Aster DM Healthcare Ltd
NSE:ASTERDM
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Aster DM Healthcare Ltd
Earnings Call Analysis
Q1-2025 Analysis
Aster DM Healthcare Ltd
Aster DM Healthcare has recently completed a strategic segregation of its GCC operations, sharpening its focus on the Indian market. The company acknowledges India's healthcare infrastructure challenges, highlighted by the low hospital bed density of only 15 beds per 10,000 people compared to the global average of 29. This creates vast opportunities for Aster to expand its specialized services, positioning itself for sustained growth as observed in the first quarter of FY '25.
In the first quarter of FY '25, Aster achieved a remarkable 20% revenue growth, totaling INR 1,000 crores. This growth was supported by the addition of approximately 450 new beds and a 12% year-over-year increase in Average Revenue Per Occupied Bed (ARPOB). The operating EBITDA grew by an impressive 38%, reaching INR 177 crores, and the EBITDA margin rose to 17.6%, up from 15.3% in the same period last year. Furthermore, net profit grew by 80% to INR 74 crores, attributed to operational efficiencies and strategic investment management.
Aster’s operational improvements were driven by enhanced efficiencies, particularly in cost management. Material costs decreased to 21% from 23% year-on-year. The operating margin for the core hospital business improved significantly, moving from 18% to 21% in Q1 FY '25. This growth reflects strong hospital performance; mature hospitals, which constitute about 73% of hospital segment revenue, have demonstrated an impressive operating EBITDA margin of 23%.
The Kerala cluster, which accounts for 65% of total hospital revenue, generated a 14% revenue growth along with a 30% increase in operating EBITDA, achieving a margin of 22.7%. The Karnataka and Maharashtra clusters performed exceptionally well, boasting a 38% revenue increase and a 55% operating EBITDA growth, driving the margin to 21.2%. The Andhra and Telangana cluster remained stable with a 15% rise in revenue and a 20% increase in EBITDA.
Aster DM Healthcare is committed to its ambitious growth trajectory, with plans to add 1,700 new beds by FY '27, aiming to reach a total of over 6,500 beds. Approximately 60% of this expansion will focus on brownfield projects, which maintain margin integrity while meeting rising demand in the Indian healthcare sector.
The company’s management expressed optimism about maintaining robust revenue growth, projecting its core hospital segment EBITDA margins to increase from 21% presently to between 23% and 24% over the next few years. This confidence stems from anticipated operational efficiencies and ongoing strategic investments in key regions.
As of June 30, 2024, Aster boasts a robust cash position of INR 1,041 crores against a net debt of INR 565 crores. This financial strength supports its expansion plans without requiring immediate outside funding. The company plans to utilize operational cash flows for capital expenditures, reinforcing its commitment to growth coupled with prudent financial management.
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I welcome you to the Aster DM Healthcare Earnings Conference Call for the First Quarter of FY '25. The company declared the Q1 results for FY '24-'25. With us, we have the senior management of Aster DM Healthcare, namely Ms. Alisha Moopen, Deputy Managing Director; Mr. T J Wilson; Non-Executive Director; Dr. Nitish Shetty, Chief Executive Officer, India; Mr. Sunil Kumar, Chief Financial Officer, India; and Mr. Hitesh Dhaddha, Chief of Investor Relations and M&A.
I would like to inform everyone about how we will conduct this call. All external attendees will be in listen-only mode for the duration of the entire call. We will start the call with opening remarks by management followed by an interactive Q&A session. During the Q&A session, you will get a chance to ask a question by raising your hand by clicking on the raise hand icon in Zoom application at the bottom of your window. We will call out your name, after which your line will be unmuted and you will be able to ask your question. We request you to please limit your questions to 2, but not more than 3 per participant at a time.
Certain forward-looking statements may be discussed in this meeting and such statements are subject to certain risks and uncertainties like government actions, local, political or economic developments, technological risk and many other factors that could cause actual results to differ materially. Aster DM Healthcare Limited will not be in any way responsible for any action based on such statements and undertakes no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.
With this, I will ask Ms. Alisha Moopen to start with opening remarks. Over to you, Ms. Alisha.
Thank you, Puneet. Good morning, everyone, and thank you for joining our Q1 FY '25 earnings call. The successful segregation of our GCC business has sharpened our focus on India as a geography as we embark on FY '25. I'm pleased to present an overview of our first quarterly performance following the successful segregation. India, as you all know, has a low hospital bed density with only 15 beds per 10,000 people, significantly lower than the global average of 29 beds. This shortage of basic health care infrastructure creates a significant opportunity for us to expand our specialized services to meet the growing health care needs and improve the overall health care infrastructure in India. Q1 results, clearly reflect how Aster DM Healthcare, post its strategic shift is extremely well positioned to capitalize on these immense opportunities within the Indian health care market and position itself for sustained growth.
I would like now to share a few highlights of our financial and operating performance for the first quarter of FY '25. Following a brief overview of the overall performance of the company, Dr. Nitish will provide insights into the cluster performance of our business in India. Over the last 5 years, our India operations have experienced significant growth with a compound annual growth rate, CAGR of 23% in revenue and 38% in operating EBITDA up to FY '24. This growth has been driven by significant capacity expansion as well as ARPOB growth, increasing international revenue and offering advanced quaternary and tertiary health care services.
Now coming to the quarterly performance of the India business. Our business has achieved 20% growth in revenues to INR 1,000 crores for the quarter. This growth was supported by an addition of nearly 450 beds over the last year and a 12% year-on-year increase in the ARPOB as well. Aster's operating EBITDA grew by 38% to INR 177 crores for the quarter. Overall, the India operating EBITDA margin expanded to 17.6% for the quarter from 15.3% a year ago. The significant improvement is on account of overall operational efficiencies, which is evidenced both by the reduction of ALOS cost optimization efforts that has really lowered the material cost to 21% during the quarter from 23% same period of last year, as well as EBITDA improvement in our Lab business.
Our net profit, both the NCI has grown 80% to INR 74 crores in Q1 FY '25, driven by our operational excellence and interest earned on the investment of remaining sales proceeds from the aggregation of the GCC vertical. We have also seen a payer shift -- payer mix towards more positive shift with the contribution from the insurance business increasing by over 200 basis points, reaching 30% now. This growth was offset by a corresponding reduction in the scheme business.
Now going back into the core business, both the hospitals and clinics. Our core hospital business delivered operating EBITDA margin of 21% in Q1 FY '25, as compared to 18% a year ago. In fact, our mature hospitals, which we classify as those which are more than 6 years in operation, which contributes to almost 73% of our Hospital segment revenue has delivered our operating EBITDA margin of 23% in Q1 FY '25 with ROC standing at 30%. Our deliberate efforts to establish a sustainable business model are clearly demonstrated in our well-diversified specialty revenue mix with no single specialty accounting for more than 50% of the total hospital revenue in FY '24.
Coming to some of our new businesses, both the pharmacy and labs. During this quarter, we added 12 Patient Experience Centers in Kerala and 2 pharmacies in Karnataka in Q1 FY '25, reaching a total of 229 Patient Experience Centers and 217 Aster Pharmacy branded retail stores as of 30th June 2024. Our Lab business is continuing to perform well, registering more than 15% year-on-year revenue growth while continuing to deliver positive operating EBITDA margin in Q1 FY '25.
In terms of CapEx and onward plans for investments, we remain committed to our robust expansion plans, which include the addition of approximately 1,700 beds, taking the total bed count to 6,500 beds by the end of FY 2027. Our plan primarily comprises of brownfield expansions, particularly at renowned hospitals such as Medcity, CMI and Whitefield. These facilities, which are known to focus on niche specialties and high-end quaternary care work will further strengthen our position as the leader in the health care sector. With this expansion, Aster Medcity is set to grow to 950 beds, while Aster CMI will expand to over 850 beds. In addition, we are actively seeking inorganic growth opportunities with the objective of becoming one of the top 3 health care players in India. We're focusing on acquiring multispecialty hospitals in states where we have -- we already have a presence or in neighboring states such as Maharashtra as well as Tamil Nadu.
Our strong financial performance has really and strategic initiatives demonstrate our commitment to innovation and excellence in health care delivery. Our efforts are recognized by The Economic Times where we were honored as the Best Health Care Brand of the Year 2024. Additionally, Aster CMI has become the first hospital in South India to achieve the NABH Digital Platinum Accreditation as well. As we progress into FY '25, we are poised to capitalize on the substantial growth opportunities within the Indian health care sector. Focusing on the Indian market is a strategic decision that aligns with our mission to deliver high-quality health care services in an evolving economy. We are very optimistic about the future and we believe our expansion plans and operational improvements will enable us to make a significant impact in the industry, ensuring better health outcomes and a brighter future for all.
I will now request our CEO, Dr. Nitish Shetty, to elaborate more on the performance, including both the segment and the cluster-wise performance. Thank you all very much.
Thank you, Alisha. A very good morning, and thank you all for joining us on quarter 1 of the financial year '25 earnings call. I'm enthusiastic to share the exciting journey we are embarking on as we focus exclusively on the Indian market from quarter 1 of the financial year 2025 onwards. This strategic shift has come at a time when Indian health care industry is experiencing substantial growth and transformation. Hence, we are prepared to make the most of this opportunity by enhancing our services and infrastructure, aiming to meet the increasing demand for quality health care in India.
Moving on to India business performance for the quarter 1 of the financial year '25. The addition of 446 beds in last year has led to 20% year-on-year growth in revenue and 39% year-on-year growth in operating EBITDA in quarter 1 of the financial year '25. Our core hospital business, including clinics contributing 94% of our total revenue, grew by 21% year-on-year to INR 968 crores in quarter 1 of the financial year '25. The successful implementation of cost optimization initiatives and operational leverages has led to significant growth of 39% in core hospital operating EBITDA, delivering operating EBITDA margins of 21% in quarter 1 of the financial year '25 compared to 18% in the quarter 1 of the financial year '24.
Excluding O&M, our core hospital business grew by 20%, reaching to INR 930 crores with operating EBITDA margin of 21.4% in quarter 1 of the financial year '25. Additionally, our O&M asset-light model registered revenue growth of 89% year-on-year in the quarter 1 of financial year '25 with addition of 149 beds in past 1 year. This hospital segment has already started delivering positive EBITDA and is poised to contribute to enhance overall hospital margins. Our new business performance, especially at Aster Lab grew by 15% year-on-year, delivering positive operating EBITDA margins. Furthermore, overall payer mix, as Alisha mentioned, has changed in quarter 1 for the financial year '25 with year-on-year increase of 200 basis points in insurance patients reaching to 30% now. This growth was offset by reduction in scheme patients.
Coming to the cluster-wise performance, our Kerala cluster, which contributes 65% of the overall hospital business revenue maintained positive momentum with revenue growth of 14% year-on-year and operating EBITDA growth of 30% year-on-year in the quarter 1 of the financial year '25. The Kerala cluster delivered operating EBITDA margins of 22.7%, aided by a reduction in ALOS to 3.1 days and price growth. The ARPOB of Kerala cluster also witnessed an optimum growth of 12% year-on-year at INR 42,000 in the quarter 1 of financial year '25, reflecting the price hike and reduction of scheme work.
Our Karnataka and Maharashtra cluster contributing 34% to the overall hospital revenue, showed strong performance in quarter 1 of financial year '25. The revenue of the cluster grew by 38% year-on-year and operating EBITDA grew by 55% year-on-year in Q1 of the financial year '25, while delivering an operating EBITDA margin of 21.2%. With the scaling performance of a new Whitefield Hospital at Bangalore location, the cluster witnessed a notable improvement in occupancy levels rising to 62% in quarter 1 of financial year '25 from 55% in quarter 1 of financial year '24. Our Andhra and Telangana cluster remained steady with revenue growth of 15% year-on-year and operating EBITDA growth of 20% year-on-year in quarter 1 of financial year '25. We are confident in the cluster approach, which has enabled us to break even faster with new hospitals.
Coming to CapEx, our expansion plans to add 1,700 beds by financial year '27 is on track, which will increase our total capacity to over 6,500. This expansion will enable us to bridge the gap between demand and supply, positioning us to capitalize the growing opportunities in the Indian health care market. We remain committed to providing high-quality health care services and achieving sustainable growth with strategic objective to become one of the top 3 players in the Indian health care sector.
I now request our CFO, Mr. Sunil to elaborate more on financial performance. Thank you very much.
Thank you, Dr. Nitish. Good morning, everyone. For the quarter ended 30th June 2024, India revenues have increased to INR 1,002 crores, up by 20% from INR 838 crores in quarter 1 FY '24 and operating EBITDA has increased to INR 177 crores with a margin of 17.7% compared to INR 128 crores in quarter 1 FY '24 [Technical Difficulty]. PAT, post-NCI for quarter 1 FY '24, INR 41 crores in quarter 1 FY '24, with a growth of 80% year-on-year. Our core hospital and clinic segment achieved revenues of INR 968 crores, up by 21 percentage from INR 787 crores in quarter 1 FY '24 and the operating EBITDA has increased to INR 201 crores with a margin of 20.8% compared to INR 146 crores in quarter 1 FY '24 with a growth of 37%.
The ARPOB for quarter 1 FY '25 saw an overall growth of 12%, increasing from INR 39,400 to INR 44,200. Excluding O&M asset-light hospitals, the ARPOB rose by 15% from INR 40,800 to INR 46,800. This growth was driven by revenue augmentation, revenue assurance measures, optimization of ALOS and improvement in payer and case mix. In terms of cost optimization, our material cost percentage, excluding wholesale pharmacy steadily declined from 25.3% in FY '22 to 22% in FY '24 and further to 21% during the current quarter. This reduction reflects our effective cost management, strategic procurement and operational efficiencies implemented across our business units.
For the quarter ending June 30, 2024, our capital expenditure totaled INR 85 crores with approximately 64% spent on towards expanding our capacity. Over the next 3 years, we aim to add nearly 1,700 beds with 60% of these being brownfield expansion to ensure that there is no dilution in our margins. Optimized capital allocation coupled with margin improvement, our ROCE has experienced significant growth. ROCE surged 200 basis points year-on-year, reaching 16.5%. Hospital and clinics segment, excluding O&M asset-light hospital, ROCE rose to [ 23.8% from 22.3% ]. Mature hospitals saw an impressive increase in ROCE by over 300 basis points, reaching to 30% in quarter 1 FY '25. Aster India net cash stands at INR 1,041 crores as on 30th June compared to net debt of INR 565 crores as on 30th June 2023.
On that note, I conclude my remarks. We would be happy to answer any questions that you may have. I now request Puneet to open the question-and-answer session. Thank you.
Thanks, Sunil. We can now move on to the Q&A session. Before moving on to the Q&A session, I would also like to request to all the participants, if you can introduce yourself with your name and the company that you are associated with before asking the questions. If you are not associated with any company and you are an individual investor, you can highlight that also.
Moving on to the Q&A session, the first question is from Mr. Sudhir. Sudhir, if you can unmute yourself and ask the question.
And I'm Sudhir Bheda from Bheda Family Office. Congratulation on very good set of numbers, sir.
Than you, Sudhir.
Am I audible?
Yes. Thank you, Sudhir. Please go ahead.
My question is your margin has gone up almost like 200 bps plus. So going forward, what are the chances that margin can improve further as some of the -- your capacity is going to be matured. So, margin enhancement, just I want to ask a question on that.
Thank you, Sudhir. With respect to margin enhancement, so if you have seen our growth in quarter-on-quarter and also look at our maturity profile, right? Today, we have above 6 years hospitals, we have got almost 10 hospitals today with almost 73% of revenue coming from there. If you look at their EBITDA margin, operating EBITDA, it's almost 23.2%. So that shows that there is a good scope of increase in the overall margins, right? But at the same time, we have started our journey in India only last 10 years, right? So, a lot of assets have been in the growth stage. Now only recently only we have matured into -- many of the hospitals have gone to mature stage. That's where you can see the margin expansion happening. And we see that and also 17.7%, what you're seeing is a consolidated number with hospitals, labs and pharmacies put together. But only hospitals, when you look at it, it's more than 20.8%, correct?
So, I think even the previous quarters or so, I've explained that at a consolidated level in the next couple of years, we can look at going from current 17.7%, 18% to 20% to 21%. And specifically, the core segment, which is our hospital and clinics segment, that is something which is currently at 21% can go up to 23% and 24%. So, we see this is more like a sustainable margins with our ARPOB, because we are at present majority, 70% of business come from non-metros for us. So, with our current ARPOB of INR 44,000, we see that with a decent ARPOB growth and added to our cost optimization measures, we will be able to reach to the numbers which I have -- was able to talk about.
The next question who is asking, Mr. Sanjay Shah. Mr. Sanjay, if you can unmute yourself and ask the question.
Hello? I'm audible, I suppose. Hello?
Yes.
And congratulations to the team Aster for fantastic performance and very nice presentation and deep explanation. Sir, my question was regarding our CapEx program, what we have lined up for 1,700 bed and where 60% will be from brownfield. So currently, what's the approach cost for a brownfield project? And what CapEx we are going to incur for adding this 1,700 bed?
Thank you, Sanjay, for your question. So, the 1,700 beds on an overall basis, the CapEx of the project cost we are looking at is something like INR 1,200 crores. So, out of INR 1,200 crores, INR 200 crores plus has already been incurred in the last '23 and '24, right? So, we're expecting the additional INR 1,000 crores to be incurred in the year FY '25, '26 and '27. Now coming to your specific question on brownfield expansion. So, if you have already an hospital, like say, our Aster Medcity Hospital with 750 beds, or say, we have a Kannur hospital with the 300 beds. So, in both places, we are doing a brownfield expansion of 100 beds plus. So, if you have an existing hospital and you're able to do a brownfield expansion, we are looking at a cost per bed of something like INR 50 lakh per bed.
Like per bed for brownfield. That's great. So, it's a -- so by '27, even after adding 1,700 bed and reach the benchmark, we will be still a debt-free company, right? So that was my point to -- so is there -- have the management added any plan on the Board to do some expanding the reach for labs and clinics, even pharmacies.
So, I just want to add here to what Sunil also mentioned and Sanjay to your question. As a strategy, I think our focus will continue to be expanding more on hospital segment, while the other new businesses like labs and pharmacies, we look at more as an ecosystem for us to support our hospital business and continue to help our hospital business deliver higher margins. So in that fashion, naturally, the expansion will be linked to where we put new hospitals and where we expand our geographies. But I think as a company, our focus will continue to be more on expanding hospital business, which is the core business for us.
Thanks, Mr. Sanjay. The next participant in the line is from Mr. Amey. Amey, if you can unmute yourself and ask the question, please.
Hello, am I audible now?
Yes, you're audible now.
And congrats on a good set of numbers to the management. So, the first question I have is if you can explain the ARPOB growth drivers for the quarter, it has been in double-digit. So that is the first question. And the second one, on the P&L side, we see some sequential uptick in the employee cost, if you can highlight the key reason for the same.
Thank you, Amey. So, on the -- your first question related to ARPOB growth. See, ARPOB growth, even in my speech I called, there are many levers which is driving. The first one, I would say, is the ALOS reduction, right? So, ALOS usually, Aster India, ALOS used to be around 3.4. And now in the quarter 1 it has reduced to 3.2, right? So that has, again, ALOS has resulted majorly in the change in your scheme mix. For example, we had stopped our schemes specifically in Calicut and Medcity, sometimes 2 or 3 quarters back. So there we are seeing that because scheme patients usually stay longer as compared to our cash patient or a TPA patient. So, the ALOS has been a very, I would say, one of the important reasons why our ARPOB has grown.
Second, I would like to attribute to our Aster Whitefield Hospital. If you look at last year same time, we had only the women and children block operating, right, with only 50 beds. And that was generating only ARPOB of INR 44,000 plus. But now in the quarter 1, we have complete multispecialty, the A, B and C block with 350 beds completely operational, due to which you are doing completely multispecialty, right? So, you're doing oncology, you're doing neurosurgery, you're doing plastic surgery. So, with all this multispecialty coming in, ARPOB has grown to almost INR 70,000 per day. So, these are the 2 main factors. In addition to this, the price increase is something which we -- it's contributed only to 3%, 3.5%. But in addition to this one, it's also a case mix.
We are doing more robotic surgeries. If you know that last year, what you call, full year, we have done more than 1,200. But what I see is that only in the last quarter, we have done more than 400 to 500 surgeries. So, keeping all this case mix, the ALOS, the revenue augmentation, which is what we have taken, our new hospital, Aster Whitefield Hospital, which has really done well, all these have been really added to our ARPOB growth. Hope that answers the question.
Is it possible to highlight the occupancy level in the Whitefield and Bangalore specifically?
See, for Bangalore overall, it is something like 62% occupancy. And specifically, your Bangalore Whitefield Hospital, the Aster Whitefield Hospital is something like 65% occupancy.
And you see a scope for the further increase?
Yes, yes. See, this is only 350 beds. Out of that we still have 45 beds yet to operationalize. In addition to that, you also know that there is a block D in Aster Whitefield Hospital, still under the works, right? So it is again, a leased asset, which we took some time in the last year, October 2023 and we have started to work on that. That is expected to operationalize sometime in this year, right, in the later part of this year, financial year. So, keeping that in mind, this current 350 bed hospital is going to become a complete full-fledged 500-plus bed hospital. So keeping that in mind, there is still big scope to increase the operational beds and indirectly increasing the occupancy and revenue.
Just last question, if I could squeeze in. If you see the expansion plan around more than, I guess, close to 1,700 beds we are adding over the next 3 years. However, almost 900 of these beds are coming into Tier 2 cities like Kannur, Ongole, Trivandrum, Kasaragod et cetera. So, how should we see a thing from the ARPOB growth perspective from going ahead, considering the ARPOB in these particular cities could be low?
I was just talking about the strategy that we have here. Basically, as a company and as a business model, we would like to be well diversified across metro as well as non-metro because we see non-metro as an area of opportunity for long term, whereas we see sizable capacities coming in metro, the non-metros like what in Kochi that you see, our flagship hospital and Calicut and other places, we are able to command a leadership position in these markets and because of our early entry and the quality of service that we are providing. And that is supporting us on the ARPOB growth as well as the volumes that you're seeing coming there.
And maybe, Sunil, if you want to add on that further.
Also, Hitesh, yes, I think, Amey, one thing I wanted to extend on what Hitesh is saying, right? It's a pretty much a balanced approach, right? We do have a lot of beds that are coming in as part of the brownfield expansion within, for example, the Whitefield, CMI. So, it's a twin effort between the ones which are in Tier 2, Tier 3 cities as well as our core clusters like Bangalore, so there is -- I think that helps us kind of maintain the ARPOB growth because the metros are giving us that increase. Maybe you don't get that extent in some of the Tier 2, Tier 3 cities. But since we have both growing, we feel that we will still be able to see a reasonable ARPOB growth from this combination like what Hitesh said, growing scale with the Tier 2, Tier 3 cities because when we are taking a longer-term view, that's where you can see a real kind of exponential growth happening for the company as well.
Thanks, Amey. The next question is from Mr. Pinaki. Mr. Pinaki, if you can unmute yourself and ask the question.
Hello, sir. Am I audible?
Yes, you are audible.
Sir, actually, my first question is if you just come to Page 15 of your Investor Relations side, sir, actually, there you have mentioned that maturity-wise the hospital performance, where we find that matured hospitals, which are over 6 years, they are having an occupancy of 66%. And in between 3 to 6 years, it is 82%. Sir actually, can you explain why this trend that the matured hospitals have lesser occupancy than the ones which are in the maturing stage?
Thank you, Pinaki, for the question. So, if you look at the hospitals, which are under the band of 3 to 6 years, there are only 2 hospitals. One is our Aster RV, which is in Bangalore, which is with the 240 beds. And second one is our Aster MIMS Kannur, right? So, MIMS Kannur, if you know the history, when we started in sometime in FY '20, this hospital hit the occupancy of something like 80% within 3 to 6 months itself, right? So, from there on, it has been running at occupancy of more than 94%. Literally speaking, we are not able to take complete patients. We are diverting the patients from Kannur to Calicut and Kottakkal Hospital, right?
So, keeping that in mind, that's where the expansion is happening in the Kannur, wherein already we are ready with 100 beds and that's expected operational sometime this quarter. So specifically, this is 82% only because you've got one hospital in Kannur, which is doing more than 94%. So otherwise, if you remove that exceptional thing which is going on, then it would be similar to the -- over 6 years.
Also, many of our major hospitals, we are in expansion mode. So, you will see that in near future or in medium future, you will see the new capacity is getting added to these hospitals. So, while the occupancy percentage may remain at similar levels, but I think the overall absolute occupancy will keep going up with the number of beds additional happening. So, I think that is a trend that you might see continuing to happen as we go on.
Sir, my next question is to the following slide like where you have outlined that whether the CapEx spend is the number of beds which you are intend to grow from till [ FY '25 ]. So, what is -- actually while selecting a new hospital to be built up what criteria does it go in selecting whether it will be our own hospital or a leased one?
So Pinaki, we don't really have a view towards or the alignment towards to say, okay, we have to do only greenfield project or we wanted only to do lease project. It also depends on the geography and the revenue model, which we really align. At the end of the day, we have tried to ensure that whatever the projects either a greenfield project or a lease model, we try to ensure that our capital allocation is something which is very efficient, right? Try to not put too much CapEx per bed. At the same time, we also look at the return on investment. How fast we can break even, how fast we can get into good EBITDA margin and how the ROCE can get into double digits, right? So, the whole object also the IRR base, right? So, it's all about to ensure that whatever we are doing, it's more of a capital efficient and return investment efficient, that's it. But we are not aligned -- for example, in our Aster Whitefield Hospital, we were able to put up cross 500 beds and only INR 76 lakhs per bed. But if you want to do a greenfield project there it will cost you more than INR 2 crores to INR 2.5 crores, right? So, it's all about that.
Just last question, sir, what is the amount of cash and liquid investments you are having in our books now? And how do you plan to deploy it?
So currently, our cash and cash equivalents, as mentioned in our earnings presentation, it's around INR 1,700 crores. And as of now, we have not yet decided yet on how do we deploy it. Yes, we are looking at a lot of inorganic opportunities and looking at various acquisition opportunities also. And accordingly, in due time, we'll be able to inform you on that.
Thank you, Mr. Pinaki. The next question is from Mr. Amrish. Mr. Amrish, if you can unmute yourself and ask the question, please.
Amrish Kacker, individual investor. My first question is on the O&M asset-light model. So in the past, we've had some mixed success, Tirupati and not so great in Mandya. So, I'm looking if you could give some more color on where we are in our thinking on O&M asset-light, primarily to understand, is this going to be a route to add more beds going into the future? And if so, then when that might be?
Dr. Nitish, would you like to take up this?
Yes, Amrish, thank you for that question. Earlier, Sunil had mentioned that our strength is in the -- we have 70% of our business in Tier 2, Tier 3 cities. And India presents a humongous opportunity in that space, right? And of course, metro is also another area where we can -- we have demonstrated as a group, we demonstrated recently also in Whitefield. We have deployed a large hospital and have been very successful with all the financial parameters of the charts. So, in that sense, metro is the key area for focus. But a lot of opportunity, in the future lies in the Tier 2, Tier 3 cities.
But there's always an inherent risk of how do you kind of ensure because our model is a quaternary care model. We believe in developing quaternary care model in the smaller towns, not the primary [ care ], towards quaternary care. So to do that, the talent availability is the biggest challenge. We can put up infrastructure, patients can access it now because of various insurance. Insurance penetration, private insurance penetration is increasing. Even the government initiatives in terms of Ayushman Bharat and all, the accessibility, affordability of the patient is there. But the talent, acquisition of talent or retaining the talent in this geography is a big challenge.
So, to derisk ourself instead of going on over and deploying a hospital in Tier 2, Tier 3 cities, we have started with O&M model, exploring the opportunities to try to understand the market. Few of them have paid off well like Tirupati. Now it can be scaled to a regular sized hospital because we have understood the geography, we understood the market and our availability of the talent and that Tirupati hospital presents an opportunity to scale up to a regular hospital. So similarly, in one of the hospitals in Kerala has presented a similar opportunity. But we have faced some challenges in 2 other hospitals. But there are a lot of learning now. This will last 1 or 2 years have been a lot of learning. But we are confident.
We are still working on that model. But right now, we are put a pause, we are not acquiring more O&M model, but we are studying this present model. We probably need one more year time to understand the O&M model going forward in the Tier 2, Tier 3 cities. If it sells well, I think -- because health care is very dynamic. What holds good 5 years back now, doesn't hold good, things change quickly. We are confident because opportunity presents in Tier 2, Tier 3 cities, especially to deliver the quaternary care probably in a year or 2, we'll get more clarity. Right now, we are selling this model closely and trying to understand better.
Sir, just to make sure I understood that. So broadly, I mean we'll still try to make sure we get the model right. So, I think for another year or 2, we should not think about this as a big growth [Technical Difficulty].
That's the plan.
Second question is just, I think, raised by a participant earlier, on the employee cost quarter-on-quarter. I know there's a INR 2.9 crore ESOP charge that might be there. But is there any reason for a INR 20 crore-odd jump Q-on-Q on employee costs, excluding doctors?
Sunil? Sunil has --
If I can then slip in another one while we're waiting, just a simple one...
He's come back. Sunil, you missed out on this question about the manpower cost?
Q-on-Q INR 171 crore to INR 190 crore. There's some ESOP, I guess, but that's INR 3 crore. Employee costs, excluding ESOP...
Sunil, can you hear us?
Am I audible, Puneet?
Yes, Sunil. Have you listened to the question.
No, I didn't hear the question, sorry.
Amrish, can you repeat the question.
Yes. So, the question is on employee cost. I think this was asked earlier, between INR 171 crore to INR 190 crore Q-on-Q. Is there any -- is that the rate we should assume? Or how should we look at that jump?
I think he's not there. So Amrish, to some extent, the employee cost increase is largely linked to revenue growth and also we've been working on expansions as well. So, it's not completely out of the cards here, right. As the revenue will grow as the number of beds are going to go up, to some extent, the absolute number on the cost may still go up while keeping the overall percentages broadly in line with and that's what is helping our margins also to continue to move up, indicating that our overall percentage employee cost is not going any adverse way. There could be one-off ESOP cost, which maybe Sunil can explain once he join again and we can probably have him give that response on that.
We would like to highlight that we would be giving preferences to attendees who have not asked a question before. So in that line, the next question is from Mr. Harith.
Hope I'm audible. So, my first question is on the labs and pharmacy segment. We've seen a marginal decline on a Y-o-Y basis and at the same time, you have commented that the lab segment has recorded a 15% Y-o-Y growth. So, it appears that the pharmacy segment has seen a decline. So, any color you could provide on that?
Decline in what exactly you're talking? You're talking in...
The revenue. For the labs and pharmacy segment, there's a 3% Y-o-Y decrease.
So Harith, that is primarily because our wholesale part of the business to an extent we have -- we were working on a strategy where we outsource some of this wholesale business and that is resulting in this reflection on the number. The idea is to ensure that our EBITDA margin remains intact or improve for the overall retail pharmacy business. And that's part of our strategy and which is what has not executed here.
Okay. Second question on the pharmacy business is on the entity, which operates the retail stores, Alpha, where we have around 15% stake. So, looking for some color on the majority shareholders here. Are they financial investors? What are the terms? Are we guaranteed some sort of returns for them and exit time line for them? So that's what I'm trying to understand.
Mr. Wilson, would you like to take this up, the other investors on the pharmacy business.
I think Sunil will have a better understanding about that one.
Okay. While Sunil can respond to that once he is back, but these are all individual investors who hold a smaller percentage in the pharmacy business individually. And these are all individual investors. So, there's no other institution that is holding a major stake over there.
Harith, we will come back to you. I think Sunil is just having some IT issues. So, just on a couple of those questions. So, we will come back to you separately and share the response as well.
Okay. And one for you, Alisha, on various media reports around the company being in discussions with private equity funds for capital infusion. So, I understand you may not be able to talk about the details here, but if can you share some broad thought process around what the promoters are thinking or the promoter is looking for an exit or is it a primary infusion for a minority stake that you're in discussions with? So, some color here would be helpful.
So Harith, like you said, I can't really comment much on the market speculation. The only thing I can mention is, of course, we are quite geared up to expand the India network. There is no intention from the promoters to exit. I think the only thing we are quite keen on is building Aster India. And like I mentioned in my opening remarks as well, our Chairman's vision has always been how do we become one of the top 3. So, just looking at the right opportunities in terms of mergers, acquisitions that are available that will help us facilitate. So, we're just being opportunistic on that, looking, keeping our eyes open. We could not really focus on any of this until the GCC segregation was over. So, I think since that has given us kind of a cleaner slate now, it just opens up for other combinations and opportunities to be explored. So hopefully, we'll have something more concrete to mention in the next couple of quarters.
Last one, on the O&M asset-light hospitals that we have, we've disclosed a break even for that cohort of around INR 2 crores EBITDA. Just trying to understand if this is after the revenue share with the partner? And what kind of margin trajectory we can expect here net of the revenue share? Trying to understand if this can go to the kind of margins that we have at our mature hospitals.
I'll let Dr. Nitish come in. But just to your final question, I don't think -- I mean we don't expect the margins of our own hospitals, but Dr. Nitish, please.
Yes. Like I had mentioned Harith earlier this O&M models are in the Tier 2 cities, Tier 3 cities, in the smaller towns, where we are trying to develop a quaternary care facility. Obviously, in comparison in metro and larger cities, the financial parameters will not be up there like if you're looking at a large hospital in Bangalore can do EBITDA margin close to 30%. This, we are expecting in the range of 15%, in that -- around that range, 15% to 18% or if we can take it to 20% well and good, but we are -- at present, we are aiming to take it. Some of the hospitals are at around 11% now, 11%, 12%, but we are aiming to take it somewhere close to 20%. But definitely, it can't be compared to our hospitals in metro cities.
Sunil, if you could elaborate on that, O&M model. The question was the performance of the O&M model in terms of the financial parameters, what can be expected vis-a-vis...
Thank you, Doctor. Apologies. Am I audible, Doctor.
Yes, you're audible now.
Thank you. So, apologies. First of all, there's some network issue here. So, going back to the O&M hospitals, see, logically, this is in the Tier 3 cities and we don't take [Technical Difficulty] major -- 100 to 150 beds expansion what we are doing here. And usually, the investment also has been very less. So, less than INR 10 lakh per bed is our investment in these hospitals. [Technical Difficulty] 15% and not more than that. At the same time, ROCE are going to be double-digit. For example, in all our 4 hospitals, Mandya Hospital and other hospitals is taking some time to get into the cash break even. But when you look at our Narayanadri
Hospital in Tirupati and Aster PMF Hospital in Kollam, we are able to really hit the margins at double-digit EBITDA margin. And also ROCE has also reached to more than 15%, 20%. So that way, these are very ROCE accretive more than EBITDA accretive.
So, these margins you're sharing are after the revenue share? Just wanted to confirm that.
Yes. No, this is operating EBITDA. If you look at -- if you wanted to say, okay, after the -- these are post-India's margins, which I'm referring to.
The next question is from Damayanti.
I hope I'm audible.
Yes.
Okay. I have 2 questions. First, material cost improvement is one of the key driver for the improvement which we have seen for the June quarter. So I just want to understand further room to increase on this or you have, say like, achieved some sort of optimum number here. I want to understand this part better.
Can you just repeat your question, please?
Yes. So my question is, material costs as a percentage of revenue improvement is the key driver for the June quarter performance, if I understand correctly. So I just want to understand what kind of room is further available to improve on these metrics.
Yes. Thank you, Damayanti, for the question. Yes, see, material cost is something which we have been working for the last 3 years, right? So due to COVID, we had this -- basically the central buying unit, what we created internally. And I was also bringing synergy across the volumes, what we wanted to do. We want to do almost in FY '20, but due to COVID, the plans moved to sometime in FY '22 and later. So last 2 years, we worked really hard to ensure that 70% to 80% of our procurement is done centrally. And only we give the rate contractual units. Only 20% or less than 20% is procured locally as of now. And also, we have worked on reducing the innovator share, and also trying to reduce the number of brands to ensure that we are able to get the best price among the vendors or the brands which we finalize.
Now, 21% is not really the best if you ask me, if we can still have a squeezing of another 100 basis points is something which we can still do. Now, the next level of optimization will come through the standardization of the materials and also the optimization of the consumption. So that is something which we are working on. And also, if you know that your ARPOBs are also low -- as low as like INR 44,000, right? So hitting 21% itself is a real tough task, but something which we're able to do because of the good support from our clinicians, good support from our unit heads, right? So there is a coordinated effort to drive the optimization in material cost. So we expect another 100 basis points is something there is room if we are able to work on the consumption.
Okay. That's clear. My second question is one clarification. In your opening remarks, you mentioned a 3%, 3.5% price hike, which you have taken. That's only for Kerala cluster or it's across the network?
So we don't take at one go across all hospitals, right, because it all depends on [Technical Difficulty] geography and the departments and [Technical Difficulty] the hospitals, so there's no time line to say, okay, this hospital [Technical Difficulty] every hospitals will take a price increase only in April. So we spread it across the year. And in different geographies, we take a different correction because it also depends on -- if I am a market leader, then I should be the first one to do [Technical Difficulty] really take up the [Technical Difficulty] price increase, right? So it all depends on the market mix, geography and also the case mix, which helps us to do the price increase [Technical Difficulty].
Okay.
Damayanti, if I can add in here, because we lost Sunil there. The price revision has become now strategic initiative from the hospitals, it's not kind of a fixed initiative. We -- because the cash patients who pay out of the pocket are a little bit sensitive to price revisions. We take into consideration the kind of work we do, kind of specialties we have and the geography we have present based on the -- it's a local strategy. Earlier it used to be kind of every year, we used to take a price revision to cover the inflation. But now it's not the case because the insurance penetration has increased in the larger metro cities, insurance penetration, we have patients up to 60% to 70% are insured patients. So those are all kind of -- we have a fixed contract with the insurance companies for 2 or 3 years, but cash patients, we strategically take depending upon the -- are we a price leader in the market or what is the price leader do in the market where the price leaders are another group, we closely watch and then the kind of work we do and what value proportion we bring in, based on that we make the decision.
Sure. And my last question is for Alisha. Alisha, if you can share your thought on reducing this promoter pledge? So looking at the latest number, around 98.87-ish pledge. So what are your plans like? How do you want to think about it?
So, Damayanti, yes, definitely, I think our goal is towards reducing that. We are hoping that towards the close of this year towards the end of the [Technical Difficulty].
Alisha, I think you are in mute.
Sorry. Yes. Yes. So, Damayanti, I think our efforts are towards reducing the pledge definitely. There is the goal towards kind of reducing it towards the close of the year. So we're working towards that. I think that -- yes, that's the goal, definitely making sure that we can reduce the pledge further. So...
Damayanti, also, it's just an optical number that appears. The loan itself is quite smaller. And the pledge that is required is much lower there. But because it's an overseas loan that has been taken on holding that is for an Indian entity. So it looks in form of 100% pledge, while that is not really needed over there. And as Alisha mentioned, that problem will also get probably solved by the end of this financial year.
All the best.
The next question is from Mr. Kunal. Kunal, can you hear us?
Yes, I hope I'm audible now.
Yes.
Yes. Most of my questions are answered. Just one question again on ARPOB. So now just looking 3 or 4 years ahead, now -- see, some of the moving parts seem to be optimized already. ALOS is already at 3.1 days for both your clusters and even your cash plus insurance is close to 88%. So I don't really see a lot of upside here. So, just wondering, how do you see the ARPOB moving in the next 3 to 4 years?
Kunal, thanks for your question. See, with respect to ARPOB, which something which I called out in the -- early also, right? Our majority of business is in non-metros. And that also means that we have a capacity to grow in our ARPOB as compared to metros, right? So, if you're in a metro entity, we already reached INR75,000, INR80,000 ARPOB. There is also with the 40%, 45% insurance. There's always -- I'm not saying that metros don't grow, but there is always a limitation of the percentage at which we grow. If you look over historically from FY '18 to FY '23, we have been growing ARPOB of more than 8% to 9% CAGR. And we see that, yes, this quarter has been very tremendous. Even the last year we grew by 10%. This quarter is almost 12%. I understand it's like in a double-digit growth. The question, is it sustainable? What we see is that, with the change in the case mix happening, then the ALOS getting stabilized and we being more in non-metros, the scope which we have to increase the price and increase the growth in the ARPOB.
We see that still in the future -- I'm talking about medium-term, between 3 to 4 years, we should be really able to grow at at least 7% to 8%. I think that is something which is very much possible. 12% looks very high, but I completely understand because it is linked to majority of the case mix. Sometimes nowadays you're seeing that many of the patients want to get into only the single room. There are a lot of changes which is happening. But on a blended basis, on a next 3- to 4-year number, I think 7% to 8% is a very decent growth which an organization like us can really grow on.
So, would it be fair to say that 3% to 4% would be coming from price and the remaining largely from case mix?
Around 3%, 3.5% is something which we always look for price increase growth. And even in insurance, right, even though we have 30% insurance, it's not that every year you get. But every 2 years, you can really get a double-digit price increase growth there also.
The next question is from Mr. Alankar.
Alankar, can you hear me?
The next question is from Mr. [ Nikhil ].
Hello, am I audible?
Yes, you are audible.
Yes. Congratulations on great set of numbers. So my first question is like how are the talks with the promoters in Andhra going on? Like in last quarter you mentioned that you -- about the performance in Andhra, that you were going to talk with the promoter. So how are the talks going on there? And my second question is, has the GCC sale impacted our international patient volumes?
Can I take that question, Alisha? So I'll answer the second question first, second question about the -- has the GCC sale affected the international patient inflow? No. We have a brand presence in GCC, the inflow of the patients from the GCC to India was independent of the GCC's patient referred from the GCC hospitals. But post segregation nothing much has changed. But we are further evaluating opportunities there because at present we are not concerned about the dip in the numbers. We are looking at how we can up the number going forward because strategically we're segregated. There's more incentive for the GCC hospital to kind of refer -- the agreement is such that they are more incentivized to refer patients to us now rather than before. So that strategy might -- also might pay the dividends. But at this present -- at the first quarter, at the coming quarters, we don't see any impact. First question -- second question.
The first question about engaging with the promoters, we are in constant engagement with the promoters of Andhra. We are very confident that in coming quarters, we will see a drastic change in the performance. We already see it in the first quarter because the change in the political situation there has helped the present management there to kind of engage with the government scheme patients and all. Earlier, we had to stay away from the government scheme patients there. But now we've taken initiatives to open up the government scheme, which is a norm in Andhra. And also with the renewed economic activity in Andhra Pradesh around Vijayawada and Guntur, with Amaravati now it's going to be the capital of Andhra Pradesh, that also will help us picking up the activity in the Andhra, especially Andhra Ramesh Hospital. You will see the results in the coming quarters, which...
Okay. So, sir, my next question is about our inorganic growth plans. So are we concentrating on geographies like Maharashtra, Uttar Pradesh, or somewhere else, too?
Hitesh, can you take the question?
Sorry, can you please repeat the question?
Sir, for the inorganic growth, are we looking at the geographies like Maharashtra, Uttar Pradesh, or somewhere else, too?
So our prime focus continues to be South India. We are the dominant player in South India with second largest number of beds right now and aspiring to become largest through our expansion plans and M&A opportunities. So, the first focus area continues to remain expanding in the geographies where we are at the adjoining states like Maharashtra, Tamil Nadu and we are evaluating opportunities in these regions.
I think for us to enter into North India, I think we would be selective on which state we would like to get into. And I think Uttar Pradesh definitely becomes one of the good option. But I think that's probably a step that would be taken in kind of more of as a long-term strategy, I would say, long- to medium-term strategy. Our near-term strategy will be more focused on continuing to expand within South India.
And, sir, my question is on valuations, like what are the multiples that we are looking at to pay for hospital -- to acquire the hospital as a multiple -- per bed or multiple in EBITDA?
Yes. So we would be very cautious in the M&A that we are going to do. Obviously, we are not keen to overpay on any of our M&A opportunities. I would not get into multiple level discussion right now because that varies across different kinds of hospital that we look at, different geographies, whether we are looking at in metro or non-metro, the capacity size and multiple other factors. But I think from our strategy perspective, we are quite clear that we would be looking at hospitals which are land parcels or the other lease opportunities where we can create larger hospitals, which should be at least 350 to 400 beds and that can expand to 500 beds plus. And the idea is not to definitely overpay on those kind of opportunities. So there are opportunities available in different formats that we are evaluating, including acquiring land or taking on lease built to suit models, as well as M&A opportunities in these regions. So we are evaluating multiple of those opportunities and we will get back on the right time as we shortlist anything.
Yes. The next question is from Mr. Alankar.
Sorry, I was unable to unmute earlier. Just a follow-up on this question on expansion and M&A. Alisha, when you spoke earlier about becoming bigger vision to be amongst the top 3 players and looking at different opportunities. So would that mean that versus acquiring stand-alone hospitals, acquiring or merging with chains would be a preference for us?
Alankar, so as I mentioned, it's a little bit hard for us to kind of predict exactly what would be the path forward. I mean, definitely if you're looking at merging with a platform, that would save us some time and help us accelerate the growth. So we are keeping our eyes open. Like I said, there are multiple opportunities that are there in the market. So we're evaluating a few right now. And like I said, I think in the next couple of quarters, we would be able to come back with a much firmer view on this. We've only had the last few months to really kind of start looking at it very actively post the segregation. But what you're suggesting is something which is, of course, a preference for us, because that would help us kind of fast track our growth as well.
Understood. The second one is also a follow-up on the discussion on AP, Telangana. So yes, we have seen some improvement sequentially in margins, maybe even lesser on a year-on-year basis in AP, Telangana. But the performance is still significantly or the margin profile is still significantly lower than the other 2 clusters. You spoke about, sir -- Nitish sir about giving it a few more quarters, as we had highlighted in the previous quarter as well. So, I mean, how should we look at it from a quantitative standpoint? I mean, should we expect AP, Telangana's margins to reach, say, closer to mid-teens over the next few quarters? And if it really goes to that level, would that mean that, I mean, progresses on the right track and, I mean, possibly there's an opportunity to scale up margins even beyond the mid-teens number?
Yes, Alankar, I would like to -- when you say Andhra and Telangana, I would like to differentiate the Telangana piece because Telangana we have a smaller hospital in Hyderabad, it's called Aster Prime. So it's a small format hospital. It's not a large hospital. It's in the metro. It's small. It happened long back -- 10 years back through an acquisition, we had taken a small size hospital. The parameters there will be at par with any metros hospital. But in terms of the EBITDA margins, because of the size, there might be a limitation in terms of margins what we can get there from that hospital. Mid-teens is something which we would be comfortable. Though it's in a metro, the Prime Hospital, if we can reach there around mid-teens we'd be happy.
Coming to the Ramesh Hospital, obviously, there is a big opportunity there, which we see. Now, we've seen the environment there. We see a humongous opportunity and we have our capacity there and we have a good presence. So, like I mentioned earlier, the next 2, 3 quarters we should see a traction and we are confident and we have got the kind of assurance from the management that the immediate target is to take the EBITDA margins to mid-teens and eventually all our efforts is to see if we can take it beyond 20%, around close to -- not beyond, at least closer to 20% EBITDA margins. That's been in the agreement with the management there. And what we see now in last -- first quarter, based on the first quarter performance, we are confident that it's heading in the right direction and should [indiscernible].
Understood, sir. And maybe one last question. Can you talk a bit about the whistleblower complaint? What was the exact issue? What can be the risks for the company? And how are we going to ensure that something like this doesn't happen going forward?
Wilson, would you like to take that question?
Sorry, can you repeat that question?
About the whistleblower issue, just wanted...
So that is still under investigation actually like -- and so nothing has been finalized actually. Like once we get the investigation report, then the Board will take appropriate decisions.
But, sir, can you talk a bit about what exactly happened? Maybe the conclusion will be known after a few months. But what was the issue? And what can be the risks for the company? Is it something which is big or pretty small? Because the amount which was mentioned in the previous press release was quite small. Is there any risk of that amount increasing further?
I doubt about the volume and all, but this is something related to conflicting business activities and all, like some of this whistleblower was related to those activities and like some of the related party transaction which was not intimated properly, process was not followed, those kind of things only.
Yes. So, Alankar, just to extend to what Mr. Wilson was saying, so yes, the whistleblower is there, so it was mostly around giving some business to related parties, some conflicted parties that wasn't disclosed in the proper manner and the proper channel in line with the policy of the organization. Again, like what Mr. Wilson said, the financial impact as we see right now is not significant. But for us, as Aster, maintaining the highest level of governance has always been a priority. So the Board had decided that it is better that sort of we go ahead and do a much deeper investigation and sort of make sure that sort of the whole organization is aware that we would always like to maintain the highest levels of governance and integrity, right? So we don't see any significant impact on the basis of that. But it was more just making sure that we are upholding the higher standards.
The next question is from Mr. [ Sumit ].
Am I audible?
Yes, you are audible.
Yes. So, sir, just wanted to get a clarification on, like, what is the CapEx per bed in the non-metros?
So, thank you, Sumit, for the question. So, in case of a non-metro, if it's a greenfield project, we may be able to spend something like INR 1 crore to [ INR 1-point crore ] per bed, if it's a greenfield project. And if it is like a brownfield or say, leased project, we are looking at something like [Technical Difficulty] INR 70 lakh to INR 75 lakh per bed would be the leased one.
Okay, okay. And, sir, second question is on, like, over the next 3 to 4 years, how do you see Karnataka revenue and EBITDA contribution to the overall -- like, what will be the mix of these -- the 3 clusters in the revenue and EBITDA?
Yes, Sunil, do you want to take the question?
Sumit, can you repeat your question? That will be helpful.
Yes. Okay. So I'm saying...
Yes. Kerala is 55% and Karnataka and Maharashtra is around 35% -- 38% the revenue contribution and 11% is the Andhra and Telangana. So, the Karnataka cluster -- Karnataka and Maharashtra cluster, because of the new hospital, it's contributing in the increasing percentage. Right now it is around 38%. We see it's going -- even Kerala is going parallelly. I see that the ratio is being maintained. But you never know what happens in the future. There's always opportunity, because Karnataka's growth is basically out of metro city, the growth can be drastic there. In that sense, it might exceed 40%, which we anticipate for us. But Kerala is also a growth market. So, very difficult to predict. But we would be happy if metro contribution increases.
Okay. So you're talking on the EBITDA level, you're saying, 40% of [indiscernible].
I was talking about the revenue. EBITDA level, obviously, Sunil will be able to -- Sunil, can you take question on the EBITDA contribution percentage? Sunil?
Today -- yes, am I audible?
Yes.
Yes.
Yes. So Kerala currently contributes -- approximately out of what you can see they're contributing from the margin point of view. From the margin point of view it's contributing almost 22.7% of the margin in Kerala. And in terms of Karnataka and Maharashtra, it's around 21%. But again that includes the Whitefield blended. But if you remove the Whitefield, again, the margin is 23.2%. So that is on the margin.
When you look at the contribution saying that, okay, what is the quantum? Out of INR 200 crores which is contributed by hospitals and clinic, INR 120 crores is contributed by Kerala. That's almost come to 60%. And when it comes to Karnataka and Maharashtra, again, it's 35% is the contribution from the EBITDA point of view also, so around INR 70 crores is [Technical Difficulty].
Sumit, I hope you got an answer?
Yes. And, sir, just one more thing, so over the medium-term, how do you see your blended margins going forward? So currently, it is around [indiscernible] next 3 to 4 years.
Yes. Sumit, I think I had put across this specific response previously also. So if you look at our current blended is around 17-point [Technical Difficulty]. But when you look at only the hospitals and [Technical Difficulty] percentage. Again, what we are seeing is that and also when you look at our maturity performance, hospitals which are above 6 years are doing a EBITDA margin of 23% plus. But in the medium-term, that is next 3 to 4 years what we look at is that, at a consolidated level wherein it's including the O&M asset-light hospitals, including the labs and wholesale pharmacy and everything put together, current 17 [Technical Difficulty] go to 20% to 21%. And specifically in terms of hospitals and clinic segment, which is where we get 94% of our revenue, there we are at currently 20.8% and that is something which we can think sustainably. We can maintain something like in 23% to 24% in next 3 to 4 years.
The next person who is joining the queue is Mr. [ Adrith ].
Yes, my question is around the realization, particularly as the ARPOB growth is around 12% and it was also highlighted that a lot of that is due to ALOS reduction. So if we like try to drive a per patient realization, that's only grown like 6% overall in a time when it was also mentioned that there's a price increase. And for the same number, so realization per patient even for Kerala cluster is just 2%. And then there was price increase, I believe also in Kerala. So is it the case that the Kerala cluster, which has, for the last 8 quarters, been giving roughly like INR 1.3 lakh per patient revenue, it's sort of going to stay at the same level. And the only growth prospect that's going to come from the cluster is through volumes because the volumes are still doing well, right, say, IP volumes are up 11%, whereas the Karnataka and Maharashtra cluster, there you're seeing healthy volume growth and a per patient realization growth. So is it the case that Kerala's sort of realization power is saturated and it's going to be flat at like a level of INR 1.3 lakhs?
So, [ Adrith ], I'm not sure how you are pulling out the numbers with respect to Kerala cluster. But my suggestion is that, yes, so when you look at, say, quarter 1 FY '24 to quarter 1 FY '25, when you look at blended numbers, what I see for IP per patient has increased by around 5%. Okay. But again, that's a blended. That includes your Aster PMF Hospital, which was not there in quarter 1 FY '24 and it came only in the quarter 2. So that is -- and you also know that Aster PMF Hospital and MIMS -- sorry, Mother Areekode hospital, both are O&M asset-light hospitals. We have to exclude that and then see the margins or the growth. But when you look at only the Aster Medcity, quarter 1 FY '24, my -- I'm just putting a number, INR 1.4 lakhs was my average realization per patient. It has moved to INR 1.61 lakhs. That's almost 15% growth. And even same way if you look at our Calicut hospital from INR 78,000, it has to INR 83,000 or say Kottakkal hospital, it has moved from INR 61,000 to INR 69,000, it's a 14% growth. So blended may not be the right approach because you've got the O&M hospital also. We should look at excluding that. And excluding that, if you see, there is a good growth.
And also with respect to price increase, [ Adrith ], as I said, right, we have not taken the price increase across the board at one go. We take different hospitals based on the geographic requirement, right? So it's left to the business units. So we time it in a particular fashion. So keeping that in mind, yes, we expect the growth to continue here. And also because Kerala market is where we have still cash patients in higher percentage. For example, in our Medcity, still 60% plus is cash patients. And when you go to North Kerala like Kannur, Kottakkal and all, there it's still 80% or say Calicut, it's still 70% cash. So that shows that -- and also, as Dr. Nitish was calling out very clearly, the future aspiration is in Tier 2, Tier 3 cities. And we see there is a great demand for quality health care. And keeping that in mind, we can look at average realization per IP patient growing at at least a single-digit -- higher single-digit is very much possible in the future 3 to 4 years.
Right. So, just a quick follow up on that. So, what kind of levers would we expect from the Kerala cluster? Because as we know, the institutional mix is anyway lower for Aster and the speciality -- niche specialties are like at almost 60% now. So, is price increase sort of the only lever for realization growth in Kerala? And if not like, is there any kind of specialty mix change that could drive more realization? And how would that affect margins? Because generally these high specialties, as it's reported by your competitors as well, tend to drive down EBITDA margins quite a lot. So, is it going to be the case?
See, not specifically, because even when you look at our hospitals in Kerala, you look at the oncology growth. Oncology growth has been a very good growth in the last quarter, quarter-on-quarter. So, almost 31% oncology growth we have. And specifically, the cardiology department has grown by 26%. Gastro, right, basically, where we do liver transplant, that has grown by more than 21%, 22%. So, we see that all this super specialty growth expansion is something which is still possible there. And also, look at the high-end cases, because liver transplants, if you look at 2 years back, specifically in our Medcity, we used to do more -- not more than 3 to 5 transplants per month. Now we're doing almost 10 transplants. So, similarly, we used to not do lung transplants. So, lung transplants we have started doing it. If you look at DBS cases, 2 years back, there was no DBS cases we used to do 3 years back. Now we do more than 2 to 3 cases per month, right? So, that way, I think robotic surgeries, your high-end transplants, DBS cases, the TAVI cases keep increasing.
And also, at the same time, you're also seeing majority of this, certain surgeries, which was used to have a length of stay of, say, 2 days, that's all moving to day care surgeries. So, even when you do day care surgeries, the pressure on your system is always low. And keeping that in mind, ARPOB growth is going to continue to grow, at least in the medium-term, at 7% to 8% for next 3 to 4 years.
Okay. And will it be like margin accretive?
Yes, it's going to be margin accretive. Because see, specifically, if you look at my brownfield expansion, Aster Medcity is where I have 80% occupancy -- near 80% occupancy, with the 750 bed hospital, I'm adding 100 beds. And also in Kannur, where I'm 95% occupancy, I am adding another 100 beds there. So when you add this additional brownfield expansion, what you see is that, there could be the incremental, or I would say, EBITDA margin growth will be quite high as compared to opening a new hospital. So there we see that, for example, Kannur is doing a 18%, 19% EBITDA margin, it will go to 21%, 22%. So we see -- it's all EBITDA margin accretive, basically because you're not adding new doctors there, senior consultants or, say, new leadership team. It's the same leadership team with the senior consultants. You need only the junior doctors and the bed side, I would say, staff like, say, nurses or technicians.
Got it. So like the non-census bed share, you're looking for a significant increase, I guess, in the next 3 to 4 years. Is that fair to say?
I didn't get that. You're saying non-census.
Yes, the non-census for day care, non-census bed care, do you see a healthy increase? Yes.
Yes. That is the future. Dr. Nitish, you want to add on the day care bit of it, please?
Yes, you've covered most of the aspect, Sunil. What I would like to add here is, see, the hospitals of the future, yes, you -- I do hear the concerns from some competition that high-end cases dilutes the margin, which is the case when you do the high-end cases at the lesser volumes. We are talking about large hospitals with bed strength of above 300 and doing 60% to 70% quaternary care work, it is going to be margin accretive. It will not dilute the margins because we are able to sweat the assets and leverage on the expertise available. Because of the -- this kind of cases can be consolidated. It's not a local affair, right? Taking quaternary care is not a neighborhood activity. What it tends to do is, has attraction across various geographies, international patients, across the states.
So in that case, large hospitals, large hospital, when I say, large -- it means beyond 300 bed, doing 60% to 70% quaternary care work, which is eventually going to be -- it has to be margin accretive. And also the insurance coverage of the quaternary care work is improving and reimbursement rate also is very healthy now. In that sense, most of the cases or at least 20% to 30% of the care patients who were out of the pocket expense patient where we couldn't operate on those or treat those patients because of non-affordability. But with insurance coverage coming, typical example is the [ onco ] work and also the robotic work what we have been doing. These all have become very affordable now because of the enhanced insurance penetration, and also, the patients willing to go for the single rooms, upgrade themselves and go for the single rooms because of the insurance. So all is adding up to drive the ARPOB margins.
And also, day care, Sunil mentioned, most of the procedure of quaternary care work is migrating towards day care activity. In that sense, it puts lesser pressure on the system in terms of manpower, equipment and other resources required to support the service. So, now Aster hospitals are kind of -- because we have been a late entrant to the market, our hospitals are designed to be future proof and we can accommodate the requirements of the future. In that sense, I think we're confident that most of our hospitals in Kerala will continue to deliver the performance or, in fact, deliver better performance in the coming years.
[Operator Instructions] The next question is from Mr. [ Prolin ].
Am I audible? Yes. So, I have 2 questions. One is, if you look at your Slide 25, right, in terms of the expansion plan that we have -- no, sorry, Slide 15. So, my question was, we have around INR 1,000 crores of cash. On an average, we are generating around INR 500 crores or so of operating cash flow post tax every year. So, my question to you is that, what is our capital allocation plan going ahead as to, one is, how much CapEx would be required for this addition of 1,700 bed that we have highlighted in the Slide 15? And also, there were some talks on private equity infusion. While you don't want to comment on it, but my -- I mean, what I want to understand is that, for the current expansion plan, both organic and inorganic, I think we have enough cash, as well as operating cash flow, which is in place. So, dilution or bringing in private equity would be not for that expansion, right? Just if you can help on the capital allocation part, that would be very helpful.
Sure. Alisha, should I take it? Or --. So, regarding the cash, you're right, I think we have nearly INR 1,500 crore of cash -- residual cash from the GCC restructuring transaction and India business is also generating healthy cash flow. As we are seeing, the full year EBITDA was over INR 600 crore and I think the performance is continuing to improve. The CapEx requirement that we have is nearly INR 1,000 crore for all these 1,700 beds. So that basically clearly indicates that the India cash flow will more than be sufficient to take care of the CapEx requirements going forward. So you're right, we don't need immediate further funding for our investment plans.
So basically, any thought on dilution, we are definitely not looking at unless dilution is happening naturally, as Alisha was highlighting, if there are some share swap opportunities, and -- which leads to addition of assets or which leads to probably a potential merger or integration with another platform, that could only lead to dilution. But we are not looking at dilution in form that we intend to raise cash and then utilize that for M&A opportunity because the company has enough cash right now.
Coming to the utilization of cash aspect, we discussed, we are looking at these opportunities right now. In a year's timeframe, if we are able to utilize it well, we would use them for these opportunities. And if not, I think we would also find out where to return it back to the shareholders.
Hitesh, one more question on your Slide 25, right, while a lot of questions have been asked on cluster wise what is your strategy going forward. But quickly, if you can summarize for each of the cluster -- 3 clusters, when we talk about next 3 years absolute EBITDA growth, what are the top 2 drivers for each cluster, right? Because, for example, Kerala ALOS 3.1 days, beyond that to lower -- go lower beyond that is very, very difficult. So then what would be the drivers there for absolute growth of EBITDA? So if you can give a cluster wise kind of a summary, that would be very helpful.
[ Sunil ], I'm not sure. Would you like to take this question because with the time constraint -- Hitesh?
No, I'll add to that, Puneet. Not an issue. Thank you, [ Prolin ], for the questions. With respect to Kerala cluster, you know that our occupancy is quite good there, right? 75% in the current quarter. And you know that's also low occupancy because quarter 1 was always muted growth. And also April, we had the Ramzan and June we had the Eid also, right? So usually the occupancy always will be low during the quarter 1. Now, in the future, from future point of view, already you know that Kerala is already doing a margin of 22% plus and with ARPOB of near INR 40,000 right? So EBITDA margins are always in direct link with your ARPOB.
So if you -- if I say broadly, if you're at something like a INR 60,000 to INR 70,000 ARPOB, then you can look at an EBITDA margin of 30%. And if you are near INR 40,000 to INR 50,000 ARPOB, then you are looking at an EBITDA margin of something like 25% on an average. If you are sub-30,000, then you are looking at an EBITDA margin of for near 20%. See, that is what we look at broadly. So when you look at Kerala, which is currently INR 42,000 ARPOB, with a decent growth rate of 7% to 8%, we see that with the current EBITDA margin of 22.7%, it can really mature at 25%. So that is something which is possible for Kerala cluster.
Now, where is this margin is going to come up from? Yes, material cost is something we optimized in a very big way across the clusters. But the future thing will happen through a manpower optimization. If you also know that the last 2, 3 years, you have seen the growth, right, more than 30% growth we are doing EBITDA when the -- and also in top line also. That is the reason why we went and almost stabilized at 75% to 80% occupancy at the cluster. And if you want to ensure that the margins are growing, that's basically going to happen in the manpower. Because when you have a very rapid growth, you can't rationalize the manpower at the same time. If you try to grow faster and then rationalize the manpower, then you will -- going to start hitting the patient service, right? So that is something which we don't want to do. So that's where we never worked on the manpower. So the future expansion with this -- one is the brownfield expansion is going to add to your bottom line and second is your manpower optimization. So these are the 2 things which we see in EBITDA margin optimization.
When we come to Karnataka and Maharashtra cluster also, we just have a new asset coming in Whitefield. With Whitefield asset, which is just 8- to 9-month old, right, we are already doing at a cluster margin of more than 21%. And if you just now, even if you remove the cluster Whitefield hospital, then look at the margin already at 23%, but yes, cluster margin is something like around INR 60,000 now -- near INR 60,000. But we see that that is again including Aadhar Hospital in Maharashtra, which is again a Tier 3 city. If you exclude that -- specifically that, then you are already at an EBITDA margin -- sorry, ARPOB of more than INR 70,000 in Karnataka and Maharashtra. So if you are something at INR 70,000 specifically in Karnataka and Maharashtra, you can look at my EBITDA margin something like near 30%. So that is something which is possible. Again, here also, you optimize material big way. And considering Aster Whitefield is a new hospital, manpower cost will be higher. Even other hospital also like, say, CMI, RV, our occupancy is still 60% plus. So once it starts go to 70% or 75%, manpower cost will really come down. And with that operating leverage we should be able to increase the EBITDA margin there.
And Andhra, Telangana, anyway Dr. Nitish has already called out previously. Currently, it's at a low 10%. But it has got a potential with INR 30,000 ARPOB, go up to near 20% margin. I hope that answers your question, [ Prolin ].
Dear all, due to the time constraint, we would like to close the call here of this first quarter end. We would like -- we would love to take the question separately after this call. And thank you all. This concludes the earnings call for the quarter for Aster DM Healthcare. I thank the management and all the attendees for joining us today. If you have any further questions and queries, please get in touch with us. Thank you.
Thanks, everyone. Thank you. Thanks, Puneet, for organizing.
Thank you. Thank you, everyone.
Thank you.
Thank you. Bye-bye.