Apollo Hospitals Enterprise Ltd
NSE:APOLLOHOSP
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Apollo Hospitals Enterprise Ltd
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Ladies and gentlemen, good day and welcome to the Q1 FY '23 Earnings Conference Call of Apollo Hospitals Limited.
[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, Margaret. 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 financial year 2022, '23, which was announced yesterday.
We have with us on the call today the senior management team, represented by Mrs. Suneeta Reddy, Managing Director; Dr. Hariprasad, President of the Hospitals Division; Mr. A. Krishnan, Group CFO; Mr. C. Chandra Sekhar, CEO of AHLL; Mr. Obul Reddy, CFO of the Pharmacy Division; 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 statements 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 with all of you earlier. Documents relating to our financial performance have been circulated earlier, and these have also been posted on the corporate website.
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.
[Technical Difficulty]
Ladies and gentlemen, thank you for patiently waiting. We have the management connected now. Over to you, ma'am.
Good afternoon, everyone. Thank you for taking time to join our earnings call.
I trust all of you have received our earning documents which we shared yesterday. We have commenced fiscal year 2022, '23 on a very strong note. After 2 financial years marked by disruption, the start of this financial year is characterized by a more stable environment leading to normalized economic activity. We have seen an increase in volumes and occupancies accompanied by the return of planned high-end surgeries. This has enabled the healthcare services business to register a strong recovery in quarter 1 FY '23, with patient volumes and revenues higher as compared to quarter 1 FY '22 and quarter 4 FY '22.
Quarter 1 FY '23 occupancy across the group was at 60%. IP volumes increased 9% quarter-on-quarter. The occupancy must also be viewed against the backdrop of ALOS of 3.38 days, down from 4.81 in quarter 1 FY '22, where COVID dominated, and 3.57 in quarter 4 FY '22.
ARPOB also improved sequentially from INR 48,510 in quarter 4 FY '22 to INR 51,999 in quarter 1 '23, an increase of 7%. In a significant shift in payer mix, insurance revenue now contributes 41% of our overall revenue, up by 34% from pre-COVID times. Cash and insurance segments registered a quarter-on-quarter improvement of 15% in revenues.
Our focus on centers of excellence has resulted in a quarter-on-quarter growth of 7% in cardiac, 17% in oncology, 12% in neurosciences, 28% in orthopedics, 19% in gastro sciences and 18% in transplants. Surgical revenue now is 68% of the total revenue, up from 60% during COVID times. We also have a promising uptick in the international patient volumes and revenues. We have reached 85% of our pre-COVID levels on volumes and are par on revenues.
Against this backdrop, let me walk you through our consolidated financials for the quarter. Consolidated revenues grew 7% quarter-on-quarter to INR 3,796 crores. Healthcare services grew by 9% quarter-on-quarter to INR 2,023 crores. Mature healthcare services revenue grew by 13% to 1,147 crores, while the new hospitals, [ they grew ] by 1% to 577 crores.
Apollo HealthCo revenues grew 8% quarter-on-quarter to INR 1,479 crores. Within Apollo HealthCo, the digital business recorded a GMV of INR 215 crores for the quarter, which is a sequential growth of 21%, and 34% on a like-to-like basis excluding the Omicron impact in January 2022. 232 net new stores were opened this quarter, taking the number to 4,761 stores.
AHLL revenues stood at INR 293 crores, a decline of 5% on a quarter-on-quarter basis. This was primarily because of COVID and [ COVID allied ] testing revenues that increased during the Omicron wave in quarter 4 last year. Non-COVID diagnostic revenues, however, grew 12% quarter-on-quarter.
Consolidated EBITDA stood at INR 491 crores, registering a quarter-on-quarter growth of 6%. Within this, healthcare services EBITDA grew 19% quarter-on-quarter to INR 484 crores. Healthcare services margins were at 23.9%, [ a totaling ] 6 basis points improvement over the sequential quarter. Margins in mature hospitals were strong at 26.4%. Margins in new hospitals stood at 17.7% for the quarter.
The pharmacy distribution segment in Apollo HealthCo recorded an EBITDA of INR 112 crores at a steady margin of 7.6%. Operating costs at Apollo 24/7 came in at INR 135 crores. Therefore, AHLL EBITDA post Ind AS was INR 29 crores compared to an EBITDA of INR 37 crores in quarter 4 '22.
Consolidated PAT is at INR 317 crores after deferred tax liability reversal of INR 147 crores. Consolidated healthcare services PAT is at -- was at INR 222 crores, as compared to INR 176 crores in quarter 4 FY '22, a quarter-on-quarter growth of 27% in PAT for health care services.
I am pleased to share that we recently acquired a hospital asset in Gurugram from Nayati Healthcare for a consideration of INR 450 crores. The asset has a potential of 650 beds across 7 lakh square feet. We are excited about strengthening our footprint in a national region and look forward to taking our unique brand of world-class clinical outcomes to the fast-growing and discerning city. We expect the facility to take pole position in attracting medical value travelers from around the world. In addition to building strong centers of excellence, we also plan to create a comprehensive ecosystem of care across pharmacies, clinics, stay surgery, birthing centers and primary care clinics in the region to complete our offering. The integrated health care complex at Gurugram is expected to be commissioned in a span of 24 months.
We would also like to provide a few operating metrics on Apollo 24/7. The platform now has 17 million registered users; and is completing 35,000 transactions per day, up from 25,000 a quarter ago. The GMV run rate is now on track to deliver 1,500 crores for FY '22, '23 against the earlier guidance of 1,000 crores. To sustain the growth momentum, we do expect to incur 20% higher expenditure than guided earlier. We are already seeing a rationalization in loyalty costs and discounts and expect them to trend lower going forward. Overall, we are on track to become the #2 digital player in the country during the current fiscal year.
Looking ahead, we believe that the momentum in the healthcare services business will continue. Occupancy at a group level will improve from 60% to 70% over the next 12 to 15 months, an improvement of 15%. This will result in a revenue growth of 15% to 20%, unlocking operating leverage, which will lead to an EBITDA expansion of around 35%. We have demonstrated our ability to actively optimize our payer mix and our case mix, and these efforts will continue to drive margin expansion up to 200 basis points.
The diagnostics business within AHLL can scale to 1,000 crore top line within the next 3 years. The digital business within Apollo HealthCo has shown significant traction and is tracking faster than planned numbers. The pharmacy distribution business will continue to grow at 20%, with our focus on private label products complemented by an accelerated store expansion plan. We expect margins in this business to hold steady.
The deep capabilities and mix of offerings that we provide to consumers through our omnichannel, multifaceted engagement model which is differentiated across the value chain is indeed very unique and forms the basis of our belief in our strong, sustained growth potential. We view the 3 verticals as the engines of growth and remain committed to our core value system of building solutions and offerings that will deliver the best clinical outcomes and are integrated and meaningful for the consumer. We intend to deliver -- to deepen our relationships with them over a longitudal time frame and create lasting value for our stakeholders.
On that note, I would like to hand over to the moderator and open the line for questions and answers. I have Dr. Hariprasad -- with me -- Dr. Hariprasad, Krishnan, Obul Reddy, Chandra and Sanjiv with me to take all your questions.
Thank you.
[Operator Instructions] The first question is from the line of Nitin Gosar from Invesco.
I wanted to understand the reason for increase in operating costs in 24/7.
Sanjiv?
Yes. So I think a couple of important points that we need to understand, as far as 24/7 is concerned. One is that, the last quarter, we had [ the 16 days of numbers. It included ] the overall expenditure for the last quarter was in the range of about 100 crores. We took a conscious call to achieve the #2 position in the country given the fact that there is a lot of traction from the customers. We are seeing a lot of intake of various services that we are providing to the customers. And what we decided is that [ we'll pull a little bit of ] expenditure from Q2 -- or rather, Q3 to Q1 and Q2. And what this helps us is to get the -- not only the #2 spot, but also it helps us to provide more services to the existing customers or the new set of customers. So this is a conscious decision for Q1. And I do expect that -- or similar numbers will be there for Q2 as well, but beyond that, we don't expect expenditure to go up sequentially. I think the guidance will be that 50% growth overall in the year from 1,000 crores GMV to 1,500 crores GMV, which will place us to the #2 spot in the country, will be managed within 20% overall increase in the expenses. Another [ 2, 3 things ] that we're doing internally now is that -- one is that the discount on the pharmacy vertical is tapering down and some due to the external factors and some because of the kind of continuum of care that we provide in 24/7 already reduced by 1%. And we do hope that another 0.5% to 0.75% should be -- we should be doing it in current month, apart from the fact that we've got certain more optimization initiatives.
So I think with this I will only say that taking the second spot in the country is equally important. The companies which are there in this industry for last 7 to 8 years -- and we've been only 2 years old and 1 quarter down in third year. Taking that spot is not easy. You need a lot of efforts. You need some bit of investment. And I think this investment is what we see in Q1. This is slightly higher than Q2, but it is important.
Got it. And I just wondered the thought process around this 24/7 cost structure. So 400 crore was the earlier called-out number which is going to be the investment which will go through P&L. Now that number has gone up and it may stay elevated for FY '22, '23. Incrementally, as we progress, these numbers are going to stay elevated, keeping in mind especially the environment which was very conducive for e-commerce until last year. The liquidity was high at that point of time, and liquidity is low at this point of time. It only allows people like us to sustain the business model with a lower cash burn. How do we look through going forward on the cash burn, especially for incremental quarters post the second quarter, onwards?
As we said earlier -- the last quarter we had, we kind of provided the guidance of about 450 crores of annual expenditure in the [indiscernible] business. I think of 20% higher is what we are looking at, at this stage. And we strongly believe that we would be able to do a meaningful job to get to the #2 spot, to deliver 50% higher volumes and sort of 1,000 crores to 1,500 crores GMV and well within the guided numbers.
Okay, okay. And for FY '23, this number should not be at [ 550 ]. It should come down -- FY '24...
[indiscernible].
[indiscernible].
My bad. FY '24, the number should be less than [ 550 ].
Yes, all efforts in that direction, [ sir ].
[Operator Instructions] The next question is from the line of Damayanti Kerai from HSBC.
Due to no response, we'll move to the next question, which is from the line of Lavanya from UBS.
[ So going a little bit ] Apollo 24/7, I just wanted to understand on the numbers reported in [ results note ]. So how the GMV will be different from the revenue reported from 24/7 digital. And the sales from -- through the online channel will be considered as part of pharma distribution. I just wanted some clarification here.
Sanjiv...
Yes. So I think -- yes. So ma'am, I think you gave the answer in your question itself. You're right. So the entire online pharmacy GMV would be part of the front-end and back-end sales. So that will be the first part of it. And second, how GMV [indiscernible] [ if we can size it ], typically in the e-commerce companies, GMV is the platform transactions that are done. And revenue is the commission that you charge to the service providers. So this entire GMV gets into various companies. So for example, the entire virtual consultations will be the revenue in Apollo Hospitals. The entire pharmacy GMV will be part of the front end, back end. And the entire diagnostics revenues will be part of the AHLL.
Got it. So the take rate for [ this each ] segment will be in the range of...
So take rates are different for different verticals and depending upon the kind of volumes that we have. For example, on the virtual consultations, we have a take rate of between 5% to 10% depending upon the speciality. And on the diagnostics, we have a [ flag-based rate ]. So currently we are at about 12% to 13%. As volume goes up, there is another [ flag ] that kicks in. And accordingly, all these take rates are marked to market [ from that range ].
Okay, okay, got it. And on the hospital business, I have seen in the presentation that, excluding vaccination in the base quarter, it is the growth is 7% Y-o-Y, but in the base quarter we'll have COVID-related occupancy also which could be impacting, if I understand right. So I need some clarification here...
So for -- this quarter was -- first quarter was a 13% if you exclude vaccines. So Q1 versus Q1, excluding vaccines, is 13%. Q1 versus Q4 is 9%.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
A very good quarter. Sir, just on ALOS, what's really helping us drive it down so much, excluding the COVID quarters? I mean it used to be around 4, now come down to 3.4. And what's the outlook for this?
So Sameer, what we've really done is to focus of -- on really driving down the ALOS, recognizing 2 things. One is that we are using robotics and minimally invasive, and this enables us to discharge much faster. The second is that we really want to make it cheaper for the patient. So any extra day means that they would have to pay one more day room rent, and for us, the earnings are higher in the first 3 days. So we have taken clinical initiatives as well as operational initiatives to see that discharge happens much faster. We track these metrics on a month-to-month basis. So currently I think that we've really done well this quarter. And considering that most of our work is now surgical, we can definitely look forward to moving towards 3 -- keeping it at 3.4. We've also introduced new procedures, which is [indiscernible] as one of the cardiac procedures versus CABG. In knee transplants, we also have robotics. And we have 20% of our business is now [ baked with ] laparoscopic.
Okay, great. So this has released a lot of your capacity, so that's a good job done. And the second question is on Gurgaon project. Krishnan, how much CapEx do you need to do for this project? And my understanding is Gurgaon is a fair bit competitive market, so how will you attract the best medical talent? And can the road to profitability be a lot longer?
I mean so what we plan now is -- we paid 450 crores for 5.67 acres. We think there is a building that is existing there, so we -- maximum, we will invest another 350 crores, taking the project costs [ made ] up to 900 crores maximum. And with regard to competition, I think that we have a clearer plan on how to attract talent. We also bring talent from overseas. And I'm sure that -- we spoke about an integrated network, so we will have a funnel. One funnel will be part [ the ] 24/7 consumers that will send patients to Gurgaon. The second that we have is our relationship with corporates, which is really, really high. And I think the whole Apollo reputation in Delhi with what we've started [ with in the first ] -- I think the trust in Apollo is very strong, and doctors continue to be very happy to join an Apollo facility. And finally, I have to say that we will get a lot of international patients because we are working on that channel, and Gurgaon is probably the best place to be in if you're focused on that channel. So really I think for me the most important thing is improving the clinical work that is existing now in Delhi. It's to take it to another level and therefore attract both doctors and patients and make the right investments in infrastructure and in technology.
[Operator Instructions] The next question is from the line of Damayanti Kerai from HSBC.
Am I audible?
Yes, you are audible now.
Yes, yes...
Yes. My first question is on Apollo 24/7 spend. So Sanjiv mentioned about some initiative investment which you have taken to increase our standing in the market, so can you please a bit elaborate? Like where is majority of spend happening? Whether it's on the infrastructure, IT or on the discounts, if you can provide some better clarity.
Yes. So about 25% is the expenditure that is getting into the product and the technology side of it. And when I'm talking about the technology, it is the entire app experience. It's the entire web experience and the entire CDSS [ and CIE ] engine that we are working on. So that is about 25%. We are also ensuring that the adequate capacity with respect to the knowledge and manpower is there pan-India, at the right verticals at the right places. So about [ 30% to 35% ] as -- is getting into the augmenting of resources. We have about 20% to 25% of the costs which is getting into some sort of a branding. And this is to ensure that the communication to the customers with respect to the various services [ at ] digital line of the business as well as the entire Apollo ecosystem gets communicated. And about 10% to 15% expenditure is getting into user acquisition. And that is to ensure that we'll get new set of users, chronic users specifically. And the digital spend is within this 10% to 15%. And the remaining 8% to 10% is towards the other infrastructures, primarily the support side of it.
So that's helpful. And what is the discount [ on the orders ] at this point of time compared to peers? You mentioned you have already taken some reductions, but where do you stand?
Yes. So last quarter, we saw discounts in the range of about 18%. And that was the whole or the entire Q1. July, we started tapering down the discounts. And much of the things have to happen from how exactly the external forces are working, external forces in the sense [ of the ] competition out there. And secondly, what is the mix of repeat customer, repeat cohorts and the chronic cohorts? Depending upon all this, we take the calculated decision. And in July month, we have reduced discount by 1%. I think I also see another headroom for 0.5% to 0.75%. Something in this range should happen during current month or maybe by end of the next month.
So broadly, you will be standing at 16%, 17% discount in near term; and then going ahead, depending on how market evolves.
I think -- well, yes, that is the same as -- I think 16.5% should be -- or 16.75%. That will be the numbers that we can look out for Q2. And as far as the external forces or the environment is concerned, given the fact that we've got the very high Apollo internal base of customers, we do not get much impacted as far as the competition out there is concerned. So I think we should be able to hit this number of [ 15.5 to 16.75 ].
Okay. And my last question is on ARPOB, very strong growth, 27% year-on-year. So ma'am mentioned payer mix change obviously helped, but how much of contribution is there from price hike in this [ rise ]? And whether this should be sustainable going ahead.
Excuse me, Margaret. I think the line is not very clear. I don't know if they're able to hear us.
We can hear you clearly, ma'am.
Yes. Ma'am, I can hear you, yes.
Okay.
So ma'am, my question was on ARPOB, very strong number. You mentioned it was helped by the payer mix improvement, but my question is does it include a component of price hike and whether this kind of growth is sustainable.
Yes. So ARPOB, there was a small price hike of 2% that we have done, and it is inclusive of that. And this is something, the mix -- there are 2, 3 levers on the ARPOB. One was that we -- as the -- one was the surgical mix, if you look at the surgical mix. It's rebounded significantly. And we are now at 68% of our revenues comes from surgeries, so that's one important lever which has impacted our ARPOB positively. We are continuing to see also a good case mix aided by insurance and walk-ins. So insurance itself, which is around -- or which was 34% has now become 42 -- 41%. And so clearly there are good levers that are helping us get the ARPOB, and this is sustainable.
The next question is from the line of Sumit Gupta from Motilal Oswal.
Am I audible?
Yes, sir, you are audible.
Congrats for the good set of number. I just want to know regarding the CapEx plans, if any. Like -- and regarding the hospital segment. Like [ they're all -- do you -- underlying those trend ].
So the routine CapEx, you are meaning? Or our project CapEx that you are...
Routine as well as projected, sir.
So routine CapEx, which is part of our cash flows, et cetera [ from our ] every year, it is approximately around 300 crores. That's the number that we have as routine CapEx at a consolidated level and that will continue for now. And the free cash flows even after that would be in the region of around 800-plus crores, which is what is the CapEx, routine CapEx, that we have. And these free cash flows is what we are going to be using for deployment in new projects, et cetera. As you know, we already have free cash in our hand. And even Nayati has -- the Gurgaon asset acquisition happened in Q2, so we would -- which is the INR 450 crores that we spent towards Gurgaon. So clearly the free cash flow plus the cash that we have in our hands of almost around 900 crores, even -- is something that we can use towards some of our expansions. We have announced 2 expansions, 1 in the -- 1 in Chennai and the other 1 which is in Gurgaon. And we have said that we are looking at Bangalore as well as we are looking at North. So we are comfortable we have a combination of this. Plus there is a receivable from Apollo 24/7 of 1,200 crores which we hope that we will get over the next 1 year, if not in the coming round, the next round or whatever. There is an amount that will come to us. So over the next 3 years, the free cash flow will be used. Plus this Apollo 24/7 can help us in our expansions. So current expansions that we have announced is the Chennai one and the Gurgaon one, 900 crores in Gurgaon and maybe 800 crores in Chennai.
Yes, understood, sir. And sir, regarding ARPOB: So at the end of financial year '23 and like '24, what kind of ARPOB that you are targeting.
So the ARPOB that we are targeting, is it? Right.
Yes.
We don't have any specific targets. I think this is a good ARPOB that we are focused on. You should appreciate that our ARPOB numbers that we give are net of fee-for-service doctors. So if you look at it, our ARPOB is really driven by -- not driven by price. It's driven mostly by case mix and ALOS and day surgery, et cetera. That is what we have been focusing on, increasing our ARPOB. And this is an ARPOB that we have which is a combination of Tier 1 and Tier 2, right? If you look at it, we have the -- we have a lot of Tier 2 hospitals across our system and network, and this is after that. So if you actually gross up for the fee-for-service doctors, this ARPOB will actually go closer to the INR 60,000, from a gross ARPOB perspective. So this is a good ARPOB. We will continue to focus on this ARPOB and grow from here.
Our next question is from the line of Harith Ahamed from Spark Capital.
So I'm looking at the combined pharmacy business. There's been a decline in EBITDA margin by around 180 basis points quarter-on-quarter from 9.3% to 7.5%, but when I look at the back-end pharmacy margins, it's been flat quarter-on-quarter, so can you help me understand this discrepancy?
Yes. As you rightly said, the back-end pharmacy margins remain the same at the earlier level. And in the front-end retail pharma business, there are 2, 3 developments that happened during the quarter which brought in onetime costs. Like we have been working on aligning the Amazon systems for a pan-India operationalization of their deliveries, and that's online technology costs. We completed that online alignment and that costs have come into this quarter. Also we have created necessary infrastructure for Amazon deliveries to enhance their numbers. We have created about 16 dark stores in Mumbai City alone and about another 12 dark stores in other parts of the country to see that Amazon reaches the entire country with our networks available in other states. And also that we have now enhanced our rollover [ around ] the pharmacy. We have about 230, 240 pharmacies opened during the quarter. [ Amazon has an annual ] run rate of about [ 140 ]. All these onetime events brought about 25 crores to 30 crores additional costs. Out of that, about 20 crores is onetime, so we expect margins to come back to normal in the next quarter.
Okay, perfect. And next one is on the diagnostics business and AHLL. So there's been a decline in revenues and margins over the last few quarters. So I understand that you had RT-PCR revenues in the previous quarters, but shall the EBITDA margin decline for this quarter, that 5%? So the decline seems to be a bit sharp, so any one-offs that you would call out there?
Chandra Sekhar?
Yes. On the margins, yes. The COVID -- the change in case mix has one part of an impact on the margin, but primarily the others are in the nature of investments that we are making in the beginning of the fiscal year. These are in the nature of tech investments upgrading our abilities to serve digital logistics side. And we also have seen a slight increment in consumable costs because of [ certain freight and other logistics-based inflation ]. We were -- we are doing another -- we've made a lot of investment, which leads to higher OpEx. We are upping our technical capabilities. We are moving to super specialized areas such as oncogenomics, reproductive genomics and a few others, which has called for both enhancement of [ a doctor infra ], scientific sales force and product teams. So this is something which we believe is going to even out as revenues start coming from the super specialized areas of work [ and is in the ] nature of the investment. So we should get back on a mature level to, as EBITDA margins are at a better level than we have.
We also have [ largely ] a cost overhang. This is on account of the large infra doctors and technicians that we've created for RT-PCR testing across the country. This cost overhang remained unutilized during this quarter. So also, we are going ahead of time in terms of our [indiscernible] expansion, [ yes, so that we are beefed up ] to cater to demand that is coming from [ home collection ]. This [indiscernible] expansion also leads to a higher of investment and operating expense, but all of this will get evened out in the coming quarters.
Okay. And last one from my side, with your permission. So when I look at your [ SEBI ] disclosures, there's a revenue of 63 crores under 24/7 digital. And versus the GMV that you disclosed of INR 215 crores, this is close to 30%. It seems to be on the higher side versus the take rates that you mentioned, 5% to 10% for consultations and 12% to 13% for diagnostics, so can you help me understand this revenue number that you've disclosed for 24/7?
Sanjiv will have to answer that.
[ Well, Sanjiv ]...
I'm not [ kind of clear over the questions ]...
[indiscernible] the question. [ You might need to -- do ] you want to repeat that?
Yes, yes. So in your [ SEBI ] filing, there's revenue disclosed for 24/7 digital under the segmental disclosures. That's 63 crores. That's 30% of your GMV of INR 215 crores, so it seems to be higher the take -- versus the take rate that you mentioned which is around 5% to 10% for consultation and 12% to 13% for diagnostics. So that's what the question is.
No, sir. The number that you're reading is in rupees lakhs, so what you are reading as the 63 crores is actually [ 6.33 ].
Okay, okay. 6 crores, okay, okay. Got it, got it.
6.3 crores. [indiscernible]?
Operator, can you hear us?
Are we off?
I can hear you, ma'am.
I can you hear you, ma'am.
Yes. We can hear you, ma'am, but...
Marg, are you there?
We could hear you.
Yes, but we're not [indiscernible].
[indiscernible].
[indiscernible].
We'll call them offline. You'll just hold on.
[Technical Difficulty]
The next question is from the line of Shaleen Kumar from UBS.
Congrats on a good set of numbers. 2 questions. One, is it possible to get some sense on contribution from COVID vaccine at EBITDA level in a base quarter?
Only 11 crores of revenue in the first quarter. The EBITDA will be somewhere around 12%, 13%.
So this quarter. Last year base quarter -- I mean first quarter of last year.
For base quarter, it was 211 crores.
That's revenue, right, sir?
That's revenue. EBITDA will be around [ 15% ].
[indiscernible] [ 15% ], all right, okay. And to ma'am: You alluded that, external fund raise, you were pushing by 6 months in the last call. Is the time line intact for that? I mean -- or which effectively means that you would be looking at fund raise in probably third quarter. Or is there any change of plan over there?
No, no. We're on track to close for December.
Okay, by calendar year-end, you should be able to close an external fund raise.
Yes, yes, yes.
The next question is from the line of Prakash Agarwal from Axis Capital.
On the hospital business, we've seen a good margin traction; and so is the case with the peer set reported, so far. I'm just trying to understand, in our case, how do we see the margins tracking ahead given that we are adding some hospitals? So what is the margin trajectory in the hospital space that we expect over the next 1 to 2 years? And pardon me if you already discussed. I joined a bit late, so -- even on other call.
Sure. So first point, yes, [ at the first level ], we are -- our occupancy is 60%, as you know. And we are looking at increasing this to 70% over the next 12 to 15 months. That is -- still should give us a good kicker because a 60% to 70% occupancy means a 15% increase in volumes. And that should increase our revenues by 25% and, hopefully, our EBITDA by 35%. So that's what we are trying to work on. And with that, if that works, if -- and that should also ensure that our margins go from the current 24% to at least 26%, 27%. So that's at one level. The expansions that we are talking of will come after that, right, because all of our expenses in the Gurgaon, which should be the first which should come in, will be 24 months from now, followed by Chennai, so which is how we are looking at this. And I guess we don't see any problems with the margins for now.
Okay, lovely. And what about some other expansion plans? You have talked about Mumbai. Is there any update there? And in the past call and on the annual report, you talked about adding a few more hospital beds. If you could update us, what's the plan there?
Continuing to work on them. So these two together is [ at least 1,000 ] beds now, right, between Chennai and Gurgaon. 1,000 beds is something that is there, which is Gurgaon can -- [ let's say these two ] can go up to 650 beds even if they started at 500. So it can go to 650 beds potentially. This is 1,000 beds now that we are focusing on. You will hear from us. We are looking at [ the North ] for expansion. We are looking at Bangalore. So all of this will come between the next 2, 3 years once we start. So that's how we are looking at it. And we are looking at bolt-on also. If there are any bolt-on acquisitions which come our way, we would look at it.
And sir, is there any update on Mumbai?
Working on it still. Still working on it. I don't think there is any further update that we have on Mumbai.
Okay. And moving to the 24/7. So there is a change in guidance in terms of the investments that we plan to do. If you don't mind, if you could -- if you already said, then if you could repeat the same, please. Why the change? What's the thought process? Are we seeing more traction, or are we seeing less traction and we need to invest more?
Sanjiv -- I'm guessing very good traction and that's why we are investing, but Sanjiv will add onto it.
Yes. So yes, I think -- so we are seeing very high traction into the business. In fact, we are, well, almost there to become #2 online player in the country. And the 1,000 crores of guidance that we gave the last quarter earnings call, I think we are well moving there to reach a 1,500 crore mark. And yes. So this is one side of it. As far as the overall investment into the company is concerned, for the current year, which is -- which we assume to be higher by 20%, I think much of the investment is kind of investment ahead of these kind of a thought process. We are building up certain capacities, taking -- infrastructure. It's taking some bit of expenses, but yes, very much we are looking at very high traction [indiscernible].
Okay. And any color on the pharmacy business? We have earlier guided for 15% to 20% growth. And I see that we are flattish, so has the competitive intensity gone up? What are we feeling now? And what are we expecting for the remaining 9 months?
So we expect our growth for the year to be in the range of 20% to 22% for the online -- sorry, off-line's network. And adding from the online, we expect to be anywhere about 27-plus percentage growth for the current year. So Q1, generally as you know, we have, Q4, some COVID impact. And then generally Q1 is a sluggish quarter with April, May lesser sales. We are seeing the growth coming back. And we are on track for about 20%, 22% offline, coupled with online about 27%, 28%, growth for the year.
So last year, combined pharmacy business reported was around 6,800 crores. And the target is over 8,500, over 8,500.
Okay, this is combined, including the Amazon and...
Sorry to interrupt you. Mr. Agarwal, may I request you to rejoin the queue for follow-up questions, sir? There are several others waiting for their turn as well.
[ If I can ] complete this question, if you don't mind.
All right.
Yes, please do.
Please do.
Yes. So this includes the Amazon piece as well.
Yes, includes Amazon, but we expect to see the tractions next year because we have set up the system, alignment system; integration; and the infrastructure. We expect that to grow.
[Operator Instructions] The next question is from the line of Shaleen Kumar from UBS.
It seems we have lost his line, so we'll move to the next question, which is from the line of Amit Ganatra from Invesco.
Just wanted to understand this entire long-term thought process on Apollo 24/7 now this year. There is a GMV that is expected to be around 1,500 crores and there certain investments that you are planning to make. Now next year, if the GMV doubles and becomes 3,000 crores, so -- how do we then view the investments? I mean investments also keep on going up. Or they remain capped at whatever we are doing annually this year. How to link these investments to GMV from a long-term perspective.
Yes. So I think the way to look at this is that where exactly this investment is going on. In one of the previous questions, I gave the answer that about 25% to 30% is happening into the products and technology side. And about 30% to 35% is into the operations, building on the capacity around operations; and the other, support, 10% to 12%. So essentially about 65% to 70% is the investment that is getting into building up the company or the network or the capacity. Now obviously, when you double the next year or go 3x, I don't need to kind of double or triple all these costs because of -- you know your platform. You know whether it is Android or iOS platform [ or the West side ]. That wouldn't require same kind of investment even if the traffic doubles or goes to 5x or 10x. So as we ramp up year-on-year, I don't see that our numbers or the expenses to [ go in the same traction ]. In fact, we would get a large-scale benefit across the expenses as well as we'll have a lot of benefits with respect to the commission structure.
So I think the way to look at this is that any e-commerce company, [ once gets ] a substantial portion of the business or the transactions becomes substantial -- in our case, we look at something like about 250 crore to 300 crore of a monthly GMV would be the goal spot, so to say. Until that, whatever capacity that [ we have discussed today ] is good enough for us to continue. I don't see that we'll be raising our bar, as far as the expenses side [indiscernible]. Some 10%, 15% or 20%, expenses will go up, but that is a natural phenomenon year-on-year but not a direct proportion.
So just to -- correct me if I'm wrong. What you said was that, till the time that you can reach 200 crores to 250 crores of monthly run rate, you are creating capacity for that kind of an outcome. Is that correct understanding?
Yes.
The next question is from the line of [ Rohan Subramanian from Zaaba Capital ].
Just one from my side. On the pharmacy distribution piece, if I'm correct, there's a lot of unorganized stores, right, single stores which are sort of losing their competitiveness, so instead of a store expansion strategy or in addition to a store expansion strategy, have you considered an acquisition strategy as well? Because there's a lot of regional familiarity that you can get by acquiring smaller stores, right?
;
Yes. I'll ask Obul to answer...
We have our network partners doing the distribution bid for us. And we don't get into the pharma distribution acquisition. As far as the [indiscernible] network is concerned, we are aligned and [indiscernible] across the country.
So just to add some color to that. We did do an acquisition of Hetero, which happened 4 to 5 years ago, but I think the team has become very efficient in starting their own stores, so -- and the cost of creating a new store is better than acquiring the small mom-and-pop stores.
Understood, understood, sir. And just another thing, on the 24/7, I think you had mentioned to an earlier participant about the sales and the GMV. I wasn't really clear on that. So the -- if the GMV is like 1,500 crores, I was under the understanding that, that is sales plus GST, right? So sales should be like 70% of GMV, right? Or is that wrong?
That's correct, but that gets captured in the back end, which is the pharmacy distribution. That's what [indiscernible], yes.
Got it, got it.
The next question is from the line of Sumit Gupta from Motilal Oswal.
Sir, I just want to get a clarity on the Amazon deal. So like what kind of cost sharing is there between Apollo and Amazon? And what kind of discount is borne by -- like Apollo takes all the discount, or what?
Sanjiv?
Yes. So I think, on the second part, first, as far as the discount side is concerned, what has been agreed with Amazon is a 15% discount. And so that is the benchmark that we are looking at it, but they are allowed to offer discounts [ in this case ] to, say, Amazon Pay or the third-party financial instruments provider. So it could be any bank offering, let's say, another 5% cashback [indiscernible], but those [indiscernible] in any case are there in every e-commerce platform. So I think that part is [ also then ] to bring the right sort of deals to the customers, but yes, from the baseline discount is concerned, it is 15%. That is one.
Secondly, the first question earlier. Or what are the economics between the 2 -- between the partners? I think we all -- both the companies are playing to their strengths. Amazon is playing to the strength of the customer experience, the customers acquisition, putting up the branding, marketing and then delivery side of it because Amazon has got a wide network. And they can easily [ serve that. I mean millions of orders a day, some every day ]. So they are playing to their strengths. Apollo is -- we are playing to our strengths. Our strengths is to have a right set of assortment at the right place, the entire [ picking ] and tracking, the billing, all that. So these strengths is being played at our end. So this is how we have kind of constructed the entire deal.
Thank you. As there no further questions from the participants, I now hand the conference over to the management for closing comments.
Good afternoon, everyone, and thank you for joining this call.
I believe that at Apollo Hospitals we have always taken a long-range view on financial and operating sustainability and value creation, and we believe that this is the only reliable path to institution building. As you have seen over the past years, we have created several verticals and all of which are growing: the hospital vertical, the pharmacy with the digital and Apollo Health & Lifestyle, so I look forward to a continued engagement with all of you.
And thank you for joining this call.
Thank you. On behalf of Apollo Hospitals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.