA margin from here on. We are strongly confident as per our estimate to see an EBITDA margin of upward to 20% on a year on -- on to the full year basis.

Understood, sir. Sir, in last -- I think so I recall, in previous 2 quarters, we have done a few additions in Shalby International in doctors front. So that has been stabilized or we are still adding?

Yes. So yes, we have done the replacement and the new recruitment of the doctors, importantly to mention, on to the onco and ENT side, that had been showing a good growth momentum and had contributed to our revenue. Where we have recently recruited and replaced doctors include the liver transplant and KTP, their revenue contribution in the quarter has been lower because that had happened in the middle of the quarter or at the end of the quarter. The full effect you would see coming in the quarter 2. And also to mention our bone marrow transplant, which had been not there in the last quarter, the active discussion is on with the doctors, and that effect would also you would see in the quarter 2 and quarter 3, which will be taking a top line further up from here. And further also, the international business also remain impacted to some extent, which had been showing an improving trend from June onwards. The full effect of that would come in the subsequent quarters.

Understood, sir. Sir, again, just continuing on Shalby International, we have already turned EBITDA positive despite having occupancy of 24%. What are our aspirations for the occupancy and EBITDA margin for the same hospital in FY '27? And by when can we achieve PAT breakeven as well for Shalby International?

So with a very -- with a kind of estimate and the work which we are executing at the ground, we do expect our occupancy level to touch 30% or up from quarter 3 or quarter 4 onwards. And we are also likely very confident that on to the quarter 4 or near quarter 3 end, we would be able to see a PAT/PBT positive number also. We are not far from here. We are not only EBITDA positive this time. We have posted a 7% EBITDA. And so hence, the journey to see a PBT number positive and so hence, the PAT, we may see that to happen from 6 to 9 months there with the specialty already deployed in and few are already underway.

Sir, coming to our tax rate. Our tax rate has seen a bit of moderation. So can you just guide what kind of tax rate we can expect for FY '27?

So first to mention, at the hospital level, we have already transited to the new tax scheme with a lower tax rate of about 26% from earlier of 35% in the previous year. So that is the one benefit, which is a permanent benefit showing -- already flowing to our stand-alone P&L. At the overall group level, if you would notice, our ETR has significantly come down to 47% as against 66% in the quarter 1 of the last year. And at the stand-alone level, I have already covered. So this is the kind of the permanent tax benefit which will be flowing to the whole scheme of the things. And one important thing to mention, into other MedTech and our Gurgaon unit, since we have carryforward losses as soon we have EBITDA positive slowly flowing to the PBT, we would not have a tax expense for the next 2 to 3 years, that would be a straight cash benefit flowing to our overall profitability and taking our ETR at a more better rate from here.

Understood, sir. Sir, one last question from my end. So our consolidated ROCE remains still low at somewhere around 16.7% versus management earlier stated doubling the ROCE. What are the key levers and time lines for this to be achieved? And one question on Mumbai expansion, how it is going?

Okay. So first to answer on your ROCE, at the group level, we are at about -- at the stand-alone level, we are at about 9.5%. Group level, we are approximately 7%. Now we see this ROCE to improve from here on by largely 2 reasons. One, our CapEx deployment has been heavily happened in the last years where we have done INR 150 crores of the CapEx, including our bunker facility and we have been [Technical Difficulty].

Ladies and gentlemen, the line for the management has dropped. Please stay connected while we reconnect. Ladies and gentlemen, thank you for patiently waiting. We have the management back with us. Over to you, sir.

Yes. So I would continue to answer your question on to the ROCE. I would re-summarize it. Your question had been on a lower ROCE at an overall level. So I had mentioned about our group-level ROCE is at approximately 7% and at stand-alone level, it is 9.5%. This has been by the major reason of the CapEx deployment in the recent years, including where we had invested in bunker facilities [indiscernible] and we had investing in the MedTech space also [Audio Gap] group-level ROCE. And our estimates and our plans in the recent -- in the current year and for the next year are to -- we would be able to manage with a minimal CapEx since we have already invested that and EBITDA positive into our different Gurgaon unit. So as an overall scheme of things, we see our ROCE to be improving from here on. And we do expect that to fall in the -- with an industry standard from 1 to 2 years from here, which is between 11% to 13%.

Sure. And sir, last question on Mumbai expansion? How is it going now?

So the discussions are on with the trustee, including the -- once the alignment happens, it would see a further approval or the review of the trust office there. So these discussions are underway. Whenever there will be another development, it would be informed to the respective stakeholders.