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Apollo Hospitals Enterprise Ltd
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Ladies and gentlemen, good day, and welcome to Apollo Hospitals Limited Q3 FY '23 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, Tanvi. Good afternoon, everyone, and thank you for joining us on this call to discuss the financial results of Apollo Hospitals for quarter 3 and the 9 months of FY '23, which were announced yesterday.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; Mr. C. Chandrasekar, CEO of AHLL; Mr. Obul Reddy, CFO of the Pharmacy Division; and Mr. Sanjeev 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 and these have also been uploaded on the corporate website and the website of the respective stock exchanges.I would now like to turn the call over to Mrs. Suneeta Reddy for her opening remarks. Thank you, and over to you, ma'am.
Good afternoon, everyone, and thank you for taking time out for this earnings call. I hope that you have received the earnings document, which we had shared yesterday. We have delivered a steady performance in quarter 3 FY '23, with the healthcare services business growing at 10% year-on-year, excluding vaccines. Growth was driven by an increase in IT volumes, which were 7% higher year-on-year and supported by pricing and case-mix gain.ARPOB has increased 12% year-on-year, and it currently at INR61,482 in quarter 3. It is important to note that we had reported 41% revenue growth last year, quarter 3 FY '22, which was aided by COVID revenues and vaccination revenues, which was ahead of industry growth. In the light of the high base, the 10% year-on-year growth in healthcare revenue is meaningful and adjust for nonrecurring COVID revenues and vaccine revenue, and like-to-like growth in the healthcare services business is at 17% year-on-year.Quarter 3 FY '23 occupancy across the group was 65%. The quarter 3 FY '23 occupancy return was 66% and new hospitals at 62%. We witnessed an improvement in the payer mix too as cash and insurance segments registered a year-on-year improvement of 28% in revenues. Against this backdrop, let me take you through the consolidated financials for the quarter.Consolidated revenues grew 19% on a year-on-year basis to INR4,254 crores after normalizing for vaccine revenues in quarter 3 last year. Healthcare services revenue grew 10% to INR2,194 crores. Healthcare revenue grew by 34% on a year-on-year basis to INR1,758 crores. Offline pharmacy distribution revenue grew 21% year-on-year to INR1,581 crores. Online pharmacy distribution and 24x7 revenue was at INR178 crores. Combined pharmacy revenue grew by a healthy 21% on a year-on-year basis. AHLL revenue stood at INR311 crores. Excluding COVID vaccination and testing, it grew by 30% on a year-on-year basis.Diagnostics Core revenue grew by 62% on a year-on-year basis to INR92 crores in quarter 3 FY '23. Healthcare services EBITDA was at INR543 crores, a year-on-year growth of 9%. This was supported by volume, price and case mix improvement. Healthcare services EBITDA margin was at 24.7%, a 15% -- a 15 basis point improvement over last year. Margins in mature hospitals were at 27.5% as against 25.6% in quarter 3 FY '22. Margins in new hospitals stood at 18.2% for the quarter.EBITDA for the off-line pharmacy distribution business was at INR124 crores for the quarter, representing a growth of 28%. The online pharmacy distribution and 24x7 business supported an EBITDA loss of INR186 crores, resulting in a net loss of INR63 crores for Apollo Health Co. AHLL recorded an EBITDA of INR25 crores for the quarter. Overall consolidated EBITDA was at INR505 crores, reflecting the investments that we have made in the online business. At the PAT level, Healthcare services PAT was at INR261 crores, a year-on-year growth of 30%. Consolidated PAT, however, was at INR153 crores.I will now summarize the performance for the 9 months ending December 2022. We closed the 9 months of FY '23 with a consolidated revenue of INR12,310 crores, a growth of 16% over the 9 months of FY '22, excluding revenue from vaccination. This includes a revenue growth of 12% year-on-year in the healthcare services business and in AHLL, and 23% growth in Apollo Health Co. EBITDA stood at INR1,561 crores. Within this, healthcare services EBITDA was at INR1,598 crores. EBITDA from mature hospitals increased by 25% year-on-year, with an increase in the EBITDA margin to 27.4% from 24.3% in the 9 months of FY '22. PAT for the 9 months of FY '23 stood at INR675 crores.In operating terms, the off-line pharmacy business added 194 net new stores for the quarter, taking the network to INR5,196 crores, with private label sales at 11.03%. The online pharmacy distribution in 24x7 platform recorded a strong GMV growth of 85% quarter-on-quarter to INR543 crores. The platform added 3 million users this quarter, and its total usage as of date is 23 million users. The platform witnessed around 42,000 transactions per day compared to the 25,000 in March 2022.This has been a good quarter for our Healthcare services business. Our occupancy and volume levels are robust and our margins have expanded. There is still room for growth in both the mature and the hospital as surgical cases increased and international patients returned. We continue to focus on centers of excellence, case mix, payer mix as levers for revenue and EBITDA growth. AHLL has demonstrated resilience in a quarter that was very muted -- that is muted for the sector. Our penetration and growth plans for primary care and diagnostics will continue, and we will see improvements in EBITDA and margin profile.Apollo Health Co has done really well on the pharmacy distribution revenue and GMV growth and operating metrics. It is on track to exceed INR1,500 crores of GMV this fiscal and well ahead of the information memorandum to deliver 2x growth in FY '24. We believe we are at the peak burn rate this quarter and expect losses to moderate from here on. Margins in Apollo Health Co will improve with the off-line pharmacy distribution margins improving as well as discount rationalization, digital health services revenue improvement and expansion of private label sales. We expect Health Co to directionally beat that neutral by the end of FY '24 and become the fastest digital player to achieve segment profitability by FY '25.In the larger context, while individual business verticals are all delivering to plan, the largest opportunity for us is the network effect is really leveraging the synergies across all the formats in both the physical and digital touch points that we have created. We are the only 360-degree integrated healthcare ecosystem, and our clinical proposition remains strong.I believe that we have put a lot of work into our strategy for not just this year, but for the coming 24 months. And we look forward to our next call to see it play out over the next 24 months. Meanwhile, I have Dr. Hariprasad; our CFO, Krishnan; Obul Reddy; Chandrasekar from AHLL; and Sanjeev from 24/7 to take questions from all of you. Thank you.
Thank you. We will now begin the question-and-answer session. [ Operator Instructions ] The first question is from the line of Anuj Suneja from ICICI Prudential. Please go ahead.
Thank you for the opportunity, and congratulations to the management on the good set of numbers. So I have a couple of questions mostly related to 24/7 expenses. So one, I would like to understand like what is the breakup of the expense [ Indiscernible ] that we are doing? Is it just means to discounts or is there any other strategic initiatives that is also being driven by this number? And going forward, you've given a guidance of INR200 crores for H1. So if you are giving the breakup right now, what would be the breakup like 6 months down the line? So that's the first question.
So, on the expenses side, so let me just talk about the breakup of expenses. That was your first question. So as we spoke in the last earnings call, we talked about that the company is investing in the resources and tech and product side for the new line of businesses which it intends to start. As you recall, pharmacy diagnostic and consultation is something which is -- which are the firing engines just now. And during Q3, we invested into product and tech essentially and summed it on people resourcing for the new line of businesses. Essentially, that is where most of the incremental expenditure has happened.If I look at broadly about 20% of the expenditure is into product and textile, we have about nearly 20%to 22% on the operations side. We do have marketing for acquisition of new customers to the tune about 15% of expenditure and something it will be the call centers and sustenance of communication and SMS and all that stuff another 15% to 20%, and the remaining expenditure happens towards the support side. So that's a broad breakup of the expenditure. I think when that accounts for -- and some bit of addition expense in Q3 is accounting for only related to the new line of businesses where we are putting money.
Okay, sir. Got it. And the second question is, like we are reporting somewhere around INR1,500 crores of GMV. So what is the GMV to revenue bridge? And going forward, how would EBITDA look like for this INR1,500 crores... If we can have some thoughts on that?
So if you look at it for the whole -- or the last quarter it will be about INR543 crores. And the revenue that comes to the pharmacy -- which is including of the online pharmacy and the take rate for the other services is about INR177 crores. So that is the reason that we are looking at it. And yes, INR1,500 crores, I think we should be doing more than INR1,500 crores -- or rather the estimate and this phase is to hit around INR1,500 crores, where INR1,028 crores for the next year. As far as the overall investment into the project is concerned, I think ma'am just said this during her opening remarks also that we're looking at somewhere peak of the expenses as far as digital side is concerned, and next year is Apollo Health Co., somewhere in third or fourth quarter we will be looking at coming to near breakeven.
Okay, sir. Got it. So any guidance on the EBITDA front, so INR1,500 crores to INR177 crores of revenue and beyond that, on the EBITDA any guidance?
I think as we get into the annual operating exercise for next year and during this month and first half of the next month with the detail exercise done on this, and I think in the next earnings call probably we can guide you on the digital side of the EBTIDA also for the next year.
Fair answer. Thank you. Thanks a lot sir.
Thank you. [ Operator Instructions ] the next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Yes. Thank you for taking my question. Just the first one on the hospital business. Occupancies on a blended basis have come off 300 basis points. So I just want to understand how should we look at the quarter 4? And I think we had an earlier guidance of reaching higher occupancies. So if you could just reiterate or at least observe what those occupancies are and what are our targets for the next 12, 18 months?
So October, December are generally holiday month and I think the seasonality of the business is something that we have to consider and which is why our occupancies were 64%. But having said that, they have picked up in February and March, and we expect to see a higher occupancy rate. Our target was 70% for the year. We will be close to 70%, especially for the last quarter.
Got it. Ms. Suneeta, I think we had a longer-term goal also, right? I recollect because...
Yes, yes. So what we said was that our intention is to take it up to 75%. So we do have a target for the next 18 months, where we will do that. In fact, it is based into next year's AOC. And hopefully, we'll be able to commit to absolute numbers after the first quarter next year is over.
Got it. Helpful. Just second question, just to the previous participant's question on revenue to GMV. So while it is 33% conversion on the 24/7 this quarter, last quarter was like 55% and the quarter before was 56%. So is there any change in how we now get our revenue or the conversion from GMV? Is there any marketplace that makes the take rate lower relative to previous quarters? Is it like the -- are we now starting to recognize revenue from, say, the Amazon platform that is making this take rate lower?
That's a good call out. I think this quarter, we started the entire IT OT business. And typically, this business, so it's a question of a mix. What I would broadly say that between 20% to 35% should be revenue to GMV ratio, which we see in this quarter should be the percentage that we can see in the next 1 or 2 quarters. And as we get into more of different entities and insurance distribution side of it, probably this percent will further go up. But for next, for the current quarter -- for Q1, let's assume in the range of about 35%.
Got it. And Sanjiv, what is the mix of the revenue? So maybe if you could just help us refresh that as well? How much from pharmacy, what is from consult? Because the commentary seems to suggest that the growth has largely come from IP OP, at least in the commentary on the presentation. So if you could just give us that qualitative color, please.
Yes. So that's true. Most of the growth has come from the IP OO, which is a new vertical that we started in Q3. If you read through the Q2 transcript, we said that we'll be listing into the customer journeys for the users who can come from Apollo and get the typical bookings as well as get the IP and the other things done. For Q3, a little distortion because a new vertical whenever it comes it starts firing, he percentage mix changes. But for Q3, if I talk about pharma is about 50%, and consultation is about -- with constitution together with IP OP is about 45%, diagnostic and VC.
And this mix for 1H was what, sorry, so that I just know what are...
Mix of H1 was about 80% at pharma and then we had about 10% of consultation and about similar 10 percentage for diagnostic and the subscription NP model.
Got it. That's helpful. My last question is on the pharmacy business. Both in terms of network addition, I think just a simple observation, we used to add 350 stores annually in the past years, we have now added 757 in 9 months, but now the number of closures are also equal to the -- like 1/3 of how much we were adding earlier. So is there any change in the philosophy? Why are we closing more stores? Maybe it's a percentage of new stores added, but I just want to get the philosophy there. And also a data point on what is the combined pharmacy EBITDA margins? I think you were disclosing it until last quarter, I can't see it in the presentation for this quarter. Thank you.
Yes. The number of stores addition -- we continue -- this year, we embarked on additional stores and expect to open for the full year about 950 stores, and we closed around 100 stores, which is more on the basis of identifying them, nonperforming, not that it is -- as a percentage to the store addition. And on the EBITDA, it is about 7.38% on the pharmacy business, slightly about, say, 50, 60 basis points lesser than last quarter and largely because of the establishment costs and the addition of stores. And the growth coming from these new stores in the next 2 quarters that will considerably change.
Got it, sir. Thank you and all the best.
Thank you. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi. Thank you for the opportunity. My first question is on your hospital business. So how much is international patient contribution during the quarter? And how do you see this piece moving, say, next few quarters?
So we've moved from 5% last quarter to 7%, and are hopes that it will be 10% in the last quarter.
So, 10% by end of this fiscal, end of bit fiscal.
End of this fiscal, yes.
Ma'am, my second question is on hospitals again. So we have seen improvement in AP, Telangana cluster, which is seeing good tick up in the third quarter. So among your all cluster hospitals, which are the segments where you see, like enough headroom to improve on the payer mix, et cetera? So I think last quarter you talked about it AP Telangana. So apart from this, which are the segments where you see your not yet -- your targeted share this level?
So we are looking at some of the new hospitals which are now ready to ramp up. I think we had moved the whole strategy from being primary and second care to tertiary care. And with this offering of tertiary care, we should be clinically differentiated in these markets. So you will see improvements, in like -- you will see improvement in Madurai and Trichy, and Navi Mumbai coming through in the last quarter.
Okay. Okay. Now my last question is on your cost improvement plan for your business. You earlier mentioned some 100, 150 basis point improvement over the 4Q month. So if you can provide an update on that and which are the key driver for this cost improvement?
So I think we are pretty consistent is what we hope to achieve. You'll see -- you'll most probably see it at the end of '23, '24. What are the drivers for this? Clearly, we are looking at -- we are looking at creating packages, surgical packages, getting it out. We're also looking at admin costs. We're looking at HR cost as well. But more importantly, I think the whole initiative is about improving the overall efficiencies within the system. So conversions happen at a better rate. So it's more -- it's also about growing revenue as well as cutting costs. So I think it's a very crucial program for Apollo, and we'll deliver on both revenues, volumes and EBITDA margins.
Okay, ma'am. My last question is, can you specify at your network level, what is contribution from cash as of third quarter in terms of your payer mix? If you can call out a number?
So almost around 80% is from cash and insurance.
80%. And within that, I assume around 50 percentage cash as another 50% PC, maybe equal contribution or how is the status?
Yes, yes, equal contribution.
Okay. Thank you. I'll get back in the queue.
Thank you. The next question is from the line of Shaleen Kumar from UBS Securities. Please go ahead.
Yes. Thanks for the opportunity. Since I think on 24/7, the nature of GMV has changed a bit. Is it possible to get like-to-like comparison of GMV? How -- if I have to see my previous Q2 GMV versus Q3 GMV, how the growth has been?
Yes. So Q2 was INR295 crores and like-for-like comparison would be about INR340 crores. So that will be up by about 15%. So that is like-to-like. So like-for-like in pharmacy consultation and diagnostics.
Understood. But then -- so basically the new GMV contribution to revenue is quite less because if I look at the revenue growth it's also somewhere around that, right? 12 to 15 kind of percent a revenue growth is there sequentially.
Observations by then, and because now the question asked previously also. I guess whenever a new engine fires, the entire mix growth change and that is vis a vis the change in the mix. And so I think it is all temp from that sense. But as we see another 1 or 2 quarters, we are coming out with new line of the business, this will continue to be slightly different because it starts maturing on 1 percentage.
Okay. So we intend to increase our contribution margin from that, for there the scope.
Absolutely. [ Indiscernible ] to reduce expenses and it is our top line [ Indiscernible ]
Sure, sure. Got it. Just one bookkeeping question. There is a cost related to JV and associate. Just trying to understand what is it pertaining to? And like is it like one-off or there it will 15 or something like that, around INR21 crores?
So that is the consolidation of the front-end pharmacy business. There is this establishment costs also what we've said is part of those costs, which is will be getting consolidated.
Okay, sir. So sir, should it --like will it be this level? Or how should I...
Certainly comes up.
It will come up.
Some of that starts maturing.
All right. All right. Okay. That's it from my side. All right. Thank you.
Thank you. The next question is from the line of Harith Ahamed from Avendus Spark. Please go ahead.
Good afternoon. Thanks for the opportunity. I'm looking at AHLL and within AHLL the Diagnostics segment. We've seen a sequential decline in margins. This quarter we were at around 5% versus the second quarter. Are there any one-offs? And what's the number that we should expect for the segment going forward.
I'll answer that. I think on an even basis, I think this YTD number stacks to the range of 8.5%. These are turnover discounts and such other one-offs that have spiked the Q2, but they pertain to the Q1, Q2 overall. So we sequentially require them as and when the such credits come out there. The overall outlook this quarter has been muted in line with the overall industry trend. There's a INR10 crore approximate drop between quarters, and that contributes to about NR 6 crores, INR6.5 crores of EBITDA for us considering that the fixed costs are covered. So on a even basis on a steady state, we are hoping to be in the 8.5% to 10% mark this year. We have -- we are continuously growing. So our move from 10% onwards is something that we are planning to achieve next year as you start realizing the front-loaded costs and thereof the revenues from areas such as specialized testing and such. So that's the broad view of that.
Okay. And to a previous participant, especially you mentioned that the like-to-like for the quarter is around INR350 crores, that will be close to around INR540 crores. So what exactly accounts for the difference between these two numbers?
I think we continue to say wherein they want to check on the increase in the -- so during Q3, we started doing a few customers earnings or booking of physical appointments for hospitals across the full ecosystem and so helping the customers to get the technology and the other items. And happy to share some broad numbers. monthly, we have on an average 2 lakh needs that we get for the OP IP business and about 22% is the current conversion leading to OP is ahead of it and about 6% to 10% conversion from there towards the IP side of it. So that is the line of business that we started. Q2, we spent some money into it, building up the tech side of it, second product side of it. In Q3 again realizing the entire GMV put together about INR200 crores worth of GMV what we got for the Q3. That's incremental versus Q2.
Okay. Got it. And then for the combined pharmacy revenue that you've disclosed for the quarter, around INR2,175 crores. Is there an offline, online breakup for this, I wonder if you can share, like we have for the pharmacy distribution.
Yes. It's about 9% of the revenues coming from online, rest is offline. As a number, it is INR1,963 crores from offline, INR204 crores from online. Together, it is INR2,167 crores.
Thank you. And last one with your permission. Can you help us with the time lines around some of our bed additions expected over the next 2 or 3 years. So how should we think about the number of beds from the current 7,855, let's say for FY '25 and '26.
So in terms of bed addition, I think that our short-term challenges on the current bed edition, let's move to 70% occupancy. Over a 24-month period, we are looking at adding beds. There will be 2 brownfields in Bangalore, which will give us another 400 beds. Adding on to this, which is more of -- from '25 onwards, you will see beds added in both Chennai OMR a large hospital as well as Gurgaon, which will come in the year '25. So with that, we will have an addition 1,000 beds in that year. Our plan is really to go to 2,000 beds in the next 3 to 4 years with the capital out of INR3,000 crores.
Thank you, ma'am. That's all from my side. Thanks for taking my questions.
Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Thanks for the opportunity. Again, on the G&A, while the rate has been quite exponential over the past year or so and you have given the guidance for FY '23 as well. But if you can take this forward for the next 12 to 15 months, FY '24, how do you see this GMV moving?
See, INR1, 600 crores roughly that we were to bring this year, clearly INR208 crores will happen in the next year. So that will be anything over and about INR3,220 crores, INR3,300 crores. However, as we said previously that our annual operating plan exercise just initiated and from now to the 15th of March we have detail and we are working around it, probably a bit more color on the next year, you'll have it in the next earnings call. But for now, as a 2H growth for the next year.
Understood. And on the off-line pharmacy side, while the store addition has been quite aggressive over 9 months, but particularly in 3Q the off-line pharmacy sales growth has been much higher at 22%. It was just 8% for first half of FY '23. So anything in particular in this quarter to highlight?
We have also added a similar number of stores in the Q1 and Q2, which have started contributing to the sales and the growth is there.
Okay. And like, so on the current base, even to grow by 15% to 18%, almost INR1,000 crore -- 1,000 stores at least to be added every year. So is that the number to go by in the coming years?
No, no, no. With the 1,000 stores, we are growing at 24%. At 21% to 22% we'll have normal 500 stores risen, and the growth coming from this will be sufficient for us for the next 2 years.
Okay. And just lastly, the private label as a portion still remains relatively low. So any efforts out there to improve that?
The stores are increasing and the new stores, it will be slightly less for some period, number one. Number two, if you go back to the earlier period, there was a lot of COVID portfolio, which is not there currently. So we are seeing like-to-like on these SKUs volume growth. So maybe it will take another 2 quarters for us to show the growth on this from here on.
Understood. Okay, sir.
Thank you. Next question is from the line of Kunal Randeria from Nuvama. Please go ahead.
Hi, good afternoon. Sir, my first question is on the 24/7 business. Now if I were to look at your revenues, it has grown from around INR120-odd crores in Q1 to around INR177 crores in Q3. But at the same time, the OpEx that you are doing has grown in almost exactly the same proportion, which is a 100% of your revenues there. So I'm just wondering, going forward, so assuming the revenues will be more than double in a year, 1.5 years time, which cost items can be controlled so that as ma'am mentioned, you can also turn profitable?
I think what we need to actually look at is that now we are in the first year. So bringing these things into fourth year. So I think there's something like one of the fitness centers have a traditional line that today seems more of the same. I think more or less, we had off the mark of putting up more investment into the state on the product side. I think our app, website are the legal customer gains, billings and the entire integration where the service providers, all that is more or less done. So that means going forward, as we scale up [ Indiscernible ] will not be in that proportion, #1. I think on the #2 side, on the resources side, also, your staff, so does the operating infrastructure.I think what we can clearly say further on existing costs, you see this as the expenditure on the marketing side of it, which is today with the branding. And I will just recall this point a couple of [ Indiscernible ] to be talked about various benefits that we can get from the Apollo 24/7 app. So to that extent we had to be a lot of campaigns and marketing to make them aware about the fact that we can now put your medicines all the app, you think that the diagnostics done through the app, you can get the consultations you are looking for. So all all that is something which is now passed. And all that expenditure is kind of a discretionary expense to date. So cut short, I think, moving forward we would get more scale on a very low incremental cost, and we would have higher margins. So we should be able to do a better job. So portability is very high to do a really good job in the next 15 years or the EBITDA line for digital effect.
Sir, I did not understand this, maybe to a bit more. So would it be sort of fair to assume that you are now at a tipping point where, let's say, for the next INR100 crores in revenue, quarterly revenue, you need not to spend INR100 crores or maybe spend maybe INR40 crores or INR50 crores to achieve the INR100 crores revenue?
Absolutely. I mean I don't know about 40 or 50. But absolutely [ Indiscernible ] lot of dollars to get full the upside on the revenue -- so I think the system itself, the engine itself will take care of the addition revenue without an additional cost.
And this we should see for the coming quarter or it will be the next fiscal?
No, I think some benefit will start seeing from Q1 itself and those benefits will start coming down as as we look forward beyond Q1.
Got it. And just one quick question on hospital side. Your ARPOBs are close to INR60,000 in metros. And I'm just wondering what the headroom over here is especially considering that you already have 80% kind of patients from cash TPA, which is almost at an optimum level. So what kind of maybe ARPOB growth we should assume in the coming years?
So we will continue to go with what we have been doing in the past. I think a combination of case mix and price increase is what you should factor in. You are right, we have not been guiding you for anything specific around change in payer mix. We will continue to work on the payer. But as Suneeta said, the payer mix opportunity still exists in non-metros, which is what we are focusing on. In the metro cities, we would not have much of payer mix opportunities. But -- so you should look at the ARPOB growth of around 8% CAGR. This is a combination of 4%, 5% on pricing and the balance on case mix.
Perfect. Thank you very much and all the best.
Thank you.
Thank you. The next question is from the line of Rishab Tiwari from Allegro Capital. Please go ahead.
Yes, hi. What is the combined pharmacy EBITDA numbers for this quarter? I think it was not mentioned in the presentation section.
Yes, there was a mix in the presentation. We put up the presentation with the number, 7.4% is the number.
Okay. And also, I'm not sure if this is a -- the number of new hospitals has been brought down to 13 from earlier 15.
There was one hospital which got transferred. There was a center n Chennai, which got transferred to Apollo Health and Lifestyle. This was a hospital which is within the AHEL books, so it got transferred to Kapur Health and Lifestyle. -- that's a creative business that we had within Apollo, which got transferred to Apollo Health and Lifestyle. That's why it's gone lower by one.
Understood. And since you mentioned AHEL, so does the management see any specific guidelines regarding the margins going down in AHEL?
Chandra Sekhar?
Yes. I think the quarter 3 margins -- at a consol level we are at about 10% at this point of time, the quarter 3 on a YTD basis. On a quarter 3, I think we are lower essentially because of the aberration on account of October, which actually dragged us into a negative EBITDA zone. And November was a muted recovery. So it is not very representative of where we stand in terms of how these businesses are performing. Having said that, despite these seasonal fluctuations, I think the revenue buildup have been -- especially in the 4 businesses, minus reductions which were one-off continues to be a robust growth. So we are hoping to have a sequential improvement quarter-on-quarter on our margin profile going forward because we are also controlling some of our costs as we are in growth part both in current advances. So these are likely to remain a little muted for some accounts in comparison to the industry.
Okay, understood. Thank you.
Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Hi. Thanks for taking my questions, sir. Two questions. One is on the pharmacy business. On the off-line pharmacy piece, what kind of growth rate can we assume for the next, say, 2 to 3 years? And does that really -- and do we see incremental operating leverage on the margins on this revenue growth?
Very difficult to guide you for next 2 to 3 years, at least next 12 months we expect to be in the range of 22% to 24% given that we have invested in the growth during the current year.
And sir, on the margins, we've been kind of flattish to a little muted on the margins for the business versus a trend that you've been consistently increasing this margin in the past.
The margins as we have last guided you, we expected that customer discounts will be the range of about 13% -- 13.5%. But we could see a big round. It is moving to 14.5%. So we are largely muted on the margin. Whatever increasing the customer discounts, we were now able to manage through the additional procurement margin, but still there is about 30 -- 30, 40 basis points impact on the EBITDA. We will be managing that at this level because now we are at about 14.5% on the customer discounts, which we consider very decent for the off market to sustain the growth.
And second, Sanjiv, on the online business, we've talked about the healthcare being PAT positive or EBITDA neutral by the second half next year. When does the online piece on its own start to become EBITDA neutral in your assessment?
That would take a little bit of time. I don't see that to happen in the calendar year of 2025, but somewhere in of FY '25, maybe in the last quarter, that should be the time when we should see this segment as becoming profitable. There are a couple of engines that we need to file. We're working on that. Potential is huge. And if you are able to execute wins, which we believe that the current set of team members would be able to do well. Once we do that, I think we should be able to give you a better guidance on the time line, but FY '25 would be the year where we should think that digital would also be as a segment of revenue.
Towards the end of the FY '25, right?
That's right.
And in -- so we talked about the doubling of revenues on this business next year. And so I think earlier we talked about $1 billion in revenues in this business in next think 2 years or 3 years. So can you discuss on the revenue targets for the online business by when do you get to the $1 billion number or thereabout?
I think FY '25 should be the year when we should look at numbers closer to $800 million to $1 billion. And that is the scale which is required to ensure that you have a high repeat rate, you have a high net margins and you're able to leverage on your fixed expenses. And so we are able to do justice to the entire economy. So I guess, if we -- and as I said that next year the numbers are still to be worked upon. But if you're looking at roughly INR2 crores, another similar growth for year thereafter. So I think FY '25 should be the year to do -- getting to $1 billion mark. We have $1 billion mark.
And at that size, in your -- just what kind of margin this business you should be ideally making at the size?
So I think anything around 20% should be the margin that you should get it as a blended margin. And it all depends upon the mix that comes, little difficult for me to give you one number, but yes, anything between 20% to 25% would be the mark.
And our operating cost you said is probably getting to a point where it will start to plateau out beyond a point. I mean after sometimes versus the current year that you at built in.
Yes, absolutely, I mean, there is no -- I mean, pretty much it's a fixed expenditure. Once you have a tech product done, then we must have maintenance cost. And digital platforms help you to get to the scale faster. But yes, in the initial year there is a pain with respect to putting up expenses and putting up lots of infrastructure there. But at that scale of -- from next year onwards I don't see that expenses going up substantially. We'll start getting plateaued and you would also do certain bit of rationalization given the fact that we understand the external environment and the one of the right decisions to be taken for the business. And I think those business should also be implemented executed. So I think is will mix of everything, but yes, expenses are getting better.
And sir, last one, on the Diagnostics business, I think we've had some -- from some industry participant perspective a lot of the next commentary around the outlook for the organized business in the near term -- in the near to medium term. Tell me how are you looking at the dynamics of the business? I mean is there some challenges on the organized sector volume growth or that's sort of come up over the last few quarters?
So I think there has been more than normal competitive intents on the -- for the digital aggregators. But the way I see it is this is on the top 20, 25, if not frequently used tests, which form the bucket of protein. So I guess the competition is intense there. And so I believe that it's going to remain that way for a while. But I think the focus of the more organized larger players and the right resource shift to more specialized and more high-end testing and also to better this with an emphasis on quality. So I think at the end of the day I think we are 95% of all clinical decisions account the base of the diagnostic tests. So it's important to also bring up the topic of quality. So there is a cost to it. So I think rising for organized players in terms of responding to such competitive pricing from these aggregators is not likely. There could be some short-term dips in volumes in the routine basket, but the endeavor the the organized sector will be to make up for that through other semi-specialized and super-specialized products. So that's the thing likely that I think we will see. But this will settle down.
Yes. And sir, lastly on -- there's been a lot of emphasis on selling bundled packages versus specific illness test. And is this a starting that we are also following in terms of trying to increase our share of bundled tests?
So we are following that. In another business which is not reported diagnostics, actually the Clinics business, which is in the primary care. I think we do a lot of research. I think 60% of the business there comes out of, which essentially also has a radiology component, but essentially a lot of cytology But within the Diagnostic business like-to-like in comparison to other larger organized players, our wellness strategies are now around 7%, 8% of our mix. We are hoping to make this 20%, and that will offset the very stark comparison in terms of testing.
Okay. Thank you, sir. Best of luck.
Thank you. The next question is from the line of Sayantan Maji from Credit Suisse. Please go ahead.
Thanks for the opportunity. So my first question is on discounting levels. So you mentioned the discounting level has increased from 13.5% to 14.5%. So can you give us a split of your discounting level in offline and online pharmacy? And if this increase is happening in online pharmacy, so do you see an increasing discounting pressure again in this segment, which is causing the higher discounting level? And also, can you update on the Amazon partnership?
The online discounts are at about 18% to 18.5% like last quarter. It is only offline, which moved slightly. And on the Amazon, Mr. Sanjiv will comment.
Before Amazon, think we guided on the online discounts that we will retain an 18% mark. So why should we [ Indiscernible ]although the last quarter was 17.8%. So I think we continue to maintain discounts near 18%. And we also time our discounts in such a way that there is opportunity that ways to reduce it. We continue to do that or sustain at this level. On Amazon, we are now lining credit with 15 stores and current rate is around 3,000 orders per day. We couldn't increase the run rate in the middle of the year with slight integration issues which we had between us and Amazon, but now those have been resolved. And there is a little bit of network expansion also to take care of Amazon operations. And in the next 4weeks, we will see that Amazon customers would be able to see breadth and depth of inventory across the top 6 cities to start with.And in terms of marketing, you can see also in Amazon app that has started over the last 3 to 4 weeks. And what we believe that we should be able to get a $10,000 per day somewhere in July, August of current year.
Got it. And what is -- so are we doing a revenue-sharing arrangement here? Or is it on a profit-sharing basis?
It's a revenue share.
Okay. Got it. And my second question is on -- little clarification on the new GMV. So this hospital IP OP segment, so is it even to same customers who are coming, they being converted online? Or is this a new set of customers that you're targeting here? Can you state a bit about this IP OP segment?
Yes, yes. So a new set of customers and obviously, there is no point in having the same customers of this size. So it is a new set of customers. So the way the entire operational side of it works is that; one is that we have integrated our 24/7 app with the entire Apollo ecosystem [ Indiscernible ] hospitals, which in the current quarter we go to 70. And first check in, there is an engine that works behind all this, people who search out [ Indiscernible ] online googling and all that stuff. Those are the data points that we collect. And then those are the curative leads that we use to further engage with them. As I said, the monthly average for Q3 was about 2 lakhs leads that we got from various, I would say, websites or the places where digital customers were trying to find out about those surgeries. And those 2 lakh leads were then kind of be engaged with them through tele calling and through various nudging that we do it from Apollo 24/7, and finally we converted about 22%, 22.54% to be very precise for last quarter and about 45,000 customers went on during the month of December to the hospitals and they got the OP consultations done and from there about 2,500, total 20 surgeries done. So this is all is well planning and accumulated engine and then you've got many ads out there, the market who does this kind of work wherein they identify people who are digitally looking out solutions around surgery and those are the needs that we get, do the needs to be further show and any further kind of engine then to get into the -- this side of the business. [ Indiscernible ] I mean, I can discuss an outlook, but in the interest of time, not talk about it, but happy to engage with you one-on-one whenever you want a disposal on this.
Sure, no, no, that's very clear. That explains. And finally, just wanted to check what will be the loss run rate for Apollo 24/7going ahead now, how that we have peaked.
So I think -- and first of all, we are coming to the fact that somewhere we need to convert the entire EBITDA positive. And we are also looking at how we build our plan for the next year, which are the segments need to fire more and where exactly we need to do incremental investment. And all this moves us into a detailed exercise of building a budget for the next financial year. And accordingly, we just go about the expenses that we feel appropriate for the business. And accordingly, we will have little more color on this. So maybe next earnings call will be the right time to discuss about this by quarter. So for the entire year we can talk a lot more in the next several quarters. I will just request to wait for some more time before we guide up on this.
Sure. Thank you so much for answering the questions. That's all from my side.
Thank you. The next question is from the line of Bhagwan Chodhary from Sunidhi Securities. Please go ahead.
Thanks for the opportunity. Sir, one question on the healthcare side. Can you comment something on the future CapEx side? How we are going to do this? And as we are going to generate a lot of cash, INR1,500 crores to INR2,000 crores, can you comment something on that?
Yes. So clearly, the plan, as Ms. Suneeta had already articulated is to get to an additional 2,000 beds over the next 3 years. And we have a clear plan on our road map and where we are adding that. And the free cash flow, as you already know, is around INR800-plus crores that we have in this segment across and we are -- we will deploy this into some of them. So we don't think we're going to be requiring significant incremental debt. Whatever it's required, we'll take some debt. That EBITDA is also very comfortable, as you've seen.
And this will be organic or inorganic, how it is going to be?
Most of this, there will be some inorganic, some bolt-on acquisitions that we are looking at and also greenfield.
Okay. And secondly, can you talk about this performance of proton, how that is doing?
Proton is doing much better than now. I think it's now doing -- so this year, we are on track to get to INR50 crores of EBITDA in this year. And we would expect it to -- we would like it to double in the next year. That's our plan.
Then finally, just an observation from the Slide #19 where you have detailed these pharmacies across the India and all the states. But there is no pharmacy in Madhya Pradesh. So any particular reason for that? Or...
We don't have logistic support. We are planning in the next year. We need to set up a back-end support system before we open the retail pharmacies. So just working on that. you could see next year some pharmacies there.
Got it. Thank you.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Thanks for taking my questions. Sir, just on the GMV increase that we have seen, I understand that obviously part of this -- a lot of this gets monetized in other parts of the Apollo value chain. But for Apollo digital itself, is it fair to assume that these would just be leads, which help the hospital business and diagnostic business and not so much the Apollo 24/7, and therefore the take rate would remain in the mid-30 level.
No, no. I mean [ Indiscernible ] us on the pricing. So, as you said, there are no freelances. As we start ramping up our business soon, as the take rate will also go up. And traffic is ramping in diagnostic, we've got -- we started at the end with about less than 8% discount, it will be carried about near 17% to 18% discount and then we grew business, more discounts -- sorry, more commission will come to us. So everything is depended upon how much business and commercials around it. So it's not like this that our take rates are not going to go up. Our take rates will be dependent upon the kind of efforts that we are putting on the cost and the net EBITDA that the other participant group companies are getting out of it. So they have a...
They have just to be on the same pace. These are only for new customers. So it's not for the existing customers, point #1. Point #2, these are only for customers which are coming to us through the Apollo 24/7 platform. So digital leads which come directly through our marketing efforts into the Apollo website and comes directly to us and also the call centers come directly to us. it's only the Apollo 24/7, where as Mr. Sanjiv said, there are significant efforts which are being -- which are happening into the customers of Apollo 24/7. And which is where if you remember, a couple of years back, we did say that even if you look at the pharmacy customers of Apollo and if we look at the number of customers that they have and look at the number of those customers who come into Apollo, it is less than 1%. That is one of the big opportunities which are there because it's already Apollo customer in some sense and to really work on getting them into Apollo is what Apollo 24/7 is working on. So we should see benefit of that with time.
Yes. No, I did get from an Apollo consolidated perspective, I was just trying to understand how will Apollo 24/7 monetize this incremental GMV that we are getting over time?
Yes. This is what he said, he will be able to -- he will get a percentage of the revenue for the incremental numbers that he has existing.
Fair enough. And, Suneeta ma'am or Krishnan, any update on the Apollo 24/7 stake sale -- strategic sale that we have.
So I think we've seen peak losses that 24/7 has incurred, but we've also seen an 84% growth over last year. And we believe that in this current environment, where we as a company are looking for growth, but we're also looking at profitability. We understand that this is a very difficult environment to get the valuation that we deserve because 24/7 is differentiated in many ways. It's just not pharmacy online, which connects all of Apollo's physical offerings and create the digital offering. So keeping in mind the value proposition of 24/7, I don't think we've -- we believe that there will be investor interest, which will take a little bit more time to convert. I wouldn't really like to put a time horizons here. But I would like to say that at Apollo we believe that this is the future, it is necessary to invest in the business. Fortunately, we have capital to enable it to grow in the next 6 months. And by which time, we are quite sure that we will have an Investor Day.
Understood. That's fair. Thank you so much.
Thank you so much. Due to time constraint, we'll take one last question from the line of Shaleen Kumar from UBS Securities. Please go ahead.
Thanks for the opportunity. Just one thing. If I heard correctly, you said the discount in off-line pharmacy has increased a bit like...
That's right. That's right. Since keeping in the market in the view and what is happening and consistency between the 2 offerings, we have definitely introduced some schemes, which increases the royalty cost to the customers. And as I said, largely, we are able to get that compensated through the procurement improvement margin. And net-net we are about 30, 40 basis points impacted and with the growth coming in we will be able to take that in the cost.
Right. So it's more of an initiative from our side? Is it to kind of parallel and not driven by the...
Its instigative from our side. See that we don't want to lose our offline customers, so we have introduced some schemes, something like the Circle plan, where they get some extra benefits, thereby there is a cost increase.
Understood. Sir, just last one observation. In Diagnostics when I was looking at -- while the revenue has understandably grown only by 2%, but our profitability has come down significantly. So any specific reason over there?
So you are comparing Q3 FY '22, and that had a very significant complement of COVID [ Indiscernible ] mentioned. The non-COVID revenues are to be seen and the margin profile there is definitely lower than -- not the ones that we got in the COVID testing margins. Comparing Q3 FY '22 to Q3 FY'23.
Yes, yes. Yes, sir. I was looking at that only. Okay. Okay. Understood, sir. That's it. Thank you so much.
Thank you. I now hand the conference over to the management for closing comments.
Thank you, ladies and gentlemen for taking time out today. As you can see, at Apollo, we firmly believe that we have established 3 strong engines of growth. Of course, the core hospital business continues to grow and we believe that the fourth quarter will be a fairly good quarter for us. The pharmacy business, again, the off-line pharmacy business continues to grow, and we're seeing about over 20% growth in revenues, and we will see an improvement in margins in the future. Our primary health care business, which is diagnostics and clinics, is an area that we are focusing at. And again, we are seeing strong growth in these 3 verticals, while keeping our core clinical proposition as our core differentiator.More importantly, I think the network effect of having these verticals and bringing it together through 24/7 is something that has not been attempted so far in this part of the world. And we believe that investing in the future, making us digital is very important for us to retain our position as the #1 healthcare provider in this part of the world. So thank you, ladies and gentlemen, for supporting us on this journey, and we hope we have most of you in the fourth quarter. Thank you once again.
Thank you very much. On behalf of Apollo Hospitals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.