Fortis Healthcare Ltd
NSE:FORTIS
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Earnings Call Analysis
Q3-2024 Analysis
Fortis Healthcare Ltd
The company has reported a solid 8% increase in consolidated revenues from the prior quarter, amounting to INR 1,680 crores. However, this growth comes with a slight compression in the consolidating operating EBITDA margin, which is 16.9%, marking a small decrease both from the previous year and the trailing quarter.
On the profitability front, the profit after tax (PAT), excluding exceptional items, dipped marginally to INR 127 crores from INR 131 crores in the last quarter, though the reported PAT remained above last year's corresponding quarter at INR 134 crores. A robust hospital business performance saw the operating EBITDA grow by 19%, culminating in increased margins of 18%, up from the prior quarter's 16.7%.
The company's balance sheet paints a picture of health with a net debt to EBITDA ratio of 0.45x, a slight increase from 0.41x in the previous quarter, and a net debt standing at INR 518 crores, up from INR 471 crores in the same period last year.
International business revenue remained static, affected by geopolitical issues in the Middle East, which have disrupted the flow of international patients, mainly from Iraq and Bangladesh. Despite this, the company is eager about its future profitability as it undertakes brownfield bed expansions that are expected to significantly boost bed capacity and operating leverage. This expansion, with granular details now presented to investors, includes the launch of new facilities and in-demand specialties, aimed to expand the company's leadership in key regions.
The company's commitment to digital transformation is evident with a remarkable 32% year-on-year growth in revenues from digital channels, contributing to 25.7% of overall hospital revenues, an increase from 21.5% in the previous year. Furthermore, focused specialties such as oncology, orthopedics, and neurosciences show significant contributions to overall hospital revenue, signaling a strong position in high-margin specialty areas.
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Ladies and gentlemen, good day, and welcome to the Q3 FY '24 and 9 months ended December 31, 2023, Post Results Conference Call of Fortis Healthcare Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Anurag Kalra, Senior Vice President, Investor Relations at Fortis Healthcare Limited. Thank you, and over to you, Mr. Kalra.
Thank you very much. A very good morning and good afternoon, ladies and gentlemen, and thank you for joining us on our quarter 3 FY '24 earnings call. The call is being chaired by Dr. Ashutosh Raghuvanshi, our Managing Director and CEO. With him, we have Mr. Vivek Goyal, our Chief Financial Officer. And I also have my colleagues from Investor Relations and M&A, Amit Mahindra and [indiscernible]. Before we start the call, I would just like to state that, as you're all aware, we are a listed company. and our material subsidiary, Agilis Diagnostics has filed a DRHP for the proposed IPO in September 2023. In light of the publicity restrictions imposed on Agilis and the company, which due to the proposed we would not be in a position to share any further information other than what is already provided in our investor presentation and press release. Due to these restrictions, we would also not be in a position to clarify or answer any questions on the Diagnostics business performance or on the proposed IPO at this point in time. We do appreciate your understanding on this. We will begin the call with some opening comments by Dr. Raghuvanshi on both the consolidated and the hospital business performance. And then we can open the floor for question and answers. Over to Dr. Raghuvanshi.
Thank you, Anurag. Good morning and good afternoon, everyone. Thank you for taking time to join us on our Q3 financial year '24 earnings call today. I wish you all happy New Year and hope all of you are doing well. I shall come straight to the results of the quarter and my thoughts on the business performance and way forward. Our business performance in Q3 has been satisfactory in the seasonal impact of festivals in some of our key geographies. The hospital business has shown a relatively improved performance compared to the corresponding quarter last year and predictably slightly lower than the trailing quarter. Our consolidated revenues were at INR 1,680 crores, a growth of 8% versus the corresponding previous quarter. This compares to INR 1,560 crores in Q3 of financial year '23. Our consolidated operating EBITDA margin was 16.9% versus 17.7% in the corresponding previous quarter. and versus 18.6% in the trading quarter. To highlight the contribution of hospital operating EBITDA increased to [ 88% ] of Q3 of financial year '24 versus 76% in Q3 of financial year '23. This indicates a positive momentum in our hospital business earnings, allowing us to sustain our overall profit margin. The strength in our hospital business has also largely offset our performance in Diagnostic business.
At the PAT level, we reported a profit after tax prior to exceptional items of INR 127 crores, compared to INR 131 crores in Q3 of financial year '23. Reported PAT stood at INR 134 crores versus INR 142 crores in the corresponding previous year. Our balance sheet remains healthy with a net debt to EBITDA of 0.45x compared to 0.41x in Q3 of financial year '23. Our net debt at the end of Q3 financial '24 stands at INR 518 crores against INR 471 crores at the end of Q3 of financial year. Let me also briefly touch on the consolidated 9-month financial year '24 result numbers of the company. For the 9 months of financial year ever, our consolidated revenue stood at INR 5,107 crores, a growth of 9.7% over the corresponding previous period. Operating EBITDA for the period was INR 887 crores versus INR 830 crores for the 9 months of financial year '23, translating into a margin of 17.4% versus 17.8% in the corresponding previous period. PAT, excluding exceptional items for the period stood at INR 429 crores versus INR 432 crores for 9 months of a marginal decline year-on-year. Reported PAT stood at INR 442 crores versus INR 45 crores in the corresponding previous year.
I'm pleased to share that our hospital business continues to witness a healthy performance. And despite the quarter having a seasonality impact, we have shown a better performance on a year-on-year basis. The consolidated profitably the numbers that I shared with you just now mainly reflect this. We have witnessed an occupancy of 64% in Q3 versus 66% in the corresponding quarter, owing to an increase in the operational [ beds ] by 100, while the occupied beds remained flat year-on-year. Occupancy levels on a like-to-like basis were at similar levels ARPO witnessed a strong growth, growing by 10.6% year-on-year to reach INR 2.23 crores. The growth was driven by a consistent shift towards higher complexity procedures. This year, on an annualized basis, we have we'll be performing more than 60,000 cardiac procedures, more than 3,500 robotic surgeries and more than 1,100 transplants, which demonstrates the shift we have been talking about. All these factors enable the hospital business revenues to reach revenue of INR 1,389 crores in the quarter, a growth of 10% versus Q3 of financial year '23.
The hospital business operating EBITDA grew 19% to touch INR 251 crores reflecting a margin of 18% versus 16.7% margin in Q3 of financial year '23. The improvement was driven by our consistent focus on improving operational efficiency and optimizing costs against all heads, including general administration services, far and maintenance, et cetera. Revenue from international business stood flat at INR 113 crores versus INR 114 crores in the corresponding previous quarter. International patient revenue was flat year-on-year, primarily due to geopolitical reasons in the Middle East and flow of patients from countries such as Iraq and Bangladesh. You would recall that we have been speaking about our portfolio rationalization strategy. To that effect, we have divested two of our loss-making facilities in July, the facility in July 23, followed by the Mala facility, which we concluded last week, leading to an improvement in overall profitability for the company in the future. We are progressing on our brownfield bed expansion, which are expected to incrementally add almost 50% to our existing bed capacity. And when operational, will eventually see some of our key certainties such as Shalimar bag, FMRI, Mohali, [indiscernible], Noida become more than 450 beds each. This is expected to provide a higher degree of operating leverage in such facilities translating into healthy margin expansion.
Our expansion strategy continues to focus on deepening our cluster presence with the launch of new 70-bed unit in [indiscernible]. This is the second facility in Luciana and the fourth in Punjab. This will take our total bid strength to 800 in Banja region. You will also notice that given our focus on bed expansion, we have also, for the first time, provided further granularity on our bed expansion planned in our investor presentation. close to 2,200 beds in the next 4 years will come through. Our focus on strengthening our clinical programs continued through the quarter across all our facilities in terms of investing in high-end medical infrastructure and onboarding new medical talent. The quarter witness addition of several M&A clinicians across various specialties like neurosurgery, oncology, cardiology, gastroenterology NDA surgery. During the quarter, we commissioned several medical programs and further stand in medical infrastructure, various certainties. This includes the UP first most advanced artificial intelligence power state-of-art cathlab Fortis Hospital NIDA. [indiscernible] neurolab at Fortis Hospital Faridabad and launch of adding a surgical robot at Fortis Hospital [indiscernible].
Another important aspect to highlight is the ongoing success of our digitization initiatives, our strides in digital transformation, particularly with the implementation of EMR advancing positively. Revenue from digital channels such as websites, [indiscernible] and online campaigns grew by 32% year-on-year and their contribution to overall hospital revenues increased to 25.7% versus 21.5% in Q2 of financial year '20. In this, we have also launched our new patient feedback management still feedback. This platform will enable more engaging experience for our patients as feedback will be collected through [ SAP ] and QR codes. Application will also enable collection of feedback and addresses immediate patient concerns through its request for service future. The revenue contribution from the company's focused medical specialty, oncology, orthopedics, renew sciences, cardiac sciences, neurosciences and gastro entry to overall hospital revenue increased to 61.4% in Q3 from 60.9% in Q3 of financial year '23. Specifically, revenue from gastrosciences, neurosciences and oncology grew by 20%, 13% and 12%, respectively, versus the corresponding previous quarter.
In summary, our earnings momentum remains healthy, especially with respect to the hospital business. And this I would expect to continue going forward. I say this is a sense of conviction as our future levers of growth are well defined in our business plans, whether they be towards our brownfield expansion strategy or towards steering our medical programs and technologies or towards efforts to ensure that patients that delivered a super patient experience and excellent clinical outcome. Thank you. And with this, I would like to hand over to Mr. Anurag Kalra to take this forward.
Thank you, sir. Ladies and gentlemen, we will now open the floor for questions and answers. May I request the moderator to begin.
[Operator Instructions]. The first question is from the line of Neha Manpuria from Bank of America.
Sir, on the hospital performance, the fact that we managed to keep margins flat despite the bed addition that we saw in a seasonally weak quarter. does indicate the point that you've mentioned that we've been able to do a lot of cost optimization and improvement in efficiency. One, if you could highlight how much of this is already captured in this 18% margin? I mean is there more scope for this to contribute to margins? And second, as we see occupancy improve from 9-month number of 66%, 67% on the existing beds, what is the trajectory? I mean, should we see margins crossing the 20% in the very near term? Or could that be a little more longer journey? Just trying to understand the gradient for the margin expansion that we should see in the hospital business.
Yes. Neha, I can take this question.So your margin as you rightly mentioned. We are moving towards our target and the given earlier of 20% margin by the year-end. So that we are expecting. And the main lever for our margin on the capacity. As you rightly pointed out, occupancy is slightly lower as a use our expectation. And we are below 65% now. And as we're able to move from the occupancy side, I think this margin improvement will be. And plus, this divestment as Dr. Raghuvanshi mentioned about Malar, which is effected from first of February to fourth., that will also help in improving the margin.
Maybe if I can be a little more specific here. If I have to say the 18% margin improvement, how much of it would come from Malar divestment. And how much of it would then come from, let's say, the other efforts that we are sort of implementing?
Yes. So I will say around 5%, 6% of EBITDA margin improvement because of the day. The ARPU would already factored in this quarter. So I'm not counting that. So that will be on the Malar divestment side. Rest will be majorly from the occupancy improvement and some improvement in the cost side. And as some of the hospital like Ludhiana have optionalize only in the December. So this quarter, the regulator of that hospital will be also improved.
Okay. So the Ludhiana impact will flow through in the March quarter, the new facility effect?
Yes.
Okay. Understood. And my second question on the international patients, that was flat. I know you did mention in your opening comments that this is because of certain geopolitical issue. How do we now plan to grow this business, given what's going on in the Middle East, and we don't know when that situation improves. Can this number move up from what we are seeing?
Yes. So international business this quarter is slightly less as compared to previous quarter. However, if you see year-to-date, we are doing quite okay. And in the month of January and February, we have seen that the business has come back to its set up quarter number. So we expect this will continue to provide a good lever for increasing the occupancy and profitability.
Understood. And last, I don't know if you want to answer this question. But if I were to do a simple consol minus hospital, the residual diagnostic business seems to have seen significant pressure on margins. Is there any one-off cost there? Any color that we can provide there? Again, I don't know if you would give any color, but just trying my luck.
Yes. Raghuvanshi mentioned, we are not supposed to discuss about the financials of the diagnostic beer. [indiscernible]end up performing media of the one-off.
The next question is from the line of Saurabh Kapadia from Sundaram Mutual Funds.
So first question is on -- so another 19% kind of growth can we sustain? And also, do we have levers further to improve on it given that a few beds additions are coming in.
Yes. So we could see a very good ARPU increase during this quarter and for the year, also the number is [indiscernible]. So we feel -- and I think mainly driven by the high-end cases, we are able to do the more complex cases the company is doing and [indiscernible]. So we feel that may continue, but the ARPU increase may not be 10%, 11% going forward because the base is already very high. So we expect ARPU increase should be somewhere second around 5%.
Okay. And this [indiscernible] will lead to some dilution in the payer mix for next year? That would be the assumption.
Not really because the payer mix, we are maintaining at below 20% of [indiscernible]. And we don't want to pick up back too much because we are having heavy bad defense program. And these plays come handy for filling up this set. So we are not trying to play too much in this. But very well is the opportunity we are trying to optimize.
Okay. And my second question is on the medical talent [indiscernible].
Mr. Kapadia. May I request you to use your handset, sir, your audio is slightly muffled, sir.
Is it better?
So it's a little lower, sir?
So my second question is on the costs related to medical selling. So as the entire cost is there in this quarter? Or how much cost increase should be building for the new talent, what we are adding in?
So the cost of medical talent relatively speaking for us has been a little high. And our hypothesis is as scale up the hospitals as we are planning and the occupancy numbers increase in relative terms, it should come down from the current level. I am pretty sure that it will certainly not go above the current level.
The next question is from the line of Hardik Doshi from White Whale Partners.
So looking at your bed expansion plan, next year, you're looking to add quite a lab on called the 2,200 beds, almost 1/3 of them 10 beds. So are you looking to exit this year at 20% kind of EBITDA margin. I mean how are you looking next year this quarter be addition or drop in occupancy next year, we'll see a lot of better additions. So does that mean that the drop in margin next year?
Yes. So next year, you rightly picked there is a big bed facility will be coming in. But having said that, this bed capacity natively coming at a different point of time. Number two, we may not operationalize the full [indiscernible], and the bad of rationalizing will happen as per the occupancy ramp up thing because that will be the most cost-effective way to achieve the ramp-up. So with that, I don't -- because we are not opening up entire bed and we will be realizing the bad operational item based on the occupancy, I'm not seeing much impact on the profitability. And all -- most of these bed except the Manesar one than we are something is coming in an existing hospital where as per our initial estimate, we should be -- they will start contributing from the day one. Because this was -- in the hospital, we have the better in is coming they are already operating at a very different potential level. So we don't see that type of challenge there on the margin side.
Okay. So then how should we look at margins for FY '25 and what is the target?
So we are maintaining our margin guidance but slowly, we -- as we know, this ramp-up will happen with this bad expansion by next 3, 4 years, we should be aiming towards 25%.
The other thing was on the expansion divestment strategy. So one of the things -- most of our bed additions are around expansions in our existing facilities. And we were trying to get away from, let's say, a smaller size hospitals to enable larger proportion of revenue on tesa. If you see Ludhiana is a 70-bed facility. So is that really going to act nearly as the feeder to our larger hospitals in Panja,That's one? And second thing is we've got these two divestments that we've announced in Chennai. What is the pipeline looking from a divestment perspective.
Yes. So if I can answer the Ludhiana first. You know the Ludhiana a sort of extension to our existing facility. As you know, we are very strong presence in the Punjab side and our other hospital Ludhiana Hospital, we've been quite okay. And this hospital from the location Ludhiana, the two hospital from the location perspective is highly suited from the clinician as well as from the patient perspective. So I think it will be extension of Ludhiana, we see the performance in the combination of these two site. And with the type of facility we have built here, we are quite hopeful that the field [indiscernible] going forward at the combined level. As regard to your other questions on the divestment thing, so this is a startup for a continuous type of exercise. So we keep evaluating our portfolio. And depending upon the -- our MS and the results, we may look for other hospital also. But right now, there is no concrete plan for any of the hospitals is not falling in that category for the divestment.
Does that answer your question, sir?
Just sorry, to follow up, in the next 12 months, I mean, do you think there will be at least a couple of divestments from you?
Not really. So as I said, there is no active thing we are pursuing right now on the divestment side. And 1 of petal which is very small, we may look the alternative for that and it is not worth talking also. It is very small.
Our next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just the first one is on January. I don't know whether you talked about the occupancies, how it's trending. How should we look at quarter 4. And just a related question on this first part is around occupied bed days that they have basically been flat, maybe slightly down. So how should we look at ramping up occupancy for next year? Or is it because of the bed additions, do you think occupancy increase will likely be a change?
So Shyam, I can answer this question. Like last quarter, the occupancy is on the lower side because of the two reasons. One is we are -- our projects in the NCR and Punjab side because of that, this pollution thing and the winter vision as the fact of potency levels. And to some extent, we have extended our bed capacity like Ludhiana to has been added [indiscernible] added the bed capacities. We are the sizable wet capability has happened. So that has resulted into the occupancy side. But we have seen a very healthy trend in January, February. And we are quite hopeful that this occupancy trend will be revived. And we expect this to be towards 70%, maybe in the coming quarter and even for next year.
So what is like January number, just a factual question. Is it -- Q4 is better than Q3.
Yes, it is definitely better than the Q3. I'm not having number in front of me January, but it is better than that.
Helpful. Just the second question is on your Slides 20 and 21. I'm just trying to analyze what has happened both in the margin metric. And when I look at FMRI, the Q-o-Q decline was the highest in the top 10 hospitals, right? It's declined Q-o-Q by about 12% when the company did only a 4% decline. And also it looks like it may have been the biggest one that has moved across the buckets from, I don't know if it was in the top 1 and it has moved to bucket 3. I'm just trying to analyze Q2 versus Q3. So anything that is happening at some of our flagship hospitals, if you could highlight?
Yes. So FMRI rightly picked the sum and FMI is, as you know, are having very good international business. And last quarter, international business was affected because of the reasons explained earlier. So that was the reason for MRI drop, and there was just a couple of changes, not a couple, 1 change at the lesion level also. That has impacted the FMRI performance. But the performance has revived in the month of January As I said, the international business has come back to its normal level. And we have stabilized that FMRI to the September quarter.
What was the second point, [indiscernible] you mean institutional business. So you were a little fast. What is the second reason.
I was saying [indiscernible] the international business, I said. Yes. And second is there was some change in our cardiac specialty. One of our premium position has moved out. And we'll be joining in this quarter. So that's why that quarter is not affected -- that particular business got affected in this quarter.
Understood. And if you could also comment on the margin metrics. Anything to keep in mind because we have seen actually -- and is it maybe seasonal, I get it, but the 15 to 20 bucket has seen things slipping into 10% to 15%. So I'm just looking at that. And I'm sure the 9 also in has actually changed, right? Maybe something like FMRI has fallen out. I don't know which are these hospitals. But if you could comment on, is there something that we need to be worried about looking at Q3 margin metrics or some of it can be explained by seasonality international patients, et cetera?
Yes. So I think one is the FMRI, that is a better impact given this impact. And as I mean, it has bounced at in the current quarter, and we expect that this hospital will be doing much better during the current quarter. And a part of the hospital, which is having that type of impact on this margin metrics.
And my last question is just any update on the High Court legal, anything that is there. Are we still incurring cost, retainer fees for some of the lawyers. So if you could just give us an update on what the legal scenario and the implications on cost.
Yes. So there is not much movement in the legal case. There was a hearing on the [indiscernible] and the hearing was mainly concentrated on the banker side. The bankers, as you know, banker has extended loan facility to export motor entities. So the main arguments were on that front. Our lower was budget, of course, and we are paying for their fees. So that for continuing I think the next quarter we should have some hearing and we are quite hopeful that we will be getting some things. That is on the [indiscernible]. Another thing you might have noticed is the listed entity, which is the listed trust. That has been delisted now in Singapore as per the direction of the labor code. So to that extent, there will be some savings in the cost in the coming quarters because -- but not in the coming quarter next year because the entity still remain until it is creating.
Any quantum you want to share or what those cost savings are?
Yes, it will be in the , I think, INR 5 crore annual.
The next question is from the line of Mansi Desai from JPMorgan.
My question is on some of our low-margin hospitals. We have almost 150 beds, which 1/4 of our capacity which are right now yielding less than 10% margin. I know the hospitals here. Each of them have a unique set of challenges. But how is the management thinking about the turnaround here? And should we expect this cohort to have a gradual improvement or this should also contribute meaningfully to our margin improvement goal going forward?
Yes. So we have done some special changes in this hospital and that starts in the yield but it is still below 10%. So from the negative EBITDA margins in the metal years when 2019/'20, that have started showing around 10% EBITDA margin. But still there is a lot of work still needs to be done on the structure side. And it will need some time. I don't think so there will be a dramatic improvement in the profitability metrics for this hospital. But I think we are moving in the right direction. And over a period of time, maybe in a couple of years' time, we will see some legal term of our [ FX ].
Okay. And my second question is on the general pricing levels in the industry today. We've seen very strong RPO got the industry over the last 4, 5 years. Is insurance regulator worried about these pricing levels. Are you having any kind of die dogs with them? Are they seeing these prices to be high? Or do you think these price increases are largely taken to meet the medical cost inflation and therefore, are justified from that perspective. So any color on the pricing dialog that you could be having with the insurance regulator on how they are viewing the pricing today in the industry?
Yes. So I will answer and then Mr. Raghuvanshi may add to that. If you see the price increase is mainly attributable towards that speculating change and the type of procedures we are doing, which is the high-end procedures. So it is not because of increase in the price increase. If you see our price increase at overall level from the previous year, it is coming around 1%, 1.5% only. So at a consolidated level. So of course, for careful, it will be coming around 4%, 4.5%, which is linked to the to the inflation side. So I don't see that type of challenge here because of -- as I said, the price increase is mainly -- the ARPU increase is mainly attributed to the mix change in the center specialty mix and type of procedures we are.
Yes. No, I would say that the industry body level, these dialogues are continuously on. And I think this debate will be an ongoing issue. And there is no endpoint for this because as insurance has an upper hand, they would obviously like to control the prices. But there is no specific stress at the moment.
Our next question is from the line of Bino Pathiparampil from Elara Capital.
Before I get into my question, just a recap on an earlier question on agile I think [indiscernible]. Is that there was some one-off or there was no one-off.
Yes. agile, I have mentioned, we can't disclose much. So there is a one-off impact in that financial.
Okay. There is an impact. Okay. Coming to my induction. I was just trying to understand a little bit between comparing the two slides that you have given that like extension plan. So first, I'm looking at FY '24, you are adding about INR 237 back off, which I assume the Ludhiana facility [indiscernible] global impact?
Ludhiana is around 55 beds. Then there is a moron facility where we have added 70, 80 beds there. then we have operationalized in [indiscernible] facility around 30, 40 beds. And rest is -- I think BG would in Bangalore, a couple of facilities we have added that.
Okay. So Ludhiana is the only new facility per se, right?
And there is a Mohali also we have added 35 beds in the industry.
But in terms of new facility Ludhiana &A is the only one, right?
Yes. It is only the Ludhiana. And then we mentioned not new in the $0.02 because it is having good synergy with acetic hospital.
Understood. And when I look at FY '25, out of the 70, I assume roughly 350 million will be the acquired mid or hospital, right?
Yes.
Okay. So may I have a rough understanding of where the next 350 will be spread out like.
Yes. So I will say out of 700 almost 300-plus bars of the Manesar facility. So we have this 350 bad acquisition in money, sir. So our plan is not to open the entire the bed in one go. Because of the cost optimizing point of view. So there will be maybe -- we will start with bad and then we'll see how the [indiscernible]. And if we see increasing we may open another beds during that period. And depending upon the ramp-up fund, we will try to do that so -- and as we mentioned, it will be in the different time on -- so like Manesar, we are -- we will be opening maybe better mid of the year. So that type of impact will also be there. -- and the other major capacity expansion is coming in the nano facility and the BG facility. And one, of course, the Faridabad sensor thing, which will be operationalized in the next financial year. So those things, I think we will be a [indiscernible] over a period of time. 40 back each time we will go in sort it will be around 350 will be operationalized by the [indiscernible].
Understood. And the last question, the biggest bed increase seems to be happening in the NCR around 1,000 beds over the next 2 years, 1,000-plus. Shalimar bed and [indiscernible], I understand would be ground fuels. Noida and Manesar, Manesar, are you referring there the same maybe or sorry, Noida and Manser, are they completely granted or new facilities at [indiscernible].
Existing hospital. And there, we are expanding the facility. Manesar is the existing hospital, but it was not fully operational, and we are making it operational after doing some [indiscernible].
Our next question is from the line of Nikhil Mathur from HDFC Metal.
Yes. So my question is linked to the bed expansion plan. What we see from your margin metrics over the years is that almost 35%, 40% of beds, they tend to be in the less than 15% EBITDA margin range. Now can you give some color on the bed expansion plan? How much of beds are getting added in this less than 15% EBITDA margin range. I suppose that there are -- I mean, more of these certainties are operating our occupancy of more than 50%. So absorption of fixed costs via a number of -- more number of it is perhaps the only way you can improve your margins structurally in these facilities?
Yes. So let me clarify, the bed expenses is not happening in any of these hospitals, which are the 15% EBITDA margin. So the bed concern is happening in the hospital, which are operating at almost 70% to 95% occupancy level. and they are operating a decent EBITDA margin of 20% plus.
Sir, but if your occupancy of 10% to 15% EBITDA margin range, facilities is 67%, less than 10% is also not too bad at 54%, so what are the chances of EBITDA margins in these facilities improving structurally? I mean, I fail to understand how that will kind of happen.
Yes. That's why it will not be happening immediately. And it will be a gradual -- we have to give 2, 3 year time for things to materialize. So it will not be immediate. I have not said it will immediately improve become margin on the [indiscernible].
So sir, on a 2, 3 year horizon has -- I mean, there is inflation that will catch up on various costs. There's been expansion happening across the country. There will be pressure as well on your talent and all unless you are saying that your ARPU increases in the less than 10% facilities by substantially maybe 12%, 13% then perhaps your EBITDA margins can improve in these facilities. But even on 23, 2 to 3 horizon, how will that kind of happen.
Yes. So I am mentioned, there are two regions or increasing the EBITDA margin. Our ability to react prices is limited, as you know. We are operating in a slightly different environment. So we are not expecting we will able to increase the price at 5%, 6% at a consol level, okay? So that is given [indiscernible]. But having said that, the EBITDA margin improvement will happen number 2 front. One is on the occupancy side. As our occupancy level goes up, we're able to utilize our existing infrastructure and the cost base will be higher. And with that, we will be able to -- our gross and EBITDA margin will improve. That is on site. And secondly -- and similar to that, if we are going for the expense and brownfield expansion that also lead to the margin improvement because we are adding the bad in the existing infrastructure itself. So the cost will pay with the larger base, and that will help in improving the margins.
Okay. And you mentioned that in the overall above increase, there is very less increase in pricing, it's more of mix. So can you give two other examples of these mix changes, which has kind of contributed to this ARPU increase. I mean not all there could be many examples of this, but if 2-worth examples can you give on how this ARPU is increasing?
Yes. One is immediately in my mind, is the oncogenes Oncology business, it's generally high ARPU business. And the margin is slightly less. But when we see the gross revenue divided by the number of beds for the Samco business, the ARPU will be higher. So that is one business which is definitely -- and [indiscernible] growing at a decent pace for us. and we expect this will continue because of our focus on this specialty. And similarly, the euro, where we are quite strong, and we are strengthening our urgent in euro that is also lead to ARPU increase. Then we have invested in a lot of robotic surgeries and things like that. And that should lead to the high ARPU business going forward.
Any CapEx numbers you can share in, let's say, last 12 months, 18 months, we boosted your capabilities on these onco and neuro cases. Any CapEx number you can take.
Yes. So I can give you the current year number itself. For the 9 months, we have spent already INR 450 crores in the CapEx. And I think the similar trend will be for the current quarter. So I think we are investing a lot in our technology. We have invested in the state of the Damani. In our [ Brexit ] hospital, we have invested in the linac we have replaced the [indiscernible], and we have a debenture but we have invested. And the robotic surgery is also [indiscernible]. So we are not hesitating investment in the technology, and that is yielding the results.
Our next question is from Neha Manpuria of Bank of America.
Just one clarification. The notice that from the anticorruption bureau for the Muhalla clinic, is that -- is there some amount of that impact also in the December quarter that will flow through from this quarter onwards.
No. That is the major impact actually in that quarter.
In the December quarter, right?
Yes.
Okay. Understood. And my second question is just a follow-up from the previous participants. If I were to look at the less than 10% margin bracket, if you could take 2 or 3 of the largest hospitals that probably dragged the margin profile for the company. And what are the structural measures that you're talking about in each of these. That would probably help us understand it better to why it will take 3, 4 years to improve performance in these hospitals.
Yes, I will stick to [indiscernible]. And both are 300-plus bedded hospital. And both have a good potential, as you all know. So in both -- like in Gap, we have a location advantage it is located in a premium location. We have a good limited team, and it is having a good brand equity in that region. So we want -- and the thing it is lagging is it is not having the full basket of specialties, which we can offer for the hospital of this size. So we are trying to add radio uncore, and that will take itself for 1, 1.5 years to plan that time because bunker thing will be required to be built. And then there will be some construction activity will have to happen. And we hope that with this spearhold be moving above 15% EBITDA margin for sure. So that is on the [indiscernible]. And secondly, on the PG side, we are trying to add other specialty, it is mainly a cardiac center. We are trying to add that specialty so that the cost base can be shared with the -- and with the increase in the revenues. And this hospital, again, is having a very good brand equity and it'll be a decent size hospital. So I think with this attractive linen talent for is cardiac business and then stabilizing them take some time, and that's why I'm saying it will take minimum 2 years' time from now to start showing the results for this hospital. Plus, we are doing a lot of work on the cost side in both these hospitals whatever we can do on the cost side, on the main cost productivity side on the other cost initiatives, which we are taking. So I think all those will start showing visual be next year spend. I already start seeing. If you see the performance is improving for both this hospital.
Our next question is from the line of Harsh from Bandhan AMC.
Good morning, Sir.
Sir, so may I have a question to use your handset, please?
Is it better?
No, sir, your audio is muffled, sir.
I just wanted to understand to pick up from the previous question in terms of BC and JP, you adding radio-oncology cardiac division and all these other areas if you look at the overall margin metrics, let's say, 9 facilities below 15% margin, could you help us understand that the ability to provide more and more high-end surgeries and clinical work. Can this be expanded to, let's say, these other 9, 10 facilities, which are making less than 15% margin? Or this is more selective play across, let's say, only 2 or 3 facilities, which are making low margin. Because the reason that I'm asking is that the feedback is that, because of insurance penetration, there's a lot more affordability in Tier 1, Tier 2, Tier 3 cities as such. So in that context, if you could help us understand.
Yes. So if I can answer this way, out of the 9 hospitals, 2 hospital are where we are doing the expense and one is the Faridabad one whether is slightly affected because of the only extension [indiscernible]. And as I mentioned earlier, this facility will -- the expansion program will be completed during this next financial year, early part of the next financial year. And we expect when there will be higher back ability and the cost base will be are with the higher band. And secondly, the disturbance will not be there. So I'm 100% sure that Senatorial will definitely more in the letter. Second is Ludhiana, that is more affected because of this seasonal impact and that is not a worry for us. So out of 7, we can take out very easily. Then remaining 5 out of 5 on we have already divested -- another is actually a small hospital, and we are looking for various utilities, maybe including setting it down also. So the two hospitals we have already discussed. Another two hospitals are hospitals where we have rental premises. So there is a rent sitting on it and a 6%, 7% [indiscernible]. Because of that, the EBITDA margin is slightly on the we side. But we are doing some work, and we are hopeful that at least 15% margin, these 2 hospitals we will be able to do.
So from a clinical -- yes, so from a clinical aspect, Ludhiana, Faridabad, [indiscernible] are the areas where you can possibly provide more in terms of the on-ground clinical options.
Yes, you're right. These are the 4 hospitals where that improvement will be slightly on the faster side.
Our next question is from the line of Mansi Desai from JPMorgan.
I just needed one1 clarification. I don't know how much you can provide color on this. But for the private equity investors in Agilis, the time lines of providing exit to them about February of 2024. Am I correct? And does that stand through? Or does that hold would be IPO now?
Yes. So as per existing agreement, the time line is up '24 and you all know, we have filed the BRS waiting for [indiscernible] clearance. So we are -- effectively, we are standing at that point now.
Okay. Got it.
Ma'am, do you have any other questions ir is your question answered?
one
No, I'm good. Thanks.
[Operator Instructions]. As there are no further questions, I now hand the conference over to Mr. Anurag Kalra for closing comments.
Yes. Thank you very much, ladies and gentlemen, for your time. If there are any follow-up questions, please reach out to me or my colleagues. We'll be happy to answer them as possible. Thank you very much again, and have a good day.
Thank you. On behalf of Fortis Healthcare, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.