Aster DM Healthcare Ltd
NSE:ASTERDM
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Aster DM Healthcare Ltd
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Good morning, everyone. I welcome you to Aster DM Healthcare Earnings Conference Call for the Fourth Quarter of FY '24. The company declared the Q4 and full year financial results for FY '23-'24. With this, 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. Amitabh Johri, Chief Financial Officer, GCC; 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 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. [Operator Instructions]Certain forward-looking statements may be discussed in this meeting and such statements are subject to certain risks and uncertainties, like government actions, local or political or economic developments, technological risks, 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 taken 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 Q4 and full year FY '24 earnings call. Ladies and gentlemen, I'll be sharing a brief on our India quarterly and full year performance, along with the successful completion of the GCC segregation before Dr. Nitish talks about the India business performance, including the cluster-wise performance details.I'm really happy to inform that we have finally concluded the segregation of our India and GCC businesses successfully on the 3rd of April 2024, post obtaining all the regulatory approvals and fulfilling the conditions diligently. I want to express my deepest appreciation for ushering in a new era to shape Aster India's future. The segregation has clearly allowed us to tailor our strategies to the distinct growing needs of these geographies and also positions us to seize the unprecedented growth opportunities in the Indian health care market.I want to appreciate the wealth of expertise, which has contributed by our Board, our top management team to make this transaction happen. Their diverse backgrounds and experiences have been invaluable in overcoming the many challenges that we faced during this transaction. Despite its complexities, the collaborative efforts and strategic insights have guided us through and made us stronger and more resilient, paving the way for the successful transaction, demonstrating the exemplary level of governance maintained by our Board, especially considering its nature as a related party transaction. The overwhelming support from all the proxy agencies and the strong shareholder approval in the majority of minority resolution were true reflections of how governance was upheld. This speaks volume about the transparency, fairness and integrity with which this transaction was conducted, reaffirming our commitment to the highest levels and standards of corporate governance.Looking ahead, the prospects for Astra India remains truly promising. We are focused on growth through brownfield and greenfield projects, aiming to add 1,700 beds within the next 3 years. We also acknowledge the trust and long-term investment that our shareholders have made with us, with a significant portion of the proceeds from the transaction paid as dividends. This entire transaction has resulted in a substantial inflow of cash proceeds amounting to $907.6 million. I'm delighted to mention that we have distributed approximately 80% of the receipts from the sale of the GCC business as a special dividend of INR 118 per share, underscoring our strong cash position. The remaining 20% of the proceeds have been earmarked for strategic initiatives, particularly in organic growth opportunities. This will enable us to explore and capitalize on acquisitions and partnerships that can enhance our service offerings and expand our market footprint.Now, coming to the overall India long-term performance. Over the last 5 years, our India operations have experienced significant growth with a CAGR of 23% in revenue and 38% in operating EBITDA up to 2024. This growth has been driven by a significant capacity expansion, ARPOB growth, increasing international revenue, as well as advanced quaternary and tertiary health care services. Our India revenue experienced significant growth during the year of -- during the year with a 24% year-on-year growth, surging to INR 3,699 crores, supported by addition of bed capacity of 550 beds in the last year, and year-on-year growth of 10% in ARPOB, which is now reaching to INR 40,100 in FY '24. Our revenue from international business has also shown a remarkable growth of 44% year-on-year growth to INR 188 crores vis-a-vis INR 131 crores in FY '23.Now, coming to the EBITDA. Our India operating EBITDA exhibited strong growth, increasing 30% year-on-year, reaching INR 620 crores in FY '24. Overall, India operating EBITDA margin has increased to 16.8% in FY '24 as compared to 16% last year. This has been mainly aided by cost efficiencies, operational leverage as well an EBITDA breakeven in our lab business. As a result, overall ROCE from the India business recorded at 16.4% in FY '24 vis-a-vis 13.4% in FY '23. Our core hospital business has delivered an EBITDA margin of 19.5% in FY '24 vis-a-vis 18.9% last year. In fact, our mature hospitals, which are the hospitals with more than 6 years of vintage, contributes to 77% to our hospital segment revenue and it's delivered a 22.4% EBITDA margin in FY '24 with an impressive growth in ROCE standing at 32% in FY '24 versus 24.7% in FY '23. Our deliberate efforts to establish a sustainable model is clearly demonstrated in our well-diversified specialty revenue mix, with actually no single specialty accounting for more than 15% of the total hospital revenue in FY '24.Now, coming to our new businesses of both labs and pharmacy, they've grown at a faster rate of 32% year-on-year at INR 286 crores in FY '24, now contributing to approximately 8% of the total revenue. The lab businesses have demonstrated EBITDA breakeven in Q4 FY '24. The India profit before tax has increased 34% year-on-year to INR 281 crores in FY '24, and India PAT has increased 28% year-on-year to INR 188 crores in FY '24. Our Q4 FY '24 PAT was impacted by a one-off item, which Sunil will be explaining in more detail. Adjusting to that one-off item, our PAT has actually grown by 84% year-on-year in Q4 FY '24. Our balance sheet, it remains strong with a net debt-to-EBITDA, pre-Ind AS, reducing to 1.1x as of 31 March, versus the 1.3x as on 31 March FY '23.Coming over to our CapEx investments. We've added 550 beds during the year, which includes 286 beds in Whitefield, Bangalore. I'm really excited to share about our success at the Whitefield Hospital, which actually achieved the EBITDA breakeven in just 3 months at ARPOB of INR 70,000-plus for Q4 FY '24. At the outset of our expansion plan, we're on track to increase our bed capacity through a prudent mix of both brownfield, as well as greenfield projects, which will result in our Aster Medcity and Aster CMI hospitals expanding to 900-plus beds and 850 beds, respectively. Both our greenfield projects in Trivandrum and Kasargod are progressing well, and we're also exploring the opportunities to expand into nearby states, such as Maharashtra and Tamil Nadu, as well as North Indian geographies such as UP. This expansion will, not only increase our capacity and footprint, but also enhance our offerings in specialized medical care with best clinical outcome.We're really happy to be able to receive some very prestigious awards in the last financial year. Our commitment to outstanding health care delivery was recognized at the Financial Express Healthcare Awards 2024, where we were honored as the Best Hospital Chain of the Year, and also conferred of the title of the Hospital Chain of the Year at the Economic Times Healthcare Awards. Additionally, our multiple hospitals, such as Aster Medcity, Aster CMI were ranked amongst the top multi-specialty hospitals across India by Economic Times, Times of India, Outlook, and The Week. We have also been awarded for Excellence in CSR by the Economic Times.I just want to conclude by sincerely thanking you all for your trust that you've shown in our strategy of segregating our businesses. Identifying the significant demand-supply gap in India's health care sector reinforces the confidence in our approach. We're truly excited about our journey ahead as a pure-play India entity with a much sharper focus and remain on course to providing, not only value, but also sustained growth in the coming years with the leadership team in place. Your confidence motivates us and we are eagerly anticipating to exceed your expectations and achieving shared success. Our expansion initiatives for India are robust and we will surely deliver strong performance and help to generate value for our shareholders.I will now request our CEO, Dr. Nitish Shetty, to elaborate more on India's performance, including segmental and cluster-wide performance. Thank you all very much. Over to you, Dr. Nitish.
Thanks, Alisha. A very good morning and thank you all for joining our quarter 4 financial year 2024 earnings call. The Union Ministry of Health has increased its budget to USD 11.3 billion for the financial year 2023-2024, representing a notable 13% increase from the previous year. This move underscores the government's commitment to improving health care services in India. With this in mind, we are fully dedicated to expanding our health care services and continuously strive to harness this potential.Moving to the updates on the India business performance for the full year of financial year of 2024. Alisha has covered most of the aspects, but I'll add a few more important points here. Our continuous efforts pertaining to capacity expansion of 550 beds over the last 1 year has supported in 24% year-on-year revenue growth and 30% operating EBITDA growth of overall India business in the financial year 2024.Coming to the core hospital business performance. Our core India hospital business, including the trainees, grew by 23%, showed an impressive revenue of INR 3,519 crores for the financial year 2024. The effective implementation of cost optimization and operational leverage has resulted in a notable growth of 28% in the core hospital operating EBITDA, delivering operating EBITDA margins of 19.5% in the financial year 2024. Excluding our O&M model hospitals, our core India hospital business grew by 20%, reaching to a revenue of INR 3,395 crore in the financial year 2024. The effective implementation of cost optimization and operational leverage has resulted in notable growth of 25% in core hospital operating EBITDA, excluding O&M models, delivering operating EBITDA margins of 20.3% in the financial year 2024.Coming to our new business performance. The revenue from labs and pharmacy business grew by 28% and 36%, respectively, in the financial year 2024, with lab business achieving EBITDA breakeven in quarter 4 of financial year 2024. Our insurance payer mix, this is a very important aspect where we have seen the overall payer mix has changed in our financial year 2024, where the insurance patients have increased by 120 basis points, a year-on-year growth of -- to 27.3% compared to the previous year. And international patients have also grown by -- to 5.4%, improved by 76 basis points year-on-year, offset by cash and scheme patients.Coming to our cluster-wise performance. Our Karnataka and Maharashtra cluster performed diligently with a contribution of 31% in overall hospital business revenue. The revenue of the cluster grew by 35% year-on-year and operating EBITDA grew by 44% for the financial year 2024, with the strong start of Whitefield Hospital at Bangalore location. I'm very pleased to share that our Whitefield Hospital at Bangalore has achieved EBITDA breakeven within 3 months in quarter 4 of financial year 2024, giving us the confidence of -- confidence to create similar successful model in upcoming geographies. While reflecting further upon the Whitefield Hospital project, its success is attributed to strategic decisions, such as focusing on underserved specialties like oncology, creating a stand-alone mother and child hospital adjacent to a multi-speciality hospital, attracting top talent by offering a comprehensive range of services and addressing the demand for single rooms. The hospital design and the service offerings cater to the current and future needs of the patient and health care professionals, contributing to its rapid growth and success.Our Kerala cluster continues to contribute 57% in the overall hospital business revenue, showed a decent performance, including revenue growth of 19% year-on-year and EBITDA growth of 21% year-on-year in the financial year 2024, aided by the sustained high occupancy levels and price growth. ARPOB of Kerala cluster witnessed a growth of 10% year-on-year at INR 39,800 in the quarter 4 of financial year 2024, which is a reflection of price hike, changes in specialty mix and reduction of scheme work.Andhra and Telangana cluster performance remains steady with the revenue increased by 20% and EBITDA grew by 29% year-on-year basis in the financial year 2024.Coming to the clinical performance. We are very proud to mention that we have significantly grown on the clinical side, providing cutting edge medical treatments and performing 100-plus transplants in the financial year 2024 versus 430 transplants in financial year 2023. More than 1,140 robotic surgeries in financial year 2024 versus 480-plus robotic surgeries in financial year 2023, and many more areas of achievement in the clinical space.Coming to the CapEx. With more than 10% of our current bed capacity added in financial year 2024, we have now reached to a 4,867 bed capacity as of today. To capitalize the opportunities of India's large population and low hospital bed density, we are making substantial capital investments, aiming to increase our total bed strength capacity to 6,500 by the financial year 2027, with plans to add approximately 1,700 beds in next 3 years. As we enter the financial year 2025, we are confident that our increased focus on India will bring positive results. We look forward to sharing updates on our progress in the coming quarters.I now request our CFO, Mr. Sunil, to elaborate more on our financial performance. Thank you very much.
Thank you, Dr. Good morning, everyone. For the quarter ended March 31, '24, revenues have increased to INR 978 crores, up by 22% from INR 804 crores in quarter 4 FY '23, and operating EBITDA has increased to INR 167 crores with a margin of 17.1% compared to INR 135 crores in quarter 4 FY '23, with the growth of 24%. Adjusted PAT post-NCI for quarter 4 FY '24 is at INR 87 crores compared to INR 48 crores in quarter 4 FY '23, with a growth of 84% year-on-year.For the year ended March 31, '24, India revenues have increased to INR 3,699 crores, up by 24% from INR 2,983 crores in FY '23, and operating EBITDA has increased to INR 620 crores with a margin of 16.8% compared to INR 477 crores in FY '23, with a growth of 30%. Adjusted PAT, post-NCI, for FY '24 is at INR 240 crores, compared to INR 147 crores in FY '23, with a growth of 63% year-on-year. Adjusted PAT for quarter 4 and FY '24 excludes recognition of onetime net deferred tax liability of INR 52.5 crores, which is a noncash item arising out of transition to the new tax regime, following the segregation of our GCC business. ARPOB for FY '24 has seen an overall growth of 10%, rising from INR 36,500 to INR 40,100. Excluding our O&M hospitals -- O&M asset-light hospitals, the ARPOB increased by 14% from INR 37,000 to INR 42,100. This growth has been achieved through revenue assurance, price increase, and improved case mix.In terms of cost optimization or material cost percentage, excluding wholesale pharmacy, has steadily declined over a period of time, which was 25.3% in FY '22 to 23.5% in FY '23, and further reduced to 22% in FY '24. This reduction reflects our effective cost management, strategic procurement and operational efficiencies implemented across our business units. In addition, we have continued to maintain positive operating EBITDA for the past 2 consecutive quarters in our O&M asset-light hospitals and achieved EBITDA breakeven in our diagnostic segment, Aster Labs in quarter 4 FY '24.For the year ending March 31, 2024, our CapEx -- capital expenditure totaled INR 392 crores, with approximately 60% spent 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 there is no dilution of margins. Optimized cash allocation, coupled with margin movement, our ROCE has experienced significant growth. ROCE surged by 300 basis points year-on-year, reaching 16.4%. Hospital and clinic segment, excluding O&M asset-light hospitals, ROCE rose to 24% from 20.9% in FY '23. Matured hospitals saw an impressive increase in ROCE by over 700 basis points, reaching 32% in FY '24.Aster India net debt stands at INR 556 crores as on March 31, '24, compared to INR 510 crores as on March 31, '23, with net debt-to-EBITDA, excluding lease liabilities ratio, improving to 1.1x as compared to 2.3x in FY '24.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.
[Operator Instructions] The first question is from Amey.
Yes. This is Amey here from JM Financial. Congrats to management on good set of numbers. So the first question I have regarding the ARPOBs. We saw around 14% ARPOB growth in the non-O&M hospitals. Is it possible to give some guidance on the price hikes for last year and also outlook for the next year? And how ARPOBs are looking like for the next year?
Sunil, do you want to come in?
Amey, so as I called out in my speech, right, overall, we've grown at a 10% ARPOB growth. And excluding the O&M asset-light, because O&M asset-light hospitals already have a very blended and lower ARPOB, around INR 20,000. And also, we are treating more scheme patients who don't have that ability to do the price increase there. So if you exclude that, we're at a 14% growth. Now, if you look at historically, we have grown ARPOB at something like 9%, right? At least 5-year CAGR if you look at, it's 9% growth what we have taken. Now, this 14% growth has happened because of the multiple reasons. One is the price increase. Second is the revenue assurance project which we internally took across, basically trying to ensure that the 19 hospitals what we have today, how can we leverage among the various services which we bill, and also with a single service master. And also we address lot of revenue leakage, right? With that, we are able to address this one.In addition to price increase and revenue assurance, also major thing is related to the case mix also. And also, the MVT revenue because if you look at MVT revenue, in the year FY '23, we did around 4.6% or so, with INR 130-odd crore. And that our MVT revenue has jumped almost by 40-odd percentage, moving to INR 188 crores, contributing 5.4% of our top line. These are the major -- various reasons which has added.Now -- but in the future -- and also, another question was the price increase component, right? Price increase component out of 14% would be around something like 3.5% to 4% is what the price increase component would be. And I think that, that is around 3% to 4% is what -- of ARPOB we can -- in the future also we can look for the price increase bit of it. And in the future, ARPOB growth, because we did optimization projects in this year, that's where the ARPOB growth is little higher. But going forward, we can look at something between 8% to 9% minimum is what we can think the ARPOB growth will be.
Sure. And the second question I have is on the Andhra, Telangana region, where the year-on-year performance have been on the occupancy side, and the ARPOB sides have been slightly muted. So if you can address that?
Dr., you want to take it, the Andhra?
Yes. Amey, we do accept the fact that performance in Andhra, Telangana cluster is muted. We are presently in discussion with the promoter there who is running the business for us, Ramesh. So we are in discussion with them to see where we can do the intervention and improve the performance parameters. We are confident that whatever has happened in last will be reversed -- the performance aspects will be reversed in the coming months. And we are confident of good performance in the next few quarters. And we are looking at some kind of concrete solution to address the situation. At this moment of time, we can only give assurance that we are working. We are aware of the fact that the performance parameters are not up there compared to our other [ geographies ], but we are taking all measures to ensure that in the quarters that concern will be addressed.
Sure. And also, 1 supplementary question is related to Andhra region particularly, outside Hyderabad. So how has been this space in terms of this? Because I have seen ARPOBs for most of the companies operating outside Hyderabad are quite low. So is it driven by the fact that as in the case mix it's quite inferior? Or because of the pricing these ARPOBs are on the lower side?
Yes. Amey, to answer this question, see, in Andhra, most of the cities around Tier 2 and Tier 3 cities, they're smaller towns and cities where, of course, doing a high-end work is always a challenge. But we are seeing that thing is different in Kerala. We are able to demonstrate -- we are able to do secondary care and quaternary care and [ tertiary care ] and improve the ARPOBs. I think something similar needs to be done in the other geographies. Right now the challenge in the Andhra state is in the Tier 2, Tier 3 cities, most of developing hospitals are doing secondary care work and a little bit of tertiary care work. But if you migrate to doing the high-end work, the talent is available and if you're willing to put up the infrastructure and create an environment, this challenge of low ARPOB can be addressed.Now, what is happening [Technical Difficulty] a lot of patients from the Andhra are going out of state for the high-end treatment. So if -- once we are -- if the hospitals there are able to stop this flow of patient out of Andhra, the issue of ARPOB can be addressed. At the same time, another way of addressing is to encourage the penetration of the private insurance. We have seen a great benefit when you do tertiary care and quaternary care work. The insurance penetration helps in making the high-end work accessible to everybody, especially the insured patients. So 1 is the insurance penetration and 2 is focus on tertiary care and quaternary care will help in increasing the ARPOB growth, especially in the state of Andhra. Telangana is different, because most of the business comes from Hyderabad and it's a metro city. It's very easy to do tertiary care and quaternary care work. But in the Tier 2, Tier 3, I think we should emulate what we have done in Kerala.
Sure. Just last question if I can squeeze in. If you can provide the gross block number for the year for the India business?
Sunil?
Amey, we will separately communicate that information.
Sure, no problem.
The next question who is -- the next participant who is asking the question is [ Mr. Sanjay Shah ].
Am I audible?
Yes, sir, you are audible.
Yes. Congratulations to the team Aster and appreciate the deal successfully done. And, sir, my -- now the thing was we are now focusing on Indian operations. I would like to understand from the management about the trajectory of growth from here. As you rightly pointed out about the CapEx what we are planning in organic, we are focusing on ARPU growth. Can you highlight upon -- which is a small business, but it's still material, have an impact on the hospital as a segment, that is pharmacy and lab. That was my first question.And my second question was, since we are now separated from GCC, but still we have our management over there. So do we, in future, see any synergies to bring in international patient, because still we have reached 5% of our revenue? Is there any scope of bringing -- doubling there or maybe more from here in international incoming patient?
So, Sunil, why don't you talk about the pharmacies?
Yes. Sanjay, thanks for the question. See, labs and wholesale pharmacy what we have today, right, that contributes only to the 8% of the overall revenue for us. And also, you are aware and we have communicated in previous interactions that this whole labs and pharmacy is not something which we are trying to become an all-India chain. So that's not the focus here. The focus has always been into continuity of care. So we have 92% of the business coming from this one. And also more than 3.3 million patients -- footfalls what we have. So how we thought about -- and also we are trying to bring our own digital app in next 6 to 9 months. So the whole idea was that how can we create an ecosystem wherein we are giving the OP services. There is a teleconsultation already. We have the IP-related services. And how can that we, in the future, the lab and pharmacy also can be inbuilt into this, right? That's exactly the reason why we brought in the labs and pharmacy.And even if you see, in case of labs, we currently have around 232 facilities, wherein we have got out of the 15 satellite labs which only processes the samples and balance all our collection centers, which we call it as a patient experience center. And there already good things, we have already broken in quarter 4. So the cash burn has stopped. And now -- and also it has got a combination of the Aster and non-Aster business. And over a period of time, in last year, we have already reached the non-Aster business component part of our total revenue to almost 25%, which in FY '23 it was only 17% to 18% That is one of the reasons why we were able to breakeven.Now, going forward, the idea is that, we don't -- we are present mainly in the states of Karnataka and Kerala, and we are not looking for any reason to add the satellite labs. So that means there is no major CapEx to be spent. It's all about increasing the footprint through patient collection centers, right? With that, home care -- adding to that, we should be able to drive good volumes and achieve the higher margins.Coming to pharmacy. Pharmacy also, we are only present in Telangana, Karnataka and Kerala. Overall, our pharmacy is around 215 pharmacies what we are present. And you have seen that, right? We have more -- like, stabilized the pharmacy growth. We are not adding like -- previously, till first 2, 3 years, we ramped up the growth because you need to have a certain bandwidth, or the number of stores to drive the volume and also get the leverage on the purchase procurement also. So that's where we achieved 215. Now, the idea is to increase the revenue per day per store, and also achieve breakeven. The way we achieved the labs breakeven, we are thinking that at least by FY '26 end, we should be able to breakeven in the pharmacy business also. I hope that answers your question, Sanjay.
Yes, very helpful, sir. My second question regarding international.
Yes. So, Sanjay, I'll come in on that one. So, you're right, I mean, there has been a flow of patients from GCC as one of the regions. Of course, India sees patients from across Africa, from Maldives, Bangladesh, and many other countries. But definitely, the arrangement we have with the GCC is that, we'll continue to sort of make sure that patients that cannot be served in GCC will be sort of funneled to Aster India. I think there are many services which India will always do in terms of quaternary care, the transplant programs, oncology work, which is nowhere in the horizon for GCC. And we see that the trust in the brand which is there. So we'll continue to funnel those cases to India.Dr. Nitish, anything you want to add?
Yes. Sanjay, see, presently out of 5.2% revenue what we generate from MVT, 40% only is contributed from the GCC. Around 60% is coming from the non-GCC countries, especially from Africa and SAARC countries. And there's a bigger opportunity in the SAARC countries, as we all know, the Maldives, the Bangladesh, Afghanistan, there's a huge potential there, which will continue to drive the MVT business. But at the same time, GCC, like Alisha mentioned, we still have kind of an understanding with the GCC counterpart to continue further the growth of high-end work, because all our hospitals are equipped to do the tertiary care and quaternary care work, which might take some time for GCC hospitals to enable them to the level what we are in India in terms of quaternary care delivery.So if you really look at the mix of our patients, around 60% to 70% of international patients come to India for quaternary care and tertiary care work. Only 30% for general work. So in that sense, we are nicely placed to take our revenue growth to 10% in coming years, enabled by the inflow of a lot of patients from SAARC countries. And then, of course, GCC always continues to contribute because we have the common brand name in both GCC and India which will help. We are confident of leveraging on that.
So Dr., are we have any plan to enter Tier 1 cities to bring growth from -- on the ARPU side?
See, if you really look at our mix, 70% of our paid business comes from the smaller, not the metros. Tier 1, I assume it is metros, but Tier 2, Tier 3 are the smaller cities like Kochi, Calicut. And 70% of our businesses are already coming from there. And through the asset-light model, we have already made plans to enter the Tier 3 cities, and we have been successful there. But we are mindful about the operating parameters like ARPOBs and all are not might be to the level of our larger cities. So we have been cautious in that space. But as a group, we are known to be functioning out of Tier 2, Tier 3 cities. That has been our strength. And in fact, we are the only group, I can say confidently that to a large extent, it delivers tertiary care and quaternary care in Tier 3 cities. If you see a hospital in Kolhapur or a hospital in Kottakkal or Kannur, are all enabled to do tertiary care and quaternary care work. And this also presents an extraordinary opportunity to attract international patients because the international patients, if you see, the SAARC country patients and African country patients are a little price-sensitive. They would like to avail treatment in the -- of course, quality is important for them, but the price is also very important. So their expectation can be met in the Tier 2, Tier 3 cities, like in Kochi, Calicut where the price difference between the metro and these cities are close to 20% to 30% sometimes for a high-end work.So just it's a matter of having better connectivity to these cities. All the inflow of international patients will happen through Tier 2, Tier 3 cities. Right now it is being constrained by the air connectivity. GCC is different because GCC has a very good air connectivity with Kerala hospitals -- Kerala geography. But if that changes and we have better air connectivity across, I think most of the inflow of the international patients will happen to Tier 2, Tier 3 cities.
So Dr., coming back to what I understood, since we are doing really very good -- remarkably on tertiary and quaternary side, and plus, we are bullish on international incoming patient also. And also, we gradually increase our presence in Tier 2 also. So don't you think this ARPU growth of around 8% what you cited is a bit conservative side?
That's a reality. See, like I said, ARPOB, like Sunil mentioned, it's a virtue of 3 or -- 2 or 3 components. One is a price increase and specialty mix and then also revenue augmentation. There are many factors which play in improving the ARPOB. But we are kind of following the industry standards and some years we -- last year we exceeded the industry standard. But considering we are majorly present in Tier 2, Tier 3, we have a headroom to improve that. But we have stuck our position to the industry standard.
The next question is from [ Pinaki ].
Am I audible, sir?
Yes.
Sir, actually I've got a couple of questions. So first, actually, sir, you are looking into expansion to regions like Maharashtra and also UP. Sir, actually, can you explain what kind of expansion will it be? Will it be an outright acquisition? Or we will be looking for a strategic partner or an asset-light model?
Hitesh, can you come in here?
Yes, sure. Pinaki, we are looking at M&A opportunities, single hospital M&A opportunities, and we are open to exploring multiple models there. It could be acquisition or it could be lease as well. And we can also look at partnership options there. So we're exploring in these markets. I think we already have a presence in Maharashtra, at Kolhapur, and we want to expand our presence further in Maharashtra region. Also, we want to start exploring the UP region as well, as we see that region being very attractive, given how the demand is growing on that side and a lot of the patients actually go to Delhi cluster for there. So there is significant opportunity that we see in that market.
Okay, sir. Sir, my next question is, actually -- so what is your -- actually the number -- how many number of patients were international patients in a broader sense? And what is your take on international medical tourism, which is -- Kerala is now almost -- is one of the hot destinations. So what is your strategy going forward regarding this?
Pinaki, we lost you in-between there. Can you repeat...
Can you repeat your question?
Am I audible, sir?
Yes, you're audible now.
Yes. Sir, actually I want to know actually of the total number of patients, how many were international? Or in a broader sense, what is your take on the international medical tourism, where Kerala is now actually a hot destination?
Yes, Pinaki, I explained earlier also, there's a huge opportunity in terms of international patient traveling to India, the kind of work we do in our hospitals. And I specifically emphasize on the fact that international patients who come to India also look for quality care at a reasonable price. Right? In that sense, the large cities are becoming expensive for certain category of international patients, like in Delhi or metro cities, there's a huge price difference. Like, I can give an example. We have hospitals in Bangalore and hospitals in Kerala. The hospitals in Kerala are larger hospitals in Kerala, do at-par clinical work with Bangalore hospitals. There's no difference in terms of capability. We don't refer -- Kerala hospitals don't refer to Bangalore, though Bangalore hospitals are in metro. So in the clinical competence, they are up there. And then the price is also 30% lesser than the metro cities.But GCC's connectivity is helping driving patients from GCC to Kerala hospitals. But from the rest of the geography, like Africa and SAARC -- we do get a lot of patients from Maldives. But from Bangladesh and other geographies, we have a challenge in terms of air connectivity. And also, we don't have embassies in the smaller cities. Everything is there in Delhi or in large metros. If these 2 issues -- because embassies presence helps in processing the visa, because of all the international patients come visit India, the average stay is more than 15 days. They need a lot of support from their local embassies. So air connectivity and embassy is the key factor. And if these things get addressed, there's huge opportunities in Tier 2, Tier 3 cities. Patients will avail treatment in Tier 2, Tier 3 cities, smaller towns, for the price and also quality of work.Since we have presence in both the geographies, we have presence in metro and we have in the Tier 2, Tier 3, we are very bullish about what is going to happen now and in the future also. And we have a large presence in GCC with the robust brand name. And the GCC flow will only improve. But at the same time, because of the pricing and the quality of work we do, we will also have a lot of patients to the other geographies, hoping with the conviction -- because government is doing a lot of work. Recently, I got a circular from FICCI saying that Air India is trying to connect Bangalore and Hyderabad to various geographies, even to Vietnam and those countries to the metros now. But eventually, they are also going to connect -- do the air connectivity to Tier 2, Tier 3 cities. So there's a huge potential. The biggest constraint I see is the air connectivity. If air connectivity improves, there is a huge potential waiting.
The next question is from [ Mr. Sumit Gupta ].Okay, we'll move on to the next. The next question is from Alankar Garude.
Sir, first question, in the GCC deal valuation, there was a $70 million earn-out based on EBITDA achieved by the GCC business in FY '24. Can you please let us know the gap between the target EBITDA for this earn-out and the actual reported EBITDA by GCC in the fiscal?
Amitabh, do you want to come in?
So, Alankar, if you go back to the terms that were there for the transaction, it was that there was an amount set aside as $70 million of earn-out, which was between $130 million of EBITDA to $150 million EBITDA, wherein for every dollar of an EBITDA there was a $3.5 million of earn-out. As we look through the numbers of GCC, the reported EBITDA despite all the adjustments which were there in the SPA for the EBITDA to be computed, we still arrive at a number which is in the range of $127 million, $128 million even after all the adjustments. So it's unlikely that we will get into the range where the earn-out will get triggered.
Understood. And Amitabh, there was another $30 million based on certain other contingent events. So can you elaborate on those as well?
That's right. So if you look back to the consideration, the initial consideration that was set aside was $903 million, and what we finally paid out was $907-point-something million. So that $4.78 million that was there was towards the Wahat EBITDA that was arrived at versus which the consideration was worked out. The balance that was sitting in that amount was for any other further recoveries. Those recoveries are not yet been made. We are in the process of pursuing those. As and when that happens, we shall let the shareholders know. But as of now, we don't have any further amount to be offered to the shareholders as a part of that [indiscernible].
Sure. Coming to India, if you look at the secondary mix in AP, Telangana, clearly that higher secondary mix in the region is a slight deviation from a relatively much lower secondary mix in Kerala and Karnataka. And we have been present in this cluster for quite some time now. And, Nitish, sir, you did mention about a lot of performance improvement initiatives and discussions happening. So strategically, I just wanted to understand how are we looking at this business? Are we also open to kind of divesting from this business if some of these performance improvement initiatives do not really play out?
Yes, Alankar. See, like I mentioned in my earliest comments, we are doing everything possible to kind of -- we sense a huge opportunity in Andhra. There is an opportunity, but there is a challenge where the management team there is not able to deliver to our expectation compared to other geographies. Now, we have taken 2 quarters as a way forward to kind of correct those things. We are in a serious engagement with this management there. Like you mentioned, if the worst case scenario, if things are not going to change, we will need to take that extreme steps also. But at this moment of time, we have kind of -- we are confident in next 2 quarters we will be making -- because they have been improving. There have been a lot of reasons for the subdued performance in the last 2 years compared to the previous years before COVID, but now we are supporting them in all possible terms. But in next 2 quarters, if we don't see any substantial reversal in performance, we are -- like you mentioned, like, divesting. We are all open to all kind of measures, but we would like to wait and watch for next 2 quarters.
Understood. And maybe a couple of bookkeeping questions for Sunil, sir. Sir, if you look at the cash flow statement for FY '24 for India, there is a line item change in other financial assets, loans and other assets, which is pretty high, to the tune of almost INR 1,700 crores. And that's pulling down our cash flow from operations significantly. Can you please let us know what exactly is this line item?
Yes, Alankar. See, this is basically because of the -- you know that the reporting change also has happened, right? Today, when you look at the consolidated financials, we are not -- usually because the sale has happened on April 3, that is the date taken and it's a subsequent event after the book closure of 31 March, we are supposed to show it as -- not as a continuing operation but as a discontinued operations, right? That's where in the balance sheet you will see that on the asset side, we have the complete balance sheet asset of the GCC shown under asset held for sale. And on the liabilities, we have shown as liabilities related to the asset held for sale, right? So with that, what is happening is that the INR 1,500-plus crores, which we have shown as an investment and non-current investments in the India balance sheet, that we are able to move into current investments, right? Because of the changes in the continued to discontinued operations, we are able to -- that is a line item which is changing. But what we can do is that, we can separately relay more detailed cash flow statement for you for further analysis.
Yes, that would be helpful, sir. Secondly, if you look at the fixed component of O&M fee, can you quantify that, which is sitting in depreciation as per Ind AS 116?
Yes. I think we even shared that in the P&L reco, under Ind AS reco we had given. Just a minute. Yes. So, for example, so for FY '24, for the full year, in depreciation, whatever the depreciation amount is there, out of the INR 45 crores is related to the Ind AS depreciation. And in finance costs also, out of the total finance cost, INR 57 crores is related to the Ind AS 116 finance cost. I hope that answers your question.
Okay. So basically, on top of this INR 45 crores plus INR 57 crores, there is that additional impact of the variable component which is there in our O&M arrangements.
Exactly.
Okay. So, essentially, for the entire adjustment, we need to add all 3 components?
That's very right. Because, see, that's what we have explained in the note. See, usually Ind AS 116 really works only when your future lease rentals are of fixed of nature because that's when you are able to calculate what is your future cash outflow, and you bring up present value and you reverse that EBITDA -- rental from the P&L and you bring back again as a depreciating interest. But if it's a variable amount, Ind AS 116 cannot apply there. That's where that will still be above EBITDA. That's where we have brought the differential between operating and reporting EBITDA.
Understood. And maybe 1 final question. If you look at the overall reported India EBITDA and the segmental performance, there is a gap which can be explained by all the inter-corporate eliminations. So just wanted to understand the nature of these eliminations. So there is INR 106 crores of intercompany revenue adjustment which is there for this year. I mean, there was a similar INR 85 crore number for FY '23 as well. So, I mean, I just trying to understand what is the nature out here. And will that number really change with the GCC business going away?
Yes. See, all the -- in the note what we put INR 106 crore, right, the intercompany eliminations, that is related to 2 particular things. One is on the labs, another is on the EMI, or we call it as teleradiology, right? So what has happened in the last year is that, Aster Labs business when we talk about, last year we clocked in a revenue of around INR 118 crores. Out of that, 75%, almost near business comes from the Aster business, right? So that's the intercompany. So that is the expense -- it's a revenue in the labs business which is our wholly subsidiary. And in expense, it's shown as expense in our hospitals, right?Then the next one is the teleradiology. Because, see, the whole reason why we are able to consolidate the labs and teleradiology is to ensure that we are able to reduce our material cost and the HR cost. That's something which you're able to -- already getting the benefits. And the balance amount other than the labs is related to the radiology business. The radiology business is sitting -- or the consolidated radiology business sitting in the listed entity. And we are able to give service to all our other subsidiaries within the Kerala and Karnataka and Andhra region. So that is the balance revenue which is sitting there. So we expect that you will not feel the same growth happening because these labs -- and also what will happen also is that, because non-Aster business is growing very well in terms of both the radiology and non-labs and labs business. For example, in FY '23, our non-Aster business in labs only contributed around 17% to 18%. In the FY '24, it has increased to 24%. And we see that -- because hospital growth is in a double-digit or a higher-teen number, labs will grow at a very higher range, right, in the non-Aster business. With that happening, you will not see the growth in the same growth, but the growth will always get limited over a period of time.
We would like to highlight that we will be giving preference to all attendees who have not asked a question before. So in the line, next question is from [ Sumit Dev ].
So, just want to understand about the medical value tourism in Kerala. So like, what is the differential ARPOB which we get through MVT in Kerala versus the normal domestic business?
Yes. Thank you, Sumit, for the question. See, MVT business usually are approximately 25% to 30% higher than the other who are cash patients. And there are 2 reasons why it's higher. It's because all these patients who come in, basically, come from single-room occupancy, whereas the other cash patients is a blended occupancy of a general ward and twin sharing and single room. That's where it looks higher of around 25% to 30%. Second, also, this ARPOB which we're talking about also it doesn't net off the referral fees what we pay. If you do a net-off of that, then the nominal increase would be around 10% to 15%.
Understood, sir. Sir, what's the overall trend that you plan to increase this contribution from MVT from 5% over the, let's say, next 3 to 4 years?
Dr., you want to add on that?
Yes. As I've mentioned earlier, there's a potential to go up to -- see, certain hospitals of us are already doing 10%. So blended, we are getting 5%. So we are confident of -- in the next 3, 4 years to do around -- MVT alone can contribute close to 10% or higher.
Okay. So, like, currently your margin is nearly 17%. So, let's say, all this MVT also increases, ARPOB increasing in overall payer mix -- optimization of basically payer mix. And your Andhra, Telangana margin is subdued, which is dragging the margins. So do you plan to -- like, how do you plan to increase this margin in Andhra, Telangana, so that overall margin trajectory also reaches more than 20%?
Sumit, see, Andhra, Telangana, if you look at their EBITDA contribution, right, it's almost 5% of your total India contribution. So even if you increase the margin, it is highly unlikely that it's going to move the needle in a very big way. Yes, it can contribute in its own way, but it is not going to impact too much, right? But the major is that, 95% of the business, or the EBITDA is contributed by Karnataka, Kerala, and Maharashtra cluster. And that is what we are looking for the growth to happen. And there it's very clear that current year, we know that operating EBITDA will be closer to 17%, and the hospital segment is more than 20% and mature hospitals are 22% less. We see that with the continuous ARPOB growth which is going to happen, which I already guided around 8% to 9%, and also with MVT business increasing and the case mix, because we have been doing a lot of high-end procedures, we did last year FY '24, almost more than 1,000 robotic procedures. We did more than 500 transplants, right? And also, we're doing more DBS cases, cochlear implant cases. With all these things going to go more, and with more quaternary care procedures, which we're going to continue to do in next 2 to 3 years, we can see that margins also will expand at a consol level near 20% in next 2 to 3 years. On hospital segment alone, we should reach 23%, 24%.
Okay. Understood. And, sir, second part on the overall CapEx side. So basically out of the overall nearly 7,800 beds planned, how much is greenfield or brownfield?
See, out of 1,700 beds, 60% of it is the brownfield. And greenfield projects are only 2 projects, mainly the Aster Capital project in Trivandrum, which is a 460-odd bed, and another 260 beds from Kasargod, right? Kasargod is expected to operationalize in FY '26 and Aster Capital is expected to operationalize sometime in FY '27. So, our CapEx requirement for all these 1,700 beds for the next 2, 3 years, that is FY '25, '26 and '27 is approximately INR 1,000 crores.
Understood, sir. And, sir, regarding the EBITDA per bed, like, it's -- just want to understand why is it subdued versus the peers? And how do you plan to increase this EBITDA per bed -- operating bed, basically?
Let me answer the first part of the question, then Dr. Nitish will add on to it. See, already Dr. Nitish also highlighted that, right, we are -- 70% of business for us comes from the non-metros, right? EBITDA per bed is relative to your ARPOB. We are not in the metros where the ARPOBs are something like INR 60,000 or INR 70,000, right? But if you look at our own composition, 70% is from the Tier 2, or Tier 1 cities where our ARPOBs are around INR 40,000 to INR 50,000. And you look at our own Bangalore market, we are doing more than INR 62,000, INR 63,000 ARPOB. But end of the day, India ARPOB at the consol level is around INR 40,100. That is because majority of our business comes from the Tier 1 cities, right, I would say, non-metros. And considering your ARPOB is at INR 40,000, naturally your EBITDA per bed will be lower than the peer comparison. But at the same time, we always look for a sustainable margins. And also because we are in the non-metros, our ARPOB growth which can come through is quite high. Even though -- see, for example, in metros, already you've seen 40% is only cash, 60% is credit business. But for us, in the non-metros, we are still at 60%, 65% still cash business which we have, right? Only because of the metro, our consolidated cash mixes have come down to 58%. With that, we have the potential for growth. As compared to metro cities, their potential of ARPOB is always limited. But we are -- being majority being in non-metros, our potential to ARPOB growth is always high. And keeping the trends what we have done historically in last 5 years, if we are able to do at least 8%, 9%, we are very confident that ARPOB growth also will be very healthy in future years. And also along with that EBITDA per bed also will add to that.
The next participant who is asking question is Damayanti Kerai.
Am I audible?
Yes, Damayanti, please.
Okay. So my first question is on your insurance mix at this point of time, which is around 27% and you said you have seen good 120 basis point increase compared to last year. And Dr. Nitish mentioned in his remarks that improving this pie would be critical to improve performance in some segments like AP, Telangana, which are right now lagging. So just want to understand how do you see this 27% pie moving up for next few years? And what kind of efforts are taken by your side to really push on this part?
Yes, Damayanti, it's a very important question because this is something which is going to redefine -- it's going to define the health care of India. When I talk about insurance, I'm talking about -- purely about private insurance. But there are others -- government-sponsored insurance. But we spoke about -- the numbers what we shared was about the private insurance. Now, in the bigger cities, the private insurance penetration, like in the hospitals in Bangalore, the insurance -- private insurance work is around 60% -- 50% to 60% is provided by private insurance. Whereas, when you go to the other geography like Tier 2 and 3 cities in Kerala, like larger cities like Kochi, it is around -- closing to 50% of patients are covered by private insurance, whereas in north Kerala, the cash patient is more, it is -- 80% is cash patient, 20% is insurance. So what this -- this is something which is going to change drastically.At a group level, we have shown more than 1.5% growth. But at a certain unit level, if you really look at it, it might be in double digits also, where the insurance penetration is increasing because this -- post-COVID, there has been an awareness among the general population, the importance of the health insurance. And also, government is giving a lot of initiatives to improve upon the insurance coverage. So the government has come to a conclusion that universal health insurance is a possibility. But universal health coverage is a challenge. So the only way we can address the requirement of comprehensive health coverage is through universal health -- universal insurance coverage. So as an organization, we are best placed to take advantage of that fact, because the kind of presence we have, we have major presence in Tier 2, Tier 3, where insurance penetration is going to happen in a big way. And also, we have presence in metro where the insurance penetration is happening to the maximum. And it will only -- I assume that in the future, from 60%, the big metros, the insurance coverage will go up to 80%. That is a possibility.Then I also explained the advantage. We don't see it as a challenge. It only helps in helping the patient to access the highest care and the highest quality of care, as well as the complex work. Sunil mentioned about how we have doubled the robotic surgery from 400 to 1,000 -- close to 1,200 robotic surgeries. This has privately happened because of the insurance has started covering the robotic surgeries. Same way, oncology is another piece. In our group, we do close to 8% to 10% of oncology work. But I see that might go up to 25% in the coming future. And that is primarily enabled by the insurance penetration, because onco treatment is very complex, very expensive, and long-term treatment is a must. And there are specialized insurance packages only available for oncology patients. So lot is being played out.As an organization, I think we are definitely very well placed to take advantage of the fact that insurance penetration is going to only go up. And that's why we have that much focus on tertiary and quaternary care delivery, which is a challenge, especially in the Tier 2, Tier 3 cities to deliver, because acquisition of the talent and creating infrastructure is a big challenge. But we have been fortunate and we have been capable enough to demonstrate that this kind of high-end work can be also done at Tier 2, Tier 3 cities.I hope I've answered...
Yes, understood. But it seems like in most cities in, say, Kerala, where you have most of the presence, cash will likely remain the biggest component and maybe gradually we'll see pickup on the insurance side. But in markets like Bangalore, obviously, I guess, it's the fastest-growing pie, to understand.
The bigger cities, metros, the insurance penetration is happening much faster pace compared to Tier 2, Tier 3. But it's just a matter of time it is also going to change, because insurance penetration is not happening to that extent like in metro because the handwork is not happening in Tier 2, Tier 3 cities, but wherever it is happening, the insurance penetration has improved.
Understood. My second question is on your 0 to 3 years category hospital where you have 6 units. So can you just update us, like, which hospitals have really achieved cost breakeven and then moving up further in terms of margin improvement, and which are the units which have slightly longer way before they can turn around at the EBITDA level?
Sunil?
Yes. Thank you, Damayanti, for the question. So these things hospitals basically include 4 O&M asset-light hospitals. That basically includes our Aster Mother Hospital in Areekode, Aster PMF Hospital in Kollam, Aster G Madegowda Hospital in Mandya, Aster Narayanadri in Tirupati. In addition to these 4, we have got a new facility we added for handling the scheme patients called as Aster Ramesh [ Adhiran ] Hospital in Vijayawada. That's just a 50-bed hospital. In addition to all these small hospitals, the biggest one is the Aster Whitefield Hospital.So when you look at -- when you say cash burn, I would say, your Narayanadri has done really well. We talked about it previously also. It broke even in the first quarter itself. Even today they are churning out lower double-digit margins. Similar in the case of Aster PMF Hospital. And our Aster Mother Hospital, Areekode, their losses have really reduced, hardly small losses which is there. And [ Aster ] has talked about that, Aster O&M hospitals, basically O&M asset-light hospitals, last 2 quarters, out of blended 4 hospitals, we are able to consistently maintain the positive -- even though 1 or 2 hospitals are in the loss, but positive margin is there in the -- all 4 hospitals put together from the last 2 quarters.And Aster Whitefield Hospital also, specifically called out in the speech of the MD and Nitish, wherein we've had the fastest breakeven, right? In third month itself we have broke even. So there also losses are hardly -- for example, full year number would be less than INR 4 crores, INR 5 crores. So that's where you can see 0 to 3 years, even the 6 hospitals contributing to INR 75 crore revenue. The operating EBITDA loss is just INR 7 crores negative. And that is a very considerable decrease from the previous year. And I hope that is the outlook.
Yes. And my last question is clarity. So in terms of margin outlook, did you mention at the consol level, 20% is something which you are targeting, and then it will be higher, say, 23% or so for the core hospital segment?
That's right.
So the next question is from [ Mr. Rajkumar ].
Can you hear me?
Yes, we can hear you.
Yes. So I'm looking at Slide #19 of the presentation. This question is for Mr. Sunil. Sir, I just want to know -- I saw the note on the tax part, due to the deferred tax liability of INR 52 crores, the tax looks very high for this quarter. So I just want to know what is the steady state, or rather the projected tax rate for the upcoming quarters. So should we work with 25% given that you have now moved to the -- whatever is the normal range?
Yes, Rajkumar, thanks for the question. See, this, INR 52 crores is a onetime noncash liability -- deferred tax liability. Basically what happened is that, now we had a major income, right, from the GCC sale which has been upstreamed from Affinity to a listed entity. There is certain higher profit has been generated in the quarter 1. And going forward, we will not be able to continue with our current old tax regime. We had to move to new tax regime to become more tax efficient. That is the reason why the deferred tax liability has been coming in, right? So this is a onetime hit. So if you look at the next year onwards, you don't expect that such a hit coming through, because already the deferred liability is already created. It's a onetime hit for the future benefits, right? Now, we are going to see the deferred liability only going to unwind over a period of time.Your next question is that, what is the tax which you can take it? So because in the new regime, we will come down -- tax to 22%, plus the surcharge and such, you can look at -- that is only for the profit-making entities and also where the subsidiaries, where our revenue is less than INR 400 crores, we have a lesser rate of 25%, right? But you take -- we are also making the -- new assets are coming into picture, new greenfield projects in FY '26 and FY '27. And also the Whitefield Hospital which recently started. Even though EBITDA breakeven has happened under the PAT, it will have some stress, right? So with all this put together, you can take an effective tax rate on the PBT of something around 14% to 15%.
14% to 15%, right? That's what you mentioned.
That's right.
Okay. Yes. Just continuing on this -- the same, I have just a couple of more housekeeping question. The next one is, there is a movement of the fair value contingent consideration payable of INR 6 crores. So just wanted to know, this is just an one-off, right? So this will not again come in the subsequent...
Yes. See, movement in fair value of contingent consideration payable is a non-cash item again, right? See, what happens is that, because we have got multiple subsidiaries where we are holding investment, correct? And also all these investments, for example, Ramesh Hospitals or our Prerana Hospitals, they do have a certain put option. And when you have a put option, they have a time period. They have the right to put the shares and have the obligation to buy those shares. During that period, as per the accounting norms under Ind AS, you are supposed to recognize a gross obligation of that liability in the consolidated financial statements. So that is what we recognize when we first take the investment. After that, what happens is that, every financial year end you assess or reassess what is the gross obligation based on the future cash flow, or I would say, based on the DCF method.Now, if the performance is really good, that means to say the valuation will go higher, that means to say, when they put the shares, my investment will be on a higher side, right? In that case what happens, the liability goes up and that -- any increase or decrease in liability comes through P&L. So INR 6 crores is basically a decrease in liability, because we have seen the Ramesh Hospital performance, right? It's not so great, because of the -- liability has come down. And that is where it's getting unwinded as a income, or I would say, negative liability at INR 6 crores.
Okay, got it. And lastly, on this NCI of INR 9 crores that you have shown, is it coming from your Malabar acquisition?
Yes. I would say, majority would be coming from there. See, we have 3 major subsidiaries, or I would say, major subsidiaries are MIMS, where we hold 79.6% or so. And the balance we hold is the Prerana Hospital, that is Aster Aadhar, Kolhapur. That's where we hold 87%. And the Ramesh Hospitals, where we hold 57.5%. And considering all these subsidiaries, major performance is happening in MIMS, one of the very good cash flow. So you can say NCI, whatever INR 9 crores we have recognized, 80% would be coming from the MIMS Limited itself.
Okay. So just to labor on the same point. So, given that you are looking at acquisitions, so would it not make more sense to go 100% on this -- wherever the NCIs are happening because that will immediately give you a 25% -- close to 25% upside on your PAT? That's more like a low-hanging fruit for you, right?
Correct. No, your point is very right, Rajkumar. That's exactly what we have tried to do in last 1 year. If you know, 1 year back, our stake in MIMS, right, it was at 74%. And we increased almost by 5%. So, from the very clear strategic point of view, we are very clear that wherever possible we will always increase the stake, and that to such a unit where the performance is quite good, but at the same time, right, we don't have a specific shareholders agreement for them to put on a call option to buy those shares. And also, this is a MIMS Limited, where the number of shareholders are very high. But we'll always keep that effort open but it will always take certain time to get into the 100% or even near 90%.
Okay. Just last bit on the cost components, I see there's a significant shift between the employee costs and other costs when you look at Q4 FY '24 and FY '23. So, is there anything -- I mean, significant change in strategy, like, the employee cost has come down, whereas the other costs have doubled?
No, it's related to reclassification, Rajkumar. I can give you more insights off-line in the bit of it.
The next question is coming from [ Dr. Binu ].
Dr. Nitish, just a question on nursing and other technical talent. Nowadays we have seen a lot of corporate hospitals coming up across both yours as well as competitors. Is there any shortage of nursing and other technical talent that you are coming across, and are the costs or the manpower costs in that regard going up?
Yes. Binu, nursing attrition -- nursing -- shortage of nursing is an industry problem. We all are aware of it, and so we have -- to address this challenge, we have certain inherent advantages and certain strategies we have put in place to address this challenge. Inherent advantages, most of the hospitals are in Kerala and majority of the nurses come from Kerala. So we have the distinct advantage of getting the nurses, access to the nurses and paramedical staff. 60% of the paramedical and nursing staffs are from Kerala. So that is we come from -- we are based off Kerala. That is 1 part, that it's helpful. But at the same time, we have cluster approach. When we have a cluster approach, when we are dominant in the micro market, like we are by far the #1 in Kerala, compared to the competition, it's much easier to retain the clinical talent, because everybody wants to associate with the organization, which is growing. And we're just focusing on the high-end work, because the value of the nurses in getting trained in the high-end work. So since all the hospitals are unable to do high-end work and we have a cluster approach, we are able to retain and train them and cross-train them also. And also, we have kind of focused, we accept the fact that nursing is the core of our existence so that in terms of -- you would have seen our nursing award, and we take a lot of initiatives to encourage nurses, not only work as nurses, but after a certain phase in their career, we also encourage them to take up managerial role and we also encourage them to get into administration in other areas. So there's a clear-cut path, growth path, but then also we have residence in GCC, which helps in kind of giving a career path they've to go to, if they have aspiration to go abroad too, they can come join us and grow in with India and then go to GCC if required, or if in the GCC, some -- lot of nurses beyond certain years would like to come back to their hometown. That also this -- we having presence in GCC in India helps them into kind of closing their career path. So that also is 1 more aspect.So we do have challenges, but compared to the competition, we have lesser challenges because of the cluster approach and also dominant presence in Kerala and also the kind of strategies we have taken, we are, to large extent, able to mitigate this challenge.
Understood. Actually, my question was more like in the last 6 months, have you seen anything incrementally on that front?
Not much, but there has been -- in general, because I don't see a major attrition rate going up compared to the previous years, but it's been consistent. It has not gone down, but not -- it has not gone up also drastically.
Understood. Just from a housekeeping perspective, Sunil, what would be the CapEx number for FY '25?
FY '25, it could be something like INR 450 crores.
INR 450 crores. Okay. And just to confirm when you give this cluster-wise revenue and EBITDA reporting, that also captures the pharmacy and diagnostics revenue and EBITDA of those particular geographies. Is that right?
No. See, when we give cluster, it's very clearly hospitals what we cover, hospital and clinics, but it doesn't include their labs and pharmacies.
Okay. So that -- those are the separately reported numbers.
Yes.
So the next question is coming from [ Mr. Devanshu ].
Can you hear me?
Yes, we can hear you.
So just 2 questions. Just a follow-up on the previous participant. So CapEx for FY '25 is INR 450 crores. Can you give us a number for the next year after that projected for FY '26?
It is very early, Devanshu, to give it because this INR 450 crores, what I've given is because we have the budgets and there is a very clarity on the what is the project CapEx. Because see, when we say CapEx, we've got a project CapEx of INR 1,000 crores which I've talked about. Plus it also includes a -- there's a little bit of a growth for the additional medical equipments we need to do and also replacement CapEx, right? So it all includes around INR 450 crores is what we have. But going forward, usually what we can say is that, project CapEx of anyway INR 1,000 crores will be allocated in '26 and '27. In addition to that, you can take 1.5% to 2% on the top line as a growth and replacement CapEx.
Got it. And just 1 clarification...
Just to clarify, Sunil, you said project CapEx will get allocated in '26-'27. I think from '25 to '27, right, the INR 1,000 crore, that's all for the 3-year...
So, I mean, Nitish, what I told is that, totally we have INR 1,000 crores to be spent on the project CapEx for 1,700 beds. Out of that already given the highlight about INR 450 crores which includes the project CapEx plus the growth and replacement CapEx.
Sure. Noted. And second clarification I had was on this residual amount of INR 1,500 crores that we have net of the dividends. What would be the net amount retained by the company post transaction costs and any other costs if any?
So, see, we basically, out of $907 million, right, $20 million approximately was retained in the Affinity level, right, for the transaction cost. Post that, it was upstreamed around $887 million to Indian list entity in terms of dividend and the redemption of preference shares. That is basically in INR, we are talking about around INR 7,400 crores. So out of INR 7,000 crores -- INR 7,400 crores, we already released a special dividend of INR 118 per share, which amounts to INR 5,900 crores. That's where we were seeing the balance amount which is excluding any transaction cost, we have a cash of around INR 1,500 crores in the listed entity.
So, will there be any amount that will be netted off from this?
No, there's no further amount netted off from this.
So, this is a net amount retained by Aster India now?
Yes, correct.
Yes, I can see a raising hand from [ Mr. Nithin Jain ].
Am I audible now?
Yes.
Sir, most of my questions have been answered. I have only 1 question left. So what will be the -- what will be our peak debt post all the CapEx we are spending for next 3 years?
Nithin, can you come again on the question?
Sir, my question is on the debt. As we are in the CapEx cycle for next 3 years, what will be our peak debt? So out of the INR 1,000 crores which we are going to spend in 3 years, can you give the breakup or what will be our internal accrual and the debt we are going to borrow?
So let me put it this way. If you keep the INR 1,500 crores apart, right, even keeping that apart, we are talking about currently a gross rate of INR 669 crores, right? So out of that, we have got a 1,700 beds to be expanded in next 3 years, which will be again a combination of the debt and internal accruals. And then what we are already seeing is that, we should hit the peak debt only in the FY '25. So post the -- because that's when the majority of the CapEx on the greenfield is going to incur in FY '25. With that happening from FY '26 onwards, you should see the debt per se coming down. That means to say, net debt-to-EBITDA ratio today what we have around 1.1x may little bit slightly increase in FY '25 and again, after that it should come down in such a way that by FY '27-'28, we should go into net cash, unless we add another many more beds, which is already in plan. But I'm giving the visibility based on the CapEx which we have in sight.
Anyway the net debt-to-EBITDA will remain below 2x, right?
Yes, very much.
[Operator Instructions] Okay. I don't see any raisers' hands. Okay. So I think -- so there is no more question to the management. Thank you, all. Concludes the earnings call of this quarter for Aster DM Healthcare. I thank the management and all the attendees for joining us today. If you have any further queries or questions, please get in touch with us. Thank you.
Thank you.
Thank you.
Thank you.
Bye-bye.