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Apollo Hospitals Enterprise Ltd
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Ladies and gentlemen, good day, and welcome to Apollo Hospitals Limited Q4 and FY '20 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, Lizanne. 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 fiscal year 2020, which were announced yesterday. We have with us on the call today, the senior management team comprising Mrs. Suneeta Reddy, Managing Director; Dr. Hariprasad, President of the Hospitals Division; Mr. A. Krishnan, Chief Financial Officer; Mr. C. Chandra Sekhar, CEO of AHLL; and Mr. Obul Reddy, CFO of the pharmacy business. 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. For a complete listing of such risks and uncertainties, please refer to the investor presentation shared earlier. Documents relating to our financial performance have been circulated with all of you earlier, and these have also been posted on our corporate website. I would now like to turn the call over to Mrs. Suneeta Reddy for her opening remarks. Thank you.
Good afternoon, everyone, and thank you for taking time out to join our call. I hope all of you are safe and healthy. I just received our earnings document, which we had shared earlier. While our long-term outlook on the COVID, coronavirus epidemic is still highly uncertain, so individuals and families are nevertheless having to adopt to the new challenges thrown up by this unprecedented crisis. Health care systems worldwide are at the center of this crisis as we have been entrusted with the responsibility of saving lives as well as keeping our employees and our hospitals safe for doctors, frontline staff as well as other non-COVID patients. While at the end of quarter 4 FY '20, was the beginning of our experience with COVID, I am glad to report that in this quarter, we have posted a set of numbers, which I believe demonstrates continuing momentum and the resilience of the business. The company recorded stand-alone revenue growth of 19% to INR 2,572 crores and consolidated revenue growth of 17% to INR 2,922 crores, this -- aided by SAP growth of 33%, and Healthcare Services growth of 6% for the quarter. This was after accounting for a revenue downside of INR 70 crores on a stand-alone basis and INR 100 crores on a consolidated basis because of the COVID impact on the Healthcare Services segment, which began early in March 2020. The loss of revenue had an impact on EBITDA and reported occupancy levels across the hospitals. Stand-alone pharmacies, however, witnessed increased buying in the quarter aided by the general tendency to stock up on medicines and consumables prior to the nationwide lockdown. For the quarter, while the overall volumes in Healthcare Services degrew by 1%, our new hospitals recorded a volume growth of 7%. New hospitals quarter 4 revenues of INR 275 crores, growing at 8% year-on-year, while mature hospitals revenues grew at 3% was also -- it is also heartening to have 22% revenue growth in our oncology vertical.Our margins in mature hospitals was strong at 21.3% while margins in hospitals were 6% for the quarter. The SAP vertical recorded excellent results with revenue growth of 33% on year and EBITDA higher by 52% against the same quarter at INR 85 crores. Network-wide EBITDA margin at 6.2%. Those are mature stores [Technical Difficulty] SAP, ROC now...
Sorry to interrupt, ma'am, your audio is breaking up.
Can you hear me now?
Yes, that is a little better. Thank you.
So sales from private labels are now at 8.4%, quarter 4 overall stand-alone EBITDA post Ind AS 116 was at INR 348 crores, pre Ind AS was at INR 288 crores as compared to INR 266 crores in quarter 4 FY '19, a growth of 8% on a year-to-year basis. Within this, Healthcare Services EBITDA degrew by 3% to INR 203 crores, impacted by lower volumes in occupancy due to COVID. We estimate that IP volumes were lower by about 4,500 cases across the group network due to the COVID. Overall, occupancy across the group in FY '20 was at [Technical Difficulty] or 67% compared to 4,938 [Technical Difficulty] in FY '19. The occupancy in mature hospitals was at 1,264 beds or 67%. New hospitals had an occupancy of 61%. AHLL continued on its growth path and achieved an EBITDA of INR 1.8 crores for the full year, a swing of INR 62 crores from last year's EBITDA loss of INR 60 crores.This demonstrates strong growth in top line at 8% despite the impact on the clinics and Spectra business due to COVID and an EBITDA loss of INR 1.7 crores for the quarter. Net debt as of March 31, 2020 is at INR 2,786 crores. We have a debt-to-equity ratio of 0.79 and net debt-to-EBITDA of 2.3x. We have in January repaid debt worth INR 340 crores out of the proceeds of the Munich transaction. Moving on to COVID. We've continued to contribute to the fight against COVID-19 in several ways under the umbrella of Apollo Kavach, the shield against COVID. This is a comprehensive and integrated response plan by the Apollo Group. The first, our COVID-19 scans released through our platform 24x7 was a helpful tool in the early days of COVID for a user to determine a COVID risk score and take appropriate measures. Over 15 million users have taken the risk score.Secondly, 10 of our AHEL labs and 2 diagnostic central labs have undertaken COVID-19 testing. Thirdly, we have allocated 1,000 beds in our network for the treatment of COVID. Fourth, we have launched 2 services, I Stay and Stay-I at home, which provides safe options for -- safe isolation of COVID suspected and COVID positive patients both in hotels and at home.Finally, we accelerated the launch of our new app 24x7 to provide important services during the COVID crisis. Such as virtual consultations with our specialists and home delivery of medicines booked online on this app. Over 1,000 virtual consultations are happening every day as we speak. This has ensured that our patients' continuum of care continues undisturbed despite the pandemic. Having said this, it is also a fact that the pandemic has a significant impact on our occupancy during the first 3 months of the current fiscal FY '21.Occupancies in April, May and June was a 28%, 35% and 45%, respectively. We expect business and operations to get back to normalcy by the end of quarter 2 FY '21. Anticipating this loss of business, we have initiated a slew of cost-saving measures internally, which would, in the short term, reduce cost by 25% to 30% as a result of these initiatives. We are able to ensure that there has been no increase in net debt for the period of April to May 2020.In the medium to long term, we are working on initiatives that will structurally reduce cost by 15%. All these factors give us confidence that while in the short term, it will be challenging. We will emerge stronger and smarter in the medium term, and we'll be able to accelerate our strategic movement in 3 specific ways.The first is moving closer to the consumer. As we said earlier, COVID-19 only reinforced to believe that the future of health care is in moving closer to the consumer. Our definite step in that direction, we launched a Apollo 24x7, which is a robust digital platform of offering the capabilities of virtual doctor consults, online pharmacy, diagnostics at home, digital health records and health management. The other arm of our business, which is a strategic focus area is a home health which has seen good traction during COVID and will continue to grow. These formats will move us closer to the consumer and improve stickiness with them. Second, our second area of focus is to deepen our presence and extend our dominance in certain key markets. Apart from the south where we have a strong presence to west and east are certainly markets of interest to us, and we will be working on ways to penetrate select micro markets as part of our strategic goals.The third area of focus will continue to be our fast-growing pharmacy vertical, which has now, in the short term, with the digital platform, assured delivery of medicines. There is a clear strategic road map for the pharmacy business, which includes achieving revenues of INR 10,000 crores to 5,000 stores in 5 years, and we are well on our way towards that direction, along with improved EBITDA margins. It is evident from the above strategic goals that the way we think about our business model is strongly evolving. We are no longer defined simplistically by the physical beds we have, but we are defined by the lives we touch and the consumer touch points we serve. We believe this is the future of health care. And post COVID, we will emerge stronger with the business model that fully aligns this future and the aspiration of the customer.So with that, let me hand it over to the entire team to take your questions. I have Dr. Hariprasad, Krishnan, Chandra and Obul Reddy with me. We are happy to take your question.
[Operator Instructions] The first question comes from the line of Neha Manpuria from JPMorgan.
My first question is on the occupancy. I think you mentioned, ma'am, in the opening comments that occupancy has touched about 48% in the month of June. I just wanted to understand how much of this improvement is because of probably the increase in the COVID cases and therefore occupancy increasing in COVID beds versus non-COVID patients?
So if you look at our allocation, only 30% of this will be COVID. The rest is patients coming back into the system.
And we've seen this in all our cities or this would be more in, let's say, Bangalore and Hyderabad?
Yes. This would be mostly in Chennai, Calcutta and Delhi. Our Tier 2 hospitals is -- we're not see many COVID patients there. So those are seeping back to normal occupancy of about 60%.
Understood. And second question on the cost saving. If I heard correctly, you said 25% to 30% reduction in the near-term and then a structural cost reduction of 15% over time. If you could give more color on by near term, do you mean that these are temporary in nature? And in which areas would these be?
Yes, some of them are temporary in nature. Those that we're looking at which are temporary is that one is the rentals. So we've got a waiver from most of our rental premises, which is for a 3-month period, but we've asked for a reduction for the whole year. And hopefully, that will come through. The second has been in salaries. While we've maintained and given a bonus to frontline people, which are our nurses, doctors and staff, we have taken salary cuts for this quarter, which contribute to this. So I think -- and the third, of course, is marketing. We've completely -- we've not spent any money on marketing and insignificant amounts on marketing, which contribute to this.
Understood. And the 15% structural reduction in what areas would that be?
So that would be like a much deeper engagement where we're looking at even the variable cost. So from looking at variable costs, I think it focuses on every area of cost starting from our consumables, we've looked at kitting out surgeries and, therefore, reducing cost because of kitting and therefore, reducing our purchase, getting better prices for what we purchase. We're looking very closely at employee cost as well. And the third, of course, is things like travel, long-term reduction in rent, all of this will contribute to between 10% to 15%. And while it's being led by the central team, each of the units are taking it very seriously and are committed to this 15% reduction.
The next question from the line of Prashant Nair from Citigroup.
Just a couple of questions. One is within your network, can you give us a sense of how many patients would be coming into any hospital from, say, outside city limits? And have you seen a recovery in this kind of patient flow as well? Or is it just the local -- the city-based population who started coming in back to a hospital?
Prashant I think considering that we've been in lockdown mode for a long time, it would be difficult for people from outside the city to come. But there have been instances, we've had flight chartered and we brought in air evacuations and those sort of one-off instances happening. But our focus now is on -- on our local market share and engaging our -- yes, and also focusing on the corporate which are there in most of the urban cities. So it's our engagement with corporates, it's our engagement with referral doctors, our engagement with local nursing homes that is actually contributing to higher occupancy.
Yes. And can you give a rough sense of how much of your patient inflow would be this kind of medical travel-related patients, so people who are coming from outside city limits?
So maybe from unit to unit, right? So if you look at in a place like Chennai, it would -- because obviously, it was a referral hospital and there was a lot of patients coming from outside, international as well as outside Chennai. So clearly, in a place like Chennai it would be over 35%, whereas in certain other geographies like Bangalore, et cetera, it has been less than 20%. So which is why -- so it will differ from place to place and location to location. Places like Calcutta is significantly from within, Hyderabad is more from closer geographies. So each place has a different perspective.
And just 1 last question, which is a clarification on what you outlined about your cost reduction initiatives. So the near-term cost reduction that you mentioned is all fixed cost reduction, right? It does not include the natural fall in cost because occupancy has fallen, but it's just incremental fixed costs that you are able to reduce by?
Yes, it is incremental fixed cost reduction.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
My first one is on the 1,000 COVID beds. What is the occupancy you're seeing on those beds at this point of time? And the related question is, what's the kind of average revenue per operating bed we can get from these kind of beds?
So if you look at the 1,000 beds, I think they're about 70% occupied because this number has -- every week we increased the number, now it's peaked a 1,000. So currently, there's about 70% to 75% occupancy. Of course, in cities like Chennai and [Technical Difficulty] volumes are large, we are more than 90% occupancy. So it varies from city to city. What is the average revenue, again, because of the capping in Chennai and Delhi, there is -- it is around 20,000?
Yes. Chennai and Delhi would be 20,000. In certain other places, it will be 25,000. So that's the range.
Got it. My second question is on breakeven for the hospitals. You talked about the cost kind of controls that you have put in place. But if you can help us understand where could be the new hospital occupancy breakeven on an EBITDA basis or whichever you want to share. So we are now at 45, I recollect you said in the month of June. So if that goes to 50 or 55, can you help us understand that?
Yes. I think that is the target that -- that's the breakeven point that we've also looked at. It is clearly 55. And hopefully, in July, by the end of July, we should be there.
55, right ma'am. Okay. Got it. And my last question is on the stand-alone pharmacy. So you said 8.4% if I recollect right. If we can just get an outlook for fiscal '21 for the stand-alone pharmacies in terms of -- are we just looking at the same 10% kind of capacity or store growth, if you can walk us through just the dynamics on SAP?
8.4% is private label.
8.4% is a private label. And though last quarter, Q4, we have grown at 33%, adjusted for COVID we are in the range of about 22.5% to 23%. We expect to maintain that normal growth despite COVID situation, maybe some slight variation because there is a difficulty in managing the logistics and the employees. And we expect to be in that range.
Store additions any guidance?
Store additions for first quarter, we have not done anything because managing the COVID thing itself is difficult. But from Q2, we are now planning to add this store. There may be some slight deduction -- reduction from what we have been adding in the earlier year.
So currently we are at 3,766 stores.
And we have added during the year about 88 for the quarter, about 360 in the full year.
Got it. And my last follow-up. So margin expansion, you think that can continue for SAP, right? Because store additions and operating this, right will come through?
We expect that maybe 1 or 2 quarters we have to see because there is a lot of COVID protection and expenditure because every day about 4 lakh people walk into our store. So employee protection and customer protection is most prime thing, and there will be some cost associated to it. Otherwise, we expect to be in the normal range.
The next question is from the line of Prakash Agarwal from Axis.
Yes. First question on follow-up on the EBITDA breakeven. So you mentioned it's 55%, this is assuming what kind of cost savings already in place for the quarter? Like you talked about 25% to 30%. I assume this would be over a period of time, can't be day 1, right? So what percent of cost savings already achieved? And does that 55% bake in the entire cost saving or there would be more to go in the second half of the year?
So we have started the cost savings effective April itself. And we have been, especially on cost, across the board that we have said rental, marketing, we have completely slashed all the discretionary costs, which is why we said the near-term opportunity is 20% to 25%. And when we said that it would be at 55%, we are saying that some of the near-term opportunities of 20%, 25% goes and what remains is the 15% reduction that we get, so which is where -- at the 50% to 55%, in that range, it will not be 55% across, even at 50% to 55%, we will get close to breakeven. So we are planning for that around July.
Understood. So Q1 would obviously be a red area for us. But from Q2 onwards, we will at least be -- hello?
Yes, please.
Am I audible?
Yes.
Yes, yes. So the correct understanding is, in Q1, it would be a negative EBITDA. But moving forward, Q2 onwards, we will turn into positive. And with the incremental cost savings and incremental occupancy, we will probably second half be back to normalcy, would that be correct to understand as of now or with a caveat, we should put a caveat there?
No, that is correct. But subject to lockdowns, right? Obviously, we are hoping that lockdowns there are no any further lockdowns, and we are hoping that people will be able to come back generally as we have been seeing in the last 2 months. We have witnessed increased occupancy as Ms. Suneeta already said. We should hope that it is incrementally better in the month -- couple of months ahead.
Understood. And my second question is on the price caps. So 2 days back, I think there was -- there are lot of government intervention which has come in in terms of some of the states and even Delhi talking about price caps, have these been implemented? And what is the average -- you mentioned about your average 20 and 25. If you could help us understand which are the states and what are their prices?
So broadly, the range is not significantly low because they have added a PPE cost to it, et cetera, infection control, they have been -- of course, they have said -- they have kept a very low-risk for the wards, but we don't do much of the wards. We do mostly critical care cases and we have a COVID critical care wing which is where we take many -- most of the people who want to come into care. And there, the average is around 15,000 from many of the government also.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
Suneeta, just a quick clarification on your comments of net debt. Did you mention that the net debt is 2,788?
That's correct.
Yes. 3,100 last quarter. And we had the Munich money come in.
Okay. I mean, this is as on end of March because your Slide #14 says...
No, no. So there is 2,786 is the stand-alone debt which Ms. Suneeta said, right? And the number that you would have on Slide #14 would be the consolidated debt of 3,084, that includes Apollo Health & Lifestyle and Bangalore, et cetera. Typically, most of them are in a position to take care of their own debt and debt servicing.
Okay. Okay. Got it. And the second question is, how do you see this in 2021 fiscal, net debt? And what are the updates on the SAP restructuring as well as Proton monetization?
So the SAP restructuring is -- it is -- we are awaiting the NCLT approval. Finally, we are hoping that we should get this very soon. And once -- there have been last set of queries, which we are answering and once it's back, once we are out -- it should be done in the next 1 month is what we are hoping that it should get to our certification. Once that's done, we should get in INR 300 crores of cash into Apollo, which should be used to pay down the debt in the short term. And then, of course, as we said, there has not been any debt increase that we have seen until date. From the March end, we have been managing the receivables and cut curtail costs, et cetera. So even if COVID continues, maybe there is an incremental debt of INR 100 crores, INR 150 crores that we would see which we can take after bringing down the INR 300 crores, right, from SAP. But broadly, our CapEx is behind us. All our -- we have the Proton, the last gantry payment alone pending for Proton, which is around INR 70 crores or something which is pending to be made in Proton. And apart from that, there is -- we have cut down our routine CapEx. We don't think our routine CapEx for the full year should be over INR 100 crores. It was 200-plus crores as per the earlier plan, as you remember. By end of the year, we should be broadly good on debt.
Okay. That's great. And also, any updated thoughts on Proton monetization or that's on the back by now?
I think we'll know end of June, first week of July, because of the lockdown in Chennai it has been delayed.
The interest is still there and we would come back to you by end June, July.
Okay. And the size -- sorry, to -- would it INR 100 crore to INR 200 crore type of a ticket size or just?
INR 300 crores.
Higher than that. So 2 things, right? We're talking of, firstly, transferring the whole CapEx that we have already incurred into a separate SPV. So which means -- and there, we are talking of an equal partnership between 2 partners, which means that debt would completely go into that. So we are talking of a business transfer agreement, which should take the whole Proton project, move the Proton project completely out of the Apollo desk into the other desk. And we are talking of an equity infusion of at least INR 350 crores.
Okay, great. That is big. And sir, the second question is, how did SAP business do during the lockdown, which is April, May, June?
Very well. I'll ask Obul to explain
No, we can't give the numbers, but we are on our normal course despite so many restrictions on the largest takes or staff movement. I can say that we are on normal course.
But to give them credit, I think they handled their supply chain very well. All the employees who have been sent in the stores unafraid of COVID. So...
Our attendance at the front end is lowest at 62% and as high as about 79% during this period. So there is a committed team working round the clock to serve the consumers. And in the process, I think we are on normal course.
Awesome. And just one general question from my side which you, sir, answer as you want. I mean, how do you see this pandemic play out in the Indian context, in the sense, how do you see peak and flattening of curve. I mean, some estimates say that India is going to hit 2 million, some say 4 million infection cases, any update at how would you take care?
So we have a war room in Hyderabad. I'll ask Hari to take that question?
Yes. Actually, we are looking at the numbers going up and going up significantly because of 2 things. One is the lockdown has come off and second thing is the number of testing -- number of tests have increased across the country again. They are almost doubled or tripled. And one more factor that we're noticing across the country asymptomatic carriers. There is people who don't have any symptoms, but have the virus in them. So they innocently go around carrying and spreading the virus. So that is a dangerous situation for the company. That's the reason I said the numbers would go up. And I suspect that the numbers will go up significantly. It may touch the number that you are saying or may not, that's a different aspect, but it's unclear. With the population that we have, it is going to be high. But the good thing is the death rate is very low and the recovery rate is very high. And that's a very good thing. And the third thing is, I think, India has created infrastructure to manage the sick patients. Less than 10% of the total patients who are turning positive are actually needing some sort of an intensive care and India has that sort of a capacity, even if it goes to high numbers. So we are looking at something like July, August for it to peak, and we are hoping as per the market news that there will be a vaccine available within the next 6 to 9 months and that would be the only answer for containing the virus, and we don't see that happening within the next 6 to 9 months.
The next question is from the line of Damayanti Kerai from HSBC.
My question is regarding new hospital margins. So we have ended the year around 8% margin. So if we assume that we'll go back to recovery towards second quarter. So do you still maintain your earlier target of reaching mid-teen margin for new hospital, say, in the next 2 years? Or we can see some extension there in that inline?
No, I think that's fine -- next 2 years, we will continue to do that. In fact, new hospitals -- clearly, many of the new hospitals like Bombay, et cetera, have been still doing okay. It is -- of course, many of -- there are COVID beds also that we have taken there. But nonetheless, we are well in line. We are getting -- we had, even before this lockdown, et cetera, started moving towards getting good doctors in place in many of these hospitals. We are quite okay in getting it to teens -- mid- to high teens in the next 2 years.
Sure. So I believe, like most of the new hospitals are scaling up well. But which hospital would you feel like needs more focus to really scale up the operations? And where we are lagging compared to our previous estimate?
I think it's only in Nasik, rest are all scaling up, all of them are contributing to EBITDA.
Okay. So that's the only hospital which you mentioned is not -- hasn't achieved a bit of breakeven as of yet, right, and rest all are scaling up well?
Yes.
Okay. My second question is regarding your digital platform. So you mentioned like initial pickup has been good. So which segment or which areas we are seeing more consultation? Is it related to some, say, like general consultation? Or we are seeing pickup on the specialized -- highly specialized segments also?
Hari, please take this.
Yes. We are looking at 2 things. Significant traffic in terms of COVID positive trends. So the significant traffic for the COVID bench which -- which advises on COVID. Apart from that, there has been -- I mean, we've been into telemedicine for a long time, but I think the number of teleconsults for our specialists and for our superspecialists have gone up multifolds. And we are touching around 1,000 per day-to-day. And I think that's a significant increase in terms of specialists and superspecialists, particularly in terms of continuum of care for chronic diseases like diabetes, hypertension and stuff like that, where the patient (sic) [ physician ] remains in touch with the patient. And our Apollo ecosystem is ensuring continuum of care. While the teleconsult happens, Apollo Diagnostics is doing home collection of samples and giving them report. Pharmacies delivering medicines at home. So the patient -- in Apollo, patient is being served all around and making sure that they're taken care of even in these difficult times.
Okay. My third and last question would be regarding your -- any plan for tariff hike, given that there is increased scrutiny for price from the government and other agency at this point of time. So are we anticipating to take any tariff hike during this fiscal? Or it will look difficult at this point of time?
No, we are not planning for any specific tariff hikes now because clearly, volumes is what we are focusing on. We definitely I think -- and we have said that we are looking at cutting costs of 10% to 15% in addition to that in this year. So we are not planning for any tariff hikes currently. Yes, the cost of serving has gone up by at least 3%, 4% because of all the protections and rostering and everything that we have to do. That is part of the overall cost that we have today.But as of now, we don't have any plans for tariff hikes.
Okay. So for this increased cost, which has come due to COVID protection, have you repackaged your cost? Or we haven't done that as yet?
Yes. We actually have repackaged the entire cost, which includes the treatment protocol for COVID, and we are in the process of doing it even for 70 packages -- surgical packages.
Okay. So ma'am, will we see cost repackaging for non-COVID procedures, around 70 procedures throughout this fiscal, right?
Yes. Yes. So far 24 have already been released. The balance we'll do in the next quarter.
We'll move on to the next question that is from the line of Ashutosh Aggarwal from Crédit Suisse.
Actually this is Anubhav Aggarwal. One question is on the price caps. So there have been some price caps put up on the non-COVID surgeries as well. Just wanted to understand the impact of cash on our ARPOB, which is our quarter 4 ARPOB, let's say, last 6 months ARPOB. Because of the price caps for non-COVID, how much lower we would be or this does not impact us materially?
That's okay. No, it's actually -- it's more only in Maharashtra that this has come in, and it's not something that is way of our insurance tariffs, et cetera. So we are fine with that tariff. It's not a significant erosion to our revenue. It's very small. It's maybe 5%.
And I just also want to get some clarity on your 50%, 55% breakeven. So even earlier, our breakeven was the same at 50%, 55%. Now with cost reduction that we're targeting 10% to 15%, even including that, we're talking about the same. So if -- that's because on the -- 30% of our capacity is in the COVID patients and they're only given lower realization...
We are just assuming that the outpatient volumes come in a bit slowly as compared to inpatients, right? We would probably get the inpatient traffic faster than the outpatients because outpatients may take a bit longer. And obviously, you know that outpatients, we have -- is profitable for us. And then we -- in the earlier scheme, and we said 50%, it included a good outpatient revenue also. In this, there is not much of outpatient that is lesser compared to earlier. So which is why you will see that the cost reduction would be clearly visible when we say that we are going to be getting to breakeven at these numbers.
Okay. And just one more clarity on the 10% to 15% structural reduction that you mentioned. Let's assume you get it, what kind of margins are we talking about? So we were at 22% margin earlier. So we -- if we achieve that and things become normalized, we go to 25% margin here? So what's the top line?
It's difficult to say that now. We will, I think, clearly, as we said, the first phase is to get to breakeven second is then to kind of cut the cost. I guess if this would -- we should probably reserve this for 2 quarters from now. We will be in a better position to answer by then. But clearly, all that I would like to reassure you is that the focus on efficiencies, productivities, cost cut, all this is real, and we are quite sure that we should be able to achieve that. And more importantly, not impact our balance sheet adversely even beyond this fiscal as we emerge stronger, hopefully next year.
I just have one more clarity on that response. So when we have, let's say, taken 10%, 15% as a target, what's kind of the benchmarking exercise that we've done? So how did you arrive at this. For example, let's say, we talk about employees -- looking at employee salary on a sustainable basis. So are we talking about lesser number of employees per patient, let's say, or we're thinking about the change in mix, for example, more [ generation ] of doctors? How are we talking about? Is this a substantial number that you're talking about in the past, 10% to 15%?
All of these are part of it, we're not exaggerating. We have -- we definitely have -- we are cutting people of the -- because, obviously, we are -- the occupancy has come down and we are going to see occupancy revive over a period of time. So obviously, on the operations side, we are seeing what cuts we need to do. Second, at the middle management layer also we are seeing what is it that we need to do. There has been rediscussion with certain doctors as well on guarantee money fees, et cetera. The marketing definitely has been cut. Repairs and maintenance has again been -- there is definitely a discussion on what is essential repairs, what is not essential repairs, et cetera. So I guess we have -- across the board, we have abilities to do this. We are doing this as Ms. Suneeta said, by a better central team from -- there is a central control team out of corporate who's driving this. And there are weekly -- biweekly calls which are happening, and there are each of the units which are driving this. It takes 2 quarters to get there, but we will get there.
Next question that is from the line of Nitin Gosar from Invesco.
Just 1 question. What are your thoughts on how you see hospital sector per se placed related to pent-up demand, say, post October? And how is Apollo placed in terms of doctor availability capacity versus the others?
So in terms of pent-up demand, yes, we believe that with huge shortage of beds and the fact that there was a lockdown, which prevented patients from coming into hospitals, we will see the pent up demand opening yourself up for this by the end of this -- by August, September, those numbers should start coming in. With regard to availability of doctors, I think doctors are waiting to get back to work. There will not be any shortage of doctors. Our doctors will definitely be there.
And versus the sector, like, is it that the PSH or maybe the regional hospital may be underprepared or equally prepared? Just trying to understand how is the volume going to flow through? Is there a chance to gain market share?
Yes. So digital hospitals have already seen a surge in volume. And that's because if you look at COVID, it was mostly in the urban cities. We believe that in the next quarter, the urban cities will climb back. There might be some amount of reduction in the regional hospitals because of the spread. And I look at Tamil Nadu, while I'm speaking about this. So just getting back, I think, also as Hari mentioned earlier, we do expect by September, October, we would close the second quarter with about 55%.
Next question is from the line of Nitin Agarwal from IDFC Securities.
On -- when we look at the way -- I mean, do you see any meaningful changes in the landscape for the hospital business and for the pharmacy business once the COVID situation settles? Do you see any structural changes in these businesses? I mean, higher digitalization or something you alluded to in the past -- in your discussion, is there anything else that we should -- you're looking at?
Yes. I think, with the launch of our app 24x7, we are seeing a lot of the consults happen online. So in the sense that people coming into OPs for a consult, a lot of -- maybe 30% to 40% will now be teleconsults and that's here to stay. So I'm glad we were the first to launch it. And because of this leadership position, I think it has benefited us in a great -- in a much better way. The second is that through this platform, we're able to capture pharmacy prescriptions and we're also able to capture any test or diagnostics that need to be done. So it is -- I think the platform has benefited both the hospital as well as the pharmacy. And pharmacy is seeing a higher number of prescriptions being given because of 24x7. And of course, we are doing a lot of home delivery at this point.
And I mean, does this structure do anything to our cost, some of these changes in terms of, do they help us to bring down our operating cost for these businesses?
No. I don't think it -- it doesn't bring down our operating cost. No, it just -- because it is a service offering. And I think initially, in the sense that we were offering home delivery for even 1 medicine. Like Obul said earlier, the protection, et cetera, and a little bit on the cost of service did go up, but now I think it's flattened out.
Yes. There will be a temporary cost of service, and then we will get better off in the long run.
So what would be our CapEx? How does it look at consol basis for this year, given the way things are?
So -- so the stand-alone should be around INR 100 crores, consol should be around INR 125 crores to INR 135 crores.
This is across the group?
That's right. That excludes the Proton payment alone, which I said, which is the INR 70 crores, INR 60 crores payment which is pending.
So all in about INR 200 crores thereabout?
Yes.
The next question is from the line of Shantanu Basu from Stewart & Mackertich.
Just want to what would be the best position for FY '21 and FY '22, and I missed the point on CapEx, so if you could clarify that please that would help?.
So CapEx, as I said, for the full year would be around INR 100 crores stand-alone, INR 135 crores for consol, that is the routine CapEx. The project CapEx, which is pending to be made -- paid from a cash flow perspective is INR 70 crores per Proton. This is the 2 numbers. And the number of beds that we will add will be -- again, we don't -- all the beds are already there. It says that the capacity is there. Operationalizing them will depend on how we are able to ramp up the bed in these new hospitals. There was a plan to add at least 150, 200 beds in these operationalized 150 to 200 beds this year. That was the earlier plan. But with COVID, obviously, the occupancies have come down and we will have to see how much of that we are eventually operationalizing.
The next question is from the line of Mr. [ Seth from Anvil ]
Just one question I had. What is that...
I'm sorry Mr. [ Seth ]. Sir, there is a lot of background noise from your line.
Okay. Sorry. Is it better now?
Yes sir, please go ahead.
Okay. Fine. My question was related to -- like if we see the amount of cases that we have in corona. The top 12 cities are contributing to almost 70% of the cases. Now if I were to look at -- can you give me a sense of how many beds would these top 12 cities cater for Apollo?
So 600 beds? See across, we've allocated 1,000 beds, I would imagine that about 700 are in the urban cities.
Got it. So ma'am, question was that these top 12 cities contribute how much of the total 8,500 beds capacity that we have?
No, we'll have to get this offline. I'll get back to the right number, so you can contact Mr. Krishnakumar.
Okay. Sure. And sir, 1 more question that I had was when it comes to the Proton expenditure, are we capitalizing anything on that front, on the Proton side right now?
Yes, the capitalizing. Yes, it is -- the third gantry is still not capitalized. So that is part of the capital work in progress as we speak. So what I said was the cash flow, which has to be made balanced, but there is almost around INR 200 crores of balance CapEx -- capitalization, which is yet to be done, which is part of the capital work in progress and already incurred and spent.
Okay. Sir, the total CapEx for Proton for all the 3 gantries will amount to how much?
INR 1,000 crores approximately.
INR 1,000 crores approximately. And in per Proton, do we see any change in -- I mean, obviously, we'll see some change, but how do we see us taking care of the losses for Proton? Because I understand the utilization will be lower in, say, something like FY '21?
So it takes -- so 2 things. So first is, yes, you're right. At least for this quarter and next quarter, we will see that there will be some drop and hence, losses. But Proton, as you know, was close to breakeven in Q3 already with a very -- with very low numbers that we were doing of almost 20 patients a month. We had -- so even at the 20, patients a month, we can get closer to breakeven. So it's not a very high breakeven EBITDA that we have because it's a high EBITDA business, high CapEx business, right? So that is what it is. So we think we will get to breakeven by Q3 here as well.
Sure. But in spite of the fact that medical tourists will take some time to come back because proton, as I understand, was a lot to do with medical tourism also?
Yes. So yes, we are talking about your breakeven now. So I guess for breakeven, we don't expect the medical tourist.
Okay. And 1 question was on overall medical tourists. As a percentage of our overall sales, for hospitals, is this closer to around 7%, 8% pre-COVID?
Yes, around 10%.
Around 10%. Okay. And inpatient revenue will be approximately 15% to 20% pre-COVID?
Sorry?
Sorry, outpatient, outpatient. I meant the outpatient. Outpatient revenue should -- would be 15% to 20% pre-COVID for us?
Yes, that would be around 20%.
20%. Okay. Fair enough.
Next question is from the line of Nitin Shakdher from Green Capital Family Office.
Congratulations on the excellence results. And thank you, again, for putting the entire workforce in front to battle the current pandemic. My first question is in terms of occupancy and consumer behavior. Can you highlight some factors now because of the fear of contracting COVID from staying in hospitals? Or is it the planned surgeries? Or is it that the infrastructure is currently focusing on COVID and elected occupancies and surgeries are delayed?
So I think the first -- in terms of March and April, yes, we were very focused on COVID because the challenge for us was to create COVID beds, which was separated from our existing facilities. So I guess that that's the key. How did we do this in such a way that it would not affect normal patients coming into the hospital without the fear of having to get impacted with COVID?So the first thing we did was create facilities that were separated from our normal facilities. Having done that, we did see COVID occupancy go up. When the lockdown was partially lifted in June, we saw an increase in occupancy and this is more because of the mobility of patients and pent-up demand. Because during the lockdown they actually found it very hard to come. While I recognized that there is an underlying fear of COVID, I think the requirement for medical help and medical assistance is far greater than this fear that would keep them away from hospitals.But yes, there could be an underlying fear and most of that, I think, would be catered around the -- would be around the outpatient work, which is why we came up with 24x7 and the digital consults and we're able to work through that platform to create value for our patients and to stay connected with not only our old patients, but to increase the number of patients and therefore our market share in local markets.
Okay. Okay. And has there been a significant dip in medical tourism? And when do you expect the medical tourism to recover the lost business?
I think only in the last quarter.
Okay. Okay. And a quick last one. In reference to new age initiatives like carrying medicine time care, digital consultation, if you could highlight any specific investment initiatives and revenue traction on the same?
I think it's a little early to talk about investments, but we have made investments into the digital. And at the appropriate time, I think, we'll explain how the investments look like in the structuring. But fortunately, we were able to roll out our digital offering, which was 24x7. 24x7 enabled digital consult, pharmacy prescriptions, which we were able to deliver at home, and also to -- it provided patients with service which was diagnostics and also home care.
The next question is from the line of Prashant Nair from Citigroup.
Just 1 question on AHLL. Can you just outline how the different formats are sharing? And how we even recovering as we move forward?
Chandra Sekhar, please take this.
Yes. So AHLL has seen a 23% increase in revenues year-on-year. Diagnostics has been an appreciable growth and also had margin expansion. We have had an 8% gross margin expansion in diagnostics. And we continue to add higher test menu. Our intent will be to keep adding that as well as getting better efficiencies on our installed infrastructure.So that will be the focus. Overall, it is -- at a company level, the gross margin enhancement last year was around 3.5%, which is contributed by appreciated gross margins in all of the formats. All formats are also positive at a business unit level pre corporate. We see the growth continue in our mother and child format as well as our specialty care format, which has taken a little bit of slowing in this COVID period because it's essentially elective surgeries and driven the predominant visiting consultants who would choose to operate daycare and short-stay sub, so that has taken it. But then we are expecting that to revise in the second to third quarter. Primary care has started reviving, went down significantly in terms of outpatient consult footfall, et cetera. But then by June, it is coming down to thereabouts of 55% of our -- 55% to 60% of our pre-COVID times. We're expecting July the second quarter to -- by end of second quarter to come back to normalcy across formats. Diagnostics saw a dip in April, but has moved to nearly 100% in June. So we were there about 75-odd percent in May, and now it's 100%. There's a little additional component beyond that 100%, which is coming from pure COVID testing. That's about an additional of 20% that's coming from COVID testing.
The next slide is from the line of Charulata Gaidhani from Dalal & Broacha Stock Broking.
Yes. I have -- my question is slightly different, that what is observed is that in India, we are having separate buildings for -- separate infrastructure for COVID patients, which does not seem to be the case in the U.S. So why, if you could highlight?
Yes. So the reason why we did that is that very big -- early in the understanding of COVID, we recognized that it is contagious and far more contagious like the flu. So having recognized that, we separated out our COVID facility. So there's a red book, there's a protocol that we need to follow for treating COVID patients, which does not apply to the rest of the patients. So it's -- in a way, it's not only -- one is that we're isolating them. Second, many of them require negative pressure. So we're providing different infrastructure. And third, it's very important that the manpower doesn't get cross-contaminated. So we have manpower planning just for COVID and therefore the need to separate it out. I suppose, because in India, we saw the surge much later, we were able to learn from the mistakes in the west. And because of this, I think, our death rates and our infections rates here are much lower.
Ladies and gentlemen, that was our last question. I now hand the conference over to the management for the closing comments.
On behalf of Apollo Hospitals, not only the management but all our doctors and nurses, I would like to thank you for your interest in us. And more importantly, for your support because as we go through these challenging times, I think your support means a lot to us because we are committed to serving our consumers, our patients and looking after their wellbeing and in the process, creating value for all our stakeholders. Thank you for joining this call.
Thank you. Ladies and gentlemen, on behalf of Apollo Hospitals, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.