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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 '22 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, Lizanne. Good afternoon, everyone, and thank you for joining us on this call to discuss the financial results of Apollo Hospitals for Q1 FY '22, which were announced yesterday. We have with us on this call today, the senior management team comprising Mrs. Shobana Kamineni, Executive Vice Chairperson; Mrs. Suneeta Reddy, Managing Director; Dr. Hariprasad, President of the Hospitals Division; Mr. A. Krishnan, Group CFO; Mr. C. Chandra Sekhar, CEO of AHLL; and Mr. Sanjiv Gupta, CFO of Apollo 24/7.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. Please note the disclaimer mentioning these risks and uncertainties on Slide 2 of the investor presentation that has been shared earlier. Documents relating to our financial performance have also been uploaded on the corporate website as well as the stock exchange websites.I would now like to turn the call over to Mrs. Suneeta Reddy for her opening remarks. Thank you, and over to you, ma'am.
Thank you, Mayank. Good afternoon, everyone, and thank you for taking time out to join our call on a Saturday. I thought all of you have received the earnings document that we shared last night. Quarter 1 FY '22 was characterized by the devastating second wave of COVID in India. The density this time around was totally overwhelming on the health system in terms of availability of beds as well as availability of critical life-saving equipment, especially oxygen. There was also a wide gap between the needs of doctors, nurses and support staff across health systems.At Apollo, with the experience gained from the first phase, we had protected the method to achieve effective separation between COVID and non-COVID patients by standardizing protocols across our hospital network without disrupting the regular non-COVID care. Based on that, at the start of the second day in the month of April, we dedicated 2,300 beds for COVID treatment, which is subsequently increased to 5,000 beds at peak, including 1,200 ICU beds, then tapered it down by the end of June. We mobilized our medical staff, nurses, technicians and doctors quickly and kept up the morale of our frontline workers during this period.The strict protocols in the training led to keep the infection of our frontline workers at extremely low levels. Proper planning, execution, partnering and close coordination with our vendors ensured that we were able to arrange for the supply and replenishment of all our essential equipment, consumables, medicines and oxygen at all our hospitals. We have treated close to 23,500 COVID inpatients this quarter. Our home care division handled 20,500 COVID isolations, while our Stay-I, our hotel isolation program handled 24,000 patient sites. Apollo 24/7 has completed over 6 lakh consults till the end of this quarter. In parallel, we also embarked on India's largest private vaccination program using the advantage of our pan-India network of 19 medicine supply hubs with cold chain facilities, 71 hospitals, 250-plus clinics and 500 flat corporate health care centers, along with onsite vaccination. Cumulatively, we have completed 3.86 million vaccinations till date.On the non-COVID side, there was definitely an easing of demand on the outpatient and surgical side, given that people were struggling to deal with the second wave and reached the lockdown. Transport and movement was restricted and therefore, elective surgeries were postponed. However, better all-round preparedness resulted in us being able to serve both the COVID and the non-COVID patients effectively and report an accretive performance this quarter. In July, we have already witnessed a revival in patient footfalls across our network.Against this backdrop, let me walk you through the numbers. On a quarter-on-quarter basis as compared to quarter 4 FY '21, the company recorded growth of 24% in stand-alone revenues to INR 2,995 crores. Pharmacy distribution reported revenue of INR 1,524 crores, a growth of 35%, while Healthcare Services revenue grew by 15% during the quarter. Our new hospitals recorded revenue growth of 43%, while mature hospitals' revenues grew 5% quarter-on-quarter. Margins in mature hospitals were strong at 23.1%, and I am happy to state that our margins in new hospitals continue to witness improvement moving up to 16.3% for the quarter, registering a 69 basis point improvement on a quarter-on-quarter basis.Quarter 1 FY '22 stand-alone occupancy 3,282 beds or 66%. Stand-alone post India's 116 EBITDA was at INR 391 crores, quarter-on-quarter growth of 16%. Pharmacy Distribution EBITDA was at INR 78 crores after absorbing marketing costs of INR 37 crores for Apollo 24/7. Without this change, pharmacy EBITDA was at INR 115 crores with an EBITDA margin of INR 7.6 crores -- 7.6%. Stand-alone PAT was at INR 150 crores as compared to INR 116 crores in quarter 4 FY '21. Net debt as of 30th June 2021 was at INR 1,665 crores with a debt-to-equity ratio of 0.48%.Consolidated results. Our consolidated revenues grew by 31% quarter-on-quarter to INR 3,760 crores. Healthcare Services revenue grew by 26% to INR 1,939 crores. Mature Healthcare Services grew by 20% to INR 1,268 crores, while new hospital revenues grew by 40% to INR 627 crores. Group occupancy at 5,100 beds was at 67%. The consolidated post India's 116 EBITDA for quarter 1 FY '22 was at INR 520 crores compared to INR 412 crores in the previous quarter. Within this, Healthcare Services EBITDA was INR 394 crores compared to INR 325 crores at quarter 4 FY '21.The results of Apollo Medics Lucknow and Apollo Multi-Specialty Hospital Kolkata have been consolidated in this quarter. AHLL recorded an EBITDA post India's of INR 48 crores as compared to INR 31 crores in the previous quarter. Margins were at 15.5%. The business has recorded a 47% quarter-on-quarter growth in top line. Consolidated tax is at INR 489 crores. This includes a gain from the fair value gain remeasurement on existing share at the Kolkata asset. Without this effect, attributable PAT was at INR 195 crores compared to INR 168 crores in quarter 4 FY '21. Consolidated net debt is at INR 1,793 crores.We continue on our transformational journey towards creating India's largest omnichannel health care platform, Apollo 24/7, which has deepened and strengthened our presence -- has strengthened its presence in this quarter. 10 million unique users are registered on the platform. The platform has enabled neighborhood pharmacies to deliver over 16.5 lakh medicines from 17,000 pin codes with order delivery within 2 hours of the order placed. The 6 lakh online consultation I mentioned earlier stand 440 cities with 5,500 doctors across 60 specialties and delivering on the promise of consultant Apollo doctor within 15 minutes.During the ongoing pandemic, diagnostic home sample collections demand surged, and we completed more than 70,000 COVID tests and delivered results within 24 hours. We have partnered with multiple corporates for doctor on-call services, vaccination drives and stay safe services. Shareholder approval for the slump sale announced last quarter to Apollo HealthCo has been sought by postal ballot and this is expected to be completed by the end of the day today.To conclude, while the second wave of the pandemic did stop our overall performance and momentum over the last 18 months, a long-term growth strategy and trajectory of the company remain intact, while our agility and resilience in handling these unexpected crisis have only strengthened us as a team. We continue to be positive about the opportunities and potential that lie ahead for a well-diversified healthcare delivery model.On that note, I would like to hand it over to our moderator and open the line for question and answers. I have with me Shobana; Dr. Hariprasad; Krishnan, our CFO; Chandra from Apollo Health & Lifestyle; and Sanjiv from 24/7 to take your questions.
[Operator Instructions] The first question is from the line of Deepak Malik from Faering Capital. As there's no response from the current participant, we'll move onto the next. That is from the line of Damayanti Kerai from HSBC Securities and Capital Markets.
Okay. So, ma'am, my first question is on your Apollo 24/7 platform. Thank you for putting out details in the investor presentation. So in the presentation, it's mentioned that we have right now 5,500 doctors registered with the platform. So just to check, I remember last time, you mentioned we had 7,000 doctors. Have we reduced this? Or how do we stand there?
I'll take that question. We have -- what we're looking at is active doctors now where at the beginning, [ fast and furious ]. These are doctors that do at least 3 consults -- 2 to 3 consults a week. So we still have an inactive base. All Apollo doctors automatically have registered onto 24/7 that they have the app with them. But these are the people who are actually doing consults. So I think we've been -- we're trying to make that very transparent. And we have a lot of doctor partners also. So the actual list is very high.
So this 5,500 doctors is just in-house doctors or in-house plus partner doctors?
These are a few partner doctors. They're about 200-plus partner doctors, but most of these are Apollo consultants and a few full-time doctors that we have.
Okay, ma'am. So with continuing on this platform. So ma'am, you mentioned you are looking to see 2 to 3 active consultations per week from the doctors who are currently there on the platform. So what is the current utilization of these doctors? I mean to say right now, we are doing 2,000 consult per day -- yes.
Yes. So it's the current utilization. And what we're trying to do is like during the COVID time, we actually had more than 15,000 consults a day. And I think that this is something that we do think will start ramping up, especially with corporates. And I must say that these are all paid consultations. These are not free consultations like most other platforms offer. The average value per transaction on this is around between INR 600 to INR 700.
Okay, ma'am. That's very helpful. So all are paid doctors and then INR 600 to INR 700 is the fee per consultation, which we are seeing right now?
Yes. These are consultants. These are Apollo consultants mostly. And these are -- so the fees that they charge are pretty much the same that they charge when people come to them for consultation -- for physical consulting.
Okay, ma'am. My second question is on the operating cost. So 1Q number broadly reflect our normalized cost or there are still scope to see incremental costs from here on? And like what about margins? How do we see margins moving on from current level to say next 2 to 3 quarters?
Yes. So you are speaking about 24/7 or you are speaking about generally?
The board, sir. Corporate level, corporate level performance.
Corporate level, we do expect margins to improve. Healthcare Services, obviously, in this quarter with vaccines were at a 15% margin that impacted our margin by at least 1%, 0.5%. We also had COVID incentives that we paid to employees, et cetera, of almost 1% of our revenues. That also has is part of our Healthcare Services margins as you see it today. So as we move forward, we have guided that we would be looking at Healthcare Services mature to go to 23% and upwards. And the new hospital should also go in the 15%, 16% range. Overall, that's the guidance that we would like to give. Proton has also started doing well. And you will see that overall, the margin should start trending to improve with a combination of better case mix outside of COVID and cost controls.
Sir, on the new hospitals, we are already at 16% margins, right? That's a underlying margin or --
Yes, we should be able to get that margin. We should be able to retain that margin.
The next question is from the line of Anubhav Aggarwal from Credit Suisse.
Krishnan, one question on the net debt increase. Can you just walk through that out of INR 650 crore increase in the [ consolidated ] quarter-on-quarter, how much was you to pay for the [ clinical stage ]? How much went to [ category ] setup? Some clarity you can give there?
So the debt almost on -- INR 400 crores, INR 500 crores of the debt is towards working capital increase. It should come back in the next 1, 2 quarters. INR 150 crores of vaccine is there and -- was there because we had to pay vaccines in advance to all the -- to secure because as Ms. Suneeta said, we are the largest private sector vaccine providers, and we had to secure the vaccine doses in advance, which means -- mean that we have vaccines and even Regeneron for the COVID care patients. Regeneron also was an important treatment that we were able to secure in this wave. And there is almost INR 160 crores of that in our inventories in -- as of June end.You would also have noticed that there has been a spurt in sales in the stand-alone pharmacy business or the overall pharmacy business from Q4 to Q1, which is almost INR 250 crores of spurt aided by COVID stocking, et cetera. All of that meant that there was an inventory which was required to be kept in the front-end stores also, including the back end. So that is another INR 340 crores. So almost around INR 500 crores has been blocked in our system for inventories and working capital. We expect that almost INR 400 crores should be getting released out of that over the next 3 months.
And just to add to that, INR 200 crores of this is against the new -- the government policy on giving working capital to -- giving capital short-term capital to hospitals at a cost of 4.5%.
Okay. So you guys took INR 200 crores there, okay. Also just a clarity here. So the big that we paid out for [indiscernible] that was already paid out in fourth quarter? Or was it paid in the --
Yes. Yes. It's already paid. It's part of this. As you see the current net debt, as we -- so to make it explicit, the current net debt that we see in the system, we expect this to come off by another INR 400 crores over the next 3 to 4 months. This has already been paid, INR 410 crores for Apollo Clinic is already paid in full.
But that INR 210 crores was paid in Q1 or 4Q?
In first quarter.
In first quarter. Okay. And just from the vaccination, I'm just trying to get a very rough idea. So vaccination at the EBITDA level would have contributed how much like, would the rates say about INR 12 crores, INR 15 crores or is it -- was it INR 20 crores?
15% is what was contributed. That would be 15% of the overall INR 167 crores, which is INR 190 crores, which is there excluding Delhi. With Delhi, we were at INR 225 crores. Without Delhi because Delhi is not part of our revenues. Without Delhi, it is INR 190 crores, including Apollo Health & Lifestyle, which has around INR 55 crores in their revenues. And this was all at 15% margin. So INR 119 crores into 15%.
Understood. And the second set of question on the Apollo 24/7. I'm just trying to understand the -- what's the monthly run rate we are doing on the revenue side across all services that we do from there? Would it be number like -- would we be doing more than INR 50 crores revenues there? Would we be doing like around sub INR 50 crores? I mean can you just give some range there? And can we end this year with more than $100 million in revenue then?
Shobana, would you want to give some guidance on this at a broad level? Or is it...
Sorry, I didn't get the question.
So are we -- can you repeat the question for Ms. Shobana, please?
Yes, yes, please. So I was asking on 24/7 across services. Monthly run rate of revenue, what is the number right now? And can we end it here with more than $100 million revenues for 24/7?.
Can we what see more than --
End the year with more than $100 million of revenue.
No, I think that we are the fastest in the country you will see. And our run rate, what we expect to finish the year with is closer to about $50 million. $50 million to $60 million. And this is actually the fastest rate for the first full year, if you compare to others. And -- yes. But -- no, no, no. These are starting days. So the trends are good. I think that we are focusing more on the availability, the challenge of making sure that in 2 hours, we deliver medicines, opening up more pin codes availability and many of these areas are being looked at as every day, we keep improving our product. So consider this as early days, but the escalation is really the ramp-up has been at a superfast phase, especially during the COVID time. There were days that we got 45,000 orders a day.
And just some clarity on the online consult. Last quarter, you mentioned you cumulatively have done 5 lakh consults. This quarter, you have mentioned 5.7 lakh as a cumulative number. So only 70,000 consults happened in such a heavy quarter of second COVID phase, of which it comes down to less than 1,000 consults a day. So I'm just trying to understand the number of how many consults you're doing in a day?
So one, I just want to remind you that last quarter call was in June end. So we had given you numbers -- more about numbers which were up to almost June end. So just that -- just so as to be on the same page. I'll allow Ms. Shobana to respond on how many consults we are doing now. But so it's not 70,000. It's much higher that we did in the quarter because we had the call around June end for the March, if you remember. So we had given you mostly around the numbers up to June end. Anyway, on the daily consults, Ms. Shobana can respond.
On the daily consults with, we range anywhere between 3,000 to 5,000 consults, which are paid. But during the COVID time, we were doing even 20,000 the -- some of them were free or some of them were from corporate that had prepaid us.
Can you also mention about in July, how many deliveries are happening, let say, per month right now on the medicine delivery side?
I think that these results are for the last quarter for Q1. So when you attend the Q2, I'm sure we'd be happy to share.
But if you take June as a month, would -- can you give a sense of June as a month?
So you're asking for what in June?
On the medicine delivery side, on the e-pharmacy side, how many orders are we delivering per month?
So we are doing close to about like from in-store and from the -- and from the designated hub stores, altogether, we are it at about 30,000 deliveries a day in June.
The next question is from the line of Prateek Mandhana from Nomura.
Okay. So one thing on continuing from Anubhav's question on the 24/7 revenue. You expect to end with -- you end with $50 million to $60 million of revenue, right? So from which divisions can you expect this revenue in 24/7? What can be the breakup?
Should be a combination of pharmacy, teleconsults and diagnostics, which is what we have said, right? And bulk of that would be pharmacy because it captures the entire value there in 24/7 as of -- including the back end, which is captured -- will be captured in Apollo HealthCo.
Okay. Okay. And on the medicine delivery bit, so how much of our revenues from pharmacy currently are from online deliveries? Like the total INR 1,500 crores, which is the back end in your INR 1,800 crore, almost INR 1,800 crore, which is a front-end revenue. So how much is the online revenue?
Sanjiv, can you take that?
Yes. So I think as ma'am had just said that we are now building up the entire this thing. So currently, it should be in the range of about 5% of revenue coming in from the online side.
Okay. And then sir, what was this like last quarter?
You mean to say Q4 FY '21?
Yes, yes.
Yes. So I think it was pretty less. It should be in a range of about 2% to 3%. And I think major traction has happened last quarter. So that is how the numbers are looking like at this quarter.
We'd like you to put this in perspective. During this quarter, the Q1, we actually served from online and offline, we acquired 47 lakh new customers apart from the existing. And so there was quite a lot of pressure on the system. So these are the new customers that we have got with online and offline with 0 customer acquisition costs.
Got it. Got it. Okay. Okay. And then just one last question on this bit. So what is our average revenue size from basically offline purchase on a pharmacy and then online purchase? Average billing size, if you have that data?
The data is -- it actually is so different the way that we look at the lifetime value of over like the same customer transacting, if -- what we've seen is that if a customer is a regular customer in the pharmacy, we actually spend almost 25% more if he is online also. So the behavior patterns have changed. And that's why when you look at omni, it's going to be a little different. They might spend an average bill value in pharmacy might be INR 400. But then when they transact between both together, it -- and it goes up to INR 1,200. For the chronic customers, it's even higher. So these -- you were going to see a lot of varying -- so looking at it, we're actually using technology to look at customers in a way more personalized view.
And you would also have seen that overall private label has also increased at 13.83%. As an omnichannel, if you today look at our private label sales, which was 9%, now it's at 13.8%. You would have noticed that as part of our presentation.
Yes, sir. So my next question was that what is like the peak that we expect from the private labels? Like where do we expect it to stabilize around? Is 13% a normalized thing? Or we expect it to come down or go further up in future?
It will keep slowly increasing. We understand what you think. We'll be introducing more categories as you see. So it definitely won't go down. There was a surge for a lot of COVID related items. But we're making sure that it doesn't come down because we've introduced more categories which are more sustainable, including a few generic medicines and things like that. So we've understood this category. We have people behind it, and you will see this continue to grow.
Suneeta ma'am, just sorry, one last question. On the generic medicines that you have introduced, are you manufacturing that yourselves or they're getting outsourced -- was outsourced?
We never manufacture. No one in the world manufacture their own. We go to the best-in-class, and that's the difference. There are generic -- we'll make sure that we get it from the best-in-class and also keep as agile because we don't know manufacturing. We know the service industry better than anybody else.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
Just a couple of questions on COVID. So what was the total contribution from COVID-related hospitalization? And how do you see this unwind going forward? And second is, where have you captured vaccination length volumes and revenues? Is it all in outpatient?
So yes. So overall, the 25% of our revenues came from COVID. So that was almost -- if you exclude Delhi, which is not part of the consolidated revenues, INR 490 crores was the revenues which came from COVID, including vaccines and RT-PCR. COVID vaccines is currently captured in outpatients.
And just adding to that, if you look at IP volumes, 26% of our IP volumes came from COVID. In terms of revenue, 24% of -- 26% of total revenue in Healthcare Services came from COVID, looking after COVID patients.
And how do you see both of these in 2Q, 3Q in the sense that would vaccines go up? And how about inpatient volumes and revenues?
Hari, Hari.
Yes, vaccines, I don't see it going up. There is definitely a fall in demand for vaccination across the country. We were doing a peak of almost 100,000 vaccines per day, but now it's come down to about 25,000 to 30,000 per day. And one of the reasons we're seeing that is because of the gap between the first and second dose of Covishield has been increased from 4 weeks to 12 weeks. So there is a longer time for that. We are seeing some amount of hesitancy in terms of vaccine. And third thing is people were very eager to get vaccinated when the COVID was at its peak.And as COVID came down, that eagerness also has come down. So the multiple reasons for which the vaccine demand or requirement in the community has come down. But we are prepared to vaccinate as the demand requires. We have enough inventory in place. And we are vaccinating across -- about more than 200 centers across the country, both in metros and semi-urban and semi-rural areas. So -- but we don't see the same numbers happening in the second quarter as happened in the first quarter.
Hari, approximately 50% to 60% of the Q1 volumes are -- will come in approximately, right, as we estimate now?
Right. As we estimate now --
But I'd like to add here 2 points. One is that Apollo has done almost 30% of all private vaccination in India. And for a urban base this thing, we've also gone out into rural areas and done this. And we work with a lot of corporates to make this happen. And the second more important thing is I think we have to understand that adult vaccination is here to stay. So in building up our core chain and our capabilities, this will become an ongoing income for -- that will start getting accounted for.
And A.K. as you said, it will be 40% to 60% that we expect in this quarter because the second doses will come back somewhere towards the end of August and beginning of September.
Okay. Great. This is very helpful. And sir, the second question is regarding your core business, hospital services. Where the current occupancy is, which is 67%? I think earlier you had peaked at 69 pre-COVID. And where the margins are, which are again pretty high? And we are not expanding volumes of capacity. So what's the outlook? What's the drivers for growth over next 1 to 2 years?
So clearly, it is better asset utilization. I think like we said in this quarter, we were at -- we had a 67% occupancy out of which 26% is COVID occupancy. COVID occupancy comes with an ARPA above INR 21,700, whereas our normal ARPA is in excess of INR 44,000. So with that, if you look at mature hospitals, our margins are at 23%. New hospitals are at 16.4%. Keeping in mind the ability to move this to 20% in -- within this year is something that we are looking at. And the way we plan to do this is definitely focused on centers with excellence where our ARPAs are much higher. The ability to deliver on oncology, cardiac, orthopedic, neuro and transplants plus the emergency work will conductively increase our ARPAs as well as our margins.The second is higher asset utilization. We have seen the ramp-up of our Tier 2 moving to 40% growth. And we believe that this is sustainable because that once that COVID comes down, there will be pent-up demand to fill the beds. The third reason why we're optimistic about the future is that transport has started to open up. The airlines have opened up, and we believe that our patients will travel across geographies to come to our centers. Having said that, I think the decision to move into Tier 2 has clearly been a defining one that has resulted in a really good performance even during COVID.
Okay. Great. I have got more on 24/7. I'll come back a second.
We'll move on to the next question that is from the line of Nitin Agarwal from DAM Capital.
Ma'am, just kicking off on your last comment about the Tier 2 hospitals. I mean these 2 hospitals are -- took their own time to get started and there are question marks around [ the Jeevan ] hospitals, private hospitals expanding much in now. You are sort of opting for expansion in these towns. In your assessments, what has changed in the dynamics in Tier 2, Tier 3 town sort of business, which gives you more comfort on the this business now going forward?
So one thing is that Tier 3 is really not in our radar. Tier 2, I mean, we did implement -- we do have 2 hospitals in Tier 3. And fortunately -- and both of them are contributing to EBITDA. But the more significant thing that we realized is that people move to a category leader. So the fact that the Apollo brand is very strong, and it's strong because of the clinical outcomes. So we really managed to get very good doctors on board. And this, I think, is something that maybe a little bit slow to do, so it took a little time to ramp it up. But now that we have all of the doctors in place, we believe that the occupancy will improve.
Okay. And secondly, with the transaction which is there in Apollo 24 -- Apollo HealthCo, incremental fund infusion coming through in the parent. There is now a significant amount of financial capacity, which is there in the free cash flow [ of business ] flowing up in the hospital business. So from a hospital business function part of it, how are you looking at over the next 2, 3 years?
So first of all, your line is not clear. But if I understood the question correctly, you want to know about the free cash flow post Apollo HealthCo moving out.
How do we use it?
So how do we use it? We are looking at expanding our presence and consolidating our presence in the north. There is 1 acquisition that we're looking at. And we believe our free cash flow plus the fact that we've got INR 500 crores, close to INR 600 crores invested mutual funds. So the company is adequately funded to make this acquisition. And we're also looking at something in the Northeast, which, again, I think we are adequately funded to do that without having to add on more debt.
So and just to sort of complete the point. So this would be this acquisitions or this target markets now that we're looking at are largely what? Tier 2 towns, Tier 1 metro, there are --?
Tier 1, Tier 1. And one, which is Tier 2.
Okay. And if I can squeeze on last one. On the pharmacy business, we've had a pretty large increase in the private label contribution in the current quarter. It hasn't quite reflected in the improvement in the EBITDA margin for the business. So how does it one -- so is there anything specific -- you've got some of this private label business are not -- this isn't contributing enough eventually to the margin side?
No, no. I think we said in our opening remarks that while the margins have actually improved to 7.6%, there was INR 37 crores that was used for 24/7 for its customer acquisition and marketing costs. So -- which is why you are not seeing the margin improvement. But clearly, if you add back this amount to the INR 79 crores that we said, I think you will see that there is definitely an EBITDA margin improvement of at least 40 basis points.
The next question is from the line of Anubhav Aggarwal from Credit Suisse.
Yes. Just one clarity on the pharmacy business. I appreciate you had just started the Delhi medical business, but how large it is today? Like is it like 1%, 2% of the business, 3%, 4% of the business? How large is it?
Shobana?
We just started this. It's not significant enough for us to really -- it's like in the region of INR 90 crores.
And what -- how do you see this? At some point of time, will it become like 10% of the business, let's say, in 3, 4 years down the line?
It should. I think that this is our counter to this ramp in discounts that are actually not right. So I think that this is a much more intelligent way of customer play is to be able to give them a better product at the right price.
And one more question on the pharmacy business. If you look at the total business, how much is the portion which is coming from non-medicines? For example, with the private label of 13.5% plus FMCG put together, how much of that which is non-medicine business?
FMCG, it was about 30%. So 30% plus the 13% is 43%.
Okay. Sure. The second question is on the bed capacity. This quarter, we added about 90 beds in Tamil Nadu and 76 in Karnataka. So this 90 beds which have been added, have they been added to the [ Greams Road ] hospital or which hospital has this been added? And same question for Karnataka as well?
We've operationalized new beds in our existing facilities.
In which facility? Is there any large hospital like 50 to 70 beds has been added to one particular hospital? That's what I asked.
Vizag, Trichy, and also in now New Bombay.
Okay. Okay. So 90 beds you have added in Tamil Nadu. That's basically --
That's Trichy.
That's Trichy.
Only in Trichy. Understood. And last question is on this AHLL, which is -- in the Cradle and the daycare business, our revenues are higher sequentially, but our EBITDA is significantly lower. So what led there because last 2 quarters, we have taken out so much cost from the system. What happened in this quarter?
Chandra Sekhar?
Yes. I couldn't get that first part. Just -- can you just repeat?
Yes. On the Cradle and the Spectra business, revenues are okay in this quarter, which are higher compared to the March quarter, but the EBITDA has significantly gone down.
Because of -- yes, we have fixed doctor payouts. But we could not completely do. And the EBITDA margins are a little lower -- if you're comparing it to Q4, Cradles had INR 3.6 crores, that is INR 36 million of EBITDA. And Q1 FY '22 is about INR 30 crores. There are some year-end adjustments that benefited in the Q4, but primarily it is static. On Spectra, we had to take the -- we had a lower elective surgery. The numbers we are seeing, they're all -- it is also including the vaccines. They were also doing overall vaccine. At AHLL, we did about 6 lakh. 80% of that number went -- came from clinics, 20% was Spectra's. So that revenue is what has benefited the Spectra overall number. But we have guaranteed payouts on fixed doctors, which has hence reduced the EBITDA a bit.
But one doubt, Chandra Sekhar. On this effect, our revenues are higher sequentially. So even if we had a fixed payout doctor, that would not had changed those dramatically from the March quarter. So --
No, allow me to just lay that out. Our revenues minus vaccine, actually in Spectra has gone down. That's the reason. INR 620 million, INR 630 million, down to INR 500 million. But it looks like similar because of the vaccine addition. The doctors that I'm talking about are fixed of the payouts. That will even out once we have resumption of elective surgery.
I think the perspective that you should take in this is that AHLL is now focusing on diagnostics. And therefore, the increase that has come from RT-PCR debts is part of our focus on diagnostics. So going forward, you will see a huge increase in the diagnostic business as well as in the clinics business.
Just last clarity on that. On the diagnostic business, we have about 847 as part of our network right now. And we added about 200 odd centers in last 1 year. So in next 1 or 2 years, how do we see that 847 as a number? Or do we see that like almost 2,000 is the number in next 2 to 3 years? I'm just trying to understand if this is things [indiscernible].
Yes. You're talking about the collection center network?
Yes, correct.
That's right. I think the --
The whole diagnostics. Please, yes, why don't you explain the whole diagnostics piece?
Yes. We are doing 2 things on the diagnostic piece. One is we are also ramping up our home collection capability. In the quarter 1 FY '22, we added over 350 plus across 7 to 8 target cities. Plus the collection center network, we have added, we continue to add there about 200 to 300 per quarter is the run rate that we are hoping to do. Then we saturate markets per quarter.
That's a lot actually because the last full year, we added only 200.
Yes. But we have -- this quarter, we added -- we are adding further via pipeline of further addition. So we would reach in about a 2-year time frame, as you rightly said, upward of 2,000 collection centers. There will be a netting off. There will be some drop off. So that's why the addition to gross addition. Overall, from the 847, we should be about 2,000 in the next less than 2 years.
The next question is from the line of Prakash Agarwal from Axis Capital.
Just a couple of them. So one is understanding on the new CapEx requirement and the growth potential going forward. So what I understood was currently with the occupancy of 67, within that, there is 26% COVID. And you still have a long runway to have the non-COVID patients still 67%, 70%. And so are there any plans for greenfield in the next couple of years? Or what do you think about greenfield expansion versus the 2 acquisitions that you'd spoke about in Tier 1 and Tier 2?
We're not really looking at greenfield at this point of time. We are looking at, like I said, strengthening our presence in the North, which will be through brownfield.
Okay. Okay. Fair enough. And in terms of your margin journey, I mean the new hospitals have picked up quite a bit. What I'm trying to understand is you also mentioned the ARPA of non-COVID is INR 44,000 and COVID is INR 21,700.
What is the question? Can someone repeat it?
Then I'm going to repeat it. Okay. So I'm trying to understand the outlook on the margins. On the backdrop of you mentioned ARPA for non-COVID is INR 44,000 and COVID is INR 21,700. And we've already seen a good improvement in the new hospitals. So how do we see with obviously non-COVID patients share increasing, we would have an upward trend. So how do you see this panning out over 22%, 23%, 24% for your margins? I mean some of the competitors are reporting 25%, 29%. So I just wanted to know your journey in that growth part.
So I think what is realizable is you will see the mature hospitals moving into that territory of 24%, 25%. New hospitals will move up to about 20%. So you will see a blended margin of about 21% in the next 1 year. And this will come from higher asset utilization, focus on Centers of Excellence, which I think I spoke about earlier, where the ARPAs are higher and the margins are earlier or higher, and also from cost cutting. So these 3 initiatives, we believe, will help us increase our margins.
So we have an asset utilization. If you look at us, we have added new hospitals. So potentially as some of those assets keep getting mature and we take it to a higher -- much higher utilization, you will realize that we can also achieve higher margins. If you look at competitor margins, of course, I understand what you are saying. If you look at our most mature assets like Chennai, we all know that we also are at 27% or 28%. It's just that we are -- we have added capacity. There is headroom for growth as some of that starts coming up. As Ms. Suneeta said, we have seen a very good uptick in our Tier 2 hospitals, in our new hospitals. All of this, we believe, will aid us well over the next couple of years, including Proton has started doing well.
Okay. Got it. And lastly, on Apollo HealthCo. So you have talked about new pool of investor capital. So any rough time lines, a; and b, in terms of whether you are looking at strategic or financial partner here?
Shobana? Shobana?
Yes. We are definitely -- it's imperative that one of the reasons for hiding this off also was to be able to charter course that would create this competitive intensity to work in this environment. And at that stage, on one side, while we have strong partnerships with Airtel and HDFC Bank and they're not financial partners. On the other, we are creating a pool of capital that will help us grow. And for that, well, in the next 60 days, we should come out with an announcement.
Mr. Agarwal, are you done with your questions?
No, I asked whether it would be more strategic or it would be more financial investor that you're looking at?
It'll be a combination.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
And just talking of HealthCo, a 24/7 platform. You are -- Operator, looks like management can't hear me, but I can hear them.
Okay. What is the question?
Okay. Great. So the question is for the HealthCo 24/7 platform that your current doctors and the connected the pharmacies is maybe under 1% of India's total. It just shows that it's a very, very light sort of underlying coverage that you have. So how will you fulfill the demand? And it's a digital platform. So at some point in time, you will have hockey stick sort of people, patients coming on board. And related to that, is the competitive intensity. So 1 or 2 of large pharma companies have also launched their platform. And they have a natural connect with lakhs of doctors and pharmacies. So what's your thoughts on this?
Shobana?
Yes. So a, is we believe that customers are discerning. For a pharma company to launch their app, one is that -- I think that just as we don't manufacture medicine because we don't understand that realm. And I think that the pharma companies do need companies like us to be able to retail. So to become competitors, I do not understand their logic. I think that they're -- but many more pharma companies are now coming to us and asking us to align with them to be able to help in patient engagement. And those are the interesting models that have existed in the west and that can only be done through a technology-heavy platform like ours. And you will see more of those partnerships. So I believe in those.The next question you asked is the capability or the ability to be able to ramp to India's demand. I can tell you that we have not been -- that the very fact that we went from being doing 5,000 pharmacy deliveries to 30,000 pharmacy deliveries within 35 days, clearly demonstrates the fact that we have the right supply chain. In these challenged times, people without supply chains are the ones that will really create a lot of that customer disconnect. So Apollo has the strongest supply chain available in the market today. There's certain markets that we have a huge market share in the major cities of NCR, Bangalore, Hyderabad, Vizag, Chennai. But apart from that, we also have the capability to be able to deliver with our 4,500 stores. We continue to ramp up and open more than a store a day nowadays. And I think that this gives us the ability.If we do require, we have connections through our supply chain company with over 35,000 pharmacies, and this is available for us to use another light model to be able to do supply. So with regard to doctors, Apollo -- 7,000 of Apollo doctors being available. We believe that it's important to offer people the right quality. And the other doctors -- again, we're investing heavily into technology. We'll have the best clinical decision support system, which is currently being tested. Once we do that, you will find that the efficiency also will ramp up. So I believe that in -- we have a lot of the answers. I don't claim that we have all the answers. But as we get better and bigger, we will solve for these in a sustainable way without foregoing quality.
Just to add to what Shobana said, I think that 1% perspective is a very macro perspective. So what we do is to look at relevant market share. And if you look at the Tier 1 cities and the Tier 2 cities and the Tier 3 cities that are present, I think this is what where -- especially in Tier 1 when we created the whole ecosystem with hospitals, clinics, delivery centers, Spectra, we look at relevant market share. And I believe that 24/7 -- and it's the pharmacy, in particular. They had marked out 10,000 pin codes. But if you look at the first quarter, they've also -- they've already moved back to 16,000. And like Shobana said, it's a -- with the physical pharmacy format plus the logistics chain, the supply chain that we have, I think we will be the strongest player. It's a strong combination of having an omnichannel presence.
Okay. Great. And just final, if I can. I know we are up on 1 hour. Suneeta, how do you think about the bed capacity -- Okay. So Suneeta, how are you thinking about your bed capacity? And I say that because at 67%, 69% utilization occupancy, how much further can you go? And is this the time to press a panic button to say that now, look, we need to add 1,000, 1,500 beds for the next 3 or 4 years journey ahead?
So if you look at 67% of [ peak ], I think the first cut is that we've not operationalized all the beds. So we have 8,000 beds operationalized. We have the potential to operationalize another 2,000 beds by -- with -- at very little cost. The second part of it is that you must see our -- that we will have a calibrated expansion plan in place because this company must -- we will continue to show growth. And to show growth and to strengthen our market share in certain cities, there will be some brownfield acquisitions that we will make, which will increase that capacity. But having said that, the second cut that you should look at is a decrease in ALOS which means this has the potential to increase volume. And this we will actually show post-COVID because during COVID, we had an uptick of 7% against the normal 3.5%.
The next question is from the line of Alok Dalal from CLSA India Private Limited.
Krishnan, just one clarification. What was the contribution of RT-PCR tests for the Diagnostic business for the quarter?
Chandra?
Yes, I'll answer that. In terms of volume, we did 6.6 lakh RT-PCR tests in the quarter, up from about at about 2 lakhs in the previous quarter. In terms of an absolute revenue contribution, we -- out of -- we had a non-COVID of INR 60 crores and the COVID revenue was INR 45 crores.
Okay. And sir, last quarter, you had given a guidance that diagnostics will be around INR 500 crores sale by FY '23. Just to clarify, is this all organic? Or there will be a component of inorganic or acquisition business?
We have -- largely, organic growth because we have market to saturate and some more potential. There will be some more -- ?
Ladies and gentlemen, thank you for patiently holding. We now have the line for the management reconnected. Over to you.
Yes. I was answering the question on the component of inorganic. The way we are looking at is a large organic growth. We look into the opportunistic inorganic acquisitions in markets where we are not as strong and newly entered markets that we are entered newly. But our primary focus will be on organic growth. There will be some component of inorganic, but that will be at, obviously, the right pricing and the right sizes that we will look at. And especially the new markets.
Sure. And one last question. Suneeta ma'am, you had mentioned that you will look to bring down the pledge share component below 20% by March '21. Any fresh time lines on that?
I think COVID is deleted. But like I said, by the end of the year, we hope to bring it down by 50%.
Okay. So that share will be down by 50% from current level by end of the year?
Definitely. Yes. Yes. It's currently at 24%. We've already brought it down, but it will come down further.
The next question is from the line of Harith Ahamed from Spark Capital Advisors.
My question is on the pharmacy distribution business. We've had a very strong quarter-on-quarter growth and we see in the growth in the front-end as well. And then you mentioned some stocking and the patients and some additional demand that we saw during the quarter. So going forward, how should we think of this current run rate of around INR 1,500 crores for the business? Will there be some softening as the stocking unwinds?
So 18% to 20% growth is what we have said we will -- we have guided on that, and we will continue to maintain that growth. This is how you should look at it.
Understood. And Krishnan, one question on this back-end pharmacy that we are moving to HealthCo. So does this entity currently procure for our hospitals as well? And just trying to understand what happens to the procurement of drugs on new hospitals launches? And [indiscernible] moves to Apollo HealthCo?
So it doesn't include the hospital procurement, which is part of Healthcare Services business completely. And this is just the procurement for the stand-alone pharmacy business. So the hospitals business is integrated -- hospital procurement is integrated with Healthcare Services completely.
The next question is from the line of Nitin Agarwal from DAM Capital.
Just a follow-up on the diagnostic business. Currently, the margins are on the lower side and you're looking to ramp up the growth. The peer set is around 25% EBITDA margins in this business. By when do we see ourselves getting into the sort of 20%, 25% back to our margin range?
So I'll answer that, Krishnan. The current -- on a stand-alone diagnostics business, our margins currently are at 25% related by somewhat of additional business from the COVID. On a steady state, the numbers are reaching there about the 20%. So I'm expecting us to expand and go up to 25% in the next 12 months.
Okay. So that the INR 500 crore, is that even despite your revenue targets, which are about INR 500 crores of [ we have got ] revenues for next year, we should be able to retain a 25% margins from that account?
Yes. We are aiming to expand the 25% as we reach that revenue objective without compromise. We are in a position to do about 20 --nearer to 20% now.
And Chandra Sekhar, where do we go from there? At INR 500 crores, we still are going to be much smaller than lot of the larger peer. From the business that -- you see the dynamics of the business, how big a business can really get to, say, over the next 3 to 5 years?
It definitely has the potential and there is also a need. As you still say, while we look at the size of the overall market, I think size of the unorganized, it's consistent. It's pretty high. It's already 85% thereabouts. So I just see going ahead, the time for organized businesses to continue to ramp up and the space is available. So we have 2 spaces. One is also to start also looking at gaining on clinical leadership, which is what Apollo as a brand stands for. So we will pursue that as an objective. In terms of an overall number, I think the headroom to grow to the size of more figures and above in terms of the INR 1,000 crore-plus kind of revenue, this is an opportunity that we do have. And I guess that organic growth is our first lever. Inorganic will be opportunistic. So we'll use these 2 to consistently look at going.
And from a geography perspective, when you get to that INR 500 crore number, what proportion -- so it's going to be a south dominated or it's going to be a very evenly spread out mix for us from a revenue perspective?
See, we are going to be -- we will have a mix in the INR 500 crores objective. We have a mix, which is skewed higher on south and east. But I think we are making entry into the other markets in the west and the north. There will be some component, but they'll be in their early days. So the percentage contribution from these new markets would be not more than 20% of the overall.
Got it. And if I can just squeeze one? Shobana, on the 24/7 platform, how important you think is our ability to get partner doctors on board? In terms of what role will they play going forward? And two, what are the other competing platforms? I think what incremental proposition to be offered to potential partner doctors?
As we've seen -- the follow experience for partner doctors doesn't -- isn't just about 24/7 even though we're able to bring them more customers in their community. Like for instance, the vicinity of our pharmacies, it becomes easier for us to connect the doctor partners who are close by. And we've seen, especially during the pandemic, that's working well. But more than that, the reason that doctors would choose a premium platform like ours is the ability to hook into the Apollo ecosystem gives them higher access to CMEs, to learning, to second opinions, our superior CDSS that would help their technology and their clinical decisions. So it's a 360-degree package that we offer doctors.
Right. And in your assessment, how -- in this whole outpatient ecosystem that multiple players are looking to develop, I mean the most critical piece is what our ability to generate the online prescription? Or I mean there are multiple pieces in that. But is there a fair assessment that our business generate the online prescription essentially is the core of this proposition? Online -- rather getting online consult done?
Don't get me started on that. I think that they're getting adopted on board to generate for a free consult to generate the prescription is actually unethical. And I don't think that's the way that it should be done. Doctors, we should be valued and should be paid for. So unless we get that straight in India, then all else. So I think Apollo stands for bringing the higher standard. We do not give away free consults to generate prescriptions. If we wanted to do that -- I mean, we are not going to go down that road. So I decline from answering that.
Ladies and gentlemen, that is the last question. I now hand the conference over to Ms. Suneeta Reddy for our closing comments.
Ladies and gentlemen, thank you for joining us on this Saturday afternoon's call. This has really been a defining quarter for all of us. But we were able to live up to our ESG commitment, where we demonstrated purpose as part by serving societies and our communities. And this has truly been Apollo's focus, the ability to serve our patients in -- and our communities. I believe we did so this time, and we did so by putting wake of our infrastructure, our doctors, our nurses and our management towards looking after patients. And in the process, we looked after over 80,000 COVID patients. While we remain prepared to the third wave of COVID, we continue to be focused on innovation, on clinical efficiency and the agility of our institution to serve larger communities and our consumers. Thank you again for joining this call, and have a wonderful weekend. Stay safe, stay happy.
Thank you. Ladies and gentlemen, on behalf of Apollo Hospitals, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.