Apollo Hospitals Enterprise Ltd

NSE:APOLLOHOSP

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Apollo Hospitals Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Devrishi Singh from CDR India. Thank you, and over to you, sir.

[Devrishi Singh]

Good evening, everyone, and thank you for joining us on this call to discuss the financial results of Apollo Hospital for the first quarter of the financial year '22-'23, which were announced earlier today.

We have with us on the call today, the senior management team comprising Mrs. Suneeta Reddy, Managing Director; Mr. A. Krishnan, Group CFO; Mr. Sriram Ayer, CEO of AHLL. Mr. Ashish Maheshwari, CFO 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 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 was shared with all of you earlier. Documents relating to our financial performance have been circulated and these have also been uploaded on the corporate website and the websites of the respective stock exchanges.

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.

[Suneeta Reddy, executive]

Good evening, everyone. Thank you for taking time for this earnings call. I trust that all of you have received the earnings document. We are pleased to commence FY '24 on a positive note with a strong first quarter, characterized for continued growth in top line, improved volumes and payer mix, meaningful network additions, and further growth in the user base for our digital offerings.

Our Healthcare Services witnessed a robust 13% year-on-year growth in quarter 1 FY '24, even as IP volumes were 6% higher year-on-year. Within this, the self-pay and insurance volumes grew by 10%, while revenues grew 21% year-on-year. Insurance revenues now contribute 44% of our total IP revenues. Overall, occupancy across the group was 62%, mature hospitals at 63%, new hospitals at 60%. ARPOB on an overall basis has increased by 11% year-on-year to 57,760. Against this backdrop, let me walk you through the consolidated financials.

Consolidated revenue grew by 16% on a year-on-year basis to INR 4,418 crores. Healthcare Services grew by 13% to INR 2,294 crores, Mature Healthcare services grew by 10%, while new hospitals grew by 23%. Revenues from Apollo Health Co stood at INR 1,805 crores in quarter 1 FY '24, a growth of 22% year-on-year. Combined pharmacy grew by 24% on a year-on-year basis. Apollo Health and Lifestyle revenues registered 19% year-on-year growth at INR 319 crores in quarter 1 FY '24, excluding the COVID impact.

Consolidated EBITDA was at INR 509 crores, registering an increase of 4% year-on-year. Within this, the Healthcare Services EBITDA grew by 12%, and Healthcare margins were at 23.6%. Margins in mature hospitals were at 26.8% as against 26.4% in quarter 1 FY '23. Margin with new hospital was at 16.7% for the quarter as against 17.7% in quarter 1 FY '23. The drop in margin was account of a few factors, an increase in overall surgical discharges resulting in higher material consumption, increase in marketing expenditure for the new hospitals, and focused investment in clinical talent in these hospitals for future growth.

The pharmacy distribution business in Apollo recorded an EBITDA about INR 125 crores, year-on-year growth of 13%. Operating costs and ESOP charges were at INR 204 crores. There is a INR 13 crores lower than cost in trailing quarter of quarter 4 FY '23. EBITDA loss in the company was at INR 57 crores, down from INR 72 crores in the trailing quarter. This is in -- keeping in mind our commitment to reduce costs in this vertical, the business is on track to achieve operational breakeven in quarter 4 '24.

AHLL recorded an EBITDA of INR 23 crores as compared to an EBITDA of INR 29 crores in quarter 1 FY '23. The drop in EBITDA due to investments in network growth and specialized manpower. The margin profile is expected to improve with revenue ramp-up from the network as well as focus initiatives to drive process efficiencies.

Consolidated PAT was at INR 167 crores. Healthcare Services PAT was at INR 264 crores, a like-for-like growth of 19%. In substance, this was a strong quarter across several dimensions and metrics, which we have identified in areas of focus.

Within the Healthcare Services business, we have delivered an ROCE of 25% with balanced ROCE across all our geographies, the Metro, the Tier 1 and the Tier 2. We believe we have the most diversified footprint in portfolio and significant headroom for growth.

We have continued to improve our payer mix with visible results in our ARPOB. The diagnostics vertical with AHLL recorded core revenue growth of 48% on a year-on-year basis and surpassed the revenue run rate of INR 100 crores for the quarter. Clinics core revenue grew by 23% year-on-year. Margins were impacted due to investments in network expansion as well as specialized manpower. Several initiatives are underway to improve diagnostic margins, including platform changes and improved asset utilization.

Private label and generics business contributed 16.02% of total pharmacy revenues. This was an improvement of 168 basis points over the same quarter last year. Our digital platform 24/7, added 2 million new users this quarter. The platform GMV was INR 623 crores, a growth of 189% on a year-on-year basis. We have achieved this GMV while reducing cash burn and are well on track to achieve operating breakeven in this vertical in quarter 4 FY '24.

This quarter has signaled that the investment of strategies adopted by us are gaining traction and are largely playing out to the plans that we had. We remain firmly committed to building the strongest integrated omni-channel health care network with the consumer at the center, ensuring access to high-quality health care across the value chain. We will do this while achieving a healthy EBITDA margin and strong ROCEs. We believe we are building a sustainable and value-enhancing platform, guided by fiscal responsibility, and unique consumer value proposition as our dual objective.

I would like to take this opportunity to introduce our new CEO of Apollo Health & Lifestyle, Sriram Iyer, he was previously Chief Revenue Officer at Metropolis and brings 25 years of retail experience to the table.

On this note, I would like to hand over to our moderator and open the line for questions.

[Operator]

[Operator Instructions] We have the first question from the line of Harith Ahamed from Avendus Spark.

[Harith Mohammed, analyst]

So my first question is on Apollo 24/7. I'm looking at the GMV for the quarter, there's an 11% quarter-on-quarter growth. But when I look at the revenue that you've disclosed for the online pharmacy distribution of Apollo 24/7 segment, there's almost 20% quarter-on-quarter decline. So can you help us understand this disconnect?

[Sanjiv Gupta, executive]

Thanks for the question. My name is Sanjiv, I'll pick up this question. I think there are 2 important things that have happened in the quarter. And I would first refer to the Q4 earnings call wherein we started -- we discussed about that how in the platform, we've reduced our discount to 12% to 15% and at that point of time, January and February months were the time when the discounts to the pharmacy vertical was as high as about 17% to 18%, and we did bring it down to 12% to 15%.

So one impact that has happened during the quarter is that a lower discount of roughly 13.7% that we're running in Q1 has impacted second top line. And I think it is a conscious decision by the management to let go those value seekers onto the platform who are looking out for only the discount. In fact, as we have been continually working on the model, our discounts have always been lesser than the market.

And -- so the first impact that has happened to the quarter 1 impact on a lower 5% growth Q2 versus Q1 on the GMV or the lower revenue-to-GMV ratio is on account of discounts being lower, that reflected into lower pharmacy sales. Second thing, what we did is that we also looked at those orders, which are not profitable at all. And orders which were less than INR 200 of bill value are those orders, which we have let go from the system, and we are not fulfilling them, and apart from the fact that there are certain PIN codes where logistic costs or the fulfillment cost of the last mile is so very high, that it does not make any sense to take those orders.

So next thing what we did is that while we improved our unit economics and the cost line and majority of that benefit will also accrue in Q2 and some benefit has accrued in Q1, this has resulted into about 7% to 10% dip in our pharmacy revenue. So that is the reason you would see that revenue-to-GMV ratio, which was about 43% -- 42%, 43% in Q4 has come down to about 33% to 34%. So closing steadily, as we see July month and as we see this quarter, I think we'll -- this will further improve. But the essential reason behind a lower revenue-to-GMV ratio or a 5% growth in GMV in Q1 versus Q4 is only to make sure that the business is more viable, more profitable.

[Harith Mohammed, analyst]

Is this revenue-to-GMV ratio that we should be factoring going forward, around 20%, 30%?

[Sanjiv Gupta, executive]

I think it could be better. What happens is whenever you do a structural change to the business, there is a fall that we see on an immediate basis. July, we witnessed a little bit, but I think August is tracking very well. And I think we should be moving up from this 33% to 35% to 40% in this quarter at least.

[Harith Mohammed, analyst]

Okay. Got it. The second question is on your guidance of INR 10,000 crores of revenue and 6% EBITDA margins for the combined pharmacy business. So firstly, I wanted to clarify if the 6% is a post-IndAS margin guidance that we have given.

[Suneeta Reddy, executive]

Sanjiv, you want -- will you take this, or Obul is also here? Obul?

[Obul Reddy, executive]

In line with our combined business, which we have seen, and this can still be sustained.

[Harith Mohammed, analyst]

Yes. So there is obviously -- when you're thinking of the post-IndAS margins, there is IndAS benefit as well. And that's, in the past, been around 300 to 350 basis points.

[Obul Reddy, executive]

This is at the business level.

[Harith Mohammed, analyst]

Yes. Yes. Understood. Understood. So when I deduct the IndAS benefit here, the combined pharmacy EBITDA margins are maybe in the 2.5% to 3% range, and this is lower than what we used to have in the past. So I understand there's a higher level of discounting, but you talked about some additional costs in the front-end pharmacy level in the past, in the last few quarters, how are we tracking on those? And how should we think of margins in the combined pharmacy vertical?

[Obul Reddy, executive]

So we have the same cost continuing. In fact, if you look at it, the discounts have slightly moderated versus last year and Q4. However, the network cost in terms of the store additions and almost about 20% of our stores are to reach breakeven. It may take a quarter or 2 more. So in Q1, we have that costs coming in and impacting the profits. Otherwise, we will be back to normal level.

[Unknown Executive]

And you have to remember, this is the combined business, which includes the online as well. So online is where there is higher discounts. So if you look at offline, this is online, offline would be higher in this mix.

[Operator]

[Operator Instructions] We have the next question from the line of Saurabh Kapadia from Sundaram Mutual Fund.

[Saurabh Kapadia, analyst]

In your region-wise operation parameters, if you look at Tamil Nadu and the other region, the inpatient volume as well as outpatient volume has been muted. So any specific reason for this?

[Suneeta Reddy, executive]

So there was a 6% growth in the inpatient, outpatient as well. So in Tamil Nadu region, the reason for that is clearly, one, it was holiday season. The second is that, let me say, travel to Tamil Nadu was restricted because of train logistics as well as some of the airlines canceling that route. But now it's reinstated and July is looking very good.

[Saurabh Kapadia, analyst]

Okay. And similar case for the other market where we saw the outpatient volume down by...

[Suneeta Reddy, executive]

The last year was -- the previous year, the RT-PCR test, which was COVID test, and therefore, the OP looked high. But now without COVID, it has grown. On a like-for-like basis, there is growth.

[Operator]

We have the next question from the line of Shyam Srinivasan from Goldman Sachs.

[Shyam Srinivasan, analyst]

Just one on overall occupancy. So 62%, I know you're comparing with 60% a year ago, but that may have been impacted because of COVID and other stuff. So I just want to understand the level of occupancy, and this is not only you, right, even other companies -- I know there's a seasonal issue here in Q1, but has been below expectations, right? So is there an element of either pent-up that's not coming back or you generally think this is just a seasonally slowest quarter in the year and things will pick up? So just a color on yourself as well.

[Suneeta Reddy, executive]

So it's definitely picking up. This has happened more in the South, I think we were impacted. It was very hot summer. It was vacation season. And like I said, travel was restricted to one of our networks, which is Chennai. But I think it is seasonal. And July is looking extremely good. So it's clearly because of some of the things that happened in the first 3 months.

[Shyam Srinivasan, analyst]

When we had an aspiration to reach 70% and over time, 75%. Is there any impediments to reaching that numbers? Or do you think over time, our network will be able to get there? Is there an issue of, say, cannibalization in the sense that people from -- who were earlier traveling to Chennai are no longer able to travel or they're going to another network hospital of yours. Are you seeing those dynamics, which will prevent us from reaching historical high occupancies, you think?

[Suneeta Reddy, executive]

So Chennai is clearly -- is there now in terms of -- so people are still traveling to Chennai for ordinary care. What is good is that our Tier 2 hospitals also are doing much better. And there is a 17% growth in Tier 2, which I think is a very good signal for -- and it's rewarding to see that our geographic footprint and the impact on ROCE has validated this strategy.

[Shyam Srinivasan, analyst]

Okay. And my last question, I'll keep it brief. We added, I think, 900 stores last year. We have added 30 stores in the first quarter. So I just want to understand what's our target for this INR 10,000 crores, don't we need additional stores or we think we're going to have a much lower run rate this year?

[Obul Reddy, executive]

We have factored about 500 to 600 stores to be added during the year. Q1, consciously we slowed down because in the Q4 last year, we added about 370, 380 stores. And in the last month of March, about 150 stores. So we want to give that space to stabilize those stores. And Q1, we are back to our normal store openings, and we expect to be there between 500 and 600 for the year.

[Operator]

We have the next question from the line of Damayanti from HSBC.

[Damayanti Kerai, analyst]

My question is again on Apollo 24/7. So Sanjiv, you mentioned unit economics are improving, you're reducing losses, et cetera. But GMV growth has been, I'll say, slow compared to what we are expecting in last 2 quarters. And then earlier, you have set a target to double up GMV in '24 compared to '23 level. So do you think you can still achieve that or you're focusing more on reducing losses?

[Sanjiv Gupta, executive]

So I think it is both the things. First important thing is to ensure that the business is -- only those transactions onto the platform are run which are making some economic sense to the business, while also looking into the fact that we have a target in our minds. We did about INR 1,650 crores in the previous year. And then obviously, we guided INR 3,000 crores. We did INR 622 crores in Q1 and adding the run rate itself is INR 3,500 crores. And while we tapered down certain volumes in Q1 started March to till end of June. .

But I think we've got various several initiatives to ensure that we fill the gap quickly with new set of customers, new offerings and we increase the average order value. In fact, our average order value has also gone up in spite -- if you could look at it, INR 845 previous year versus INR 935. So I think we should be able to reach the target of INR 3,000 crores very early in the stage to kind of say that we'll not be able to hit. I think INR 622 crores is a decent number for Q1, and we should be meeting our target. This is what I would say at this point of time.

[Damayanti Kerai, analyst]

Okay. I want to understand the discount part better. So do you suggest that there has been some like seasonality here also? You mentioned there were higher discount in Feb and March, that's why a bit of more volumes, but now it has reduced. So can you talk a bit like how your discount work for, say, offline orders and online orders across the year? What are the patterns or how do we see things moving there?

[Sanjiv Gupta, executive]

I think as far as the discount strategy I just talked about, discount strategy has always been a delta between offline and online to the extent of about 150 bps to 200 bps. At no point of time, this gap was higher if I look back in the last 6 months. Prior to that, obviously, it was a very different ballgame where we were also giving a discount of about 18% to 20% and offering was steady at above 10% to 11%.

As we move more into omni play as more and more customers have started transacting on both the platforms, obviously, we have to, at some point of time, rationalize the entire thing looking into the scale, looking into the right time, and this is what we did somewhere in March month, that more and more omni players started happening across the channels, and it is to the interest of the customer that we should not confuse him or her with differential pricing, and that is where we curtailed down our discount. So this is a good move as far as the customer side is concerned. Obviously, it does give a benefit to the company.

As far as the current year is concerned, we are running at about 13.7% for Q1. I think this will continue to be in this range for Q2. And I don't see any reason that we should be inching up in Q3 or Q4, maybe 10, 20 basis points here and there. It could be max 14%, if not 13.25% to 13.5%. So something in between. And I guess, as far as the offline business is concerned, it will continue to be around 12% to 12.5%, only a gap of 100 to 150 basis points. So I think directionally, all of us should look into these discounts for the rest of the year.

[Damayanti Kerai, analyst]

So somewhere you said 12% to 14% will be the broader range for discount. Just want to...

[Sanjiv Gupta, executive]

Yes. That's right. Yes.

[Damayanti Kerai, analyst]

And my last question is, if you can provide -- this question is for Suneeta ma'am. Volumes are a bit muted, but you have continued to perform well on ARPU growth, et cetera. So how should we look at ARPOB growth outlook for, say, next 1 to 2 years?

[Suneeta Reddy, executive]

So just one thing on the ARPOB, growth has been over 10%, improvement in ARPOB 11%. And this is a function of both case mix and tariff increase. So I think this year, this 11% is -- this INR 57,000 moving to maybe up to INR 60,000 is something that we can sustain.

In terms of how do we look at occupancy, I think that is an important question that we have headroom for growth and that in places like Chennai, we're already 41% of total market share. And we see we are growing this. So with this, I think it's going to be -- as we go forward, this was asked earlier, it's going to be higher occupancy, resulting in higher EBITDA and also higher EBITDA margins coming from the cost, fixed cost being met. And therefore, we are quite confident that, that is the way forward.

[Unknown Executive]

The other thing which has also happened is that if you look at the case mix, the case mix has also improved for the better. We have seen that the CONGO case mixes are going up, which is all the high-end cases that we are doing, which is the other reason that ARPOB is high. Secondary care cases have also gone up because, clearly, with the insurance and the payer mix helping us, there is a tailwind in insurance, which we believe is here to stay for the next several years. We have just started seeing the traction in insurance, which is good.

So clearly, now we are seeing that a lot of people also are coming for secondary care into the hospital, which is why ALOS is down. So ALOS being down is also a matter of -- even if you look at the overall volume, volume growth is fixed. But if you look at insurance and self-pay, the volume growth is actually 11%. So we had let go -- as you know, last year, by Q4, we had let go of lot of CGHS patients across the system, which is why when you compare Q1 to Q1, you look at Q1, which has CGHS and institutional volumes, but now the volume doesn't have that, but still we have grown 6%.

So with that, because of the -- which is why insurance and self-pay when you look at the 11% is the volume growth and that on revenue growth is actually 20% on the IP side. We are showing a 13% overall revenue growth for the quarter. But we know that the overall mix of the cases that we have are very good. This occupancy is something that we are working on, and we will see that also go up because it is, as Suneeta said, Chennai is higher. It is some of the business, some of the units outside of Chennai, like Madurai, Trichy where we have some lower occupancies, but ROIs are all good.

So if headroom for growth exists, we have to figure out how to fill it up now. So we are working on that plan as well. So broadly, I think structurally, if you look at the P&L, structurally, the P&L is quite strong, and it results in higher ROIC also because of that. Occupancy is something, I guess, over the next 2 years, it's like -- we look at it from an opportunity perspective.

[Damayanti Kerai, analyst]

Okay. So ARPU, we should be sustaining at a healthy level. Yes, I'm just clarifying. Okay.

[Operator]

[Operator Instructions] We have the next question from the line of Kunal Dhamesha from Macquarie.

[Kunal Dhamesha, analyst]

So the first one on the 24/7, it seems that in order to kind of improve the profitability, we have put some filters in terms of our strategy to refine our user base. But how would that have impacted our TAM when we look at what our strategy a year back versus now been? So like how much reduction we would have seen in TAM because of this?

[Sanjiv Gupta, executive]

You're referring to CAC, right, cost of acquisition?

[Kunal Dhamesha, analyst]

Not cost of acquisition, just because, let's say, we are putting a filter that below INR 2,000 order you would generally take. In that case, that would also reduce our total addressable market based on the affordability, et cetera, right? So how would TAM calculation would have changed for you?

[Suneeta Reddy, executive]

It's INR 200.

[Kunal Dhamesha, analyst]

INR 200. Okay. I misheard that. Okay.

[Sanjiv Gupta, executive]

Yes, that's the INR 200. And I think -- see, we also need to understand, at times what happens is that customers have a habit of breaking their entire -- normally, any e-commerce player would like to have a basket shoppers into the platform versus the top-up shoppers. Now chronic customers are supposed to be taking medicine at least for the whole of the month. And if not, at least it should be for 2 weeks or 3 weeks.

Over a period of time, we also saw certain PIN codes and certain customers behavior given the fact that you've got the analytics behind, now we are in the fourth year. We've got 3 years of experience there. We found out that there are certain geographies, there are certain set of customers who are good shoppers, but they have a tendency to reduce their shopping cart by as low as INR 200, INR 150, and they continuously order.

So what we have actually done is that certain customers who were actually only giving us a total value of about INR 600 to INR 700 in the entire month, those are the ones which we believe that -- and if they are not chronic, are those set of customers to whom we let go. And major impact has started coming in from the value seekers. The people who had a tendency to take the orders where the discounts are very high. And I think that is the time that we are now no more in that particular stage, or rather phase 2 of the company is very different where we would like to have those set of customers which are chronic and are associated with the company for a little longer and also cross-pollinating between the other verticals, be it the consultation or the diagnostics.

I think as far as the overall canvas is concerned or a future potential is concerned, I think online business has got a vast thing and -- in a market. And in a true spirit, omni is actually giving us a larger wallet share of any customer. The [ Aventis ] suggested that people -- customers are becoming omni during 30% more wallet share versus when we were not omni.

So I think from the strategy point of view also, it's good to have those set of customers which are chronic, which gives us a high repeat. Our repeat for Q1 has been about 27% versus 21% in the previous year same quarter. So that is also a very good metric. So I think we are running into a right direction from the strategy and the execution point of view.

[Kunal Dhamesha, analyst]

Sure. And the transacting user number that you have given for this quarter and comparable quarter, would you be able to share the number for quarter 4?

[Sanjiv Gupta, executive]

This specific number are you looking at it?

[Kunal Dhamesha, analyst]

Transacting user, right, which is INR 11.4 lakh, which is what is in returning or transacting user base?

[Sanjiv Gupta, executive]

Yes, that's right. So In the previous quarter, Q4 if you are referring to, was about INR 9.9 lakhs.

[Kunal Dhamesha, analyst]

And the second question is on the payer mix. I think we have shared that insurance is around 44%. But would we be able to share the other channels as well? And let's say, we have been doing this payer mix refinement for last 1 year. But let's say, when I look at it from a 2- to 3-year perspective, pre-COVID let's say, FY '19 or FY '20, how would have our payer mix looked? And from there, how much you would have done in terms of refinement?

[Unknown Executive]

I think self-pay -- pre-COVID self-pay was almost around 45%. Now if we look at self-pay as a percentage of revenue, it is 40%. Insurance is where we have had significant increase where it was close to 25% to 28% pre-COVID, that has come to 44% of our revenues now. So clearly, between insurance, private pay and -- insurance, self-pay and private sector, we have almost around 80% of our revenue is coming from that, 80%, 82%.

So this is -- what has happened is from -- we have definitely been able to focus on bringing down some of the government and some of the low-paying cases across. And this is the new normal that we would like to believe we will continue to go into as we proceed as well. IPS is an area that will further grow because IPS growth for the quarter has been good. Our -- hopefully, once we get our presence in Delhi also in the next 18 months, we should be able to get higher IPS growth because Delhi is one of the places where IPS is high. So in our consolidated results, we don't provide IPS because otherwise, IPS is today 7% of our revenue here, whereas in Delhi, it is 15%. So that is the other area that we hope that we should be able to tap into as we move forward, which should change a bit as later. But otherwise, this is the new normal.

[Operator]

We have the next question from the line of Lavanya from UBS.

[Lavanya Tottala, analyst]

I just wanted to check that Healthcare revenue growth is driven by ARPOB largely. But sequentially, our margins are broadly similar for both mature and new hospitals. So why is ARPOB is not translating to higher margins?

[Unknown Executive]

So in both -- there are different answers for both mature and for new. In mature, one of the things that we have seen is there has been a lot of increase in some of the -- we have seen good increase in the surgical mix, which actually occurs well from a longer perspective. So the surgical mix increase has resulted in a higher cost of materials in the mature hospitals. This is obviously aided by higher insurance, as I said, someone who's covered more by insurance has the propensity to come to a better quality hospital or is definitely choosing us over some of the others and this is one of the reasons that we are seeing high-end cases as well as secondary care cases go up.

So cost of -- surgical material costs have gone up. But what we have also seen is that the doctor's fees related to that went up a bit in this quarter. But as we move forward, we -- there is -- we had taken some tariff correction in the middle of the quarter. We think that will start paying off. And into the next quarter, et cetera, we will see the margin go up on mature.

In the new, we have added doctors because one of the things to -- which we have also done is that to focus on the utilizing occupancy, we had seen doctor gaps in places like Navi Mumbai and some of the others like Vizag, where we have added doctors on guarantee money fees. This, we will -- we believe will start paying off over the next 2 quarters, and then that margin should also come back. So we are quite -- so these are the reasons for both these segments. Some bit of marketing cost has also gone up. We did spend a bit of marketing in the new hospitals as well.

[Lavanya Tottala, analyst]

Okay. Got it. So this should sequentially also we should see improvement in margins of both mature and new hospitals.

[Unknown Executive]

That's correct.

[Lavanya Tottala, analyst]

On 24/7, can you give the split of GMV for this quarter, like in terms of pharma and diagnostics?

[Sanjiv Gupta, executive]

Yes. So Pharma, we did roughly INR 350 crores for the quarter and diagnostics was roughly INR 30 crores, and the remaining was coming in from consultations and the entire IP/OP business.

[Lavanya Tottala, analyst]

Okay. What would be for the split for a previous quarter, like Q4?

[Sanjiv Gupta, executive]

Q4 was -- for pharmacy was INR 375 crores and diagnostics was INR 42 crores. Diagnostics went up by about 16% to 18% for the quarter. And pharmacy, as I said, in the previous question that we keep certain decisions to let go those volumes which are not profitable to the organization and that is the reason we see that gets settled in Q1.

[Lavanya Tottala, analyst]

If I may ask last question, what is the tax rate?

[Unknown Executive]

I'll just answer that question, which she actually was raising. The tax rate is 25% overall for the company. And in the standalone, it is 25%. What happens in consol, you see it at a higher number. That's because there are losses which comes from Apollo HealthCo and Apollo -- AHLL, where there is no tax, which actually skews the tax rate to close to 32%, but the tax rate at the company is today operating in the standalone is 25%. So 1 or 2 of our subsidiaries is that still at that older tax regime, like Bangalore will move into the new taxes next year. So -- and I think the same is the case with Lucknow. So these are the 2 which are in that older tax regime. They will also move to the newer tax regimes in the coming fiscal year.

[Operator]

We have the next question from the line of Rishabh Tiwari from Allegro Capital Advisors.

[Rishabh Tiwari, analyst]

In the previous quarter, you issued both combined pharmacy EBITDA and someone previously asked that it was not quoted as well as we are expecting some ramp-up from the recently added stores. So if you could please tell the combined pharmacy EBITDA? And second question is regarding the IndAS impact on the EBITDA, there used to be a slide on this. If you could give a ballpark guidance on that.

[Obul Reddy, executive]

On the combined pharmacy EBITDA, as I explained to you that last year, we added about 1,000 stores, and it will take about 1 year -- 12 to 15 months for the breakeven. So those higher number of stores contributing to the losses has impacted, and we will be back in the next 3 quarters. And...

[Unknown Executive]

On the IndAS post-IndAS, I'm sorry, that was a miss in this slide. I think we have not sent that. We will add that and put it back there. I think that's the same number as what was there last quarter, pre-IndAS to post-IndAS, I think INR 30 crores at the Healthcare Services level and INR 20 crores at the AHLL level. We'll put it back out there and that slide, we will add and sent it back.

[Sanjiv Gupta, executive]

We will upload it on the website. Sorry about that.

[Rishabh Tiwari, analyst]

Just a clarification. So there is no EBITDA improvement on the combined pharmacy.

[Unknown Executive]

Combined pharmacy, any specific improvement...

[Obul Reddy, executive]

So it will be through the volume and cost-cutting next 2 quarters, and our improved profitability on the new stores.

[Operator]

We have the next question from the line of Naushad Chaudhary from Aditya Birla Sun Life Asset Management.

[Naushad Chaudhary, analyst]

Firstly, on the occupancy side, the target which we have 70%, can we reach and sustain that 70% for the long period of time? Or do you think it will be like touch and then plan for a sizable CapEx?

[Suneeta Reddy, executive]

Although that 70% will not require any CapEx, but this will take us a little time to get to 70%. We're already trending. Probably, we'll reach close to 70%. But while we do have a target of 70%, we will not be able to deliver it and it will require no CapEx.

[Naushad Chaudhary, analyst]

No, I'm asking can we sustain -- once we reach there, can we sustain 70% for a long period of time?

[Suneeta Reddy, executive]

Yes, we can in those regions. So overall, as a company, maybe not. But I think in each of the regions where we touch 70%, we should be able to sustain.

[Unknown Executive]

Yes. And to also add on to your point, as we said about the new hospital brands, which we are doing 200 -- the 2,000 beds and INR 3,000 crores over the next 3 years, the first stock of beds are coming in the 2 regions where we have more than 75% occupied, one is Kolkata and the other is Bangalore, which we are looking at. So where -- so these are the 2 that will start off. And we also are looking at -- then we are looking at Gurugram, which will follow in the year after that, where again, our occupancy is over 75%. So we are quite clear about how we are looking at the strategy of expansion. Those are new markets. These will not impact our existing occupancies at all.

[Naushad Chaudhary, analyst]

I understand. I'm just trying to understand on the blended level, 70% is doable on a sustainable basis or not, on a blended level?.

[Unknown Executive]

Yes, at this level, but the new hospitals will take time, right, to get to 70%, any new hospital that would come.

[Suneeta Reddy, executive]

Up to 2026, yes.

[Unknown Executive]

Yes.

[Naushad Chaudhary, analyst]

Without compromising on the future growth.

[Suneeta Reddy, executive]

Yes.

[Unknown Executive]

Yes.

[Naushad Chaudhary, analyst]

And lastly, in terms of the scalability of your health care business, if you -- hypothetically if you think of doubling your health care revenue from current base, what are the challenges comes to your mind?

[Suneeta Reddy, executive]

I think when we are looking at doubling, yes, we are adding beds to ensure that we have beds to fill. But more importantly, again, it's the fact that we still have -- by increasing 20% occupancy, we're actually taking up our revenue by another 40%. So clearly, there is headroom to grow, do have plans. And I think that there is strong traction in the Hospitals division. This quarter should be a very good quarter. And I think you could look at it next quarter.

[Operator]

We have the next question from the line of Nitin Agarwal from DAM Capital.

[Nitin Agarwal, analyst]

Sir, on the 24/7 in terms of the operating losses, which are really expenses which are there at INR 175 crores for this quarter. I mean what is the relation that we should keep in mind the GMV for these expenses?

[Sanjiv Gupta, executive]

Yes. So I think this is how we also internally look into -- and if I look at Q1 FY '22, we expected GMV about 28%, which was roughly 66% in the same quarter previous year, and Q4 was about 32%. And the target for the current year, which I talked about in the previous earnings call was also to having between 20% to 22%. This is one thing.

And secondly, I think many of the initiatives have started working in the organization, which we had thought through and started executing. We had INR 189 crores of expenses in Q4 and INR 15 crores already we used in Q1, which is down to INR 175 crores and this is a structuralized change. So obviously, INR 60 crores worth of cost deduction has already happened. And as I see July month numbers, I'm sure that Q2 numbers are also going to be lesser than INR 175 crores that we see next year during the time.

[Nitin Agarwal, analyst]

So I guess the way to look at this thing is this INR 175 crores number is a top-ish number. It keeps probably coming down with the cost reduction as we go forward. And the EBITDA to GMV conversion, the EBITDA, especially with the GMV growth keeps going up, which starts to -- I mean that's how the losses begin to narrow in this business.

[Sanjiv Gupta, executive]

Absolutely. Absolutely. That's the narration that we have started working on, too.

[Nitin Agarwal, analyst]

And in the next couple of years, when the GMV goes to close to $1 billion and all that you talk about, I mean at what level do the operating expenses begin to peak out or sustain at around when you start to get to $1 billion in GMV?

[Sanjiv Gupta, executive]

This is a little tricky. But I think the way we look at it is that whatever level of expenses we have it in the digital segment itself, those expenses we used to -- we really get out of the provision or the take rate that we have it in -- on the GMV. So yes, the expenses have started going down. In the future, depending which vertical occupies the intent to invest, there will be a little bit of delta over there. But otherwise, the thought process that the digital alone itself $1 billion could be able to take care of the expense won't be that easily. But as far as the current quarter is concerned, I think we did this one segment being down to INR 175 crores this quarter. And current quarter, which is Q2, I think will also be, let's say, at INR 175 crores for sure.

[Nitin Agarwal, analyst]

And if I get last one on that. And then how should we see the EBITDA percentage improving with relation to GMV over the next couple of years?

[Sanjiv Gupta, executive]

I think today, if I look at the margin mix, my margin mix is also steadily going up. It used to be about 6% to 7% -- 6.6% of the margin revenue in Q1 FY '23. It went up to 7%, 9% and 9.7% over the previous quarters. This quarter, it is 10.89%. I think the next 2, 3 years, it is going to be more than 30%.

[Operator]

We have the next question from the line of Siddharth, an investor.

[Unknown Attendee]

So my question was regarding our associate company, Indraprastha Medical. So last couple of quarters, we've been seeing improved business performance. So what has led to this turnaround? Is there any operational changes that we have taken?

[Suneeta Reddy, executive]

Yes. Clearly, we have got very good doctors onboarded, and this has resulted in better performance and high occupancy.

[Unknown Attendee]

Okay. Can you highlight what is the current occupancy right now?

[Suneeta Reddy, executive]

22%.

[Unknown Attendee]

Okay. And regarding the lease, which is due this year, so what is the progress on that front?

[Suneeta Reddy, executive]

We'll inform at the next quarter.

[Unknown Attendee]

Okay. And since our occupancy is around 70%, 72%. So are we looking to do further CapEx on that land?

[Suneeta Reddy, executive]

There will be some CapEx on the land, but Apollo Hospitals is also looking at expansion in the region, leveraging the networks that we've built.

[Unknown Attendee]

On the same line on which Indraprastha is there?

[Suneeta Reddy, executive]

There is some expansion in Indraprastha itself. But beyond Indraprastha, we are looking at expansion in the region.

[Operator]

Ladies and gentlemen, that was the last question. I now hand the conference back to our management for closing comments. Please go ahead. .

[Suneeta Reddy, executive]

Thank you, ladies and gentlemen, for joining this call. As I conclude, I would like to emphasize that everything that we do in Apollo Hospitals centers around the consumer and the patients; our deep focus on clinical care as shown in our CONGO case mix; our technology absorption, the fact that we have now 25 robots that are being used, demonstrates that we are filling down the all India network. And it also demonstrates that we have the ability to meet all challenges that may come in our way of future growth. So we are quite confident that this could be a very good year for us. Thank you, ladies and gentlemen.

[Operator]

Thank you, members of the management. Ladies and gentlemen, on behalf of Apollo Hospitals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.