Apollo Hospitals Enterprise Ltd

NSE:APOLLOHOSP

Earnings Call Transcript 2019-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Apollo Hospitals Limited Q4 FY '19 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Devrishi Singh from CDR India. Thank you, and over to you, Mr. Singh.

[Devrishi Singh]

Thank you, Karuna. Good afternoon, everyone, and thank you for joining us on this call to discuss the financial results of Apollo Hospitals for the fourth quarter and full year of FY '19 which were announced yesterday. We have with us on the call the senior management team comprising Mrs. Suneeta Reddy, Managing Director; Dr. Hariprasad, President of the Hospitals Division; and Mr. A. Krishnan, Chief Financial Officer.Before we begin, I would like to mention that some of the statements made in today's discussions 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 these have also been posted on our corporate website.I would now like to hand over the floor to Mrs. Suneeta Reddy for her opening comments. Thank you, and over to you, ma'am.

[Suneeta Reddy, MD & Executive Director]

Thank you. Good afternoon, everyone, and thank you for taking time out to join our call. I trust all of you have received the earnings document which we shared earlier. Many of you are aware that we entered FY '19 in the presence [indiscernible] of a multi-year capacity expansion program. Our strategic priority at the beginning of the year was to ensure a ramp-up in asset utilization and profitability of our new units while ensuring healthy growth at our existing facilities. Alongside, it is important to insulate our business model from regulatory headwinds and focus on the impending business restructuring performance scheme and improve our business performance on the retail health care business. We are pleased to report that all our efforts from all these fronts have been reflected in our strong performance. As for the first time, the EBITDA for the year has crossed the landmark standard of INR 1,000 crores. We're also happy that our investments in new hospitals have started yielding positive results, and they closed the year with a 7% EBITDA margin. Mature Healthcare Services margins from the quarter improved 22.1%, an improvement of 129 basis points, which is an outcome of our strong focus and efficiency and headcount and costs.Against that backdrop, I am pleased to share with you financial and operating highlights for quarter 4 FY '19 and the year FY '19. Quarter 4 revenues year-on-year grew 16% to INR 2,167 crores, aided by Healthcare Services growth of 15% and SAP growth of 18%. Within Healthcare Services, new hospitals reported revenues of INR 256 crores, representing a 25% year-on-year growth while mature hospitals revenues grew by 12%. The overall Healthcare Services growth for the quarter was aided by higher strategical volumes at both mature and new hospitals. This performance is a reinforcement of our strategy for these hospitals on focusing on centers of excellence, higher-quality of case mix and pricing for services. Quarter 4 total inpatient volume grew by 7% on a year-on-year basis, supported by 18% IP volume growth in the new units. Overall, quarter 4 FY '19 occupancy across the group was at 4,990 beds or at 69% compared to 5,000 beds, 70% in quarter 3 FY '19. The occupancy in mature hospitals was at 3,841 or 70%. New hospitals had an occupancy of 1,149 beds or 64%.Quarter 4 overall EBITDA was at INR 266 crores as compared with INR 214 crores in quarter 4 FY '18, a year-on-year growth of 24%. Within this, Healthcare Services EBITDA grew by 21% to INR [ 2,110 ] crores. Healthcare services margins were at 18.3% in quarter 4 FY '19 versus 17.3% in quarter 4 FY '18. As we identified, mature hospitals' EBITDA margins have improved to 22.1% this quarter, well on the way to our 23% target over the next few quarters.EBITDA margins from the new hospitals have improved to 7% from 4% in the same quarter last year. These hospitals are achieved -- expected to achieve double-digit EBITDA very soon, and they will deliver ROCE well at the mid-teens over the next few years. The Proton outpatient services were commissioned on February 2019 and reported a revenue of 50 lakhs and EBITDA loss of INR 4.7 crores for the quarter. On SAP. The revenues grew 18% on the back of 156 stores added during the quarter, taking the total to 3,428 stores. SAP EBITDA grew 37% to INR 56 crores. EBITDA margins was at 5.5%. SAP ROCE is now at 21%. Private label sales are at 6.6% and rising. Net debt as of 31st March '19 is INR 2,949 crores. We had a debt-to-equity ratio of 0.83, and a net debt to EBITDA of 2.90x.Mature hospitals' ROCE crossed the 20% threshold and reached 22% in FY '19. SAP ROCE is at 21%. Consolidated performance outpaced the stand-alone financial supporting 19% revenue growth and EBITDA growth of 51% in quarter 4. Apollo Health and Lifestyle recorded revenue growth, a shade under 30% for quarter 4 and for the full year FY '19, and is maintaining its growth momentum across all formats. The pharmacy restructuring is ongoing and we expect it to be complete in the next 4 to 5 months.We believe that these results have reinforced our position as India's foremost private health care provider. And with the capacity that we have already created, we believe that is a significant top line an EBITDA of [ 5 ] that will accrue in the forthcoming years. Our focus on cost optimization and asset terms will continue, and out -- and EBITDA growth will continue to outpace top line growth. Our centers of excellence are established now with dedicated national service line managers who are driving clinical innovation and differentiation across each of the centers of excellence along with facilitating knowledge setting our best practices across the network. We believe our differentiated clinical value proposition in each of the COEs will continue to drive higher-acuity cases into our mix which will result in a further expansion of our margins. The Apollo Proton Cancer Centre was formally inaugurated in January 2019, started outpatient operations this quarter and will be fully commissioned over the next 6 months. Our investments in this first-of-a-kind, along with a 150-bed integrated cancer care hospital, is a statement of our intent to cement our position as the foremost provider of comprehensive oncology care in the country and indeed in this part of the world. This center is positioned as the hub of our oncology verticals which was 9 centers, 3 in progress, over 200 medical, surgical and radiation oncologists and highly skilled nurses and technicians will be a key focus of our future strategy. We will seek to grow network revenues in oncology to over 2,000 crores over the next 3 to 5 years by harnessing our outstanding clinical talents, cutting-edge technology, hub-and-spoke network, national consumables and internationally hedged clinical protocols and world-class outcomes. Our efforts will also be to position India as a preferred destination globally for oncology.I believe in the evolving nature of this sector and investment and for much of the future are starting to show encouraging results. AHLL has reduced its EBITDA also dramatically. There is a clear vertical-based strategy in place for the entity, and this is on course to achieve EBITDA breakeven by mid-FY 2020 and thereafter, deliver healthy returns. Our home, health and digital programs are -- that's growing consumer expectations for transparency, autonomy and convenience. We believe that we are adopting technology ahead of the curve and we'll continue to strength our access platforms and also engage with each consumer across the care life cycle. We believe we have an important role to play in pivoting the national conversation to good health and prevention while continuing to treat illness. We are therefore setting up a long-term focus on preventive health and wellness supported by digital, AI and predictive risk. We have, over the last 18 to 24 months, built a successful model of delivering digitally enabled primary health care to the urban and rural primary health care centers under the PPP mode in certain Indian states. We look forward to expanding our network in this place and supporting the state and center governments in our efforts. Before I close, I would like to share that our Board has recommended a dividend of 120% at INR 6 per share.I would -- I now open the floor for questions. Dr. Hariprasad, Chandra Sekhar and Krishnan.

[Operator]

[Operator Instructions] The first question is from the line of [ Patesh Shirah ] from Lucky Investment Managers.

[Unknown Analyst]

Congratulations for a fairly great improvement in performance. Just wanted to understand on the cash flow side. This year, we haven't seen repayment of any debt and in fact, there is some increase. So just on the cash flow side, what was our utilization? And next year, do we have a case for a debt repayment or -- and what kind of CapEx estimation do we have?

[Krishnan Akhileswaran, Chief Financial Officer]

So on the cash flow side, clearly coming -- in the past last year, as you know, we were in the last phase of our CapEx addition. The Proton therapy cancer center, which is the integrated cancer center that we had that had a consumption -- if you look at last year, we had almost around INR 200-plus crores that we had in -- INR 250 crores that we had to invest in that center. And apart from that, we had bought Medics Internationals which is -- we have invested in that now which is around INR 90 crores that we have invested in that. We had around INR 80 crores of investment SPV which we had in Apollo Health and Lifestyle. Apart from our corporate routine CapEx, which has been all -- well, to the extent -- to the tune of around INR 200 crores including the pharmacy additions that we had. So that has been the deployment last year which is why obviously the debt has gone up. But coming to the next year, I think we will see a reduction in our net debt, clearly, because 2 things are going on as you will have to remember. One is, as the pharmacy restructuring happens, the front-end pharmacy will be into a separate is SPV, and the CapEx of the front-end stores will also be taken care of by that SPV. Clearly, we think that, that will bring cash to AHLL to the extent of at least INR 350 crores. And apart from that, you remember, there has been -- we also are looking at a liquidation of an outside investment which is something you are aware of, which is -- which should bring us incrementally another INR 200 crores, INR 30 crores, INR 50 crores. So combination of both that itself should bring our debt to lesser than INR 2,500 crores by the next year-end. This is our expectation from the current INR 3,200 crores including the free cash flow. So pleasingly, that is a significant net reduction that is going to happen in the next year as you rightly added.

[Unknown Analyst]

So operationally, the cash flow -- operationally, cash flow next year, what will be the CapEx? And what will be the debt repayment, if any, from the operational cash flows?

[Krishnan Akhileswaran, Chief Financial Officer]

So operational cash flows. Routine CapEx will be around INR 200 crores for hospitals. That is now the routine CapEx that we have for all our hospitals every year. So you can pencil in that INR 200 crores to your number. Working capital increase always has been in the range -- because there is an increase in insurance patients of the business. There is an increase in credit patients, et cetera from BSUs, et cetera. So that will be another INR 150 crores that we will have because of the working capital. And you have -- you can obviously look at the interest and factors, et cetera. So you will still see that we will have a free cash generation from our operations of roughly INR 300-plus crores versus something which will also be used for reduction.

[Unknown Analyst]

And you do not have any growth CapEx for bed addition now? And for what...

[Krishnan Akhileswaran, Chief Financial Officer]

Well, as of now, we have -- we don't have any specific CapEx plans. We are always open for doing any bolt-on acquisitions like Lucknow that can come our way, which is why if you look at it, INR 2,500 crores is something that I have given as a number whereas the numbers could even be a bit lesser than INR 2,500 crores.

[Unknown Analyst]

And just one more question on the mature cluster growth rate side which is a double-digit growth rate. And when I look at the slide presentation on 15 on inpatient volume, which is a low single digit growth rate in most of the clusters. The diff if you could explain between the 2 numbers and some time back the hospitals in general, were reeling under price cuts on knee replacements and stents and all. So are we past that phase? And do we see a sustained high single-digit growth rate in the mature hospitals for us?

[Krishnan Akhileswaran, Chief Financial Officer]

I think you're right. So clearly, you can look at the overall difference of 15% versus 7% volume growth. The balance 7% comes from a combination of acuity, especially if you look at the centers of excellence that we have: cardiology, oncology, orthopedics, neurosciences, ICU. Those have been segments that have been growing at faster rates than some of our secondary care segment. There, obviously, the ARPOB is higher, our average realizations are higher, et cetera. Clearly, the sales mix impacted 3 to 4 -- 3% to 3.5% in that overall 15% number that we have for the quarter, also even for the year which is almost around 16% to 14%. So the balance of almost 3%, 3.5% is caused because of prices.

[Suneeta Reddy, MD & Executive Director]

So just to amplify a little bit on that. You know in all our existing work, the more mature units, we've changed our case mix significantly towards more surgical work. So we're focusing more on surgical work than the fevers. The other thing is the reduction in our loss. So because of this, the occupancy would come down. But with regard to volume, we are taking more of the surgical cases rather than the fevers because the quality of revenue is better with that.

[Operator]

[Operator Instructions] We move to the next question from the line of Neha Manpuria from JPMorgan.

[Neha Manpuria, Analyst]

Ma'am, could you give us an update on the release of the pledge, please?

[Suneeta Reddy, MD & Executive Director]

Okay. We actually reduced the pledge by 10%. Going forward -- we're currently at 68%. Going forward, we expect that there will be a liquidity issue that will occur sometime in September, October. And at that time, it will come down by another 40%, 45%. So we would have brought it down to 15%. By the end of the year, we are looking at removing the entire pledge. So you can rest -- be rest assured that next year this time, there will be no pledge issue.

[Neha Manpuria, Analyst]

Okay. So the liquidity -- rent in September, October you said, would reduce by 40% to 50%.

[Suneeta Reddy, MD & Executive Director]

Yes.

[Neha Manpuria, Analyst]

Understood. That's helpful, ma'am. And second, if you look at the regulatory environment, we have a little bit of impact from the cancer drug cap. There's also talks about potential capping of trade margins which could impact pharmacies. Should we be concerned from a regulatory point of view, if not for hospitals, for pharmacies also?

[Suneeta Reddy, MD & Executive Director]

I think that we've learned over the past 2 years how to deal with regulation and still see there's values created both for the hospital and the patient. So with regard to oncology, which you first mentioned, clearly, there was a cap on oncology drugs. But the way that Apollo has looked at it is that because of this cap in the lower price, we're seeing that the volumes are improving significantly. Patients will go to distributors to actually buy and some of the distributors will supply. But now we believe the volume will make up for the absolute amount of EBITDA. So while EBITDA margin might be slightly is -- this is what's happened. Well, I also want to say that in spite of everything that's happened in the last year, that EBITDA margin actually grew to 5.4%, and we believe that the channel margins will continue to improve like they did by 60 basis points. We are also speaking to manufacturers because of the large volume that we buy. We expect that there must -- that we might get some additional discounts. The third thing is that Apollo has always been pricing for services. Over the last 18 months, we've moved to pricing for services that retains -- the deltas retain the 20% margin that we continue to have for all our procedures and for everything that happens within the hospital.

[Neha Manpuria, Analyst]

So ma'am, then how do we look at margin expansion for mature hospitals? Is it capped at probably 22 -- but could probably improve a little bit more? How do you see that trending forward?

[Suneeta Reddy, MD & Executive Director]

So our margin has already -- in mature hospitals is at 22.3, it has improved from, I think 21 point -- by 90 basis points sort of improvement. And I think we'll continue to see that margin expansion. We promise to show 23%. We're on track for the 23%. Margin expansion will come because one, we do -- we are seeing the growth in volume. The second is [indiscernible] mature. The case mix is very important. We're moving towards more surgical work. And three, there's a lot of cost containment that we're doing in terms of keeping our consumables for surgical procedures. So that is enabling us to enhance our margins.

[Operator]

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

[Anubhav Aggarwal, Associate]

One, just clarity on the CapEx. For fiscal '20, you did not include the CapEx -- balance CapEx on Proton, and you still mentioned operational cash flow will be there. My understanding is if I include the Proton CapEx, there will be no operational cash flows.

[Krishnan Akhileswaran, Chief Financial Officer]

So CapEx -- if you look at the operational cash flows EBITDA again, I didn't bring it down significantly from the INR 2,500 crores if you looked at the number. I said INR 600 crores between stand-alone pharmacies and the other ones which will bring it to become INR 3,200 crores to INR 2,600 crores. From INR 2,600 crores to INR 2,500 crores in what I have considered to bring it to INR 2,500 crores. It's only INR 100 crores reduction. So the operational cash flows of INR 300 crores, almost around INR 200 crores can be used for rebalanced Proton. So that will still leave INR 100 crores with us.

[Anubhav Aggarwal, Associate]

So the CapEx that you're expecting for next year will be INR 200 crores routine CapEx, INR 200 crores for Proton, INR 400 crores for [indiscernible]?

[Krishnan Akhileswaran, Chief Financial Officer]

That is correct. And in total, I would also want to say here that as we speak, that is what we are looking at. But I think you will hear back from us over the next 30 days on -- we are in very advanced stages for orphan SPV, creating an SPV on Proton and we are in very advanced stages of getting us an investor there which will be a very long-term, 10-year investor, and you will hear back from us over the next 30 days once again -- once we have the final details on the same. And once that happens, you will realize that, that will be a further profit into the overall balance sheet of AHEL. But we are -- as of now, I'm not taking that into consideration pending finality of the same.

[Anubhav Aggarwal, Associate]

Okay. That's helpful. And then on the AHLL side, the Spectra incurred -- actually, the EBITDA turned positive this quarter, and that was very sharp turn from third quarter to fourth quarter. What changes -- is this a one off over there or now you are positive?

[Suneeta Reddy, MD & Executive Director]

Dr. Sekhar?

[Chandra Sekhar Chivukula, President of Corporate and International]

No, there has been a robust growth and these are -- we've managed to turn around -- actually, most of the network has always been positive in Spectra barring a couple of centers which were dragging it down into the negative EBITDA zone.So those have been specifically worked on to find solutions on improvement of occupancy and surgeries. And what we are seeing is a -- systemic improvement. We also have added income from some asset trade expansion which we have done for Spectra. And we will continue that as a strategy for the next year.

[Anubhav Aggarwal, Associate]

What do you mean by added income from asset? What was that? Sorry, I missed that.

[Chandra Sekhar Chivukula, President of Corporate and International]

So we have incomes coming in from operating and management of other assets. That's what we're trying to do.

[Anubhav Aggarwal, Associate]

So is Cradle still EBITDA negative? Or Cradle also has turned EBITDA positive?

[Chandra Sekhar Chivukula, President of Corporate and International]

Cradle, for the quarter, is positive.

[Anubhav Aggarwal, Associate]

Okay. And is this now going continue? So for -- is it quarter 1, quarter 2 we should see this Cradle and Spectra segment being positive -- EBITDA positive from here?

[Krishnan Akhileswaran, Chief Financial Officer]

Yes. We expect -- we will have some annualization, of course, in the first quarter which may put it down a little bit. But then by second quarter, we will see that they will be in the positive zone.

[Anubhav Aggarwal, Associate]

Okay. And just 1 clarity on the hospital clusters. Have you taken any price increase specific in this quarter in any of the clusters?

[Krishnan Akhileswaran, Chief Financial Officer]

Not in this quarter.

[Suneeta Reddy, MD & Executive Director]

Earlier.

[Operator]

The next question is from the line of [indiscernible] from [indiscernible].

[Unknown Analyst]

This is Andrei, Sunita's partner from [indiscernible]. I wanted to ask 2 questions. One is related to occupancy. So I wanted to know what in your mature hospitals, what is your breakeven as far as occupancy is concerned on EBITDA to -- back base -- whichever basis you can give us.And second thing what can these occupancy rise to? And if you have any new comparable figures with any other private hospitals in India, how would you compare from that? So that side is the occupancy question. And my second question is on mix -- on case mix. I was just curious as to how can you control the case mix that you handle? Isn't the case mix a function of the prevalence of disease or whatever problems exist in the population?

[Suneeta Reddy, MD & Executive Director]

Okay. With regard to hospitals, you did mention occupancy in mature hospitals.

[Unknown Analyst]

Right.

[Suneeta Reddy, MD & Executive Director]

Is that right?

[Unknown Analyst]

Yes. What is the breakeven?

[Suneeta Reddy, MD & Executive Director]

So breakeven, I think we're so far past to breakeven. When we're delivering an ROCE of close of 22.3%, it's difficult to determine what could be a breakeven because all of them are contributing to margins. I think with that, we do concentrate on case mix and asset utilization. And the reason that we do it is that having seen that we have a certain steady occupancy, we need to improve the quality of the revenues and the margin profile. So clearly, we're at 70% occupancy in our mature hospitals. At 70%, we delivered a margin -- we're delivering margins of 22%. Anything -- as we go further, it's very -- we can only -- there's only a 10% headroom for occupancy or volume growth. So we may -- must make sure that, that 10% is all about case mix and surgical volumes. So how do we -- case mix is certainly a reflection of the NCDs, which is noncommunicable diseases, which we made sure that we have the best doctors and the best surgeons. So our case mix is focused on orthopedic. It's focused on oncology, which we spoke extensively about, on cardiac work, on neuro work, on general surgery. And we also look at a lot of neurosurgery. So these are the 5 centers of excellence plus the general surgery that we're looking at. And this clearly improved our margins. I hope I've answered your question.

[Unknown Analyst]

Yes. If I can just get an elaboration. One is that what is the breakeven on your new hospitals then?

[Suneeta Reddy, MD & Executive Director]

50%.

[Unknown Analyst]

50%. And you're basically saying that you control the case mix by creating a reputation and by having the best doctors, et cetera, and service in the areas that you think are more profitable. Is that what you're saying?

[Suneeta Reddy, MD & Executive Director]

We spoke about the COEs where we have service line managers. So we look at Apollo, the whole group and set up a cardiac practice or an on-call practice, but that is now across 30 or 40 of our high-end institutions. So this includes whatever -- how do we improve clinical outcome, how do we bring in new technologies and innovation? And all of that is driving greater margins. And that's how we have this plan in oncology, for example, to grow to INR 2,000 crores. So we've moved beyond just thinking of Apollo as a cluster. We've moved to thinking about these Centers of Excellence where we believe we can get INR 2,000 crores of revenue in each of the centers of excellence by very good technology, very good surgeons and great doctors.

[Operator]

The next question is from the line of Pranit Banwat from ICICI Bank.

[Pranit Banwat]

My question has already been covered.

[Operator]

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

[Shyam Srinivasan, Equity Analyst]

Just a first clarity on -- in your opening remarks, you talked about oncology revenues and that you will target to reach INR 2,000 crores over the years. Did I hear that right?

[Suneeta Reddy, MD & Executive Director]

Yes. Yes.

[Shyam Srinivasan, Equity Analyst]

Yes. So ma'am, what is the -- today, what is in FY '19, what is the -- that equal in number that we have already done?

[Krishnan Akhileswaran, Chief Financial Officer]

Around INR 850 crores is the gross number.

[Shyam Srinivasan, Equity Analyst]

INR 850 crores is the gross number. And does INR 2,000 crores, we think it's a 3- to 4-year kind of a journey?

[Krishnan Akhileswaran, Chief Financial Officer]

Yes.

[Suneeta Reddy, MD & Executive Director]

Yes.

[Shyam Srinivasan, Equity Analyst]

Yes, sure. So ma'am just on this part, so I think you touched upon it in the opening remarks on oncology. So can you just give us more color? Is -- would it be efforts like Proton? Or will it be -- what can help us get this number? I think if you can elaborate on that.

[Suneeta Reddy, MD & Executive Director]

I think it's a combination. First is the right technology. So we've got technology and we've created hub-and-spoke models. So there's [indiscernible] in a lot of hospitals and the referrals that will come into Proton. So we've created in terms of technology getting the best technology but with it, getting really good doctors. The second part of what we've done is that by focusing on clinical outcomes, we've recruited, I think, the best doctors, the best surgeons in India who are now with Apollo. So this, we've actually seen onco growth grow at somewhat-- in fourth quarter at around 18% growth in oncology. So it's proof that we have the strategy right. Like I said earlier, it's about technology, it's about doctors. It's about working. We have 2 more [indiscernible] now that we're work with foreign institutions and for people like MD Anderson. So clearly, in terms of first opinion, second opinion, we are really there. In terms of clinical oncology, also, we've set up very good teams. We have beta chemotherapy centers in each of our hospitals. So there's the complete service offering, which is a combination of great technology, great doctors and the holistic thing of having the Proton which provides the ultimate, 360-degree care.

[Shyam Srinivasan, Equity Analyst]

If I just do the math on INR 850 crores divided by the total hospital services, it's about 20% of your revenues are now coming from oncology. And you look like you will probably expand this in the next few years, it looks like.

[Krishnan Akhileswaran, Chief Financial Officer]

Well, INR 850 crores is the gross revenues, it includes the doctor's fees. The way that you have looked at it, you have looked at it at net. So probably, it can be a bit lower than that. I'd like to come back to you on the net revenues. The reason I said the gross is because it's a comparing this to some of the other players in the market, you will kind of get the numbers from their perspective. So from our perspective, I'd like to come back on the group's revenues on oncology.

[Shyam Srinivasan, Equity Analyst]

Okay. And my second question is on the pharmacy. We've added about, I think, 407 stores net, right? So what's the expansion plan for next year?

[Krishnan Akhileswaran, Chief Financial Officer]

But before that, I disclosed that on the other one also. Just also remember that in our consolidated results and on the -- Calcutta is not consolidated, and the [indiscernible] is not consolidated. So to that extent, it's not consolidated in the numbers that you're seeing. So INR 850 crores divided by [ number of stores ] will also not give you the correct number on core revenues. And we will get back to on the current number.

[Chandra Sekhar Chivukula, President of Corporate and International]

We expect that around 350 stores to 400 stores year-on-year as we have this year and the last year, what we have done, and we continue to do that.

[Shyam Srinivasan, Equity Analyst]

Okay. 350 stores, right?

[Krishnan Akhileswaran, Chief Financial Officer]

350 stores.

[Shyam Srinivasan, Equity Analyst]

Yes. And the private label numbers, sir? That's about 6.6%, right? Do you think this is...

[Chandra Sekhar Chivukula, President of Corporate and International]

Yes, 5% to 6% and then we -- here we have that isolated in that portfolio. We can see improvement in the coming year.

[Shyam Srinivasan, Equity Analyst]

Got it. And last one on pharmacy. Now margins we saw good expansion about I think 60, 70 bps. What are the key drivers? Is it just operating leverage? Is it just private label? And what is the visibility for fiscal '20?

[Chandra Sekhar Chivukula, President of Corporate and International]

It's a combination of private label volume and cash utilization. We -- next year, we expect to continue at the same level of growth with regards to the number. But hopefully, we'll continue the same level of performance.

[Krishnan Akhileswaran, Chief Financial Officer]

And clearly, 2 specific areas that we are focusing on. One is the -- there is a -- there is -- there are efforts that we have across the system for prescription -- better prescription script fulfillment. Clearly, that is -- that means we have a better per inventory management which is online, we do a proper assessment online of what's happening, what needs to be stocked, et cetera. And second is we've been trying to upsell some of our FMCG products, et cetera, which we have. Both of that is something that is helping the overall sales per store as well.

[Operator]

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

[Sameer Baisiwala, Executive Director]

Suneeta, what's your outlook for the top line growth for both existing as well as new hospitals for this year?

[Suneeta Reddy, MD & Executive Director]

So this year, we're looking at 10% of the existing and 30% for the new ones.

[Sameer Baisiwala, Executive Director]

Oh, okay. And both of these would be coming with some 100, 200 basis point margin improvement?

[Suneeta Reddy, MD & Executive Director]

Definitely. Yes, I think margin improvement is key.

[Sameer Baisiwala, Executive Director]

Okay. Great. And Krishnan, second question is on the Protons facility. So what kind of equity transaction that you have in mind? And some bolt-on [indiscernible] if you can?

[Krishnan Akhileswaran, Chief Financial Officer]

It is better if we wait for a couple of weeks on this. I think we have -- we are probably impacted -- by the next 30 days, as I said, we should be in a better position to give you better color on this. So clearly, it could be an SPV, as I said. It could be something that we will have a long-term investor who will come into for 10 years into that SPV, and we will have a joint control from our side. It will not be consolidated into the P&L of Apollo. So clearly -- and it will have data as well on that books from our books. So it is something that will help us. But also the second point, strategically also it will help us bring in other -- it will give us an opportunity in the future to bring in other strategic investors if required. It will also provide a platform which can probably be looked at for future to see what else can be added there. So it's just things that we are still at stages -- that I will probably come back to you in the next 30 days.

[Sameer Baisiwala, Executive Director]

Okay. And another question is on the operating beds. Would you be adding some more over here from your latent capacity?

[Krishnan Akhileswaran, Chief Financial Officer]

Yes. We should be. I guess, especially in a couple of new hospitals, we will be looking at adding -- operationalizing a few of those beds. So maybe, at least in the coming year, we should be operationalizing maybe 150 to 200 beds.

[Sameer Baisiwala, Executive Director]

Okay. Great. And just one final one and with your permission. So the liquidity event, Suneeta, you have in mind around September is Apollo Munich?

[Suneeta Reddy, MD & Executive Director]

Well, it's silent period for us. Excuse us from answering that question, please.

[Operator]

The next question is from the line of Krishna [indiscernible] from Emkay Global.

[Unknown Analyst]

Yes. One question on Apollo Health and Lifestyle. If I look at this quarter, quarter 4, which is quarter 4 of last year, our revenues went up from about INR 123 crores to about INR 160 crores, and our losses have significantly reduced from about INR 40 crores to less than about INR 9 crores. So is the incremental margins in this business so high? Is that right assumption?

[Krishnan Akhileswaran, Chief Financial Officer]

Dr. Sekhar?

[Chandra Sekhar Chivukula, President of Corporate and International]

Yes, that's margin enhancement.

[Unknown Analyst]

Sorry, I didn't get that.

[Chandra Sekhar Chivukula, President of Corporate and International]

It is margin enhancement.

[Unknown Analyst]

Okay. And would it be primarily driven by what we get as gross revenue and incremental net revenue? And would that be the primary driver?

[Chandra Sekhar Chivukula, President of Corporate and International]

No. We have improvements in doctor payout and also in consumption. And all that is added to our gross margin improvement. And from last year, 43% was the gross margin. It has improved to about 51% this year.

[Unknown Analyst]

And that would be driven by recent doctor payouts efficiency and cost optimization, both?

[Chandra Sekhar Chivukula, President of Corporate and International]

And consumption. Yes.

[Unknown Analyst]

Right. And second question is on pharmacy. When this transaction in terms of Apollo Medicals Private Limited and consequently, Apollo Pharmacy. The other 3 investors, whatever money they put in will be sufficient for additional expansion which we have there? Or Apollo Hospital will have to also chip in money out of whatever we get from that particular business?

[Chandra Sekhar Chivukula, President of Corporate and International]

We will be raising debt at the Apollo Pharmacy Ltd. level. And using that for paying -- some bill consideration for Apollo. So that will be definitely for erasing that debt.

[Krishnan Akhileswaran, Chief Financial Officer]

And on a go-forward basis, as you know, I've worked around 15% of the cash flows or EBITDA is going to be there, which will take care of the requirement for the new CapEx, et cetera.

[Operator]

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

[Nitin Agarwal, Analyst]

Sir, can you help us understand in terms of the progress on the Mumbai Hospital, and how do you see this asset over the next couple of years?

[Krishnan Akhileswaran, Chief Financial Officer]

I think the Mumbai Hospital has come up very well in this year, as you're aware. Clearly, we have now crossed the -- a milestone of over INR 200 crores in overall revenues from this hospital now. And it is already operationally positive. The EBITDA from there is almost around INR 6 crores, INR 7 crores as we speak in this year. Going forward, we are quite positive that as the -- all the incremental revenues, we will see a good -- we will see it coming down to the EBITDA at almost 5% to 50% level. And we are quite hopeful that it crosses the 200 bed occupancy by end of next year.

[Nitin Agarwal, Analyst]

Can you help -- what was the total bed occupancy for this year for the hospital?

[Krishnan Akhileswaran, Chief Financial Officer]

Around 150.

[Nitin Agarwal, Analyst]

Which you're seeing is going to go to 200 by next year?

[Krishnan Akhileswaran, Chief Financial Officer]

That's correct.

[Nitin Agarwal, Analyst]

And the EBITDA contribution should increase meaningfully, right, because of the leverage that's going to come through?

[Krishnan Akhileswaran, Chief Financial Officer]

That's correct.

[Operator]

[Operator Instructions] Next question is from the line of [indiscernible] from NT Asset.

[Unknown Analyst]

Could you comment on your plans for e-pharmacy? Because you see a lot of players have now scaled a bit pretty significantly?

[Krishnan Akhileswaran, Chief Financial Officer]

So I think it's -- they are -- there are certain regulatory concerns as you're aware of, which is something that we are getting more clarification from the government because we are, as you're aware, we are large players in the segment, and we don't want to do something which is not correct. There obviously has been some -- there have been court orders on the same. But we are clearly considering our e-commerce segment. We know that from our -- currently, we have [indiscernible] -- the more important thing is we know that the fulfillment rate of our orders is something that we are focusing on. And especially given our focus which we have across many of the geographies, this is where we get our orders from. Almost around 80% of the orders, we would like to -- like that to be delivered on the same day. That is going to be a significantly different offering compared to most of the other e-commerce players. We are on the -- we are working on the same. I think you know to -- give us 6 months to get there because of the regulatory issues.

[Operator]

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

[Harith Ahamed Mohammed, Vice President]

The CWIP of INR 800-odd crores that's there in your March balance sheet. Which facility is this pertaining to?

[Krishnan Akhileswaran, Chief Financial Officer]

That -- a significant amount of that will be for Proton. And almost -- there will be -- there are a couple of -- there is a brownfield cancer that's in Vizag and Bhubaneswar, both of that is also part of that.

[Harith Ahamed Mohammed, Vice President]

Okay. And what would be your guidance for the losses from -- EBITDA loss from the Proton center for next year? Should we be looking at the current run rate?

[Krishnan Akhileswaran, Chief Financial Officer]

So I think, clearly, the hospital where we are putting that, the whole hospital will be ready by maybe the end of this year because clearly, the first Proton, that is the first treatment room, the second and the third. The third comes in by almost around -- the third comes in by almost around December and the third treatment room. So that is our phase to ramp-up that is going to be happening of the hospital -- of the Proton Therapy Center, and the hospital will also probably be between the August and December time frame. The current year, also, we don't expect it to be more than INR 25 crores to INR 30 crores as we stand.

[Operator]

The next question is from the line of [indiscernible] from Emkay Global.

[Unknown Analyst]

Yes. Just one question. Would the cash flow conversion in pharmacy business as a percentage of EBITDA be significantly higher or equivalent to what we do with hospital business?

[Krishnan Akhileswaran, Chief Financial Officer]

Yes. It will be higher.

[Unknown Analyst]

Would it be significantly higher?

[Krishnan Akhileswaran, Chief Financial Officer]

It is significantly higher.

[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, sir.

[Suneeta Reddy, MD & Executive Director]

Ladies and gentlemen, thank you for participating in our earnings call today. As was evident, at Apollo, we are focused on delivering outstanding clinical outcomes as well as -- which will result in a healthy financial performance. Apollo is the only integrated health care player that includes hospitals, pharmacies, AHLL with its new format of care. We believe that each of these businesses will continue to add value to both patients and shareholders. Thank you again for joining this call. Good afternoon.

[Krishnan Akhileswaran, Chief Financial Officer]

Thank you.

[Operator]

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