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Apollo Hospitals Enterprise Ltd
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Ladies and gentlemen, good day, and welcome to Apollo Hospitals Limited Q1 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mayank Vaswani from CDR India. Thank you, and over to you, sir.
Thank you, Ray. Good afternoon, everyone, and thank you for joining us on this call to discuss the financial results of Apollo Hospitals for the first quarter of fiscal year 2021, which were announced yesterday. We have with us on the call today the senior management team, comprising: Mrs. Suneeta Reddy, Managing Director; Mrs. Sangita Reddy, Joint Managing Director; Dr. Hariprasad, President of the Hospitals Division; Mr. A. Krishnan, Group CFO; Mr. C. Chandra Sekhar, CEO of Apollo Health and Lifestyle Limited; and Mr. Obul Reddy, CFO of the Pharmacy business. Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. For a complete listing of such risks and uncertainties, please refer to the investor presentation shared earlier. Documents relating to our financial performance have been shared with all of you, and these have also been posted on our corporate website. I would now like to turn the call over to Mrs. Suneeta Reddy for her opening remarks. Over to you, ma'am.
Good afternoon, everyone, and thank you for taking time to join our call. I trust all of you have received the earning documents. The last 6 months have clearly been one of the most challenging periods in our 36-year history, a period which placed unprecedented demand on the health care system. But it has also been an exceptional and defining period for the sector, placing it at the forefront of the national narrative. While the impact for only a few days in quarter 4 of FY '20 was felt last year, the first quarter of FY '21 has withstood the peak of the lockdown and the curtailment measure. This has led to an impact on our operations in various ways. First, our outpatient volumes were impacted [indiscernible] within the cities as well as outstations due to the lockdowns and travel restrictions; second, there was a significant drop in the postponement of surgical volumes across both electives as well as mild to moderate medical conditions due to the fear of visiting a hospital in these times. We need to take -- the third, we need to take infrastructure modifications in our facilities across India to ensure complete safety for both our patients and employees and to put in place protocols which ensures an iron curtain between COVID and non-COVID patients, with immense social and consumer responsibility not to reduce patients needing care across our centers, while at the same time ensuring clinical preparedness to continue achieving best-in-class outcomes and recovery rates, maintaining the morale and composure of the frontline warriors during this period. I'm very happy to state that we have treated 37,000 patients with COVID and have completed 1.3 lakh tests. At Apollo Hospitals, we not only had to deal with the challenges thrown up by the pandemic, but also ensure the seamless continuation of delivery of essential health services during the outbreak. This meant we have to respond to specific patient categories like maternal, newborn and child health, prevention and management of NCDs, treatment of chronic diseases to avoid complications and addressing emergencies. This has led to an increase in costs due to infrastructure modifications made from creating isolation beds, the PPE requirements for personnel and for the upkeep of hygiene and sanitation room as well as financial [indiscernible].We have counterbalanced these with our efforts on cost savings. The pandemic has necessitated a strong financial and cash flow management. We initiated a slew of cost-containment measures. Our receivables team ensured that we collected dues on time. And overall, we were able to manage the cash situation with only a marginal adverse impact on cash flow and debt. While we have emerged as the safest network of hospitals, providing world-class care for our patients during these times, we continue to contribute to the fight against COVID-19 in several ways under the umbrella of Apollo Kavach, the shield against COVID. Our Joint Managing Director, Sangita Reddy, will be sharing a brief presentation on this after we speak about the numbers for about 5 minutes. Against this backdrop, let me take you through the financials of this quarter. The company recorded a degrowth of 12% in stand-alone revenues to INR 2,962 crores, and a degrowth of 16% in consolidated revenues to INR 2,172 crores. SAP continue to report double-digit growth at 21%, while health care services grew -- degrew by 42%. IP volumes also degrew by 45%. And overall, occupancy across the group for quarter 1 FY '21 was at 2,742 days or 38% compared to our 66% in quarter 1 FY '20. Our SAP vertical recorded revenue growth of 21% year-on-year, with an EBITDA higher by 37% against the same quarter at INR 80 crores. Network-wide EBITDA margins are at 6.3%, with those of our mature stores at 8.7%. SAP return on capital employed is 27% now, and sales from private label has moved to 9%. The pre-Ind AS quarter 1 '21 EBITDA stood at a negative of INR 18 crores compared to a positive of INR 274 crores in quarter 1 FY '20. Post-Ind AS EBITDA was at INR 40 crores. Within this, health care services EBITDA registered a loss of INR 99 crores, impacted by lower volume and occupancy due to COVID. To offset the impact of the pandemic on the business, we launched a comprehensive cost optimization and productivity improvement project. We have been able to achieve INR 80 crores of cost saving in stand-alone and over INR 100 crores of cost saving in consolidated account in quarter 1 FY '21, which represents a 20% reduction in our costs over the last quarter FY '20. AHLL recorded an EBITDA loss of INR 19 crores as compared to a loss of INR 4.7 crores in quarter 1 FY '20. The business has demonstrated a 37% degrowth in top line, which includes the impact on clinics and its Spectra businesses due to COVID. Net debt as of June 30, 2020, is INR 3,014 crores. We have a debt-to-equity ratio of 0.89. The debt-to-equity ratio has inched up this quarter due to the dip in revenue. We expect it to return to a trajectory of reduced debt in the second half of the fiscal. We secured final approval of the NCLT for the demerger of the front-end Pharmacy division, with effect from 1st September 2020. This reorganization sets up the platform for Value Discovery for the business at a future date in a regulatorily compliant structure. The last 6 months have seen the rapid ramp-up of our digital health care platform, 24/7. At the 6-month mark since its launch, the platform had 3.27 million registered users, the fastest by any Indian digital health care platform and faster than most global benchmarks. 15.7 million COVID clients have been taken on the platform. Partnerships with major telecom, banking, insurance and technology players have already been entered into to provide Apollo digital health access to 100 million Indians. Apollo 24/7 is creating a trusted curated network of doctors for the best and highest-quality virtual consultation experience in India. Over 3,500 Apollo consultants and partner doctors are currently onboarded. 13,500-plus pin codes are covered by the online medicine delivery service of the 24/7 digital platform, and we are adding more pin codes rapidly. Further, the team is building the fastest medicine delivery platform by leveraging our existing formidable pharmacy chain presence across the country. 40% of the Indian population are within 30 to 60 minutes of an Apollo pharmacy store. Apollo, overall, has 39.6 million unique customers served over the last 5 years, out of which 2.3 million new customers have been served since the onset of COVID. Apollo 24/7 digital health would be offered to all these customers to create an enhanced lifetime value. Looking ahead, we are producing positive traction in the Apollo Hospitals division in quarter 2. July and August have shown marked improvements in occupancy. Critical volumes are also gradually picking up as the lockdown relaxations take effect across the country. We expect to see sequential movement -- improvements as we move ahead, and for health care services EBITDA to move back into positive territory in quarter 2. This has been a challenging quarter not just for our company, but for the country and for the world. We believe we have navigated these troubled times well and have emerged stronger in our strategic journey. We have moved closer to the consumer through Apollo 24/7, and we have reduced the 6-month period to win new consumers and deepened our engagement with existing customers. For now, that's it from me. And let me ask Sangita, our Joint Managing Director, to speak about the coverage initiatives. Later on, our CFO, Krishnan Hariprasad; Obul Reddy; and Chandra Sekhar from AHLL will be there to take your questions. Sangita?
Can you hear me?
Yes.
Yes.
Okay. Yes. Hello. And it's a pleasure to talk to you. Are you seeing the same slide? I'm on Slide 4.
For the currency slide, Sangita, they have the presentation.
They have the presentation. So if you're using the presentation, ladies and gentlemen, you can refer to Slide 4, but I'm quickly shifting to Slide 5. As all of you know, the numbers are profitable, has been significant and continues to grow in India. Where we have thought that we're having a milder response, the numbers have not just crossed 5 million, brought us to among the top 3 countries in the world. But it has been fairly devastating in terms of numbers, yet the medical response has been very good. Leading this response, I think, Apollo, in the last 200 days since we've heard about COVID, went through a series of thought process in terms of what our response would be. We first said that we must continue to serve our existing customers. So we would bring world-class protocols in COVID care, but we would do it in an isolated manner while continuing to treat emergency and other patients. We thought through a process of prevention. So we educated public and corporate customers, all patients on prevention. We worked on early diagnosis. We facilitated quarantine. And a methodology went through our treatment so that we brought world-class treatment and then are now working on rehabilitation. This integrated response literally encompass every service and every capability of Apollo, starting from our round-the-clock helpline, a number which reflected our 1066 branding for customers who want free call value on that. We gave credible information. We've stayed compliant with government guidelines. We were multichannel in our approach, multi-stakeholder and multi-language. We launched our telemedicine capability, fever clinics. We started over 2,300 beds, ramped up our testing capability, enhanced our home care and created a unique concept called Stay I, which was our methodology to keep people isolated, recognizing that in India, many people did not have the facility to stay isolated at home and, therefore, needed a different strategy. We partnered with hotel rooms, Oyo Rooms for cost effectiveness, Lemon Tree for the middle income, put a telemedicine layer on top of this and enable the people to stay isolated while having medical supervision. We also focused on education awareness, 24/7 that our Managing Director has spoken to you about, has had a tremendous impact during this period. And the COVID scan, which over 18 million scans have been taken during this time period, is an artificial intelligence-enabled risk assessment score, which has got a lot of credibility and impact for us. Just a quick glance at the numbers. We have over 2,250 dedicated beds in the Apollo ecosystem and an additional Apollo Hospital enterprise system, an additional 400 beds in the not-for-profit. We've completed over 1.5 lakh tests. We're currently doing an average of about 4,200 tests per day. We've done over 12,000 admissions; 6,500, home care; and in Stay I, 5,000 plus. We actually have served over 50,000 room nights and helped approximately 1 million COVID-positive patients. And if you say that they could potentially have infected 5 people, this is an impact of prevention of over 5 million infections as well. On this 24/7 app, I just want to add 2 or 3 things. We are truly humbled by the response we've got, which is a reflection of the brand name and the deep user base that we have. But we currently added 3.7 million registered users. And during this time period, we have worked not just with COVID response and pharmacy delivery, but we'll soon be rolling out multiple other services. I think it's important to summarize that if you look at any response to a protocol or a system or a treatment or an ecosystem, it's ultimately in the results, mortality rates. I'm thankful to our doctors, our nurses and the tremendous teams, which led us to not just become the go-to place for COVID management. And all of us have kept our phones on, literally day and night, because that was the kind of response we gave. We've treated the sickest patients with multiple comorbidities, and our outcomes today are a benchmark for the country. We presented in front of all hospitals, the union health secretary. We have a 0.35% mortality rate for people below 50 years of age. This is among the best in the world. And all our patients who succumbed had more -- 1 to maybe 3 comorbidities, 40% of them had more than 3 comorbidities. The last leg of this significant journey, which we have traveled, where we've spoken to international doctors. We built care protocols. We've traveled the journey from treatment of -- from remdesivir to steroid therapy to [indiscernible] and really optimized this treatment protocol and shared this treatment protocol with over 5,000 nursing homes but handheld more than 150 of them. We've accelerated our E-ICU, enhanced our telemedicine capability, reached out to corporates with treatment protocol and had engagements with them for treatment. We're now moving into that significant phase of rehab because it's getting reported in scientific journals across the world that the residual comorbidities and complications of COVID are surfacing now, whether it's delayed stroke, cardiomyopathy, different conditions, so ProHealth will be our vehicle to work on rehab. My last point on this one is that Apollo has always been equally committed to education. We have created 23 versions of our treatment protocol book, updating them every time, with publications and information from across the globe. Just a data point, during the COVID period, every hour, 8 papers of public scientific papers came out on COVID. We've encapsulated this, brought the best of knowledge, put it into the red book, created a uniform care protocol pattern across the Apollo ecosystem and then shared this with others. Our handbook to corporates has been a guideline on how to create normalness and life after lockdown. And this has been multiply quoted, shared and very well appreciated. So this is an integrated overview of Kavach. And just to summarize, this has been a part of our continued commitment to patients. Our excellence in medical outcomes is a reflectiveness of our agility of response. We literally turn on a dime. Being a large organization, we were able to have the agility of a newcomer. Our technology preparedness enabled us to do this. And most importantly, the committed Apollo family has really given outcomes that the country can be proud of. Thank you. That's it for me.
That's it. So we're ready for questions now.
[Operator Instructions] The first question is from the line of Prakash Agarwal from Axis Capital.
Right. My first question is on occupancy. So if you see, the occupancy clearly come down from 63% average in Q1 last year to now about 36%. How are you seeing -- that would -- I assume that's an average. How would -- have you seen the monthly run rate? And how are you seeing the July, August, September? If you could just give some color, that would be helpful.
Yes. So occupancies have definitely improved. July, we moved up to 47%. August, we were at 55%. And I think September, with the lockdowns in Tamilnadu, we're crossing 60%.
So this is like-to-like of 36%?
So what -- so the like-to-like of 36% for the full year -- full quarter maybe a bit lower by 2%, 3% because that's based on discharges. Whereas this is based on the actual midnight occupancy that we track every day that Suneeta stated. So 38% will probably go for the full quarter, maybe by -- to 50%, 52%. As we close the quarter, we'll have to see.
Okay. So around 50%, 52% is the current run rate on a quarterly basis?
That's correct.
Okay. Perfect. Great. And just some clarity on ARPOB. So if you see that while occupancy, as expected, is down, but surprisingly, ARPOB has moved up Y-o-Y. So is it a function of -- because COVID patients have lower pricing, if I'm not wrong, right? And that, at least, has been increasing share. So if you could help us, the COVID share in terms of bed occupied as well as why this ARPOB has increased, that would be helpful.
So during the first quarter, the COVID patients were not as high, firstly because April was a complete lockdown; May was a lockdown; June, we started getting a few COVID patients. Actually, July and August have seen a lot of COVID patients in our system because, especially as the COVID has moved up to society, et cetera, we have seen that July and August has been significantly higher on the overall COVID patients as we speak. Point number one. So which is, hence, it's not that Q1 is fully -- doesn't show you the full impact of COVID being a bit lower. Second point is that even the payer mix was better for us because a lot of the CGHS and some of the government patients, et cetera, was -- the flow was not there in Q1. So most of that was represented by cash and insurance patients because credit business significantly dropped down. So that's the second reason that it was this. And in any case, if you look at even July and August, our acuity of our patients that we handle, the ICU patients, et cetera, are high. So which is why pretty much you will see that the overall ARPOB will be -- will hold on to similar levels, though COVID is a bit lower, as you said.
Okay. Perfect. And last one, if I may. So one of the -- have you closed or shut down one of the hospitals as the number seems to be down on a stand-alone basis when we compare the presentation.
A small hospital in Chennai in the cluster called [indiscernible]. It was having 30 beds...
25 beds.
25 beds.
Okay. So that is now shut down?
Yes.
And maybe it was loss-making or something?
Yes, it was, and it was long overdue. And the COVID and everything, we said there was no point in running that small hospital. It was there for a very long time. We've just shut it down for now. That's where it is. If required, we can start it later.
The next question is from the line of Gina Kim from Schroders.
I guess can you -- I know you mentioned that the perception now amongst patients has, I guess, improved now. I mean post-COVID, people were fearful when COVID was really rampant. And are they coming back for sort of even elective procedures? And what's the general sort of perception regarding health care now amongst patients in general? I mean are they more interested in hygiene at hospitals? I mean, I know there were some issues at some public hospitals and some of the smaller private hospitals as well. I'm just wondering what you're seeing. Any feedback from patients there? And then my second question would be on international patients. I know you guys were quite excited about your -- with the potential you have with international patients, especially with proton therapy, et cetera. Some of your peers have mentioned that international travel or the essential medical travel has also started picking up again. I mean are you seeing that as well?
Yes. So to your first question on what is the perception. So there is -- there were -- what we projected to follow is that it's a safe environment. And this is clearly bringing back patients because they know that we've isolated the COVID facilities from the regular facilities. And there's also this question of pent-up demand. So there was a lockdown for 3 months and many people couldn't come for elective surgeries. So they are now slowly starting to come back. And this is definitely reflected in doctor occupancy and the surgical volumes that we see -- currently seeing. Your third question was about international travel. Yes, I think the international travel is a question from the surrounding countries. It's -- prior to starting -- have started, and we are seeing some patients coming. Most of what we have done at Apollo is to work with charter companies to arrange for these flights to come. So we are getting patients from Bangladesh. We are getting patients from Sri Lanka. And this will probably be something that we have to -- our strategy that we will have to follow for the next 6 months until we see all of the international fleet back. The good part of it is that, especially for proton, we were getting 40% of our patients were from overseas. Currently, what has happened is that Indians who go abroad for oncology treatment are all coming to Chennai for treatment. So I think the runway for proton is definitely there. It -- we will see some ramp-up happen in the third quarter.
The next question is from the line of Neha Manpuria from JPMorgan.
My first question is on the occupancy. Now I understand there is 60% occupancy. And I think Krishnan has mentioned that we've seen a ramp-up in the COVID patients in the last few months. So if I were to look at, let's say, our non-COVID occupancy, where would that be trending? And how is this versus our expectations, given we're still seeing numbers increase pretty sharply for COVID?
So there has been an increase in the non-COVID patients as well. Because if you look at the number of operating beds that we have across the system to the now, it's over 7,200 operating beds that we have, of which 30% has been kept aside for COVID. 2,250 beds is what we have currently assigned for COVID. And the COVID occupancy would be north of 65%, currently, of the 2,250 beds that we speak of. And the non-COVID occupancy is also north of 55% as we speak. So adjusted for discharges, the way we compute later on, as I said, it will be in that 50%, 52% overall as a company. We believe we'll have to see that, how it comes out. But broadly, the occupancy is going up for the non-COVID also. Dr. Hari, anything you would like to add here?
Yes. I think we've seen a growth in the non-COVID patients, especially in this quarter. And that is reflected in the growth in the number of elective procedures also. So the number of COVID patients are more or less flattening out the occupancy, while the non-COVID is going up.
And as we see a ramp-up in the non-COVID occupancy, do you think this gets constrained by the fact that we might not be able to access the beds that we have allocated to COVID? Would that limit our occupancy into the second half, particularly if we see a strong pent-up demand?
Dr. Hari?
Yes. Not necessarily because we have enough beds, which are there. We are still at about 60% occupancy. We have another 40% beds still running there. And even if there is a serious increase in the number of patients coming in among the non-COVID side, I think we have enough place for them. So I don't see any constraint.
Okay. Understood, sir. My second question is on the cost saving number that you had mentioned, INR 100 crores on a consolidated basis. Sir, if you could give some color on how much of this was because of lower occupancy or our efforts due to lower occupancy, which will come back? And how should we look at structural cost savings through the year?
So none of this was on lower occupancy. Most of -- if you look at the first quarter, there was some saving, which is probably not structural. It had a huge impact. And this was currently money paid to doctors and rent reduction for 6 months and some amount of salaries, which there was a saving on payouts to employees. So these are the 3 things that is sustainable for the first 6 months. Going forward into the next 6 months, there is a reduction in HR cost, a significant reduction in HR cost. The second thing that we are doing is that -- were typical to all the consumables. So all the surgical consumables are being fitted out. And in the process, there is a saving, which we believe is structural going forward. The third aspect is saving on electricity and power, fuel and water. The fourth aspect is saving on travel and conveyance. And all of these are part of the structural saving initiatives that we are planning. So we do expect to see a 20% reduction in costs.
So the INR 100 crore number that you mentioned in the fourth quarter does not include the second part of the savings that you've talked about. All of this would start getting deflected...
Yes. It includes the beginning of it. But the major part of the saving in the first quarter came from guarantee money, in production and salaries.
The next question is from the line of Anubhav Aggarwal from Crédit Suisse.
Yes. Just checking. Am I audible properly?
Yes.
Yes. Yes.
Okay. One question to start on Apollo 24/7. You talked about partnerships and taking users to 100 million users. Just trying to understand the partnership there. Typically, what we have seen so far, the partnership with corporates is largely from the diagnostic test. Whereas as a platform, we have 3 services right now to offer. So can you just talk about what kind of partnerships are you talking about, offering digital consultations as well to corporates, to employees, et cetera? Can you just state if that's true?
No. Yes, that's true. The corporate relationships that we have for now is large financial institutions, banks as well as telecom companies that we are discussing, a one large telecom company that we are already in very advanced stages of discussion. The corporate relationships allow someone to do a teleconsult, as you rightly said, also pharmacy online. All of these -- all -- slowly, we are also starting the services of labs because first quarter, we had the -- diagnostics was very low, but we are enabling even diagnostics on the online. Over a period of time, we will also do health management, health checkup. So there is a slew of products which are going to be planned as we ramp this to 100 million over the next 5 years. There's a long plan that we have on the Apollo 24/7, and this is the start of what we are doing now. So you will hear from us as we keep moving forward on this.
Sure. That's helpful. Just as a benchmark, very roughly, let's say, all goes well and the best case plays out for us, 5 years, we have 100 million users. Roughly, what kind of revenues are we talking about here? Are we talking about, let's say, $0.5 billion revenue? Just some kind of change will be very helpful, even that could be the max or a base case?
Yes. We would really not want to guide you towards that. But you are right, you can assume something like that number that you stated. Clearly, $0.5 billion-plus is something that we can have in 5 years just using the digital.
Sure. Just one question on the hospital utilization. When we talk about -- actually a couple of questions. One, when did we achieve breakeven data? So you mentioned 47% in July and 55% in others. So did we achieve breakeven on the hospital side in the month of August? Or have we achieved it in September?
August, yes.
So overall, quarter-wise, you said you will be EBITDA positive on the hospital side?
That's what we are hoping as of now, and we should be.
And when you mentioned about 55% utilization for non-COVID beds, can you just roughly talk about in terms of different therapeutic areas or disease areas how is the utilization for oncology, orthopedic, cardiac, et cetera? So I'm not interested in numbers for each one of them. I'm just trying to understand the exchange here.
Hari, you can take this question.
Actually, a lot of -- as ma'am said during her opening remarks, there was a lot of pent-up demand in the community during the lockdown period where people could not come out. So we're seeing a lot of NCDs, noncommunicable diseases, coming in. And we're seeing a lot of emergencies coming in, most of them concerning the noncommunicable diseases like accidents and strokes, the heart attacks. And cancer numbers are also going up. And it was sad that, during the lockup period, that the -- even cancer surgeries and chemotherapies are postponed by some people because they're scared of coming out or there's inability to come out. Now all those patients are coming back. So we are actually seeing an increase in the number in the occupancy in terms of the noncommunicable diseases in the -- on the non-COVID side.
And just a follow-up, any vertical or any discipline where utilization is still below 40%, let's say?
Actually, elective orthopedics is probably less than 40% because a major part of it is because of joint replacement. So people are still waiting and watching. So except that, we are seeing a comeback from our -- all other fronts.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just one on the clarity on the cost savings. You talked about 20% cost savings, and this is on which line? And are we talking about fixed cost, available cost, if you can clarify? And Hari said that this is going to be now 1Q, we have done 20%, going to follow it up under 20% in 2Q. Can you just clarify just the cost savings for the full year FY '21?
Sure. So if you look at the variable costs, there will be some cost saving because we've moved to -- we've managed to renegotiate, and we've really cut the consumption. So there will be some cost saving in the variable cost with regard to consumables and some in guarantee money as well. The second part of it, in fixed cost, suddenly, there will be -- this is where you will see the structural costs being reduced because we are saving in admin costs considerably. We're saving in manpower. And the rest, the power, fuel, energy and saving in marketing, all this is structural cost, which should be about 20%, 20% of our total fixed cost.
Okay. And then just fleeting, you can sustain this going forward in fiscal '22 onwards as well, right? What were the savings, the structural matter?
So you know, we're -- I think you won't -- you cannot expect to see such a large number in '22. But there will be some savings that we will continue to make. This -- for this year, INR 180 crores to INR 200 crores is something that is a one-off. But going forward, there will be some savings, probably half of that in the next year.
Okay. That's very helpful. My second question is on the EBITDA positive point. So at 55%, which is where you were in August, you said you have broken even. So are we -- is this breakeven level contingent on all these cost savings? Or do you think, at some point of time, at 60% now, what could be like the margin trajectory we're looking at? Is it well past the EBITDA that you're talking about?
Yes. This will be sustainable, to answer your point. After August, we don't believe -- we do think this should be sustainable as we move into the next month and quarter. And hopefully, as some of the other revenues pick up, the non-COVID revenues pick up, which has higher ARPOB and higher margins as well at the gross margin level, it can actually start adding more to the EBITDA, hopefully, from next quarter.
Got it. And my last question is on the pharmacy business. So growth has slowed down from 30% to 21%, probably maybe some of the stocking-up effect we had last quarter come down. So maybe some color on the kind of growth that we are seeing. And in the entire Apollo 24/7 kind of a thing, and you talked about pin codes as well, if you can help us understand how much of the fulfillment is today being done by your front-end stores versus -- is there any other channel that -- is there any numbers specific for the pharmacy growth for this year? Will there be any comparable coming from 24/7 at all?
So off-line pharmacy, if we look at independent of 24/7, and first of all, the growth rate is not 30% versus 21%. It is about 24% versus 21%. Last year, we ended at about 22.8% for the full year. And Q4, which has a lot of COVID patients that lasted 10 days was about 24%. So given that number, we are confident of currently growing out off-line pharmacies in the same range of 22% to 23%, which we have seen in the earlier years. As far as online, revenues are very independent of this.
Okay. And at this point in time, you're not quantifying any of this?
At this point in time, we are not.
Last question is on the coverage piece. I think there was an interesting comment around comorbidities and the whole patient awareness around comorbidities. Is there -- is this something that we can kind of tap into in terms of patient behavior once the pandemic goes away? Do you think this can be driven separately in terms of trying to make them aware and then trying to monetize that in some form or shape?
Should I take this?
Yes.
No. No.
Actually, we've already started it. And if you remember in Sangita's presentation, she talked about the health rehab. And we have packaged it in a manner -- in a preventive and continued health cover package called ProHealth, where we are capturing all these people who have comorbidities. And we have created an annual program for each one of them, where they are monitored and taken of through the year to improve on the comorbidities and to reduce the possibility of complications through the year. So we are actually now using ProHealth to not just -- to keep the patient healthy, but also to make sure that there is continuity and an association that is built up with the organization, which will stand the organization in good stead as we move forward, especially when complications come up and active situations come up.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
So far, we have seen viruses and especially spiked up significantly in 2Q versus 1Q, and yet the occupancy is going up sharply. So you detected a fear psychosis in the minds of people as -- sort of speaking. And second is, how do you see the occupancy and the virus trajectory? Is it beyond September and over 3, 4 quarters?
So I think many people are coming to terms with the virus and the fact that they do not want to die of other comorbidities is what's bringing them into hospitals. This is a very clear and pressing danger. How do we see it going -- playing out in the future? As you know, India is the second-highest country. No one expected that it would lead in terms of both cases. And now, even the number of death's going up. But clearly, this is something that is not short term. It's probably something that's here for a year. So I think that the balanced approach that we have in which we've segregated 20% of our beds, both physically and work-wise, from the rest of our hospital premises -- you have fairly -- more doctors' mix towards 20% COVID and about 50% to 60% non-COVID. So going forward, this is what we expect to see for the rest of the year.
What I was also asking is how do you see the overall occupancy from 50% to 52% travel over the next 3, 4 quarters?
So I would see a significant improvement in them, not only from the local. But now that transport is opened up, patients are coming from all across the state. So yes, there will be a significant improvement in occupancy.
Okay, great. And the second question is on ARPOB. Krishnan mentioned about the reasons why there was a Y-o-Y growth. But if I see between different clusters, then the 2 clusters actually have 15% to 20% spike in the ARPOB, I think Hyderabad cluster and the Karnataka cluster. So what's driving that versus all the other clusters being more or less flat?
So Hyderabad, clearly, was the payer mix. As I said, over the -- it was significantly driven by cash and insurance as compared to earlier year. Of course, between Q1 and Q4 also, there has been a spike in Hyderabad if you would have seen over the last 4 quarters. But again, the -- significantly, Hyderabad was basically -- versus the fact that the payer mix was better. In Bangalore, I think it was a combination of some of the -- the fact that the COVID didn't come into Bangalore as much as it came into India. If you look at the impact of lockdown, it was pretty pronounced in the first quarter. It started in Chennai and Tamilnadu, basically, in April and May, where there was a very, very stringent lockdown. In Bangalore, you saw the -- saw it coming only in the latter half of that quarter. So Karnataka and Bangalore actually had a good 2 months, April and May. And then it impacted them only in the month of June. So they really continue to do well all through the 2 months, the regular cases itself. That was the reason for Karnataka. And then it had a very -- a significant drop. So it was not about payer mix in Karnataka, whereas Hyderabad was definitely about payer mix.
Okay. Great. One final question, with your permission. How do you see the EBITDA recovery going forward? When do you expect to get to pre-COVID level separate in pre-Ind AS, INR 350 crores a quarter?
Difficult question, honestly. But I think we should -- we are aiming to get to at least INR 200 crores, INR 250 crores by Q4, if things go well. But again, it is all going to be contingent upon how the whole business stands out from now to the next. We are not seeing the flattening of the curve. Unfortunately, there is still high spike in the COVID. We are -- the first leg for us is to get to INR 1,500 crores of EBITDA, which is what we are first seeing how we can get to INR 1,500 crores on the health care services itself. The pharmacy can continue to do well. So pharmacy is now at INR 80 crores. It can continue to do well. Of course, there is still some one-off revenues even in this quarter and some margins in pharmacy. But INR 75 crores to INR 80 crores is something that we can sustain in pharmacy. So we can get to the INR 100 crores, hopefully, by the quarter after this, and then take it higher.
Okay, great. And I presume you're saying Ind AS 116 basis.
Yes. Yes, 116 is what pre-Ind AS 116 is what I mean.
The next question is from the line of Nitin Agarwal from IDFC Securities.
Sir, on 3 or 4 -- 3 different business segments, which are there, what's your initial impression about structure and market share gains across businesses, which is hospitals and actually as well as on this standard pharmacy business, given the way the offering -- the end market is playing now?
Well this is a really large question. So let's start with AHEL. AHEL, what we look for is [ zero ] [indiscernible]. In a place like Chennai, where we have over 5 hospitals, we expect to have over 25% market share. We have an aspiration to do that in both Karnataka, and also to build out in Karnataka as well as in Hyderabad. So we're actually doing a strategic plan to achieve 25% market share in all of these regions. We are less -- in the north, we do not have a significant presence to achieve this market share. But I will say it is that all our hospitals across India, whether in the north or the west, are all now performing very well in terms of both EBITDA, profitability and starting to show a return on capital employed. For something on pharmacy, I'll ask Obul to speak. And then Chandra Sekhar will speak about Apollo Health and Lifestyle.
The pharmacy today are retail pharmacies just about 6% to 8% of the total retail pharmacy segment. So there is a good opportunity. We should aim to double in the next 3, 4 years on that segment.
And the ROC of the pharmacy is at 26% currently. Chandra Sekhar, AHLL?
He's dropped.
He's dropped.
He wouldn't [indiscernible].
So we would ask Chandra Sekhar to come back on this, on AHLL.
Can we take the next question?
Yes, we move to the next question.
Otherwise, let me just mention just a couple...
Mr. Chandra Sekhar has also reconnected.
Okay. Chandra Sekhar?
[ What is again ] the question?
The question was what is your brand market share in the space that you're in?
So in the -- we'll start with diagnostics. We are a late entrant. So compared to the larger players, our market share in our primary markets, we are aiming to be about 10% this year in -- but it can't be seen as a national number under more pure-play pathology. In the cities we operate, in the COVID [ walk-in ] centers, our market share would be upward of 25% in the organized COVID walk-in centers here. Spectra is a little difficult to establish exact market share because we compete with both the large-format hospitals, which conduct elective surgeries, as well as smaller nursing homes. So I'll avoid getting in there. The other major format of where we track our market share is obviously organized primary care. In organized primary care, we, by far, are the leaders. But much of primary care still in the unorganized sector.
The next question is from the line of Mr. Alok Dalal from CLSA India.
Yes. One quick clarification. So the e-pharmacy service rollout will now be through the 24/7 app. Is that understanding correct?
Yes.
Okay. And sir, how many pin codes are you covering?
INR 13,520 crores.
INR 13,520 crores.
And Krishnan, how are you looking at the debt levels now for FY '21?
Currently, the gross debt is at -- the stand-alone level is at around INR 3,300 crores. And the net debt would be INR 300 crores lower. INR 3,000 crores is what the net debt would be. The pharmacy, the front-end pharmacy stake has happened at that -- SPV creation has happened, will be effective 1st of September 2020. The NCLT order has...[Technical Difficulty]
We seem to have lost the line. Participants, please stay connected while we reconnect the management team. Right. We have the line reconnected. Over to you, sir.
Yes, sir. So as I was saying that the front-end pharmacies has now got -- has been put into effect post the NCLT order from 1st of September. So our overall debt level should stay at current levels or have come down by end of the year. So that's what is -- this is the current projections that we have.
Okay. And sir, last question is when you move to the new tax rate, is it in FY '22?
Hari?
New?
The new tax rate, that is 25%.
Yes. We should probably because we were expecting that we will move into that by FY '22. As of now, we'll have to just see that as FY '22 because, clearly, this year has been -- as of now, it's the last year we'll have to see how the losses are reducing and how much of the math is something that we are going to be using. So there will still be pending math in FY '21 end. So it is possible that it goes beyond FY '22 to FY '23. We'll have to come back to you on that.
The next question is from the line of Damayanti Kerai from HSBC.
One clarification on cost saving. So ma'am, you do mention INR 180 crore to INR 200 crore kind of savings for FY '21, most of which will be structural in nature?
Yes. Yes. No, it's not -- it is not structural. But INR 200 crores saving [indiscernible] we expect to see for the year.
Okay. And in the long term, 20% fixed cost saving is your goal, right?
Yes.
My another question is regarding ARPOB. So earlier, again, you mentioned we should be holding up ARPOB despite some increase in COVID patient. So how do you take it to the [indiscernible] high-qual hospital services? Or it's yet to be taken for this year, which can help our ARPOB?
Yes. We have not taken any increase in the hospital services. We don't intend to take any [ price hikes ] this year.
Sorry, I guess, if you don't intend to take any price hike for this year?
Yes, it's not -- it doesn't -- it's not something that's going to really add any material value for us. While yes, the costs have gone up in the system because of PPE costs and COVID-related costs, et cetera, this year, we are not wanting to do that because we are focusing more on getting our patients back. Occupancy, that itself is a big [ celebration ] comeback.
Sure. And my last question, I guess, list of percentage of private label in SAP revenues. Can you quantify that?
It's 9% in Q1.
9%. And what we are aspiring this level to?
Next 2 years, over 12%.
The next question is from Aditya Khemka from InCred Asset Management.
Suneeta, could you just talk a little bit about how many -- what kind of operation have we seen when the doctors and the nurses -- how has COVID impacted the HR side of things?
So thankfully, no attrition in the doctors. I think they've supported us. They've been behind us. Nurses, there are a few that really went back to their towns, and we've seen them coming back. So I would not see any significant attrition that we should be concerned about.
Understood. And on the hospital services side, so you just mentioned that the costs have gone up, and we don't intend to take price increases. And occupancy, obviously, is going to be a little challenging, given the environment for the full year. So on the hospital side, what are the levers, aside from saving cost on the fixed side or on the variable side and on those patients, et cetera, are there any other levers we have to improve our profitability in the near term?
Yes, we are working on several levers. I think the first is that our -- using marketing, we are deepening our corporate connect, so 24 hours. This COVID was a good time for us to establish relationship with corporates. I believe we've reached out to over 250 corporates, first time going with us for COVID. And these relationships are definitely for more than a year. So we do believe that beyond COVID patients, corporates will start sending patients to us. We've also tied up with local nursing homes. Again, local nursing home owners, doctors who are being admitted in our facilities for COVID test, and now they continue to send us referrals. Sadly, one part of the health care system in India is closed. So the demand-supply gap remains stronger than ever before because the nursing homes, many of which were unable to operate during the lockdown and are finding it difficult to live in this -- during these times, those referrals are also going to start -- will start coming to us. The third is that we've now activated our marketing in the sense that we are conducting terms once again, moving outside of towns into referral markets. And we believe, as always, that this will increase the number of referrals into the system. And this is starting to play out in September. So yes, I think we're -- it's not business as usual, but definitely, we're on track to get there by the fourth quarter.
Got it. Krishnan, just one clarification from your comment on the...
The most important part of our journey is, of course, the 24/7, which is of H2, where we do 22,000 teleconsults a day. And through this, we're able to convert into outpatient, convert into inpatients. So yes, there's a lot of traction. While typically, we were able to reach -- we were defined by the number of beds we had, now because of 24/7, we do have a [ system ] which enables consultations. We've also improved on the home care. So we have patients -- number of home care patients have more than doubled in this quarter. And there's a significant drive in our home care offering.
Understood, ma'am. Krishnan, just a clarification on the comment you made on net debt. So the net debt you see at the end of FY '21, with your guidance, INR 3,000 crores. And does that include the money you're going to receive from the front-end divestment?
Yes. So it can come down. As I said, it can come down a bit. The front-end divestment will also -- other vendor will first spike up our overall cash. And then with the payables, which we will have, and the receivable from the front end, there will be some working capital deployment, which should happen because we are going to continue -- we'll continue to supply the pharmacy products and get the benefits of the margin in the back end. So there will be a net reduction of -- potentially, there could be a net reduction, as I said. It will definitely not go up. And potentially, there could be a net reduction in the debt by INR 150 crores to INR 200 crores.
The next question is from Shantanu Basu from SMIFS.
Well contrary to what we have said, I mean, your loss of margin on a consolidated basis has fallen to 44% compared to 52% in Q1 FY '20, and the employee costs have also risen. So just wanted to know whether this trend would continue for the remaining quarters of the financial year?
So you note 2 points, right? One is when we're looking at the employee cost of the -- which has been -- which is the published results. You see the results, including the stand-alone pharmacies. Stand-alone pharmacies continue to -- they have been growing Q1 to Q4 of last year. There has been so many -- 400-odd stores, which were added last year. So the number -- the employee costs have risen from Q1 to Q4. Coming into Q1 of this year, in addition to the cost increase itself, which is -- there has also been COVID-related costs because to get all the people to the stores, et cetera, they have had to pay incentives, conveyances, et cetera, which has increased the overall cost at the overall pharmacy at both the employee cost and the admin cost level, which is why you're not seeing that cost reduction in the published results as we speak. Whereas, [indiscernible] I spoke about the health care costs, which is what we are seeing the INR 100 crores reduction that we are talking of from Q4 of last year. If you look at health care alone, you will see that there is a reduction. The pharmacy cost has been higher versus last year to this year, but even after that is they come back with an EBITDA margin of 6.2%. So they have managed it with higher sales and higher gross margins.
Okay. And can you give me the ARPOB for your COVID beds?
ARPOB of COVID?
27,000.
27,000?
Yes.
And for non-COVID beds?
So 38 is the blended average that we have achieved. So non-COVID would be a bit higher.
We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.
So thank you all for joining this call. As you know, this has been a very challenging quarter, not just for the company, but for the country and the entire world. We believe we have navigated these troubled times well and have emerged stronger in our strategic journey. We have moved closer to the consumer through Apollo 24/7, and we have used the 6-month period to win new consumers and deepen our engagement with existing customers. We are clear that the way forward is about customer touch points and formats of engagement. The pandemic has solidified our belief that physical beds form the base of the pyramid for health care delivery and will have to be enhanced with multiple additional platforms to serve patients. We believe this is the future of health care. And post-COVID, we will emerge stronger with the business model that fully aligns with this future and the aspiration of our customer. Thank you all for joining us on this call. We look forward to hearing from you and interacting with you. Thank you.
Thank you very much. On behalf of Apollo Hospitals Limited, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.