Apollo Hospitals Enterprise Ltd
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Earnings Call Transcript

Earnings Call Transcript
2019-Q3

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Operator

Afternoon, everyone, and thank you for joining us on this call to discuss the financial results of Apollo Hospitals for the third quarter and 9 months of fiscal 2019, which were announced on Saturday. We have with us today, the senior management team comprising Mrs. Suneeta Reddy, Managing Director; Dr. Hariprasad, President of the Hospitals Division; Mr. A. Krishnan, Group CFO; and Mr. Chandra Sekhar, CEO of AHLL.Before we begin, I would like to mention that some the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. For a complete listing of such risks and uncertainties, please refer to our investor presentation. Documents relating to our financial performance have been shared with all of you earlier and have also been posted on the corporate website.I would now like to hand over the floor to Mrs. Suneeta Reddy for her opening comments. Thank you.

S
Suneeta Reddy
MD & Executive Director

Good afternoon, everyone, and thank you for taking time out to join our call. I trust all of you have received the earnings document that we had shared earlier. We are pleased to have sustained our growth momentum since the start of this fiscal year. The third quarter has traditionally been a slow quarter due to festival holidays. However, this year, we have been able to register a good performance, both in hospitals and the pharmacy division. In our earlier earnings call last year, we had indicated that we would try to recoup the impact of regulations, capping prices of stent and knee implants, GST implementation over the 12- to 18-month period.We have achieved this, and have expanded margins and EBITDA through our implementation of service pricing and assured pricing plan with a clear focus on a higher margin profile case mix. We have also paid particular attention to our clinical talent pipeline and enhanced clinical engagement. As a result of these efforts, we have delivered a healthy result from our mature hospitals, which reported a revenue growth of 14% and were significantly able to accelerate revenue through volume growth. Mature hospitals' EBITDA margins have improved to 21.7% this year, an improvement of 50 basis points from the same period last year, and is well on the way to the 23% target that we promised over the next few quarters.New units have also delivered our growth. They have registered a volume growth of 21% and a revenue growth of 25% compared to the same quarter last year, while EBITDA margins for the new hospitals have improved to 6.6% from 5.3% in the same quarter last year. We have delivered on our commitment to ramp up occupancies in Navi Mumbai Hospital resulting in an EBITDA breakeven this year. As we move into the next year, the focus on these units will be to ensure that volumes continue to grow at a healthy pace and that revenue and profitability growth is achieved by carefully calibrating peer mix and case mix.Quarter 3 revenues year-on-year improved 17% to INR 2,169 crores, aided by SAP of 18%, and Healthcare Services growth of 16%. New hospitals reported revenues of INR 257 crores, representing a 25% year-on-year growth, while existing hospitals' revenues grew 14%. Quarter 3 total inpatient volumes grew by 6% on a year-to-year basis, supported by 21% IP volume growth in new units. Overall, quarter 3 FY '19 occupancy across the group was at 5,017 beds or 70% compared to 67% in quarter 3 FY '18. The occupancy in mature hospitals was at 3,823 beds or 71%.New hospitals had an occupancy of 1,194 beds or 66%.Quarter 3 overall EBITDA was at INR 268 crores as compared to INR 221 crores in quarter 3 FY '18, a year-on-year growth of 21%. Within this, the Healthcare Services EBITDA grew by 17% to INR 213 crores. Healthcare Services margins were at 18.4% in quarter 3 FY '19 versus 18.2% quarter 3 FY '18, aided by new hospitals, which reported a 6.6% EBITDA margin for the quarter compared to 5.3% EBITDA margin. Existing Healthcare Services margins were at 21.8%.On SAP, revenues grew 18% adjusted to quarter 3 year-on-year on the back of same-store sales and network growth which saw us add 251 new stores in FY '19, of which 105 new stores were added in quarter 3 FY '19 itself.SAP EBITDA grew by 39% to INR 55 crores.The EBITDA margins have inched up further to 5.4%, with group efficiencies and as that turns, SAP ROCE is now at 21%.PAT grew by 29% to INR 87 crores. Interest costs were higher by 9% year-on-year at INR 69 crores and depreciation was higher by 13% at INR 77 crores on account of additional CapEx in new facilities. Effective tax rate for quarter 3 FY '19 was 33%.Present debt as of 31st December is at INR 3,252 crores. Cash and cash equivalents of INR 246 crores. Net debt of INR 3,006 crores. Debt-to-equity ratio of 0.85. Net debt to EBITDA of 3x.Mature hospitals' ROCE has crossed the 20% threshold and has reached 21% in the 9 months of FY '19. SAP ROCE is at 21%. 10 new hospitals with capital employed of nearly INR 1,900 crores will begin contributing to ROCE from the next fiscal.Consolidated performance, too, grew in line with standalone financials, reporting 17% revenue growth and EBITDA growth of 28% in quarter 3. Consolidated PAT grew INR 24 crores to INR 61.9 crores.Apollo Health and Lifestyle recorded revenue growth of 30% for quarter 3 FY '19, and is maintaining its growth momentum across formats. The team is committed to achieving breakeven -- EBIDTA breakeven by [ 42 ] FY '20. The results reinforce the internal resilience of our business model, which is well diversified across specialty, geographies and maturities. We still have significant headroom for growth at current capacities of the total 7,000-plus operating beds, excluding AHLL and managed beds that we have group-wide. 14 hospitals with over 1,809 operating beds are new and increased utilizations and volumes will result in further growth and margin expansion.Before I explore, I would like to share a couple of updates on network expansion. The highlight here, which has been the commencement of a Proton Cancer Center, the state-of-the-art facility introduces a new frontier in the -- in cancer management, and puts India on the global map for the best and latest in cancer treatment. We are excited as this center will not only serve patients in India but also neighboring regions across Southeast Asia, Africa and Asia Pacific.We also took a step forward to strengthen our PAN India presence by making a foray into the Kerala region. We signed an operations management contract for a 250-bed Super Specialty Hospital, where the Adlux Group will serve as infrastructure partners. The strategically located hospital will provide world-class treatment and healthcare to the socioeconomic startup and also help us increase medical value travel to international patients as well.There have been a few changes on our Board of Directors this quarter. Mr. Sanjay Nayar who has been a trusted and respected member of the board has resigned due to professional commitments. As you are aware, KKR has recently increased its stake in Max Hospital. We have inducted 2 new independent directors, Mr. M.B.N.Rao is the former Chairman and Managing Director of Indian Bank and Canara Bank. He is a chairman of the advisory panel on financial stability analysis and stress testing formed by the committee on the financial sector assessment constituted by the Government of India and RBI. He was on the boards of Axxon General Insurance Corporation and Cholamandalam, among the many. He is well respected in the field of finance and will bring great value to Apollo Hospitals.Mrs. Kavitha Dutt is joint Managing Director of KCP Limited. She is also Chairperson of SCWEC, a sub-counsel for women entrepreneurs in the SAARC Chamber of Commerce and Industry. She is Co-Chairman of the Tamil Nadu chapter of Trichy. Both of them will bring immense experience and credibility to the table. And this is reflective of the utmost importance we attach to high standards of corporate governance.I now open the floor to Dr. Hariprasad, Chandra Sekhar and Krishnan, who are here to take your questions. Thank you.

Operator

[Operator Instructions] The first question is from the line of Adakshi Chandrani from Haitong Securities.

R
Rakesh Nayudu
Analyst

This is Rakesh here. I have 2 questions. One is on the Gleneagles Hospital in Calcutta. Now given that the partner has bought -- has taking competing entity. I understand that asset now needs to be integrated into the Apollo. So can you please explain as to how that would be done? And what is the budget we outlay that we should be looking at for this transaction? And second is a question on the promoters' pledge on shares. I understand that that's one of the concerns which has been an overhang on the stock. So can you please explain as to how we should be looking at this pledge share scenario? And what's management's and promoters' view on this?

S
Suneeta Reddy
MD & Executive Director

So with regards to Calcutta, we are awaiting a legal opinion, which cites conflict of interest, which will enable us to, if we acquired, buy Gleneagles 50%, but this, again, I think, we need to have discussions between the partners before we arrive at a conclusion. And I don't think funding it will be an issue. We should be able to find funding for that. With regard to the pledge of shares, the pledge of shares has gone up from 73 to -- it has gone up by 5% recently, and this is because of the unwinding of the KKR instrument, which was a back-end structure, where we had to close out in January, and this resulted in a 5% extra pledge. However, we are very confident of a liquidity event happening within the next 6 months, which will get quickly reduce the number of shares that we have pledged.

R
Rakesh Nayudu
Analyst

Liquidity even, Ma'am? Can you please elaborate on that?

S
Suneeta Reddy
MD & Executive Director

I think we have several assets in our hold. All of you must be aware that we are also 51% holders in Munich Apollo Health in Munich. So that is one opportunity. We also have one other opportunity, which we will discuss at the appropriate time.

R
Rakesh Nayudu
Analyst

And regarding this Gleneagle asset, is there any shareholders' agreement as to the valuation at which this asset needs to be crossed?

S
Suneeta Reddy
MD & Executive Director

The capita asset?

R
Rakesh Nayudu
Analyst

Yes, ma'am.

K
Krishnan Akhileswaran
Chief Financial Officer

Well, not yet. Because that is -- as Suneeta said, this is actually the shareholders' agreement, it will be at the fair market value. So the fair market value will have to be determined and discussed. And basis that, we will have enter with the valuation.

Operator

The next question is from the line of Neha Manpuria from JPMorgan.

N
Neha Manpuria
Analyst

My first question is on the existing business. We have seen a strong growth despite the seasonality in the quarter. However, margins have remained flat. Was this growth due to some shift in low-margin seasonality into the quarter which is not reflected in margins? Because if you're growing double-digits, I would have expected margins to improve from the 20 -- 21.5%, 21.8% that we've been seeing in the last few quarters.

K
Krishnan Akhileswaran
Chief Financial Officer

So Neha, you should remember that if you look at -- our annual rate reset happens somewhere in the August time frame, and that the annual rate reset impact would be fully impacting in this quarter. So these are first quarter of assuming all the annual rate impact which has come in, and despite that, we have been able to get in at a 21.8% margin. So as we move forward, you would see that this should keep moving higher than the current numbers as we continue on the growth momentum.

S
Suneeta Reddy
MD & Executive Director

And if you were to look at our 9 months performance, we've actually improved some 17 points -- Healthcare Services from 17.4% to 18.3%, 90 basis points improvement.

N
Neha Manpuria
Analyst

Yes, ma'am. But I'm assuming a large part of that would also be driven by new hospitals. I was just looking at the existing hospitals number.

K
Krishnan Akhileswaran
Chief Financial Officer

Yes. So existing hospitals, as I said, it was predominately because of what I said. And also there have been some guaranteed fee doctors which we have added in 2 of our units. But that's okay. We have -- we are quite aligned to this 23% that we have told that we would be achieving, and we are aligned to that number that we would over a period of time achieve.

N
Neha Manpuria
Analyst

So the guarantee fee doctors we've added in the existing units?

K
Krishnan Akhileswaran
Chief Financial Officer

That is correct. We have added couple of -- 1 at Chennai and 1 in Hyderabad.

N
Neha Manpuria
Analyst

And that's the reason we have seen an improvement in our ARPOB? Because the ARPOB in both Chennai and Hyderabad have been pretty strong.

K
Krishnan Akhileswaran
Chief Financial Officer

So ARPOB improvement has also been -- if you remember, in Tamil Nadu, we had said that we have -- looking at some of this low-paying corporates being churned out and then working on cash patient buildup also. So it's been a combination of cash and insurance improving in the case mix as well as some high-end cases which we have added, especially in oncology as well as neurosciences, et cetera. So you are right. It is a combination of high-end cases plus case mix which has benefited us from the -- on this top line and ARPOB.

N
Neha Manpuria
Analyst

Understood. My second question is on the new hospitals. If you look at the number of bed in the new hospitals, they've been flat for -- from the -- actually, they've gone down slightly from the last quarter. And from the last year, they've pretty much been in the same level of 1,440, 1,445. Are we not ramping up our beds in Navi Mumbai? And if that comes in, should we expect the new hospital losses to put in, I mean, the new hospital profits to come off?

K
Krishnan Akhileswaran
Chief Financial Officer

No. So if you ask us, one is, we have been focusing on the case mix again here. So one thing that we do in all new hospitals is when we start off, our focus is first to fill the beds, make the hospital busy, so that then over a period of time, then we focus on case mix, we focus on ARPOB, we focus on the high-end cases, et cetera. Which is exactly how you will see the new hospitals also play out in direction as we move forward. So don't you -- and if you see -- now if you look at the overall occupancy of the new hospitals, it's now coming to good levels, and next year, you will see Navi Mumbai also open another 50 to 100 beds as speak. So that's the plan that we have. Currently, the focus is on profitable growth. The first focus was to ensure that we get the hospitals busy and focus on revenues and ensure that the costs are recovered first, which we have done quite well. And now the focus is on profitable growth. So that and then you'll get to the occupancy increase over a period of time.

N
Neha Manpuria
Analyst

And sir, if just to recap, Navi Mumbai, can you tell us how much are we operating? What's the occupancy like? And 9 months, what the numbers have been, please?

K
Krishnan Akhileswaran
Chief Financial Officer

So approximately, if you look at the current occupancy, it is around 116. That's the current occupancy that we have in Navi Mumbai. And we have almost around 200-plus beds operational. Next year, we would hope to operationalize another 50 to 100 of them in the -- as we move forward. But again, incremental costs because of that will not be high.

Operator

The next question is from the line of Anubhav Aggarwal from Crédit Suisse.

A
Anubhav Aggarwal
Associate

Just continuing on the mature hospital. In the AP and Telangana regions, have you guys taken any price increase this quarter? Seems almost like a 5% kind of bump up in prices?

S
Suneeta Reddy
MD & Executive Director

So revenue grew by 8%, and definitely, there was some price increase.

A
Anubhav Aggarwal
Associate

So it's 5% rate inflation?

K
Krishnan Akhileswaran
Chief Financial Officer

So there has been a price increase of almost around 3% -- 4.3% to 4% across the hospitals there. And then there has been a case mix uplift also again there.

A
Anubhav Aggarwal
Associate

Okay. And just question on -- and just one clarity. Sir, this price increase was only for inpatient, but outpatient also shows a very significant increase. So similar, even in outpatient prices have been taken up?

K
Krishnan Akhileswaran
Chief Financial Officer

It was across-the-board.

A
Anubhav Aggarwal
Associate

Okay. In Karnataka, we were struggling for the last 2 quarters for the volumes now. This quarter was a big surprise. I mean, suddenly, our utilization seems to have -- just for the quarter, it seems to go up to 85% plus. But at the same time, average length of stay also increased dramatically. What's happened in the Karnataka cluster?

S
Suneeta Reddy
MD & Executive Director

So in Karnataka, as we're doing a lot of -- really [ job ] placements have increased, but we've started liver transplant program there and we're starting to accelerate our oncology program.

A
Anubhav Aggarwal
Associate

But such a sharp increase in utilization just with these 2 programs?

K
Krishnan Akhileswaran
Chief Financial Officer

So oncology is a significant driver, right? So oncology definitely has some both outpatient revenues because clearly oncology has radiotherapy attached to it. This is the reason that if you look at Karnataka, the outpatient volumes grew by 1%, whereas outpatient revenues have grown by 14% year-on-year. This has aided significantly by the oncology uplift that we have this year. So oncology definitely is a significant addition to the revenue. And, again, if you look at other hospitals that affect in the cluster, Malleshwaram, there's a new hospital which has started doing well. We have seen good uplift in the overall revenues as well as profitability in that hospital. So as we move forward, we hope to maintain that momentum there.

A
Anubhav Aggarwal
Associate

But how do we grow from here? Because we almost reached very high kind of utilization in the Karnataka cluster. I don't...

S
Suneeta Reddy
MD & Executive Director

So we do have -- in our plan to enlarge the facility that we have. Bannerghatta, we're thinking of adding additional rooms. And I think not this year, but in 2021, we will add additional rooms there.

K
Krishnan Akhileswaran
Chief Financial Officer

In Karnataka. Malleshwaram, still there is capacity. As we speak, in Malleshwaram, there is still capacity to -- we have not opened up all the beds. The number of operating beds that we are seeing currently is 745. We still have some operational beds that we can get in Malleshwaram. Separately, even in Bannerghatta, as we speak, we have other plans. It's not as though we don't -- we can -- for example, the administrative offices continue to be in the same hospital building. There are plans to figure out how we can add another 50 more beds within the hospital building by taking the administrative office to a close by lease premise. So we have planned from that. So we have clear plans by hospital. Be it Bannerghatta, be it Malleshwaram, be it Mysore or Jayanagar. We have clear plans on how we can continue to grow that as we speak.

A
Anubhav Aggarwal
Associate

That's useful. I just have one more question on pharmacy. For the 9 months' period, can you just give a rough indication about same-store sales growth kind of number for the pharmacy business?

K
Krishnan Akhileswaran
Chief Financial Officer

So same-store growth has been 10% for the pre-2012 branch.

A
Anubhav Aggarwal
Associate

No, but your presentation shows that to be 5.8% number. Why is there difference between...

K
Krishnan Akhileswaran
Chief Financial Officer

In GST. Because there was a GST netting off, in fact, which was there. This is why if you exclude that, it'll show at a 10%.

A
Anubhav Aggarwal
Associate

And for the system as a whole?

U
Unknown Executive

System as a whole, it's 17% to 18% revenue growth and 39% EBITDA growth.

A
Anubhav Aggarwal
Associate

No. But, sir, same-store sales growth, because you opened 15% stores as well.

K
Krishnan Akhileswaran
Chief Financial Officer

So pre-2012 has been 10%. Over the -- we -- post-2012 would be higher than the 10%. So between the 10% to 12%, has been the same-store growth.

A
Anubhav Aggarwal
Associate

Okay. And is this 5% now a base for us? We should grow -- so, let's say, kind of this becomes a 5% plus kind of EBITDA margin becomes a flow for us now?

K
Krishnan Akhileswaran
Chief Financial Officer

Yes.

Operator

Your next question is from the line of Damayanti Kerai from HSBC.

D
Damayanti Kerai
Analyst, Healthcare and Hospitals

Can you update us on the progress on AHLL part? Like how we are doing on reducing losses? And what are the current utilization level right now at Spectra and Cradle?

S
Suneeta Reddy
MD & Executive Director

Chandra Sekhar?

C
Chandra Sekhar Chivukula
President of Corporate and International

Yes, ma'am. So on a YTD basis, the growth rates in the revenue have been good. We are clocking 28% plus growth. We also have margin improvement roughly around 2% to 2.5%. EBITDA has seen a growth YTD last year to this year is a clear 33%, 34% growth. We are on track, as Mrs. Suneeta mentioned in the earlier comment on AHLL, mid of next year, we should get at EBITDA positive. Spectra saw a little muted quarter 3 on account of elective surgeries and festivities, et cetera. But we are making up -- because these are elective postponed and not canceled. We would assume to have a robust growth of Q4 and Q1 next year also. The utilization levels of Cradle are over 38%, 39% at this point of time. We are expecting this to stabilize around 45% and more, 50% for the next year and that's the basis of a debt utilization. On Cradle, also, we are looking at a mid-30s current utilization. We have also budgeting for a 45% to 50% debt utilization going forward next financial year.

D
Damayanti Kerai
Analyst, Healthcare and Hospitals

Okay. Sir, just one query -- follow-up query on that, both in Spectra and Cradle, I think, for last few quarters, we have been seeing utilization level broadly stabilized on this mid-30s kind of level, and we haven't been seeing much improvement coming on that front. So what are the key challenges here, like -- what's the key hindrance in staying -- keeping up our utilization levels?

C
Chandra Sekhar Chivukula
President of Corporate and International

So basically, I think in Spectra -- in first half Spectra, one is that we have actually done -- a lot improved. So that's kind of -- wanted to look at. We had a little above to even crossing over 2.2% kind of on the average length to stay. But that is an area where we have actually made some specific initiatives. And that actually will reflect in occupancy, if you will -- on the Spectra side. The second area where -- mentioned challenges, these are largely elective cases, and I think doctor engagement has been challenged in a few locations, but that I think we have come up widening our services within the -- within this space of elective surgery. And that I think we are starting to see very good results. We have done a lot of doctor engagement in the last couple of quarters, and that's going to be pay off in the coming quarters. This increases our span of services. Our main drivers, of course, have been orthopedics, general surgery and some bit of ENT largely, but then we are adding a few modalities around pediatric surgery, increasing the span of surgeries in terms of vascular surgeries, et cetera. These also having very good results, and we will see that this will help us overcome challenges on utilization on the Spectra front. On the Cradle front, I think, there's nothing significantly untoward to report. I think we are -- announced -- seeing a significant pipeline of expected dates of deliveries and bookings that are coming in because this is a long-term engagement with patients, post their first trimester. So that I think we have managed to create this pipeline, and we will see robust numbers clocking in the quarters coming ahead.

D
Damayanti Kerai
Analyst, Healthcare and Hospitals

Okay. And as you said, like you have taken 3% to 4% increase in the AP and Telangana region hospitals. What about other hospitals, say in Chennai or Bangalore? We have any plans to take price increase? And by how much?

K
Krishnan Akhileswaran
Chief Financial Officer

So we have plans across -- we -- every year, we would even actually move into the next year, we think should be able to take prices higher by at least 3%, that's our plan. And this year, we did take some increase in -- say, in Chennai and Tamil Nadu in the second quarter. We did some of that, and we phased it out across clusters and across geographies. That's how we work on this. So a 3% to 4% increase is something that we will do every year.

Operator

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

S
Sameer Baisiwala
Executive Director

A question on proton facility. Can you just help us? Have you started to book the depreciation interest commensurate for this? And what kind of operating losses should we expect going forward?

K
Krishnan Akhileswaran
Chief Financial Officer

So the Proton Therapy, we will be -- as you know, the -- it will be operationalized in phases because there are 3 gantries in the facility itself which are 3-treatment rooms. What will be operational shortly would be 1 gantry or 1 treatment room. The other 2 gantries will take over the next full year to get operationalized. Apart from that, the hospital also, which is attached to the Proton Therapy will be operationalized sometime mid of FY '20. That's the plan that we have on this next year. So you would see that the 1 gantry is something that we would start off soon, hopefully by this year itself and the next gantry would operationalize sometime after June or July. That's the plan that we have for proton. And the overall EBITDA losses from proton as we see the full-fledge losses will not be over INR 20 crores on EBITDA front. And depreciation will, over a period of time, pick up to almost around INR 30 crores. That will be 2 years from now. So even as we speak, the point is, as we have stated, we are working on plans to put it into a separate SPD. But we would -- we are looking at options around that. It will probably, in the next 6 months, we should get an answer for that too, separately. But nonetheless, the impact of that on the results will not be impactful from a cash perspective.

S
Sameer Baisiwala
Executive Director

Okay. But because you have commissioned this, I think, in Q3, so is some of this already part of Q3 results or...

K
Krishnan Akhileswaran
Chief Financial Officer

Q4 is when we -- look, Jan is when we had the launch of the facility. The treatment is still to start. The first patient, it was just beta testing that we had. And we had to kind of -- we will operationalize the first gantry sometime this quarter.

S
Sameer Baisiwala
Executive Director

Okay, great. And just...

K
Krishnan Akhileswaran
Chief Financial Officer

So that's not a significant number. That will be INR 100 crores or INR 200 crores to INR 250 crores of CapEx which will be -- which will have to be capitalized.

S
Sameer Baisiwala
Executive Director

For the Phase I, you are saying?

K
Krishnan Akhileswaran
Chief Financial Officer

Yes.

S
Sameer Baisiwala
Executive Director

Okay, that's fine. And just on the Tamil Nadu cluster, it seems to be a very nice inpatient volume breakout from earlier, what you're doing about 29,000 to 30,000, 31,000 patients, now it has moved over 35,000. So what's really helping us over here? That's one. And second, the AP Telangana still continues to have much lower occupancies, actually both of these clusters. So both of them are much below your company average 69%. So how should we think about it going forward?

S
Suneeta Reddy
MD & Executive Director

Dr. Hari?

K
K. Hariprasad
President of Hospitals Division

Yes. AP Telangana is specifically -- we were looking at the margins more importantly. So we are not doing some of the low-value patients, and we're focusing on the high-value customers, and that is the reason the occupancy has not gone up. Like the Chennai -- Hyderabad main hospital does not treat the state government patients like [ our industry ]. So it only handles the insurance and cash patients. And that we found to be a good strategy for the region because margins are much better. If we start treating these patients, the occupancy levels would go up, but the margins would be impacted. That was a strategy we had adopted for the Hyderabad, Telangana region. And similar strategy for other region also because none of our main hospitals are treating any of the low-value patients or the low-tariff patients that are available in the market.

S
Sameer Baisiwala
Executive Director

Okay, great. That's very helpful. And on Tamil Nadu cluster, what's helping us getting such good volumes?

K
K. Hariprasad
President of Hospitals Division

Tamil Nadu. The reason is there are a lot of patients which -- who used to come from the Northeast have started coming back. The international volumes have increased. And most importantly, the local Tamil Nadu patient volumes have increased in the Tamil Nadu -- Chennai region specifically. And that's helped in the volume bump up.

S
Sameer Baisiwala
Executive Director

And Hari, so how should we think about both these clusters going forward? I mean, should we expect 5%, 7% volume increase y-o-y going forward?

K
K. Hariprasad
President of Hospitals Division

Yes, that is...

S
Suneeta Reddy
MD & Executive Director

I think that would be -- yes, primary [ start ] that. I think that would be a reasonable expectation. What -- I would like to spend a minute on our strategy, what we're doing is, first, we're looking at our consumer base. So like Hari said, local Chennai customers, international customers and those from outside of Chennai, these are the 3 markets. And the fourth, of course, is our retro segment, which we're also strengthening. So we are definitely focusing on these 4. And I think it has shown good results, especially, in Chennai. The second thing that we are doing is the center of excellence focus. So if you look at our outpatients have actually and our preventive health shake-up, those have grown by 11% to 12%, cardiac work has improved over 10%, neuro work has improved by over 10%, orthopedic. So if you look at the 4 centers of excellence, they're the versus -- the volumes have improved significantly, and therefore, they have contributed also to margin. So I think this is the way that we should look at it.

K
Krishnan Akhileswaran
Chief Financial Officer

So just to add on, this is aligned to the earlier point on ARPOB that I think someone else asked on the call, why the ARPOB of Chennai or Tamil Nadu has gone up. This is also aligned to that -- the fact of that high-end cases. So I -- the focus on these specialities, as Mrs. Suneeta said, have been high and some of the medical cases, some of those low-end cases like dental medicine, et cetera, have come down. This is why, if you look at it, this emphasis on this high-end cases is showing on the revenue growth and the overall ARPOB growth.

Operator

The next question is from the line of Kashyap Pujara from Axis Capital.

K
Kashyap Pujara

Am I audible?

K
Krishnan Akhileswaran
Chief Financial Officer

Yes.

S
Suneeta Reddy
MD & Executive Director

Yes.

K
Kashyap Pujara

Yes. So my question is related to the Tamil Nadu and AP Telangana region. If I actually were to see the -- ARPOBs have, obviously, shown a great improvement, and ALOS is a bit lower than what we were. The occupancy, while the others are trending above 75% or thereabouts, close to 77%, 75%, 80%, et cetera. These 2 regions are still around 60%, which explains the occupancy overall at 69%. So what are your thoughts on growth here? Because any incremental occupancy from here, given the current mix if that's maintained, would be hugely margin accretive for the -- for us?

S
Suneeta Reddy
MD & Executive Director

Dr. Hari, you want to take this?

K
K. Hariprasad
President of Hospitals Division

Yes. We want to make sure that the strategy of higher-margin gross patient grow volume growth is maintained. And we're looking at increasing that by different tools. One is, as Mrs. Suneeta just now said, increasing the referral base of the Tamil Nadu region and the Hyderabad region. And most -- more importantly, the international market, which has started to show growth in both the regions, especially, Tamil Nadu, this will add significantly to the revenues and the volumes in the next couple of quarters. And we are pretty confident that the occupancies in these 2 regions will go up without diluting the margins. That's the basis of the strategy that we're adopting. And a focus on the centers of excellence, as was just stated, would continue and we will increase volumes in these focused areas of all specialties.

K
Kashyap Pujara

So the thing is that in and around Chennai, we had expanded our footprint quite a bit. So is the situation of cannibalization to the main hospital, has that kind of a situation kind of stabilized? And are we seeing growth coming back? What are your thoughts on that?

S
Suneeta Reddy
MD & Executive Director

Yes. I think there was 25% growth in the new hospitals. In terms of cannibalization, it's a good thing that we did it because the main hospital, the Chennai Main Hospital has very high-end tertiary care work, but we still need to be able to do some of the state schemes, and therefore, lower cost for bed uses in [ that ] and all, having the ability to do this and still deliver on [ EBITDA ] is important. And I think, we've captured both ends of this spectrum. And most importantly, we're working with the government in the compliance and what they want us to do.

K
Kashyap Pujara

Sure. And lastly, as far as ROC is concerned, health care mature business is at 21%, standalone is now at 18%. Now what would be, like I can understand CWIT would definitely be on the ROC, but excluding that, what is the thoughts on new hospitals? And investments in subs and other JVs? How do you see the ROC improving on these 2 entities?

K
Krishnan Akhileswaran
Chief Financial Officer

So the first focus for next year, in fact, we look at it different way, overall, EBIT even now for the new hospitals is negative. Next year, hopefully, we should get to -- we are hoping that we get a positive EBIT on the post depreciation because depreciation on the new hospitals is INR 100 crores. So the new hospitals post depreciation should come close to breakeven or even higher than breakeven next year. That's our target first. So next, after that, it will then once that comes in, then you will see that over a period of time, they should also start growing and getting to 10% to 15% ROC over the next 2, 3 years. That's the plan. Clearly, the opportunity of new hospitals, if you look at this year, new hospitals having INR 708 crores of top line for the YTD December, so close to INR 1,000 crores top line this year. So as we move forward and get this to INR 2,000 crores of top line over the next couple of years and 3 years, you will realize that most of this will start showing well into EBITDA and fall through to EBIT. So that's exactly when you will see that the positive EBIT will start contributing to the ROC of this business as well.

K
Kashyap Pujara

So overall, on a blended basis, we should head towards 15% plus ROC in the next 2, 3 years?

K
Krishnan Akhileswaran
Chief Financial Officer

I think that's a good number to have. This is what we are focusing for in the next 3, 4 years.

K
Kashyap Pujara

So essentially, to sum up, I think, the narrative remains unchanged that you are -- that mature facilities still have room to increase their occupancy and margins. Your new hospitals are clearly showing visible ramp up. Pharmacies have made their floor, and they're doing well. The AHLL you're seeing will reverse and breakeven in FY '20. And there could be a positive event in terms of us unwinding Apollo Munich at some point in the next year or so?

K
Krishnan Akhileswaran
Chief Financial Officer

You're right. Further focus, as Ms. Suneeta said, 1 more change in narrative has been that we clearly are focused on high-end cases, specific specialties like we focus on the 4 that we said and profitable case mix. This is clearly something that will show more on the value side of the business than just volume. This means even in the new -- or in the existing hospitals, you will note that even though the headroom is not as high, you will see that from a profitability perspective, we should be working on the 23% plus EBITDA margins this time.

K
Kashyap Pujara

Great. And lastly, on the CapEx front, I mean, compared to whatever has been announced, there's no incremental big bang CapEx plan now until we sweat these assets out more appropriately.

K
Krishnan Akhileswaran
Chief Financial Officer

Yes, that's correct.

Operator

The next question is from the line of Swati M. from East Capital.

S
Swati Madhabushi
Analyst

Can you hear me?

K
Krishnan Akhileswaran
Chief Financial Officer

Yes, we can.

S
Swati Madhabushi
Analyst

My first question is regarding the pledge. So you guys have seen in the market what has been the reaction to [ Vee ], even though it's underlying good business because of this pledge, the share price has taken a beating. So I just want to ask you guys if you see the urgency and the severity of this pledge, given that it's a very high number?

S
Suneeta Reddy
MD & Executive Director

Let me respond. Yes, we do, we have found a solution. We have created value in another company, which is the insurance company. And we are looking to bring down our pledges by liquidating that holding.

S
Swati Madhabushi
Analyst

Can I get -- like, is there a target time line for this?

S
Suneeta Reddy
MD & Executive Director

I told you, within the next 6 months. It should happen maybe next quarter. But let me say, outer limit of that, it will definitely happen.

S
Swati Madhabushi
Analyst

Okay. Great. Just a few more questions on this, like, are there any key covenants of the pledge, which like a bit refer to stock price or anything after which there could be a major change in the...

S
Suneeta Reddy
MD & Executive Director

No, I don't think there'll be an increase in the absolute amount of pledges that we need to -- additional pledges required in spite of the stock price because I think we've taken a very low threshold for the price. So I don't think that will be an issue.

S
Swati Madhabushi
Analyst

Okay. And can I ask like for -- I know the region increase in pledges because of the KKR issue you have already explained, but overall, what has been the use of these pledge share fund? Has that been to maintain your shareholding in the company or you have...

S
Suneeta Reddy
MD & Executive Director

Yes. The majority has been to maintain our shareholding in the company. The second is that we did invest in Apollo Munich. And we had to those -- that investment happened almost because to meet the solvency ratios, there was investment required from both the partners, and we kept our part, but I think we realize the value right now as we exit, we would have realized an incredible value on that investment.

S
Swati Madhabushi
Analyst

Great. My second question is regarding the lack of sequential improvement in this Gleneagles Hospital and also AHLL. AHLL was partly explained because they've had the festivities and they postpone the treatment, et cetera. But what's happening in Gleneagles -- I mean, with every quarter we would expect this to be improvement, right? Because now, things have settled down, so -- but that has not happened.

K
Krishnan Akhileswaran
Chief Financial Officer

So Gleneagles last year same quarter, if you look at quarter-on-quarter, they are doing well. And if you go into the next year, they will start doing even significant -- even better than this year. Clearly, if you look at YTD December versus YTD December, they are at a -- they have come back toward INR 26 crores, INR 27 crores EBITDA and margin. And mind you, this is after the operations and management fees at both Apollo Hospitals and the partner gets from them to the tune of almost around INR 20 crores. So clearly, if you look at -- from the perspective of their performance sales-wise last quarter -- same year's last quarter, there were medical cases in terms of -- which was there -- in there, out there, and which was not there in this quarter, which is a reason for EBITDA being a bit muted for this quarter, but we are committed to take this to a INR 10-plus crores EBITDA as we move forward on a run rate basis.

S
Swati Madhabushi
Analyst

Okay. No, I was mainly speaking on a Q2 versus Q3 kind of scenario. I mean, is it sensible to expect every quarter should see an improvement over the previous quarter? Or there is a lot of seasonality and that should not be how we...

K
Krishnan Akhileswaran
Chief Financial Officer

There is some bit of seasonality in this business, so you can't just look at it quarter-over-quarter. Q3 has been always been a seasonal low for this business across. This year, in the other clusters outside of chemicals, we have done well because of those reasons that we stated on focus on specialties, et cetera. Otherwise, Q3 is typically a seasonal quarter, seasonally low quarter. Despite that, we did well in the other clusters. Here, the seasonality did impact it. But we should come back in Q4 and going forward.

S
Swati Madhabushi
Analyst

Okay. Great. And last question, this is like on competition, I mean, there is a big issue with -- not big issue, but big competition in coming, but maybe some few years later with IHH entering. But what about competition at Tamil Nadu and Hyderabad and AP and Karnataka cluster. I know that in Hyderabad, actually, it's -- I've been told that Yashuda is opening like a very big maybe, I don't know if I'm wrong, but 1,000-bed hospital soon?

S
Suneeta Reddy
MD & Executive Director

So I think like a tide lifts all. Let me say that I feel that the competition will be good for us, because, first, it will show very realistic ARPOB because foreign investors coming into the country will focus on ROC. They will initially focus on ROC. So I think in terms of players who were focusing on a very low-margin business, this will change and that's very important. The second thing that we probably had to be worried about is attrition of doctors. I think that Apollo has seen the lowest attrition. It was 0.29%. So if you -- both on improved ARPOB to improved revenues, I think, having competition like IHH would be very good for the system. And if you look at attrition of doctors, I think this has really been minimized. So I think we're in a very good position.

S
Swati Madhabushi
Analyst

Okay. But you don't have -- you don't think any specific region has a lot of capacity coming up like [ IG ].

S
Suneeta Reddy
MD & Executive Director

So I think each region has local competition. Like in Bangalore, we have [ Lavend Ladalia ], but still, our Bangalore cluster revenue have grown 14%. So I think that along with competition, the markets are getting larger, and we have to also look at the way that we view markets, which is just both local, outside and international.

K
Krishnan Akhileswaran
Chief Financial Officer

If you look at most of our capacity additions that has happened, has happened outside of these clusters if you look at it in the place like Hyderabad. We have not added any new beds in the last few years now only because we knew this was coming and we wanted to focus on the value side, and this is what we are doing currently. And the hospitals that are there in [ HD and Calacara ] outside of Hyderabad are clearly, we have 1 hospital per -- in some of these locations where we know that the capacity of the paying population will be high. So that is what we are focusing on and that's aligned to our strategy of ensuring that it is ROI-accretive.

S
Swati Madhabushi
Analyst

Okay. One last question, if I may. On this SAP, on the pharmacy structure, so I know that the rules have not been changed for FP and retail, but only in the e-commerce part, because the government is enforcing spirit of the law rather than just wording of the law. So I mean, does it change anything with how you have structured the deal? Because I mean, still, even though we have...

K
Krishnan Akhileswaran
Chief Financial Officer

This structure is not aligned to this -- this structure is very different from the e-commerce marketplace structure completely. It is not like the other structure. Here, it's the wholesale -- if you look at the wholesale trade, wholesale trade 100% can be held by foreigners and Apollo will continue to be the wholesale supplier to the front-end pharmacy. So to that extent, this structure is very different from that structure, which is a marketplace structure, which was very -- and we don't think this has any challenge.

Operator

The next question is from the line of Nitin Agarwal from IDFC Securities.

N
Nitin Agarwal
Analyst

On the existing hospitals, I don't know, when you assume this is still actually the bulk of the contributor to our EBITDA. Now at the scale and size where they are, when you look ahead like a 3- to 5-year view, I mean, do you think these hospitals can still generate for you a 7% to 8% to 10% revenue growth on this cluster?

K
Krishnan Akhileswaran
Chief Financial Officer

Yes, we can. Either north of 10% is what we can do, combination of volume plus price put together.

N
Nitin Agarwal
Analyst

You don't see a challenge in that over the next -- or on a sort of a broader 4, 5-year period?

K
Krishnan Akhileswaran
Chief Financial Officer

No.

N
Nitin Agarwal
Analyst

Great. And secondly, on the newer hospitals, we've been stuck around this INR 20-odd crores a quarter sort of contribution in the EBITDA. When do you see a sort of breakout from this sort of range that this cluster has been?

K
Krishnan Akhileswaran
Chief Financial Officer

We are working on it, and I think, next year, you should see the breakout hopefully coming from Q1 itself, things going well.

N
Nitin Agarwal
Analyst

And any specific reason why as a cluster, despite increase in revenues, this -- you mentioned about it, some of the doctor guarantee fees, but is there anything else, which is sort of holding back the profitability in this cluster?

K
Krishnan Akhileswaran
Chief Financial Officer

No, nothing. As we said, there has been this increase in salaries also, which typically happen and the full impact in the season, this quarter. But otherwise, you will see that in this cluster of new hospitals, hopefully, from next year or Q1, you should see a significant value uplift, overall, on the profits.

N
Nitin Agarwal
Analyst

Lastly, on the AHLL, we sort of stick to our turnaround guide targets of -- FY '20 target turnaround for this business?

K
Krishnan Akhileswaran
Chief Financial Officer

Yes, we did say -- Chandra Sekhar did mention to you that we are looking at this Q2 breakeven, and we are committed to that.

N
Nitin Agarwal
Analyst

Q2 FY '20?

K
Krishnan Akhileswaran
Chief Financial Officer

That's correct.

Operator

The next question is from the line of from Harith Mohammed from Spark Capital.

H
Harith Ahamed Mohammed
Vice President

Can you provide the year-to-date CapEx number and your estimate for this year and FY '20? And secondly, this CWIP of INR 870 crores, which asset is this related to? Or which hospitals is this related to?

K
Krishnan Akhileswaran
Chief Financial Officer

So INR 870 crores, bulk of that will be Proton Therapy, the [ EBIT ]. There has been -- so that is brownfield CapEx additions in Vizag as well as Bhubaneswar, which is on, which is part of our brownfield expansion, which is the oncology expansion, which is happening in both these hospitals because we did add the oncology when we started both Vizag and Bhubaneswar. So bulk of this almost around INR 800 crores of this would be -- INR 750 crores to INR 780 crores of this would be around Proton, and the balance is the Bhubaneswar and the Vizag Oncology Hospitals. If you look at the YTD CapEx number, one second, I have to just look at the number, just hold on, I'll come back to you in a moment, maybe you can move to the next question.

H
Harith Ahamed Mohammed
Vice President

Yes. on the transaction for the front-end pharmacy, can you provide an update on the time lines? And how should we think of the leverage situation post-transaction next year? How much of a net debt reduction are we targeting?

U
Unknown Executive

We expect that next 6 months to complete the transaction from the legal process and then give it a go.

K
Krishnan Akhileswaran
Chief Financial Officer

And the net debt should come down by at least -- at the...

U
Unknown Executive

Total level, it will come down by about INR 500 crores.

H
Harith Ahamed Mohammed
Vice President

All right. And lastly, can you comment on some of the recent developments in the Madras High Court related to the inquiry around the pharmacy instead, there's been quite a bit of news flow around that in the last few days? So can you provide more color on that?

U
Unknown Executive

So the Apollo has filed application for concluding an appointment of a medical board. The Madras High Court heard...

S
Suneeta Reddy
MD & Executive Director

Let me just give you the background. Since the commission did not currently have a medical -- multi-specialty medical advisory board to interpret the medical information, Apollo has had provided to the chief minister the western medical protocols, which were validated by both [ AIM ] doctors and by Dr. Richard Beale from the U.K. We have, therefore, moved the high court to set up a medical board of experts, independent of Apollo, to examine the modalities of the treatment to the CM.

K
Krishnan Akhileswaran
Chief Financial Officer

Overall CapEx here, what is the number. The overall CapEx for this year, there has been a routine CapEx of almost around INR 100 crores that has happened so far. And if you look at the project CapEx, project CapEx exactly has been the Proton addition of INR 100 crores and somehow this -- sort of INR 125 crores has been the total project CapEx.

H
Harith Ahamed Mohammed
Vice President

So the year-to-date number is around that?

K
Krishnan Akhileswaran
Chief Financial Officer

INR 225 crores is total capital between routine and project.

H
Harith Ahamed Mohammed
Vice President

Okay. So as a follow-up, I mean, given the [ fairly ] low CapEx here, of net debt reduction, it hasn't really reflected in the net debt reduction. So just trying to understand the...

K
Krishnan Akhileswaran
Chief Financial Officer

So it has not increased, right? If you look at the INR 225 crores, it's something. If you look at the overall CapEx and if you look the working -- so there is one other thing is, obviously, there has some -- as some of these new hospitals ramp up, you would require some capital for working capital too, especially given that these are fixed costs, which are -- which needs to be incurred upfront. And there is going to be also, the insurance takes almost around 90 days to settle the bills. So there has been an increase on account of working capital to that extent. So you will start seeing net debt reduction after the -- from FY '20 or FY '21 onwards, you should see. And we also paid dividend of INR 125 crores. So if you do your numbers, you would realize that we are a full tax company now. Earlier, we got a 22% tax. Now we are at 33% tax. So if you put all of that into perspective, you will realize that we should start seeing net debt reduce from next year.

Operator

The next question is from the line of Shyam Srinivasan from Goldman Sachs.

S
Shyam Srinivasan
Equity Analyst

Just on the wage hike, then annual increment, can you just help us quantify what that number could be on margins during the quarter so that just -- so we have some idea?

K
Krishnan Akhileswaran
Chief Financial Officer

Sorry, I don't have that all time, maybe you should take it offline and discuss with Krishnakumar. The variant wage increase has been in the tune of 8% to 10% across the board.

S
Shyam Srinivasan
Equity Analyst

Got it. My second question is on the Proton Therapy Center. Now that it has been kind of opened, can you just help us understand what is the typical customer profile we are targeting? Is there a medical tourism angle that is involved here? What could be the tickets? Anything that you can share qualitatively on whom are you targeting? How is it going to work? And what is the likely breakeven of this particular center? That's the last...

S
Suneeta Reddy
MD & Executive Director

So if you were to look at cancer, radiation is a big form of treatment. So within the Apollo system itself, we do 10,000 -- annually, 10,000 radiation sittings. And outside the system, there must be another 30,000. Even if we take about 20% of them are people that will benefit from the proton, which means that even with -- just looking at India by itself, it will get 600 patients, which is breakeven. And if you were to add international, this is the only center apart -- in Southeast Asia apart from China where they have a center of this quality with this -- with the latest technology. And if you look at the pricing, we are at half the international pricing level, and therefore, we do believe that international patient will take advantage of this opportunity. And to focus for this is -- I mean, what is the clinical -- the benefit that we get out a patient of all pediatric patient, those with head and neck cancer, those with brain cancer and also those with lungs and prostate. So it pretty much covers most of the cancers that are relevant in India and across the world. And we, therefore, think that it should do very well.

S
Shyam Srinivasan
Equity Analyst

Got it. But as a breakeven, if you can -- I think INR 20 crores is what the operating cost in the first. So when is a likely breakeven for this?

K
Krishnan Akhileswaran
Chief Financial Officer

So we will breakeven sometime in FY '20. By the end of FY '20, we should breakeven on the facility.

S
Shyam Srinivasan
Equity Analyst

Okay. And would medical tourism be over-indexed in this particular hospital, per se? And that would drive the faster break -- or the relatively higher ticket sales, would that be the fair way to think about it?

K
Krishnan Akhileswaran
Chief Financial Officer

Yes, medical insurance, medical will be an important medical value tourism and definitely an important income. We are expecting almost 25% to 30% of the facility coming from medical value tourism.

S
Shyam Srinivasan
Equity Analyst

Got it. And would you have any sense of which...

K
Krishnan Akhileswaran
Chief Financial Officer

But with that said, I think, it's also important that you realize that we have -- now across Apollo, we have a very strong network of hospitals on cancer in each of the geographies. And we are expecting a lot of reference from these centers on to the proton itself. So if you look at the Proton Therapy Center over a period of time, the maximum number of patients that it can treat, only on the proton therapy is 900 to 1,000 per year. And if you look at last year, across our centers, we had at least 9,000 to 10,000 cases of radiotherapy alone, unique cases of radiotherapy treatments that we had. So clearly, if you look at it from the [ percent ] and this will only grow to 15,000 with time. So from that perspective, if you look at it clearly, a good chunk can also come from the internal referrals apart from the medical value tourism.

S
Shyam Srinivasan
Equity Analyst

Sorry to just harp on, so do you think affordability in the Indian market is not an issue for...

K
Krishnan Akhileswaran
Chief Financial Officer

So if you look at even recently at [ total net profit ] if you look at the number that we are looking at is 5%. So we are first saying that in Apollo Networks, we are not looking at the set of patients who are not -- most of them are the affordable type. Second point, within cancer also, now the kind of insurance products that are available today, we believe that over the next 4 and 5 years, some of that will also start adding up meaningfully because there are significant -- people are taking topper policies today, topper policies of health available, which are significantly higher than normal. All of this will also help get the number, and we have seen in past, it's not as though we have not seen, for example, in liver transplant, the average ticket price is INR 13 lakhs. We have seen so many liver transplants coming. We have seen that when it comes to health, yes, at the end of the day, you need to pool up your resources and get this going. That's -- we are -- not that we are expecting a lot about this, so a combination of all the 3 should help, which is internal reference, external and medical value.

S
Shyam Srinivasan
Equity Analyst

Got it. And my last question is just a philosophical one on the doctor engagement model. You said the attrition is very low, but you also mentioned that you had to give guarantees to doctors in Chennai and Hyderabad this quarter. So just want your broader thoughts on how hospitals will, in general, now deal with doctors? We have seen some of your peers talk about dismantling this whole guaranteed money, guaranteed compensation, so how should one think about how do hospitals go about engaging with doctors?

S
Suneeta Reddy
MD & Executive Director

So unlike RPRs, Apollo hires a lot of doctors from overseas, so they do need some guarantee money. And the good news is, is that after a 2-year period, sometimes a 1-year period or 2, they move to fee-for-service. So it's critical that we get onboard quality doctors because our clinical differentiation is far more important and it compensates for the amount of money that we might lose upfront.

Operator

The next question is from line of Hitakshi Chandrani from Haitong Securities.

R
Rakesh Nayudu
Analyst

This is Rakesh here. Ma'am, I wanted to understand the monetization aspect of Apollo Munich given that the stake is at 2 levels, the promoter level and at the company level. I wanted to -- I mean, if you could give some color as to you see: A, what could be exit valuations of this asset and how we should be looking at the exit itself? And second, how this is a potential transaction could itself impact, you see, the current leverage situation?

S
Suneeta Reddy
MD & Executive Director

Oh, I think if you look at the valuation, you should look at the market to see how companies in the health insurance business have been valued. Staff, for example, it's probably -- if you look at GWP, it's a factor of GWP and invested capital, so it's probably about 6 to 7x invested capital, and that's probably the way that you should look at the value that's been created.

R
Rakesh Nayudu
Analyst

And what's the invested capital currently?

S
Suneeta Reddy
MD & Executive Director

It's about INR 650 crores.

R
Rakesh Nayudu
Analyst

Okay. And 12% of it rests in the company?

K
Krishnan Akhileswaran
Chief Financial Officer

Yes.

S
Suneeta Reddy
MD & Executive Director

No, no, no.

C
Chandra Sekhar Chivukula
President of Corporate and International

5.8%

K
Krishnan Akhileswaran
Chief Financial Officer

10% less than Apollo Hospitals, a bit less will be promoters.

R
Rakesh Nayudu
Analyst

Okay. And second question is on the recent pharmacy restructuring exercise that you have carried out in the recent quarters. Can you explain the implication of this in terms of having the limits on Apollo Hospital itself getting lifted now? My query is now given that the ownership of the pharmacy itself is now with a third-party entity, now does that make Apollo sit out of the current legal structure whereby there is a restriction on the multi-brand retail? Now does it put us in a situation where you can get a -- get our FII limit increase on the stock?

K
Krishnan Akhileswaran
Chief Financial Officer

So on the listed company, there is no -- it is under the 100% automatic route, and it can -- it's typically held completely by FII, and there is no limitation at all on the FII in the stock. And this [ year ceiling ] structure falling in place, we can continue to ensure that this is -- FII can continue to hold whatever level they want to hold. So clearly, there will be no restrictions on the FII levels.

R
Rakesh Nayudu
Analyst

Okay. And final question on the current debt on the books. How we should be looking at your CM and the interest outflow? I mean, there's a fair bit of profits, which have been taken out as an interest payouts. Could you give some indication as to, you see, by when we could expect debt on books to come down?

K
Krishnan Akhileswaran
Chief Financial Officer

So clearly, this year, as I said, if you look at the incremental EBITDA now, most of the incremental EBITDA will be -- will flow to -- because most of the debt, we don't see significant increase in the debt from current level. The balance CapEx that we have is only around INR 300 crores, which is again going to be spread over the next 12 months. And so we don't see significant increase in the debts from these levels. And even after that, as I said, from FY '20 itself, you should see reduction overall in the net debt levels of the company. And as we move forward, my interest -- the interest that we pay overall is just 8.75% and that range. And so you will see the benefits of the lower debt plus the fact that the higher EBITDA will straightaway slow down will start showing on the overall EPS impact. So the next 3, 4 years, you will see significant value increase in the value -- significant accretion to the fact, you can do the numbers yourself.

R
Rakesh Nayudu
Analyst

Right. And sir, 1 final question on this. The Gleneagles integration would definitely add on to the operating cash flows, right? And what are the, you see, cash flows, which...

K
Krishnan Akhileswaran
Chief Financial Officer

[ It ] is early. Now I think we should wait to hear more from the partner because I think once we get to the -- understand what's the structure that it will take, then we will discuss about that. I just wanted them. I think it's a bit early to get over the structure that it will take.

Operator

The next question is from the line of Prashant Nair from Citigroup.

P
Prashant Nair
Associate Director of India Equity Research

Just 1 follow-up question on the pledging side. So can you explain, once again, what led to this increase? I could not follow exactly.

S
Suneeta Reddy
MD & Executive Director

With regard to the pledge, okay, there was a 5% increase, which happened because we had an instrument with KKR, and in January we had to unwind that instrument. In order to unwind this, we had to put in another 5% of our share -- additional shares towards unwinding the KKR instrument. But we have planned 2 liquidity events, which will happen. They were delayed, but we do believe they will happen in the next 6 months.

P
Prashant Nair
Associate Director of India Equity Research

Okay. And would these liquidity event be enough to unwind the entire pledge that you have now or part of it?

S
Suneeta Reddy
MD & Executive Director

Not the entire pledge, but a significant 60% of it.

Operator

Ladies and gentlemen, this was the last question for today. I now hand the conference over to the management for their closing comments. Over to you.

S
Suneeta Reddy
MD & Executive Director

Thank you, ladies and gentlemen, for joining us for this -- on this call. We believe that if you look at the structural demand for health care, it continues to grow. More importantly, Apollo Hospitals has shown its ability to weather many storms, whether they were external and having to do with the environment, or internal, but -- and clearly, we've come out stronger. We've shown you a growth of 17%. On behalf of the promoters, I would like to mention that we do have a plan to reduce our pledge significantly by at least 50% in the next 6 months, and you will see that happen. Thank you, again, and all the best.

Operator

Thank you, members of the management. Ladies and gentlemen, on...[Audio Gap]