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Apollo Hospitals Enterprise Ltd
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Ladies and gentlemen, good day, and welcome to Q4 FY '22 Earnings Conference Call of Apollo Hospitals Limited. [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, Margaret. Good afternoon, everyone, and thank you for joining us on this call to discuss the financial results of Apollo Hospitals for Q4 and FY '22, which were announced yesterday. We have with us on the call today the senior management team, represented by Mrs. Suneeta Reddy, Managing Director; Dr. Hariprasad, President of the Hospitals division; Mr. A. Krishnan, Group CFO; Mr. C. Chandra Sekhar, CEO of Apollo Health & Lifestyle; Mr. Obul Reddy, CFO of the Pharmacy division; and Mr. Sanjiv Gupta, CFO of Apollo 24/7.
Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Please note the disclaimer mentioning these risks and uncertainties on Slide 2 of the investor presentation shared with all of you earlier. Documents relating to our financial performance have been circulated earlier, and these have also been posted on our corporate website.
I would now like to turn the call over to Mrs. Suneeta Reddy for her opening remarks. Thank you, and over to you, ma'am.
Good afternoon, everyone. Thank you for taking time to join our earnings call. I trust that you've received the documents which we shared yesterday. Quarter 4 FY '22 revenue volumes and occupancy within the health care services business were disrupted in January and February '22 due to COVID-19 Omicron third wave. Planned in high-end surgeries were deferred and medical travel within the country was adversely impacted. Sequential performance was therefore muted while year-on-year traction continued to be strong.
Quarter 4 FY '22 occupancy across the group was close to 60% compared to 65% in quarter 3 FY '22. IP volumes across the group grew 30% year-on-year, however, decreased 9% on a quarter-on-quarter basis. Operating indicators in the health care business continues to be robust. Overall, quarter 4 ARPOB improved from INR 43,329 in quarter 4 FY '21 to INR 48,510, this is achieved to a sustained focus on ALOS, centers of excellence focus and payer mix optimization.
Mature hospitals ARPOB improved from INR 44,024 to quarter 4 FY '21 to INR 49,232 in quarter 4 FY '22. We executed a planned reduction in lower paying patients in the network, especially the mature hospitals, and we see this trend is positive and sustainable. In market segments that are expected to grow from current levels, new hospitals ARPOB improved to INR 46,715 compared to INR 41,154 in quarter 4 FY '21.
Volumes grew by 17% over quarter 4 FY '20. Revenues grew 46%. In patient revenues in key specialties grew at very strong rates, compared to pre-COVID levels. Cardiac Sciences revenue growth was 33%, oncology was at 36%, neurosciences was at 11%, orthopedics at 27%, gastro at 19% and transplants at 23% and this has been the result of our efforts within the centers of excellence of offering differentiated clinical products.
Over the last 8 quarters, we have been consciously including low-paying patients and customers and have been actively substituting this with cash and insurance patients. These efforts are showing good results with these segments growing by 25% in revenues compared to pre-COVID quarters. Performance in March '22 improved in comparison to January and February, and we believe that the reduction in COVID cases across the country and opening up of travel an easing of restrictions has restored consumer confidence, and we will see traction in the health care business.
The transfer of the back-end pharmacy business and the Apollo 24/7 digital platform to Apollo HealthCo was completed with the effect of March 16, 2022. Accordingly, the Pharmacy Distribution business, which used to be reported as a segment in stand-alone financials now gets reported within Apollo HealthCo. Consequently, stand-alone financials are no longer representative of the depth, breadth of our performance in our -- in this business. We will, going forward, focus on consolidated financials, while we believe they represent the full spectrum of our result -- of our work including health care subsidiaries, Apollo HealthCo, Apollo Health & Lifestyle and other businesses.
Against this backdrop, let me walk you through the consolidated financials for the quarter. Consolidated revenues grew 24% on a year-on-year basis to INR 3,546 crores. Healthcare Services grew by 21% to INR 1,863 crores. Mature Healthcare services grew by 21% to INR 1,283 crores, while new hospitals grew by 19% to INR 532 crores. Consolidated EBITDA stood at INR 463 crores, registering a growth of 12% on a year-on-year basis. Within this, health care services EBITDA grew by 25%, and Healthcare Services margins were at 21.9%. Mature Healthcare Services EBITDA margin was at 24.3% and new Healthcare Services EBITDA margin was at 15.5%.
Pharmacy Distribution revenue grew by 23% year-on-year, to INR 1,375 crores. Pharmacy Distribution EBITDA post Ind AS 116 to 60% year-on-year to INR 19 crores. This is after considering a charge of INR 84 crores on account of marketing costs of Apollo 24/7 without that charge, EBITDA was at INR 103 crores. A growth of 27% year-on-year and margins were at 7.5%, against 7.3% in quarter 4 FY '21.
AHLL recorded a net revenue of INR 309 crores, year-on-year growth of 47% and EBITDA post Ind AS of INR 38 crores, a year-on-year growth of 41%. The consolidated PAT is at INR 178 crores, as against INR 168 crores in quarter 4 FY '21. However, a noncash tax impact arising of the pharmacy transfer to Apollo HealthCo with the extent of INR 88 crores had to be considered for reporting purposes. Therefore, the PAT for this quarter is INR 90 crores. It may be noted that the tax impact has been fully set off against available MAT credit and the accumulated MAT credit available to AHEL has been fully exhausted. Therefore, AHEL will move to the 25% corporate tax regime from quarter 1 FY '23 onwards.
I would like to recap the consolidated financials for the full year FY '22. We closed FY '22 with consolidated revenue of INR 14,663 crores, a growth of 39% over FY '21 closing full year EBITDA is at INR 2,185 crores, representing a 92% growth over FY '21. Closing consolidated PAT for FY '22 is at INR 1,056 crores, representing a growth of 602% over FY '21.
Over fiscal 2022 as well as the prior year, we have encountered unprecedented challenges and have been compared to respond with agility while transforming and redesigning the Healthcare Services delivery model. This, we believe, has strengthened our business across all aspects, ranging from infrastructure, medical teams, protocols and processes. Our rapidly growing digital platform is strongly complementing our extensive physical presence across the country, enabling us to provide an omnichannel seamless customer engagement model that is highly differentiated across the speed of response capabilities, depth of resources and reactive offerings for the customers.
We entered this new fiscal year, excited about the opportunities before us, yet cautiously optimistic because of the challenges and headwinds we tended to us by the highly volatile global and national macroeconomic backdrop. For fiscal FY '23, we believe that Healthcare Services growth will definitely be in the mid-teens. Margin expansion, however, will outpace revenue growth and improve by 150 to 200 basis points, given our ongoing efforts on payer mix, case mix and cost optimization. The offline pharmacy business will continue to grow at around 20% with our focus on private label products, same-store growth and an accelerated store expansion of over INR 500 crores over the next fiscal compared to 400 stores in FY '22.
We expect Apollo 24/7, which includes online pharmacy consults and diagnostics to grow rapidly. In the last fiscal, we had a GMV of INR 450 crores in Apollo 24/7, with quarter 4 being around INR 150 crores. We are currently at a run rate of INR 200 crores of GMV per quarter, which we expect to double as we exit FY '23. Our diagnostic business with AHLL will continue to be our focus, and we are confident of achieving INR 1,000 crores top line within the next 3 years.
On that note, I would like to hand it over to the moderator and open the line for questions. I have Dr. Hariprasad, Krishnan, Obul Reddy, Chandra and Sanjiv from 24/7 here with me to take your questions. Thank you.
[Operator Instructions] The first question is from the line of Anubhav Aggarwal from Credit Suisse.
Just checking. Am I audible properly?
Yes, sir, you are.
Okay. First question is a clarification on the Pharmacy segment. And this is on the combined margins, which is only 6.1% in this quarter. I recall in the last quarter, you had some INR 10 crores costs taken up in the front end. Is there any one-off in this quarter, which is impacted this margin?
No. Overall, there is an increase in the customer discounts, and we could be -- we were able to absorb that with the higher margin, and that is just -- there is no other reason.
No. But the overall margins are...
So the margin impact is only 6.1%, against 5.8% in the last quarter. And there is an online cost coming into the numbers. So there is too much significant compression on the margin. So it's mainly due to the increase in the discount and online cost, which will be sold in a separate segment going forward.
Just a clarity, customer discount increased. Do you want to -- what was the average discount earlier and versus now?
Earlier -- last year, it's about 10.5% overall and moved to 12% -- 12.5% this year, and we could compensate largely that through margin expansion.
And this is -- you're talking only off-line customer discount, right, blended?
As current year, it is a blended both online and offline, and that segmentation will happen going forward for the next year.
Okay. And then the portion that you're recording in the, let's say, back-end pharmacy, that percentage of the EBITDA has increased dramatically. Is that going to be the norm going forward? Like almost like in this quarter, 93% of the EBITDA or 90% plus of the EBITDA has been captured in the back-end?
That is about 80%, because this year, there is a demerger coming into certain liabilities moving and there's an accounting issue. Otherwise, we'll capture about 80% of the margins in the back-end and that sales broadly in that range and 80%, 85%.
Okay. Second question is on the 24/7. So this quarter, our spend has increased to about INR 85 crores a quarter level. Now the question here is whether we get the funding or do not get the funding. In both scenarios, what do you think can be annual spend in fiscal '23 on the 24/7?
Sanjiv, do you want to answer that?
So I think we are looking at around INR 400 crores of overall expenditure for the current fiscal year as against INR 84 crores that you saw in Q4.
And Sanjiv, that is irrespective of whether you get funding in this AHEL or do not get funding?
Yes.
And is there any update on that, let's say, process that you were running?
So right now, there is no update except that keeping in mind the existing environment where digital health care has been undervalued. We have delayed the process. We're keeping it on hold for another 6 months.
Just last clarity on hospital ARPOBs. You gave the guidance, but just on ARPOBs, do you expect them to increase from quarter 4 level this year or moderate in fiscal '23?
No, there will be an increase. And like I said earlier, the increase will come from payer mix. It will come from cost reduction. And the third, which we're also seeing is case mix.
Any headline increase that ma'am you have taken in cash in patients and insurance segments?
25% increase.
25% has been the increase that we have seen in the past. And going forward, we will expect that there will be -- the momentum should continue for the next year as well.
But any headline price increase you have taken in that?
The headline price increase for the coming year would be around 4% to 5%.
Have you already taken that?
No, not as yet.
[Operator Instructions] The next question is from the line of Tushar Madhu -- sorry, Tushar Manudhane from Motilal Oswal Financial Services.
Just again, on Apollo 24/7, if you could also share online orders per day and average realization per order as, in month of May?
Yes. So currently, we are running at about INR 70 crores of GMV. And as far as the number of orders are concerned, we are closing at around 30,000 orders per day, essentially about a majority of them being pharmacy, but we do have diagnostic and consultations to the tune of about 2,000 to 5,000. Those are the numbers you are tracking as of now.
Right. This was like compared to 21,000 a quarter back roughly?
Correct, Yes.
Got it. Secondly, on the hospital side, there has been a sharp drop in occupancy in new hospitals. Maybe it is due to COVID in Jan, Feb. But again, coming back to like in April, May, if you could share what is occupancy we are running in new hospitals?
So speaking of in the new hospitals, mostly surgical work is picking up. And unlike last year where we had a lot of medical admissions, this year is looking better. Hari, you want to add to that?
Yes. Actually the March itself has shown an increase in the occupancies in the newer hospitals and Tier 2 also and increased occupancy is mainly on the surgical front, which is actually contributed to the improved ARPOB as elucidated by madam just now in her opening remarks.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
First 1 is on the pharmacy step up in terms of the store rollout. I think you said 400 we did in fiscal '22, and we are targeting 500, this has been a slight step change to how we have managed the store rollouts in the pharmacy business. So what's driving, what's the logic? Does it entail higher CapEx? I know it comes on the front end. But I just want to understand the logic and which are the geographies we will likely to look at?
Largely, we are there. As you rightly said, about 400 stores every year. We increased in the number because we have certain states where our presence is low in the Central India. We are increasing the number of stores in that geography, so that we will better serve the online customers as well. And on the CapEx per store, we remain the same more or less. And we are also opening dark stores in some key cities. We just started that, and we will be closing in the next 3 months about or 30 to 40 dark stores so that we will serve better for the online customer.
So the 20% growth for pharmacy. So part of it is coming from the store expansion. The rest is the same store growth. That's how we -- any other color in terms of either volume growth? Or how should we look at the 20% growth if you break it down?
If you break it down, in the new stores, this year is now given about 2% growth and 18% from the entire basket of existing stores. So like, as usual, like earlier years, there is no big difference, except that we are getting a normalize the quarter against uneven growth rates in the last 7 quarters, we have seen due to COVID changes.
Got it. That's helpful. Last question is on Apollo 24/7. I think you've seen weekly active users, which were, I think, 26 lakh in December. Now it's come to 38 lakh. So if I were to load Q-o-Q, this is -- there has been an acceleration in the March quarter. So can you just walk us through some of the dynamics, what's happening? If I look at overall registrations also 12.5 million has gone to 14 million, right? So -- but the percentage change in active is much higher. So is there something that we have been doing that is leading to higher activation?
Hari.
Yes. So I think, sir, this is a continuation with respect to what will you say last time, many of these users come to the platform to understand and then consume content and we would continue to work on the content side and continue to enrich our customers and users with more information and more supplementary things which help them to -- towards their continuum of care.
And I think -- some of the things that the company is working upon is to have better content, you're also working to enhance our UI/UX thing. Plus, there are many new features which are coming into the app and the website that also helps. Apart from the fact that the organic traffic is also inching up very fast as compared to the competitors as compared to the previous quarter or the months. And I think all this put together, if I see -- and coupled with the fact that in January, we had some kind of a benefit coming in from COVID, there was a lot of traffic into our website and app to get those medicines, which were not there elsewhere. So I think all these factors, some internal, some external is helping us to grow our traffic, and we continue to see positive sign as far as the traction is concerned.
Got it. And would you attribute anything to discounting in the sense that we have been upping our discounts? Do you think that's a hook for online customers?
I think on the discount side, we will continue to maintain our position that has been discussed over a period of last 2, 3 quarters that we are not going to be the leaders or challenges in the market, what we strongly believe is that customer is looking at a wholesome experience of omnichannel. And Apollo is the only company which can provide that omnichannel play probably that is the reason that our discounts are also not as high as the competitors gave it and our discounts are pretty low in comparison to the competitors. So I don't see that discount is the reason for us to increase the traffic. The traffic is increasing because of a variety of reasons. And I think discount is not the part out here that we are paying.
Last question, just for Sanjiv, the 12.5% would our online discount be higher, say, 13%, 14% and maybe competition is at 18% to 20%. Would that be fair numbers anecdotally?
So you are almost on the right direction. So our discounts would be in the range of about 15% to 16%, which is the online side. And as far as the competition is concerned, competition, what I gathered from the primary and secondary sources is that at times they are upwards of 20%. And so to that extent, the gap will continue to be there.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
Can you talk about the capital allocation for fiscal '23? In the sense, what would be the surplus from operations? And then how do you plan to deploy that in CapEx, acquisition and deleveraging?
So let me start with the surplus. We had INR 600 crores of cash surplus. We have INR 800 crores invested in mutual funds. So definitely, we have cash available for growth. In terms of the deployment, INR 350 crores will be used for normalized expense -- CapEx, the balance will be used to -- 1 is to -- we have acquired a brownfield hospital in OMR, which is part of Chennai. We will strengthen our Chennai offering and create a world-class tertiary care hospital there.
The second part, that will take over a period of time, which will consume another INR 500 crores of capital over the next 2 years. The balance will go to Bangalore, where we're adding another 300 beds. So clearly, another -- this is brownfield. So another INR 300 crores will be deployed in Bangalore. So over the next 2 years, we're looking at INR 800 crores of capital deployed. This is what we see now. Maybe over the next quarter, is there any acquisition opportunities on brownfield expansion, we will come back to you at that time.
Yes. And do you think you will be left with surplus to continue deleveraging? Or you think here on, it would largely go into growth?
It has to go into growth. Sameer, we're at a very comfortable position with debt and equity, 0.45 debt-to-equity.
And even debt to EBITDA wise, if you look at it, even for just if you look at Healthcare Services, given that our gross -- if you drop AHLL, we are at INR 2,300 crores of gross debt, without AHLL. And clearly, we will get to that EBITDA in the next 2 years. So it will be a 1:1 debt to EBITDA. So we have comfortable levels of gearing and we definitely would look at growth.
Okay. Great. On the last call, I remember you also talked about Mumbai and NCR. So any capital you want to put over there?
Well, I think the -- our -- we have INR 500 crores, INR 600 crores of free cash flow. So I believe that when those opportunities come, we will have no problem investing and completing those 2 projects. But right now, there's nothing confirmed that we can share with the investors.
Okay. Great. Got it. And just on the new project that you've highlighted, it's the 7-acre plot versus 1.5 million square feet development. I mean, I would think that this would be probably 1 of the largest single location and probably the most densest Healthcare Services asset. So just thoughts on this. And of the 650 rooms, what would be the split between the ICUs, private and the general ward. I mean is there something dramatically different that you're planning over there?
So Sameer, it's a little bit early because we are right now talking to -- looking at hospitals abroad. Health care has changed, while 30% of our beds have always been allocated for ICU. We are looking at strengthening the centers of excellence. So we will have the whole, robotic, cardio work, just very high-end clinically differentiated work in each of the COEs plus, we will have the mother and child, which I think is a segment that's wholly underserved.
The intent is that this area is really some -- it's really growing that part of Chennai, and we need a strong press instead, we only have a 100-bed hospital in that area, that 100 bed is insufficient. Plus, we're noticing that connection -- connectivity to Chennai is improving. So we do believe there's a huge opportunity to attract foreign patients into this facility. So it will be truly best-in-class. Like we done for Proton, it will be best-in-class in all the other specialties including transplants that we are planning to set up in the next 2 years.
And Sameer, just so that we are on the same page, it is also including the basement area, which is there also, which includes the car parks, which is where if you look at it, this would clearly have 1 of the best car parks available for a free patient flow into the hospital and out outpatients, rehab, all of that, it can enable and because it clearly allows 1,500 to even 2,000 car parks. So clearly, that's 1 challenge that we will never have in this facility once the outpatient comes in.
Okay. Got it. Just with your permission, 1 or 2 more. So this is kind of moving out of the city more towards -- away from city center to a suburban. So do you think that this is a template that you can use for other metros. And I ask this because then that brings down your land cost dramatically and then you can have more of such hospitals?
No. I think that the heart of the city is really moving. And this is going to be the Gurgaon of Chennai. So I'm not looking at it as a suburb, this is where all the IT is all in OMR, all the high-end schools are in OMR, high-end housing, and it's time that the high-end hospitals are also present in this area. So we're not looking at it as suburban. Also proximity to the airport and the fact that inflation can be very much faster.
Okay. Got it. I got few more, I'll get back in the queue.
The next question is from the line of Neha Manpuria from Bank of America.
Ma'am, in your press release, you mentioned about growing your diagnostic business to about INR 1,000 crores in the next 3 years. Historically, we've always looked at diagnostic expansion organically. Is that still the case? Are you open to accelerating growth through inorganic acquisitions in diagnostic?
I think we're open to all options. Chandra Sekhar, why don't you answer that?
Yes, ma'am. So I think the primary emphasis will be on organic growth. The inorganic option, as ma'am correctly pointed out, is a very different option, and we are open with, but we have certain controls and rules of how we want to do it. We would not like to do it at the current level of valuations on which the transactions over the last 12 months have happened. I believe that it doesn't leave much of arbitrage for growth after post-acquisition.
So we are going to look at probably valuations, which softening a little better. Second, size-wise also, and the way we are looking at strategic expansion is our core markets being South and East. Our organic acquisition appetite will be in markets that we are getting into, especially in the West and North. We will grow organically in South and East and strengthen further opportunistic expansion in North and West. But at a size and a valuation which allows upside post acquisition.
Understood, sir. That is helpful. And my second question is on AHLL. We've also previously talked about potentially looking at value unlocking in AHLL also, given that we have investors there. Any time line on that? Have you thought about how we want to scale that up?
So currently, we are having -- we have closed the year with a reasonable amount of cash balance. And we also are generating cash in the way we are hoping to grow the business this year. I think this opportunistic acquisition will call for certain additional cash to come in, which we will seek at that point of time. As far as unlocking value is concerned, I personally believe that the last 2 years have not been exactly favorable to some of the formats, which potentially could be considered for such unlock especially the ones which have been deeply impacted by elective and some of the outpatient footfall reducing, et cetera.
So at this point of time, I think FY '23, we start with very perspective of growing the business and sustainable basis. We are not looking at unlocking value at this point of time within these formats because they may not justify because of the serious headwinds they have received over the last 2 years. We would like to have 1 sustained year when we can revisit that thinking.
Understood. And sir, has Spectra recovered or gone back to its pre-COVID levels in terms of occupancy?
Yes, in fact, we had 2 waves of COVID last year, as you're aware. Mostly impacted one, obviously, is Spectra. But from a year-on-year basis, actually, we have a growth. If you look at the Spectra, we have reached on a year-on-year, we actually grew volumes by 42% despite 2 waves of COVID that were -- that impacted. So we are on the right trajectory. We've been -- the 1 thing is that there's some backlogs also can come in after fourth wave. So a cumulative effect of organic growth plus some revival of backlog, we have a 42% volume growth when it comes to surgery from FY '21 to '22.
The next question is from the line of Ranvir Singh from Sunidhi Securities.
My question relates to Apollo 24/7. So earlier, we aim to get some 10 crores patients registered in the next 4, 5 years and given the competition emerging around this business. So still we hold this possibility?
Yes. So I think there are 2, 3 things which we need to think about. One is that Apollo being a very strong brand, and there's a lot of footfall, which happens across the Apollo ecosystem, be it the hospital, clinics, diagnostic centers over and so forth, even Apollo Pharmacies. So 1 is that we have customers who come to the Apollo ecosystem to touch the Apollo ecosystem. So we have the sourcing from that channel.
And secondly, as more and more people are adopting the e-commerce, more and more people are transacting into the platform. So that pool is also increasing. And I think both of these 2 pools put together, we still believe that we should hit a target of what you rightly talked about. And obviously, our aim is to get the right set of chronic customers rather than just the numbers. So at the appropriate time, in case we think that this number is to lower down. I will come back to you. But at this stage, we're looking at 10 crore and we're looking at more chronic.
At what level of revenue or that breakeven would be reached?
So what we anticipate is that FY '25, '26 should be the year where the digital business should get this one and the combined entity sort the back-end should be one level than last. So those are the years that we're looking at.
Okay. And what is the ticket size currently in this quarter per order?
Ticket size. So currently, we are running at about -- in the range of about 900 to 1,000 as the average order value across the system.
Okay. So this was lower in the earlier quarters, right?
Slightly lower. The average order value has gone up by about 6% versus the previous months. And I think the current -- the working that are doing is to see that we are always on the 4 digit. And let's hope that in the current quarter, we move plus consistently on the 4-digit number.
Okay. Okay. And 1 more, if I could, on AHLL side, the footfall has significantly lower on a Q-on-Q basis despite that clinics number of network has increased from 136 to 254, so was that related to only that in January, the disturbance due to Omicron or do you see any other reasons?
No, that's the only reason. And Jan and mid-Feb, I think we have had impacted. So 1.5 months of the whole 3-month quarter.
It seems that we are doubling a number of network and revenue, the kind of revenue shows that probably the few clinics were completely dry during this quarter. So is that the correct assessment?
Yes, that is. And we also had, if you have to look at 1 other thing that completely subsided was vaccination. There is near-to-0 vaccination in Q4.
The next question is from the line of Shaleen Kumar from UBS.
So 1 thing which I like to understand is that...
Sorry to interrupt you Mr. Kumar, your audio is quite low.
Is it any better?
Yes, slightly better. If you can speak louder. I think it will help.
Sure. So 1 thing, ma'am, when I look at your hospital number, obviously, Omicron has an impact. But when I look at new hospitals, the margin compression is on a higher side compared to a mature hospital. And similar is visible on AHEL, which probably because of new centers, et cetera, but -- what specifically is it because of a COVID revenue was higher in new hospitals? And then that's the reason for margin compression?
See, the margin on surgeries is always much higher. So because of Omicron, we had to cancel surgeries, and therefore, the margins got impacted. Also patients couldn't come. So occupancies were low. So it's a combination of these 2.
Yes. No, but mature versus new, the margin compression is relatively higher in new. So that's the only thing I was trying to understand, like.
It's just the -- because of the fixed cost, which is there in the business and the operating leverage, which is there, the reverse happens when you have a bit of a lower revenue, we will get back to the 17% levels soon. We were at 14% with this quarter, and we will get back.
Sure, sir. Sure, sir. And possible to get any update on Amazon bit, what kind of a traction we are getting?
Sanjiv?
Yes. So let me just take this question over there. Is that?
Amazon, Sanjiv.
Yes, just requesting, can I take this question?
Yes. Yes. We are asking you to take.
Okay. So on Amazon, I think what is happening at this stage is that we've got people from their tech and product side from Cradle out here in Hyderabad as well as in Mumbai. And what Amazon is looking at it is to have the entire tech side stitched up before they kind of get into marketing on both BTU, BTL and then start mobilizing more and more customers as well as the transaction. So we expect that the entire technology side to get integrated between the 2 companies to be over by September or it may say, by a month or so, depending upon how it happens.
So somewhere October end, we expect this to happen and then from November onwards, I think the momentum will start happening. At this stage, only a couple of incos and things have been opened up to look at the flow of the transactions to test the simulations which have been worked upon. So as such, the back-end work has started in full swing, we'll see more numbers appearing in Q3.
Right, right, right, sir. Sir, the pricing on Amazon will be independent of the pricing on 24/7 platform? Or will there be a kind of a floor to it like not going below or they'll operate completely independently?
These are independent platforms. So it will be independent.
Absolutely. Absolutely. Just 1 question, which -- the 1 thing which we're trying to understand, agreeably that competitive intensity has increased. Now just trying to understand, is it because consumer behavior is changing, that's the reason that some of the pharmacy players are forced to do higher discounting? Or is there some players are seeing a land grab opportunity, so trying to press right at this point of time? So what exactly is happening? Any idea on?
It's a good question. I think to my best knowledge, I think -- there are 2, 3 things. One is that if you look at the pattern in the top maybe 15 to 20 cities of the country, you see a lot of adoption of e-commerce happening over there. And COVID, particularly last 2 years, many of the customers have started moving. I mean, they started in general, dealing with e-commerce, whether it is the health care needs or the grocery or the variety of other things that they normally shop for. So 1 is that there is a consumer pattern or the consumer behavior to look out for convenience, to look out for speed, to look out for comfort. So this is 1 area which is supporting the increase in the momentum as far as the health tech e-commerce players are concerned.
And I think second, as far as the discount side in case you're hinting that some of the competitors are giving more discount to get the land grab initially and then get the valuation so on and so forth. I think the current times are good times, it is kind of a cautionary bent to everyone out there who gives discounts of about 25%, 30% to get the customers at the end of the day, that does not make sense.
And eventually, what is right is for the business is -- will happen. And -- so I think as far as the second leg is concerned, second leg, which is kind of dragging with higher discounts, this would also start coming down quickly. I expect in a quarter from now you would start seeing discounts offered by the competitors under 20%, which is today at times, it is about 25% plus.
Agree, sir. Agree. Just lastly, I missed on your order numbers, like what kind of order you're seeing, if you don't mind, can you please repeat it?
It's around 30,000 for the year.
So that's online order or omnichannel you're talking about?
No, this is just the platform driven -- sorry, I should have said that is in the platform.
This includes pharmacy consultation plus diagnostics?
Yes. Absolutely.
The next question is from the line of Bismith Naik from RW Advisors.
Hello? Hello, am I audible? Just 1 clarification, health care. Overall, you said you're targeting mid-teens growth for FY '23 and margins can go from 22.6% to around 24%, 25%. Is that correct?
Yes.
Okay. And online pharmacy, you're targeting 20% growth next year as well? Offline. Offline pharmacy, sorry.
Yes.
Okay. That's fine.
Hello, can you hear us?
We can hear you now, sir.
So are there any next questions?
Mr. Naik, do you have any other questions?
No, no, no.
The next question is from the line of Tarang Agrawal from Old Bridge Capital.
Just a question on looking at these 3 businesses together, AHL, AHEL and AHLL. Just wanted to get a sense on how transfer pricing is happening across the platforms. So for instance, if a INR 1,000 is spent on medicines through the AHL platform, or INR 1,000 is spent through diagnostics through the AHL platform or INR 1,000 is spent through for consultation through the AHL platform. If you could give us how is it going to be captured across the different businesses?
So there is the transfer fee, which has been agreed upon for new customers being funneled into the hospital services business, which is depending on the existing customers, which are serviced to Apollo 24/7, there is a transfer fee, which has been agreed of 2%. Whereas if you look at the existing -- for the new customers which are coming into the Healthcare Services, we will typically pay them approximately 10% of the outpatient revenues, which is generated in the -- at the hospital level for 1 year.
After 1 year, they become an existing customer and go back to the 2%, this is because there is a customer acquisition cost with 24/7 also has to incur to bring in customers into the Healthcare Services. That's the -- and even for -- that's the same 10% that will be paying even for health checks, et cetera, that is funneled through 24/7. As of now, 80% of the business itself generated by the hospitals, it's only 20% that is getting generated by 24/7. Of course, our hope is that with time 24/7 will generate a lot more revenues to us. Similarly, even on the diagnostics side, there is a sharing of approximately 10% to 15% of the revenues, which happens between AHLL and 24/7.
Got it. And in terms -- and so far as would it be fair to presume that the tie-up with Amazon would actually be serviced by the AHEL business and would have nothing to do with the 24/7 business. Would that be the right way to look at it? So the metrics of AHEL with 24/7 would probably be similar to AHEL with Amazon insofar as the pharmacy piece of the business is concerned.
Yes. But then it will be in AHEL. You're right. It will be in AHEL, which will be the Apollo HealthCo, which is going to be servicing Amazon as well as the back-end. Yes, with 1 more leg like into it, for the Amazon Prime customers, we would also be offering them the diagnostic and the consultation and reconsultation services to Apollo 24/7 platform. So to that extent, while pharmacy business of Amazon will get captured through front end and back-end for the fulfillment side, the entire diagnostic and consultation, both reconsultation and fresh consultation will be through the platform, Apollo 24/7.
The next question is from the line of Anubhav Aggarwal from Credit Suisse.
Yes. Just looking for a very rough split of this $3 billion GMV that you talked about into these 3 components, off-line, 24/7 and the Amazon partnership?
Sanjiv, do you have the broad number between offline and online at least?
Yes, so broadly, what we can think at this stage, this is a number that we're targeting in 3 to 4 years from here upon. I think it will be about $2 billion as far as the pharmacy line is concerned, which is the our own stores, which are 4,500 at this stage and growing by 350 to 400 year-on-year basis.
We also expect about $500 million to come from the Amazon side. And apart from that, another $500 million to $700 million would be the GMV coming in from 24/7, which would be in the range -- which would be around the consultations, the digital limited, the condition management and many other things. So that would be the rough estimate or a very broad number for the $3 billion bifurcation.
Okay. That's helpful, Sanjiv. And second, just a clarity again on the pharmacy segment. The first question I asked on the call, I'm still not clear with that. So the total combined pharmacy margins that you talked about 6.1% this quarter, then initially you mentioned that customer discounts have increased from 10.5%, 12.5%. So I'm a little confused. So when you recall 24/7 loss, so online pharmacy process, are we capture in 6.7% or they captured in INR 88 crores, which -- or INR 85 crores which you record below, where are those captured?
The 6.1% is the combined EBITDA, as you rightly said. So the pharmacy online expenses is captured as a part of that. And apart from that, the discount cost is mostly compensated through the margin expansion, and we could see that impact.
Sorry, sir. But still I had a confusion. So this -- I'm not sure that -- so the 6.1% includes the 24/7 losses.
Not 24/7 losses, 24/7 expenses because the delivery to the customer is happening from the Apollo Pharmacies, which is front-end entity. The cost incurred there is almost about 1% of the revenues. So that has to be factored into this. So delivery costs coming into the revenue side of the pharmacy business, which doesn't include that INR 85 crores.
So technically, it could be -- it could have been included as part of INR 85 crores. As of now, that is part of the 6.1%, which is being reported now, the logistics costs.
Just to clarify, the online delivery is happening through the front-end business where the delivery costs are captured. So which was not there last year. And to that extent, there is a margin compression, both on account of the expenses as well as the increased customer discount. And we could largely compensate that with the margin increases.
So this quarter, how much would have been roughly online sales, which have been recorded in that revenue?
Say, about -- this quarter alone, about INR 70 crores.
You're saying roughly about INR 7 crores kind of number is getting -- is impacting the margin?
Yes, even more than that. It will be about INR 10 crores to INR 11 crores complete delivery cost attributable to that segment of the business.
And when you talk about this INR 84 crores, this is largely the non-transaction expense. This is just a fixed cost, let's say, the -- let's say, the personnel cost, which is, let's say, the corporate headquarters kind of cost is attributed and the promotion marketing costs.
Look the online delivery cost, which will be fixed irrespective of the cost, which accounts for almost 6% of the revenues, online revenue. So apart from the fixed cost, add of that, that is coming to INR 10 crores to INR 12 crores, which has impacted my margins for the quarter. And a similar number in the last quarter is very insignificant.
That's clear.
Corresponding Q4 is very insignificant. That's why if you see that Q3 versus Q4, there is a margin expansion. While Q4 versus Q4, there is a margin compression.
We'll take one last question, which is from the line of Sameer Baisiwala from Morgan Stanley.
Just a couple of questions on 24/7. How many of your offline stores are really integrated into online business? And second is, what's your fill rate for online prescriptions? And I ask this because we are not operating on a super pharmacy or a warehouse based model. So if you can answer these 2?
Sanjiv?
Yes. So at this stage, we have lightened up around 1,500 stores out of 4,500 stores of network that we have it on the APL. So 1,500 stores are based on the PIN codes, based on the transaction flow, so this is all the algorithm-based placement of stores against the orders that we're generating in various geographies. So about 1,500 have been already lit up, that will be as per the first question. And if you could repeat the second, sir.
Yes. And the second question is the fill rate.
Yes. So I think fill rate is to tune of about 90% plus and we do have a support of -- other than stores, we do have a support of LVDC, CVDC. And these are the kind of a mini DCs, which we have placed at appropriate locations to just ensure that in case at the store level, we have about 90% of fill rate for any order. And 1 or 2 excuses is missing, then obviously, immediately the nearest DC kind of shifts that particular SP to the store and the entire order gets to the customer on an immediate basis. So it's a network of 1,500 stores being lit up last CVDC, LVDC to ensure that the fill rate is very high and as far as SLA side are concerned, more or less, we are 95% plus side on the SLA promise to the customer versus the delivery -- delivery time.
Okay. Great. This is very helpful. And how do you see this rollout over next 1 to 2 years?
So again this all will be algo driven. So what happens is that as and when you get more and more orders. So everything runs on a PIN code basis. So 19,000 PIN codes, system keeps looking at the PIN codes and PIN codes, orders versus the fill rate versus delivery time, all these 3 things out of company's basis to keep looking at it and we periodically review it, something like 15 days cycle we review it. And depending upon this algo, we get to know that where we are getting more traffic and where we need to -- incase we need to strengthen and accordingly, we take a call. I guess, next 3 to 4 years, maybe 30% to 40% more capacity will build up. I mean we light up more stores. That should be good enough at this stage.
Okay. And just 1 final on equity raise for AHL. So the question here is, can we continue if it doesn't happen over the next 6 months, how critical it is for the build-out of this business?
No. I think we surely can, because the Pharmacy division itself has cash. And I think the parent company also has enough to support this. So definitely, I think not just for 6 months, but even if it takes 9, I think we're there to support.
Suneeta, is there a big gap between bid and us. So how should we think about it? Are you looking -- are you talking to new people? I mean, what's really gone astray?
So just to say that there is very good interest in 24/7. It's just that the environment was not the right environment, and we believe that in this current environment, that we would not get the valuation we deserved. So we decided to postpone it by 6 months. But there is sustained interest in 24/7.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Ladies and gentlemen, thank you for taking time out for this call. As you can see, in spite of 2 waves of COVID, I think the whole entity of Apollo Hospitals, the Hospital division the Pharmacy, 24x7 and Apollo Health & Lifestyle have really recovered. But beyond that, just looking at the future and this year, which is really -- we're already present in the future, we are looking at a very strong trajectory of growth, and we hope to deliver on our promise. Thank you again.
Thank you. On behalf of Apollo Hospital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.