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Apollo Hospitals Enterprise Ltd
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Ladies and gentlemen, good day, and welcome to Apollo Hospitals Limited Q2 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, Faisal. Good afternoon, everyone, and thank you for joining us on this call to discuss the financial results of Apollo Hospitals for the second quarter and the first half of FY '22, which were announced yesterday. We have with us on the call today the senior management team represented by Mrs. Shobana Kamineni, Executive Vice Chair; Mr. 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; 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 shared with all of you earlier. Documents relating to our financial performance have been circulated earlier, and these have also been posted on our corporate website.I would now like to turn the call over to Mrs. Suneeta Reddy for her opening remarks. Thank you, and over to you, ma'am.
Thank you, Mayank. Good afternoon, everyone. Thank you for taking time to join us on a Saturday afternoon. I trust all of you have received our earnings document, which we shared yesterday. The second quarter of FY '22, which is the strong revival of the non-COVID business, with elective surgery, outpatient patient volumes picking up. We have continued to gain local market share, aided by healthy uptick in local patient.There was also a high growth in the insurance patient segment, especially from corporate. During the quarter, there was a renewed focus on the centers of excellence within our institution with high-end specialties like oncology, advanced cardiac sciences, robotics, neurosciences and critical care accounting for a large portion of inpatient volume. At the same time, we continue to be keep beds allocated for COVID patients and the strong iron cutting between COVID and non-COVID continues to be in place.However, the percentage of COVID patients treated in Q2 was much lower than in Q1. This combination of factors has improved our revenue intensity and ARPOB significantly and enhanced the margin profile across both mature and new hospitals. In quarter 2 FY '22, the inpatient volumes grew by 46% over Q2 FY '21. However, volumes were still 6% lower than the corresponding year -- corresponding period in FY '20, mainly because of the lag in domestic travel, international patients, which we believe is a silver lining that we will show in -- that will reveal itself in quarter 3 and quarter 4, as fears of the third wave recede. Vaccination volumes came in at a higher pace in quarter 2. Our centers, including all the channels conducted inoculations for 2.9 million persons.As a result, our quarter 2 FY '22 revenues include vaccination revenues of INR 246 crores. Overall, 5.3 million inoculations were undertaken in H1 of FY '22. In quarter 2 FY '22 revenue from COVID patients stood at INR 140 crores compared to the INR 491 crores in quarter 1 FY '22. The total discharges for quarter 2 FY '22 was at 120,105; discharge of COVID patients was only 5,072 as against 23,456 in quarter 1 FY '22.Against this backdrop, let me walk you through the financials for the quarter. On a year-on-year basis, our stand-alone Healthcare Services revenue grew by 56%. Combined pharmacy revenue was INR 1,530 crores, a growth of 4% year-on-year, normalized for COVID sales flood in pharmacy revenue in quarter 2 last year. The year-on-year growth was 11%. This growth has been viewed against the lens that during quarter 1 this year, there was a concentrated purchase of pharmacy items due to COVID leading to overstocking of medical supplies in individual households, resulting in muted purchasing in quarter 2. Even with muted pharmacy buying behavior during COVID, the revenue growth pattern for the last 6 quarters have been rather inconsistent.We believe that this performance in this vertical will normalize in quarter 3, and we are committed to a growth of close to 20% overall in the off-line business. This is already evident from the number of daily footfalls, which has moved from 400,000 footfalls to 527,000 footfalls per day. Overall, the company recorded a year-on-year growth of 17% in stand-alone revenues at INR 2,823 crores. Our new hospitals recorded revenue growth of 68%, while mature hospitals' revenue grew by 49% year-on-year.Margins in mature hospitals were strong at 26.2%. And I am happy to state that our margins in new hospitals continue to witness improvement moving up to 17.5% for the quarter, registering a 653 basis points improvement on a year-on-year basis. Stand-alone AS 116 EBITDA was at INR 439 crores, registering a year-on-year growth of 76.8%.Healthcare Services EBITDA was at INR 392 crores, a year-on-year growth of 196%. Pharmacy distribution EBITDA post Ind AS 116 stood at INR 95 crores with an EBITDA margin of INR 8.1 crores. This excludes the 24/7 cost of INR 48 crores.Stand-alone PAT was at INR 186 crores as compared to INR 33 crores in quarter 2 FY '21. Net debt as of 30th September 2021 was at INR 1,297 crores with a debt-to-equity ratio of 0.43.Consolidated results. Our consolidated revenue stood at INR 3,717 crores against INR 2,761 crores in quarter 2 FY '21. On a year-on-year basis, Healthcare Services revenue grew by 75% to INR 2,169 crores, mature Healthcare Services grew by 70% to INR 1,157 crores, while new hospitals grew by 84% to INR 664 crores.Group occupancy was at 65%. Despite the uncertainty caused by COVID, our retail Apollo Health and Lifestyle Limited has recorded an impressive growth of 122%. Quarter 2 FY '22 was driven by a rapid ramp-up in diagnostics as well as primary care business and rebound on the secondary care format, which are inching closer to the prepandemic levels.Diagnostics witnessed a significant growth in quarter 2, registering a 52% year-on-year increase to INR 93 crores, including 56% year-on-year growth in non-COVID business driven by network expansion in new and existing geographies as well as continued growth in capacity to serve the rising demand for home collections.The consolidated post Ind AS 116 EBITDA for quarter 2 FY '22 was at INR 615 crores compared to INR 300 crores in quarter 2 FY '21. Within this, Healthcare Services EBITDA was at INR 506 crores compared to INR 163 crores in quarter 2 FY '21.AHLL recorded an EBITDA post Ind AS 116 of INR 62 crores as compared to INR 21 crores in FY '21. Consolidated PAT is at INR 248 crores as against INR 60 crores in quarter 2 FY '21.AHLL is PAT positive in H1 FY '22, a true milestone in its journey. Apollo 24/7 continued to improve on its consumer acquisition trajectory with over 12 million registrations and an increase in the number of pin codes to over 19,000. Our subsidiary, Assam Hospitals Ltd has entered into a definitive agreement to acquire 64% majority stakes in the 200-bed Excelcare Hospital in Guwahati.The acquisition demonstrates our focus on the Northeast and strengthens Apollo's leadership position in the city and in the Eastern region with the combined capacity in the Northeast exceeding 400 beds, including the existing hospitals.Looking ahead, we believe that these results give us an insight into the strong baseline that we've established post COVID and the potential that lies ahead. Our occupancy and volumes are at healthy levels and margins have continued to expand. There is still significant headroom for growth in volumes and occupancy in both mature and new hospitals as surgical cases continue to grow and international patients come back.The revenue growth and EBITDA expansion will only pick up in pace. The pharmacy distribution vertical also has the bandwidth to deliver strong rates of growth along with the higher online penetration of Apollo 24/7. AHLL has hit its stride and will continue its trajectory of accelerated growth in both diagnostics and primary care. As the COVID challenge recede into the background, the outlook for the medium and long term is positive as all our verticals are trying for even better performance and will live up to their full potential. I have Shobana Reddy; Dr. Hariprasad; our CFO, Krishnan; Obul Reddy; Chandra; and Sanjiv from 24/7 with me to take to all your questions. Thank you.
[Operator Instructions] The first question is from the line of Anubhav Aggarwal from Crédit Suisse.
First question is on the Hospitals segment. If I look at the segment's -- let's say, if I just consider fiscal '24 and I'm combining the mature, new and Proton all together into one bucket, after this strong quarter, do you see that if I were to talk about EBITDA in FY '24, just as a number, INR 2,100 crores, INR 2,200 crores, does that look like the aspiration number to you? Or that looks like a very easy target, that you've already done INR 500 crores plus in this quarter?
See, Anubhav, obviously, we wouldn't want to give any forward-looking statements as always, right? So we continue to stick to the perspective of how we have performed in the quarter. So if you look at the quarter, clearly, the INR 500 crores is something that we have delivered, and there is clear headroom for growth in our existing businesses, as you can see, because the occupancy still in the mature is 67%, the new hospitals still is at -- still has ability to grow. So the point that you should remember is we have had -- we have invested in significant capacities in the last 5 years, and we know that there is a potential for us to fire and this is why the results are looking good.If we continue to look -- if we continue to look forward, we are quite comfortable to deliver margins even above this percentage that we have already delivered now. There is some benefit of vaccine, which is still there in this Q2 also. At the hospital level, it is almost INR 100 crores. But at the EBITDA level, it is almost around INR 15 crores to INR 20 crores. So that's the benefit of vaccines that is there in the business. But the market openings, they have still not come back. Medical tourism has still not come back. So we would like to believe that we should be able to perform on these numbers because there is headroom and we have been continuously investing for that growth as well.
So just for clarity on that response. As Suneeta ma'am mentioned that there seems to be some benefit of bunching up of some high-end surgeries in this quarter, and that was reflecting in a very strong ARPOB across the clusters also. So does this quarter ARPOB seems reasonable? Or once we normalize, that's why I was -- fiscal '24, I was taking as a -- little bit higher, but the question was largely that once things normalize, like the patient -- international patients come back, et cetera, surgeries are not as strong as what -- let's say, the mix is not as favorable as it was in this quarter, is this INR 500 crores plus performance still doable?
Yes, of course. I think it's very sustainable. And the way that you should look at it is that if you replace the 5% that is COVID and low ARPOB and bring in the 10% international patients, which pay a premium, I think this ARPOB is more than sustainable.
Okay. That's helpful. Second question is on 24/7. We're doing roughly annualized loss of -- EBITDA loss of about INR 200 crores on this. Just a question there. What could be a peak loss from 24/7, let's say? And when do we aspire to achieve EBITDA breakeven in this segment? So this INR 200 crores, can it go to like INR 400 crores, INR 500 crores annual loss? Or what could be the peak number? And when will the EBITDA break even?
I think Shobana will take that.
So it's actually not a direct question because one of the things that we have to understand is that the company has been taken out into a subsidiary. So -- and what we do believe that as most radical company, as they hit the velocity, for us to breakeven would be in 2 to 3 years for sure. And what we believe is that if we're doing 40 million to 50 million customers, so that is almost 200x what we're doing now. At that point of time, we would think that we should be able to fund not the same proportion of losses. But as we get further down the journey, we will be more efficient. So I think [indiscernible] that at peak, we should be at a loss of -- Sanjiv, would you have that check done of the things -- but again, it's based on fundraise that we're currently in. So...
And I think -- yes, ma'am. And in case, I add one more point. I think what is important to see today is that are we positive on the unit economics. So with the current set of numbers that we are doing it from 24/7, we are contribution positive and some of the high-end geographies where we have large volumes are doing pretty good, and they're also contributing to or success this quarter. So as ma'am rightfully said, it's a matter of -- I think the journey to the breakeven for the company would be 2 to 3 years from now. And as far as the further funding is concerned, I think it's basically a forward-looking statement, but I think the assurance is that given our unit economics are positive, I think we are doing pretty good as far as the segment is concerned.
Sure. Just one last question on the pharmacy segment. So we've been adding for many years about 350 to 400 stores each year. So just wanted to get an idea what is the constraint in adding like 700 to 800 stores because this will only take us in, let's say, faster penetration of online segment as well because we can deliver medicine faster to more number of people.
So Obul is here.
We've had...
No. But -- actually, Obul, if I can take that question?
Sure, ma'am, yes.
Our logic clearly is that we'll continue to add 400 stores, especially in newer geographies. But what we're understanding is that we're also able to do a lot of serviceability with dark stores, which -- we will have a combination of both of those. So I think as we keep increasing the pin codes we serve via omnichannels, both these strategies will go into play. But definitely, we don't envisage doing less than 400 stores a year.
But can you talk about how many million CapEx or what scale would you have on the dark stores today? Or that's the strategy for the future?
That's strategy for the future. Right now, what we're doing is that we're using our physical stores to serve -- to serve a certain pin code. So what -- just with our stocking and we're just becoming more efficient on that. So the dark stores will probably be in geographies that we're just stepping into or which are very much online yet. But if you see places like Telangana and Andhra and Karnataka, NCR, where we have deep, deep penetration, Calcutta, there are less dark stores that are required, maybe Mumbai because government rules we will have to do a combination or hybrid.
The next question is from the line of Damayanti Kerai from HSBC Securities and Capital Markets.
My first question is on your operating costs. So we have seen increase in staff and other operating costs largely in line with the normalcy in business. But on the gross margin part, we have seen a very strong 400 basis point sequential improvement. So can you explain what has led to this? And how sustainable is this, the 2Q gross margin number?
Yes, I'll ask Sangita to take this.
Damayanti, the gross margin hasn't grown significantly mainly because of the decrease in full volumes because at the contribution level, material costs were rather high in earlier quarters due to the extensive medical -- material use due to COVID. Now that, that has come down and as our guarantee seems very low, contribution traction is better in terms of volumes, our contribution has gone up.We believe this is sustainable because we believe our mix will continue to be going forward what it was in this quarter rather than what it was in earlier quarter. So we see these contributions are going forward sustainable unless something changes of COVID traffic. So you can take that as statistics.
Okay, ma'am. My second question is, can you update on some of the key matters on 24/7? The way we have heard in the previous quarter, say, in terms of number of deliveries which you are doing per day or number of consultations which you're doing and the INR 200 million to INR 250 million revenue target for 24/7, I hope that you are broadly on track to achieve that for this fiscal.
Sanjiv?
Yes, I think some of the broad numbers that I can talk about is that 24/7 has got 12 million registrations. We've got 19,000 pin codes that we are servicing. We've got 6,000 doctors for 138 specialties, and the promise to the user -- or the customer is 15 minutes, you consult with any doctor. We have a very good traction in the platform.Today, we have about closer to 2 million plus weekly active users. And our organic traffic share is also increasing week by week. As far as the delivery side is concerned, I think at an omnichannel level, we are doing about 45,000 deliveries a day, apart -- this is for the pharmacy side. And apart from the VC and the diagnostic, we are closer to about 5,000, 6,000 deliveries a day -- I mean the completion of the orders per day.
You meant to say 5,000 to 6,000 video consultation or teleconsultation you are doing right now?
Correct.
Okay. And in terms of revenues around -- the number which earlier indicated around INR 200 million to INR 250 million, that's what we should look?
Yes, that looks promising. I think we are meeting those targets.
Okay. And my final question is, on diagnostic ma'am spoke like we are seeing very strong traction there. But if you look at the margins, this quarter, I guess, they came at around 13%. Previous quarter, 1 quarter, definitely had a benefit of COVID and all. But how should we look at margins for diagnostic business, which has been volatile for last, I'd say, couple of quarters?
Chandra Sekhar?
Yes, ma'am. The quarter 1 FY '22 had a significant component of COVID. The important point that we need to note here is that our non-COVID from quarter 1 to quarter 2 grew by 22%. So our core business sustainable is continuously growing, and we are also investing.So we are -- we have added our home collection capabilities by adding roughly around 500 phlebos, which are now trying to saturate pin codes of interest and work along with 24/7 to be able to do that. That adds to fixed costs.So overall, our current EBITDA margins are in the region of 11%, but that is a conscious decision to have incurred additional fixed cost. We also have added a few labs in some of the new markets, which are yet to start delivering the required results. But I think a move to 15% over the next couple of quarters is very much in line, and we are in control with that to begin with.
Just to give you some figures, diagnostics delivered revenues of INR 51 crores. EBITDA of INR 11 crores...
INR 91 crores, ma'am.
INR 91 crores. EBITDA of INR 91 crores.
The next question is from the line of Prakash from Axis Capital.
Congrats on the numbers. Just again around ARPOB only. And my question also is around that. So I understand the case mix and all have improved, there could be some pent-up also. But this international one, if you could throw some light, where are we today versus the 10% historical figure of international patients. And then what are the other levers for margins? Like this quarter is obviously all-time high across new as well as mature hospitals. Do we see this as a sustainable base? Do we expect over next 3, 4 quarters more improvement? What is the outlook here, please?
Yes. If you look at ARPOB this year, we're at INR 47,361 versus INR 38,000 last year. And we really do believe that this is sustainable. I think the icing on this would definitely be the fact that if international patient travel resumes in the third and fourth quarter, you will see ARPOB going up. The reasons for the high ARPOB are clearly our focus on centers of excellence, and this is really yielding the high ARPOBs. And we could see this especially in our Tier 1 towns in our mature hospitals, which are at an ARPOB in excess of INR 60,000.So the blended ARPOB is INR 47,000. And as mature continues to mature with international patients and as new hospitals continue to pick up traction with surgical intensity increasing, we do believe that this is more than sustainable.
And what's our international patient mix currently?
Hari, you want to take this?
Yes. Currently, it's about 5% of what we normally get because we're getting small batches of patients from a few countries. But what we see is it's increasing month-on-month, and the trend looks good. And it is not just the international patients, I think it's even the local travel which makes a big difference because many of our large facilities, we had a large number of patients -- of outstation patients from other states in the country, and we're seeing that travel also improving. And most of these patients who travel distances, whether international or from outstation, they come in for more complex procedures, for more high-end procedures where ARPOBs and margins are definitely going to be higher.
Okay. I understand that. And you don't see this as bunching up like for the last 3 months, 6 months post wave 1, there would have been some bunching up. You are not expecting this to be a bunched up kind of case mix with the opening of travel?
No, we are expecting -- we are actually expecting this to improve with the opening of the travel.
Okay. Got it. And also, if you could help us with the payer mix versus currently what you are observing in Q2 versus maybe last year? The payer mix in terms of cash patient, insurance and the government scheme. Can you comment on that?
Yes. A.K.?
Yes, so as of now, the cash mix is much better. So clearly, if you look at the mix, if you look at the overall volumes that we had this year, we did almost -- around 50% came from cash. But typically, we have been looking at it. So insurance has clearly gone up. If you look at the insurance patients for the quarter, insurance has gone up and the [ TPA ] patients, et cetera, have been similar to what we had earlier.So if you look at the payer mix, it's not significantly tilted towards walk-ins and insurance. The [ IPS ] or the medical tourism will actually add because we had only -- we had only around 1,400 or 1,000 patients in this quarter as opposed to almost 8,000, 9,000 that we had in FY '20, et cetera, in the same quarter.So clearly, there is a tilt, it can come from medical tourism, as we said. So broadly, I think insurance has seen some increase, but walk-ins, et cetera, are broadly similar, not significant increase that I would say.
So what I understood was, cash is largely similar. Insurance share has gone up. Then what has gone down?
That is public sector has gone down a bit and medical tourism as gone down.
Okay. Fair enough. And lastly, on the 24/7 fundraise plan that we had, if there could be more color there, sir, in terms of time lines or any thoughts around strategic partners, what kind of partners and time lines, please?
I think they're almost at the last stage. I think you will have to give us some time to come back on that.
But the increase this calendar year or is it moving to next year?
Definitely in this calendar year. Definitely in this calendar year, we hope that in the next month or so to announce 2 significant partnerships and some significant strategy.
[Operator Instructions] The next question is from the line of Sameer Baisiwala from Morgan Stanley.
On this 24/7 platform, what is the immediate priority in 6 to 9 months to build this up? Is it building your technology backbone? Is it your fulfillment? Or is it customer acquisitions? If you can just talk about that?
So I think that what we've actually proven during this difficult time during the pandemic is that we've been able to open pin codes after pin codes and we are the fastest delivery, 2-hour delivery. So we've done this across states and across pin codes, something like 16,000 pin codes. So -- and we've also seen that in terms of availability, we've improved our availability to -- and we want to push it to 95%, which will be the industry highest, almost comparable to Amazon in terms of availability.So these are some of the things that the natural strength of the pharmacies, we're able to do well. In terms of doctor consults, I think our technology platform is one of the strongest. While we keep improving on it, the ability to get an Apollo doctor in 15 minutes has proven to be an outstanding success, and we will continue to grow on that.The diagnostics resources had started later. Fortunately, the diagnostics team was very eager and they included almost 400 phlebotomists. So we were able to actually come in very fast into that area, and we continue to grow that more than our business plan for diagnostics. So these are our 3 actual service delivery process. But behind this, I think we have a suite of products, which is in condition management, which is in the ability to better manage patient records, to be able to do the CDS. The clinical decision support system, for instance, has been benchmarked by MIT. And what they feel is that it is the -- that it has one of the best activities in the world. And we'll be -- it's currently in the testing phase.So we've got almost 1,000 disease patterns mapped into this. Again, this is an Apollo advantage that we've been able to get ahead of everybody else. So on one side, technology continues to advance, our service delivery has -- had proven that this can deliver on capabilities.The next thing that we'll be pushing is clearly now that we know and we have a level of confidence we will concentrate on scale.
Yes, that's great. Do you benchmark yourselves versus the 3 leading health tech platforms? And I say that because they have been raising hundreds of millions of dollars, and the kind of spend that they will be doing and are already doing versus we are spending INR 40 crores, INR 50 crores a quarter. So at the end of maybe 1 year or 2 years from now, we may actually be left behind a lot.
No. It's a fantastic question. Thank you for that. First, you must understand that all that money is being used to fund discount. We're taking investor money to fund discounts. And I think that is a race to the bottom that we should not be part of because we are a long-term player and we value shareholder that can restore shareholder value on the other side. Having said that, I think that many of them are looking -- some of them are trying to move omni, which means that they're trying to catch up to our $2 billion value of pharmacy investment.So -- and if you really look at it like -- Suneeta has spoken about the numbers, 527,000 people walk into Apollo every day. Those numbers, it would take years for anyone to replicate, while we continue to grow strongly and we go digital. So I don't think there is a fear of competition, but I think there is the responsibility of doing the right thing. And we see that even in the [ sites ] that we continue for the year, our customers continue to come back to us. Many of them are [ not swayed ]. During the pandemic, we had 42 lakh new customers contact with us, and we've been able to retain over 27 lakh of this, that we've reached out to again.So I think our customer acquisition also has been quite effective and we'll continue to invest in today.
Okay. Great. And for Suneeta, my next question is on the hospital side. It's been a fantastic last 2, 3 years, great job done. But as we look for -- as we look forward, now some INR 2,000 crores sort of annualized EBITDA that you're generating, what's the pathway to double this to INR 4,000 crores, say, whatever reasonable time period 4, 5 years? I mean you do not need to add 2,000, 3,000, 4,000 new beds or maybe more?So -- I heard your comment, it's fine. You will squeeze out some more efficiencies. But for the big picture, how are you thinking about it?
So Sameer, that's a good question. I don't know how much of this will be forward-looking. But as you can see, we're very focused on asset utilization. Our current occupancy is in the region of 65%. And with ALOS going down, there is a lot of headroom in the existing company. So that is the first bucket of it. It is the headroom in the existing company to deliver an additional 20% at least minimum increase in EBITDA.The second part of it is to look at how we are growing our clusters. And if you look at the cluster growth, I think we've completed our -- the Calcutta -- we bought out the Gleneagles group. We strengthened operations in the Northeast corridor. And therefore, effectively, we're looking at the East as a cluster that we hope to dominate.And with this, I think, definitely you will see healthy ARPOBs. You will see growth in revenue, occupancy, which really flows to the bottom line. In Bangalore, we are looking at brownfield expansion. And from our current 500 beds, we should look at 800 beds in the next -- in the next 2 years, we should be looking at 800 beds.So it's a combination of acquisitions. It's a combination of brownfield that -- the organic growth and some brownfield that we're looking at to really increase the number of beds and strengthen our clusters. So it's not just random growth. Of course, we are looking to make -- to create something in the North where we're looking at an acquisition.We are looking at Bombay. And we're sad we're not present in the city where all of you are present, but we are looking at a revenue share model. And hopefully, in the next 3 years, you will see a 400-bed hospital coming up in Central Mumbai, supported by our hospitals in New Bombay.And also, unlike all the other corporate entities, when we talk about clusters, you must remember that we have the day care centers, which are part of it. For example, in Bangalore, we have 3 large hospitals, one in Mysore, but we have 2 day care centers.We have 2 birthing centers, and we have about 20 clinics. So in terms of creating a cluster for delivering health care, I think we're in a superior position. If you layer this with the connectivity the 24/7 is going to give us and the funnel it's going to create, I think you can definitely look at a significant improvement in ARPOB. And hopefully, we'll be able to show this to you over the next 12 to 24 months.
The next question is from the line of Shantanu Basu from SMIFS Limited.
Most of my questions have been answered. Just one clarification on the international revenue. I just want to know what is the percentage as of now that has been contributed to hospital revenue by international patient?
So as of now, it is very, very less. It is less than -- as a percentage of revenue, it is less than 1%.
Okay. Okay. Fine. And what's your outlook for international patients going forward, I mean, in the next 2 quarters?
So normalized is 10%. So we believe that by the end of the year, we should -- I mean by the end of the financial year, we should get to 10%.
So...
So for the last 2 quarters, you can look at the last quarter with 10% of the revenue coming from international patients.
Okay. And in Q3?
Q3 just starting to open up, so maybe 4% to 5%.
So you are seeing traction in international patients?
Yes, yes. Definitely. Definitely. Lots of inquiries coming, and travel has started to open up, but the number of flights has still not normalized.
So how is this happening then, as the number of flights have still not normalize I mean...
No, no, there is a plan. I think everything is in place that by March, everything should be -- the last quarter, we should have -- January, February, March, it should be fully back. That's why we're suggesting 5% for this quarter and 10% -- moving on to 10% in the last quarter.
In Q4?
Of the quarter revenue. Yes.
The next question is from the line of Kunal Randeria from Edelweiss.
Now if you were to compare the surgical and high-end procedures versus current rate, how would they look now for the quarter. Is it less than 85% of what they were in FY '20?
No. No, we are higher than 80% of FY -- we're about -- well, let me say, we're about 5%, 6% lower than FY '20.
And in the 1.5 months of this current quarter, you are trending at the same rate or are we at FY '20 level now?
On this quarter, I think it's -- except for the holiday, it's very difficult to -- it's a dull period during Diwali. But again, it's picking up. And I think we should be back to FY '20 levels in quarter 3.
Sure. That's helpful. My second question is on, as far as occupancy, it is going -- I mean you are pretty much around your [ year ]. So just wondering how we should see the trajectory going forward?
No, I think when I mentioned this figure of admissions, we were at 122,000 admissions compared to 52,000 last year. So clearly, occupancy is a derivative also of ALOS. So if you look at ALOS and look at occupancy, I think admissions is a figure that we need to track. And this is where we are -- where we believe there's an opportunity to grow, and it is tracking well for quarter 3.
Sure, sure. And just last one if I can squeeze in. Can you share what the hospital pharmacy revenue would be?
[indiscernible] revenue.
Roughly around 18%.
18% of hospital services?
Yes, yes.
The next question is from the line of Abhishek Sharma from Jefferies.
Another question, sir, around the online pharmacy, you can see that you've started offering discounts recently online in the range of 15% to 30%. So here, I just wanted to know what is the company's strategy? Are you matching what the market is offering? Or would you plan to go higher in order to accelerate your customer acquisition?
So if you look at it, we're actually very nuanced. We are not giving any blanket discounts because one of the things is that we have to make sure the customer experience is truly omni. So I can't do things differently to a large extent, some I can do. And for that, we have a Circle membership that is growing in popularity. So we think that the advantage of the Circle membership is that we've been able to get the actual ARPOB per customer is much higher than a regular customer every time they come, so actually become valuable. Also, the stickiness is far greater once they've transacted with us about 3x. So those are the customers as we move forward that we'd like to be able to find the ability to pass on discount advantage, either directly from the manufacturer cash back or through our private label.So I think that we'll have a very -- we'll have to do this strategy as we go on to -- for some products, maybe price matching. But mostly, I think it will be towards acquiring long-term customers and rewarding them for staying loyal.
All right. And in terms of your total revenue share, what of -- how much of it is coming from loyalty circle members versus non-loyalty presently, online and -- as well as off-line?
This is about Hospitals segment. Yes, online it's about 40 now. Sanjiv, just correct me.
Ma'am, it moved up to 50% now. We have got total 1.2 million Circle members and they contribute about 50% of the GMV.
Obul, how about from the off-line?
It's about same, 48% to 52%, it is ranging.
So I think these are the people that -- that we clearly understand what are their preferences, where they stay and this kind of how we can build that loyalty and continue to grow those numbers.
Understood. And just the last question on discounting, ma'am. So the only discounting you offer is to your loyalty circle, there's no blanket discounting like invoice-based discounting, et cetera?
Yes, there is. You would see, I can't say -- like even in the pharmacy, if people make a significant purchase, they do get a discount. But some of the discount is less, it doesn't grow more than 15% unlike the competitors that do 20%, 25%.
It would community authorize [indiscernible]
And I think that really what the customers are looking for is that for repeat purchases, they're looking for value, but when they need medicines quite urgently, they tend to ask medicines that are not really easily available, they come to Apollo Pharmacy, and there's a significant market share that we enjoy in that.
Okay. And just a follow-up on that. So discount as a percentage of your GMV, do you track that metric? And how much would that be?
It has gone up. It -- currently if it continues to grow up, what is it, Obul? Blended discount is about 14%, 15%, around that amount.
It's about 12% blended today, ma'am.
12, yes, 12% online/off-line blended.
11.8% to be precise in Q2.
It's such a tough battle, let me tell you.
Mr. Sharma, does that answer your question?
Yes, yes, I'm good with that, yes.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just the first one for Sanjiv. I think you talked about unit economics 24/7. If you can help us understand like what is the average ticket size? Anything -- understand that business better. How many users, active users per week. Does it translate to INR 24 million per month -- sorry, per quarter? The run rate that you talked about INR 200 million, so if you can help us understand how to disaggregate that, please?
Yes, I think you talked about the average ticket value. So we have about 1,000-plus as average ticket value for the pharmacy line of business for the customers who are the circle member customers. And when it comes to the virtual consultations and the diagnostics, obviously, we are looking at upwards of 1,500 in our average ticket value. And as far as the unit economics is concerned, I think given the fact that we have omnichannel play, our hyperlocal delivery cost is pretty less. And you can appreciate the fact that we've got 4,000-plus stores pan India.And pretty much our logistic cost is much, much lesser than the competition out there. And that helps us to bring us faster towards the unit economics. So this is one point I would like to talk about. And the second thing is that as far as weekly active users, I talked about 2.3 million weekly active users. And on any current day, we see about 4 to 5 lakh active users on the platform.And much of this is coming to the organic. And our cost of acquisition is also pretty low. I think this gives kind of answer to your question or anything specific that you would like me to talk about?
Yes. Sanjiv, when you mean org, how did they -- so did they download the app? And can you explain what is organic?
So organic means it's that basically, customers are coming of their own to our platform, and they could figure it out, say, suppose a specific medicine which is not available elsewhere, so those customers, they come to your platform and they start figuring it out at that particular molecule or a medicine is available and then they start searching that, they start giving the order. And those are the customers wherein you would not have spent any money, right, because organically, they have come to you by searching certain medicines. And it happened during wave 2 also, Q1 of FY '22, and this is a continuous thing.Ma'am also talked about that we're looking at about 95% of availability in our platform, which would be the best in the country, very close to -- I mean, she talked about Amazon out there. So essentially, people are searching out various things. And when they are not able to figure it out somewhere else, this is one funnel that comes to us organically. This is what we mean by organic customers to us, where there is no extra cost from our side.
And lastly...
So, just to add one point to that. I think you have to consider the Apollo brand and the pull that the brand has. So I think in the health care space, whether it's a teleconsult or selling medicines and the fact that they've been -- Apollo Pharmacy has been doing this for 25 years, it's a very strong brand to draw customers.
Sure, ma'am, that's helpful. So, I just want to understand that you're saying 30 million inpatient and outpatient that visit our network in the pre-COVID world, pre-24/7 world, do they also qualify as organic to get onto the platform?
Yes, they do quality as organic.
So it could be possible that basically the stores would encourage them to download the app, right?
Yes.
Okay, perfect, that's helpful. The level -- the question on about INR 60,000 in Tier 1 and metros. Is there a limit for how to grow because if you remember early...
Sorry to interrupt you, Mr. Srinivasan. Sir, your audio is breaking from your line. Please check.
Should I repeat my question?
Yes, sir.
Yes, yes. ARPOB, it's been a big growth driver this quarter and many past several quarters, INR 60,000 is what you said is the ARPOB in Tier 1 cities. From an affordability standpoint, are we okay as a country in terms of the -- the top 5%, 10% of the population, do you think they can potentially continue to afford this because the -- I was just looking at our own historical numbers, we were at INR 30,000 like 3 years back.So it's doubled. But the income levels have doubled like that. So I just want to understand from an affordability standpoint, and it's not only you, right? I think it's an industry point as well. ARPOBs have gone up. May not be only related to price increases. But if you can help us understand what is the pricing environment like? Is there no competition at all? Everybody seems to be taking prices up.Will at some point of time the regulators get -- raise their eyebrows and say why are people raising prices or doing -- the ARPOB is going up? So just a philosophical question.
No. I think 2 things are very important, 2 perspectives. One is that you -- our ARPOB has gone up because of focus on centers of excellence. High-end work like transplant, TAVI, TAVR, high-end cardiac work minimally invasive. The second very important perspective is that if you think of the reason why Apollo started, it was to provide quality health care to almost every Indian. And if you look at our hospital configuration, it reflects the demographics of the city. So we have 1/3 general wards where the pricing is lower. We have about 20% premium rooms where the pricing is at a premium, and the average comes out to around INR 60,000.So that is the second perspective that you need to look at. The third perspective is reduction in ALOS. And with this, so the ticket size remains the same. The only thing is that we reduce the ALOS and patients are there for a lesser period of time. And therefore, the revenue intensity.
So as a result, ALOS also is something that is a deliberate strategy. It's something that we continue to work on across our hospitals now. We -- for robotic surgery, minimally invasive surgery, et cetera, there is a lot of medical advancements that we are seeing across. Even minimally invasive cardiac, CABG, that they're doing now, bypass in both Chennai and Bangalore, et cetera, it's going to go across -- there are some multiple aspects. Dr. Hari, you want to add something on that?
Yes, many procedures, which should -- which the patient will occupy the hospital bed for a longer time have now been done with greater skill and the number of days the patient stays in the hospital has come down significantly. Krishnan has talked about the heart surgery. Now we are doing day care knee replacement surgeries also.Normally, the patient needs to be there in the hospital for 7 to 10 days after replacement. But now we're doing a plenty of day care knee replacement. So the same intensity of surgery at the same cost with a lesser number of day of hospital stay is actually a good factor, which is adding to the ARPOB.
The next question is from the line of Shaleen Kumar from UBS.
Sir, one question on AHLL. The margin improvement has been pretty interesting over here. Just trying to understand, like can you look at unit economics level? What are the margins a clinic generally makes? And what could be the upside from the current margin?
Chandra Sekhar?
Yes, ma'am. The H1 margin on the clinics is about now 15%. And it has a little tailwind of COVID. But on the steady state, it still is delivering around 9% to 10% at this point of time. So I believe that as we enhance our services and ensure continuum of care, this is -- the primary care units itself will start delivering anywhere between 12% to 14%.
Right. So just to understand, let's say, there is a mature center where there is a reasonable footfall or occupancy, what is the margin at clinic level?
17% is our mature number that's the -- the peak we have reached is 17%. In fact, in some of the centers in Q2, we have reached that 17%.
Okay. Okay. So, high teens kind of a margin is possible at the clinic level or maybe a bit more?
Yes. Somewhere in the -- that I think should be the range.
Understood. Understood. On our digital platform, while we have a very, very strong clinical presence in terms of the pharmacies, what are the thought process in terms of doctor enrollment? Like 6,000 medical professionals is a good number, but given we would like to go aggressive in the space, so how are we thinking of enrolling non-Apollo doctors over here?And similarly, for like diagnostics at the facility, we do have a presence, but still it maybe -- it may not match up to our digital customer base. So how are we thinking of working with the digital partner in diagnostics or are you thinking of rolling out diagnostic centers at accelerated pace?
[indiscernible]? Sanjiv?
Yes, I think a good question, and I think it talks about that, how are we going to increase our capacities towards the doctor side of it as well as on the diagnostic services side of it. So let me just take the doctor side of it first.And yes, we've got 6,000 doctors in multitude specialties as is now listed on platform. And we are open for third-party doctors also to come on to the -- basically the non-Apollo doctors also to come on to the platform. And this is where we are now working towards 2 things.One is to enroll more doctors from non-Apollo side because those doctors are showing interest to get listed onto the platform. Plus, we would also get into our payroll doctors so that continuum of care where we say that at any point of time within 15 minutes you can get in touch with a doctor that is possible. And so we will increase our capacities with respect to the payroll doctors as well as doctors -- non-Apollo doctors coming into our platform.So these are the 2 things that we are working on to increase 6,000 numbers to a 5-digit number sooner.That is on this.And secondly, on the diagnostics side. So Mr. Chandra mentioned about 500 phlebos being enrolled and those phlebos are actually taking care of the 24/7 volumes as well as other volumes. So I think we'll continue to expand the capacities of phlebos as well as other infrastructure as required by territory. And in fact, we also have started moving into radiology. That is the service we have started -- started last month. So I think on the diagnostic and radiology, as the demand picks up, we would actually increase our capacities also. So I think a good point. Both the things are in mind, and there is specific teams which are working to strengthen and expand capacities on both verticals.
Just to add, Sanjiv, since that's on diagnostics. We are doing this on a 3-prong basis. Where we are present and there we want to saturate pin codes in alignment with the digital requirements that we're driving, we are adding phlebo. So our phlebo count is now hovering closer to 900 plus in the cities of our choice.So our ability to saturate pin codes is consistent, and we'll continue to work on that. Second, in terms of lab capacity, we have a combination that we are working on. One is asset-light, third-party lab management that we are going to do besides some of our own that we will also add. So that will help us saturate markets, where we are not available and where there's a digital consumer demand. The third is that we also have the benefit, which we have now begun to be able to use the unused or slightly underused capacity utilization wherever possible within the Apollo large hospital network as well. So these are 3-prong to be able to leverage and enhance our capacity utilization and to be able to serve customers. And a lot of it will be done very cost effectively.
And any plans for inorganic growth in this segment? Diagnostics?
Basically, yes. We are looking -- we are conscious of buying the right value. There are -- and our targets are not going to be large. We will look at filling in some of our markets we have earmarked for growth, where we have the right asset at the right price. Definitely, that is something that we are considering. But it is not a strategy of significant aggression. It will be a very well-calibrated strategy for opportunistic inorganic expression.
The next question is from the line of Nitin Agarwal from DAM Capital.
Chandra, just following up on the AHLL bit. I mean you talked about the diagnostic business. So 2 things, one is AHLL, over a 3-year period, how do you visualize this business scaling up to? And where do you think we would be as a business in comparing to some of the larger district peers in size and profitability?
Sure. I think, again, a forward-looking point, so I'll just be a little more directional to try and answer your question to the best extent possible. Our -- I think, our growth rates will definitely be upward 25% CAGR, growing faster than industry.That is a very clear message for that. With some investments and some opportunistic inorganic, this could be larger, and we are hoping to touch the INR 1,000 crore kind of a revenue mark in about a 3-, if not a 4-year period -- in at least a 3-year period. There could be acceleration to this plan based on how effectively we execute.
INR 1,000 crores only for diagnostic?
That's right. I thought the question was only for diagnostics, am I right?
Yes. And just following up, the other pieces in the AHLL business, I mean, have they started reaching a tip-off point in terms of you probably setting up investments in them, either the primary clinics, the day care clinics. I mean how are you seeing that piece of the business?
So the -- I think, we'd provided a little view on that. On the clinics front, essentially, we are growing closer to communities, and we are setting up where we have large community bases that are available. So we continue to grow that. We have traditionally mastered and we have further improved our abilities to deal with -- the only format that we do this is in the clinics, the franchisee expansion.So that continues rapidly, but now with more integration into the larger ecosystem. So I see that continuously growing and clinics will continue to grow and also create a clear pipeline of the continuum of care to our -- all of our other Apollo ecosystem, the pharmacies, the hospitals and some of the other AHLL formats.On the Cradle, we are -- we have reached EBITDA -- perspective of about 14%, and we believe that we could stretch that further to 18%. On the Cradle, there is a clear opportunity for us to -- we are still at 60% in terms of utilization. So we would like to be about the 75% to 80%.On Spectra, we are looking at asset-light managed growth network. And our OP utilization, after a little lag, has now moved on beyond the 50% mark, but we believe that there is still some headroom there. But we're looking at an expansion by asset-light managed network in the Apollo Spectra, which is the format.The other format of opportunity, both as a need in the market is for a clinical leadership in the space of fertility, which is extremely unorganized. While there are a couple of players who are organized, we still believe that there is a space which actually justifies Apollo's clinical leadership and the brand. And that is a space that we are closely watching and we are looking at bringing in international standard protocols and to be able to look at unique engagement models by associating with top doctors and look at that as a growth opportunity.So in terms of sporadic growth, diagnostics, we'll continue bringing health care closer to communities, closer to large catchments, fertility in the fashion I mentioned. Cradle opportunistically, but largely saturating probably our metro play and some submarkets within metros. And Apollo Spectra largely going asset light and improve existing utilization.
The next question is from the line of Ritesh Rathod from Nippon India Mutual Fund.
First, need a clarification, 48% in online pharmacy, you have revenues coming from membership. When you point to that, you talk about your silver membership or platinum and gold, because silver membership is, by default, given free to everyone?
The loyalty program as a whole, which has a combination of categories and that accounts for it. We have silver, gold, platinum that it's -- it's a combination of all the 3 categories and gives us good business for us.
Okay. Second, we are now offering discount of blended level of 12.5%, about 12% you mentioned. A few quarters back, we were not offering and maybe once we get a funding partner in coming months, the discount will intensify -- it's risen that way. And when you see that the whole thing, at the industry level that people are not making gross profit at a unit level and the discounts we passed on, what would be the endgame eventually for the online pharmacy? Where do you think things will settle down? Maybe your thoughts on the industry will be helpful?
Obul sir, you're giving the answer?
No, I think Shobana madam answered this question already. And we are at present offering differential ratings of the platinum members, not in general. But going forward, we will see what we can do based on the market conditions.
Okay. So some of it is 4% of the entire market.
I think that was answered already though.
Okay. Okay. Maybe third one, on the ARPOB side, given -- for the hospitals, given the cost inflation, which will be there and the cost normalization, those will happen on the clinical side as well as on the expenses side, would you be willing to take price hike on a like-to-like basis in a hospital treatment? Is that a possibility? Like we have seen even on the pharma for generic products on the regulated [ any one ] side, government has allowed exceptional cases where they have taken price hike because of the cost inflation. So is there a possibility in next...
Yes, that's what we do. We'll parse pass out the price. The inflation costs are reflected in the prices.
And what will be the price hike on an annual basis? Is it...
It's like 3% to 4%.
At a blended level, at a blended...
Yes.
Ladies and gentlemen, we will take the last question from the line of Anubhav Aggarwal from Crédit Suisse.
So just 2, 3 questions on pharmacy segment. One, just a clarity, you mentioned 4 to 5 active users per day. Is that including the off-line pharmacy network as well? Are you talking only online?
That was only for the online. We talked about 4 lakh active users every day. So that is only online piece.
Just trying to understand, if you look at the transactions that we're doing, I don't think we are transacting more than 12,000 to 15,000 orders total on all 3 services. So the 4 to 5 lakh users coming and total transactions are only, let's say, less than 15,000, how do you explain that?
I think, there could be many factors to it. As we said that we are building up our entire capacities. We are opening up more and more pin codes. We are stocking up. There are bits of pieces going on in the technology side. So I think from the -- and there are always users who try to find out certain things. They just come over to experience. I think, it's a matter of another 60 days to 90 days, we'll have an even better throughput with respect to the transactions being -- orders being given versus the active users. I think, at this stage, it is more of capacity building, trying to get the right traction, trying to get the right set of users.And as I told you, and ma'am also told that there are many users who are -- we don't give -- we don't want to play on to the discount route, and that could be one of the reasons that why people do not give as many orders, although they're -- activity on the platform is pretty high.
Okay. I'm just really surprised that 95% users are coming to the platform and not transacting. That number seems very high from experience of tracking any app. So that's the number I mentioned that I'm very...
No, that's okay. It's a good question. I think it's a matter of 1 or 2 more quarters, you would see a better traction, better throughput from the active users versus the transactions on the platform for [ revenue in there ].
Sure. And second question was on how do you plan to converge the discount between off-line and online? So off-line, you're giving 10% discount right now; online your discount varies from 15%, 20%, if I'm a Circle member, if I'm giving a bill of more than INR 1,500, I get more than 20% discount. So what is the eventual gain? Would off-line continue to be 10%? And a large part of those users shift to online, and that will cannibalize large part of revenues? How would the 2 segments be different in the future?
In the off-line, we continue to be 10% for the off-line customer. For the Circle customers and loyal customers, we have some plans, which we recently introduced, but blended discount will have some around 12% is the plan.
But why won't the user -- since you go into app and get a higher discount, why would you satisfy with 11%, 12% only on the off-line network?
They are -- based on the value customers, we are offering a differential percentage and I don't think you know what percentage, recently we introduced even our customer member -- I mean even for the off-line customer, which you we will see going forward [indiscernible].
Sure. And just last question for Krishnan. The receivables went up by almost INR 550 crores in first half. Is there a pocket of segment -- is it sensical to talk about insurance percentage has gone up significantly that such a large increased receivables has happened?
So that's not -- that's not because of Healthcare Services, primarily that is the receivables coming then from [indiscernible]. Earlier, if you look at the back end, all the inventory was only -- was held at the AHEL level. Now if you look at it, the inventory moved to the APL, but there is a receivable from the Apollo Pharmacies Limited, which is the front-end pharmacy. So this is the reason for the increase.So this will actually come down a bit by INR 100 crores, but it will remain at these levels as we go forward. Once it gets shifted to Apollo HealthCo, you will not see this in our books.
So you -- out of the total receivables, how much will be this pharmacy receivable that you're talking about? Outstanding...
INR 700 crores.
INR 700 cores is from pharmacy?
That is correct, and that is represented by the stock in the front-end pharmacy stores as well.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
Thank you all for spending time on the Saturday afternoon. As you can see, Apollo has been -- not only have we been resilient, but I think we've been very agile in our ability to adapt to new technology, to circumstances in the environment around us. I can assure you of this at this time that we will continue to focus on improvement in clinical excellence, clinical outcomes and thereby look at increased volumes and, therefore, better revenues and EBITDA. Thank you all for joining us.
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.