Fortis Healthcare Ltd
NSE:FORTIS
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Ladies and gentlemen, good day, and welcome to the Q4 and FY '22 Post Results Conference Call of Fortis Healthcare Limited. [Operator Instructions]
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, Richa. A very good morning and good afternoon, ladies and gentlemen, and welcome to Fortis Healthcare's Quarter 4 and FY '22 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. From SRL, Mr. Anand joins us as the CEO of SRL. And with him is Mangesh, the Chief Financial Officer of SRL. I'm also joined by my colleague or Gaurav over here. We will begin with some opening comments by Dr. Raghuvanshi, on the performance of the quarter and the year, followed by which Anand will take you through some key highlights of the diagnostics business. And then we shall open the floor for question and answers. Over to Dr. Raghuvanshi.
Thank you, Anurag. Good morning, and good afternoon, everyone, and thank you for taking time to join us for our Q4 financial year '22 earnings call. I hope all of you are in the aftermath of Omicron wave. We were all relatively fortunate that this time around, the wave was less severe and saw fewer hospitalizations allowing us to resume to normal in a shorter span of time. Nonetheless, cases are still being diagnosed, and hence, we should all continue to be careful.
Coming to the performance of the company, I shall comment on the year as a whole and then move to quarter 4. As you are aware, fiscal '22 was sort of a mixed bag with COVID impacting us in Q1 of the year. Despite this, we ensured business continuity and sustainability and quickly augmented our efforts to scale up operations once business normalized. This enabled us a healthy performance with a consolidated top line growth of 42% and an all-time high EBITDA of INR 1,000-plus crores. This is indeed heartening and reflects the efforts of all my colleagues, employees and clinicians to ensure that the company has clearly moved on from the challenges of the past.
Consolidated revenues for the company stood at INR 5,718 crores with profit after tax at a robust INR 790 crores versus a loss of INR 56 crore in financial year '21. Our hospital business revenue for the year has grown 37% to INR 4,264 crores, with margins improving 740 basis points to touch 15.8%. Our diagnostic business has been aided by COVID volumes and has recorded a robust growth of 55% in revenues to reach INR 1,605 crores in financial year '22. Margins in the business were at a robust 26.5% versus 19.3% in financial year '21. Just to put the diagnostic business in perspective, high COVID volumes are unlikely to continue in the current fiscal unless there is a second -- another wave, which is extremely unlikely.
Our balance sheet remains healthy with a net debt to EBITDA of 0.6x versus 1.04x over the corresponding previous year. We have reduced our debt by approximately INR 300 crores and have a net debt of INR 549 crores as of 31st March 2022. Our finance costs are lower by 12%, both as a result of debt reduction and lower rate of borrowing. In fact, in financial year '22 witnessed a rating upgrade by CRISIL for both our long-term and short-term borrowing programs. As I mentioned above, our Q4 performance was impacted by COVID though the first -- through the first half of the quarter. This being less severe and seeing lower hospitalizations, we were able to quickly recover towards the end of February and saw normal business in the month of March. While January witnessed a downturn with occupancy going down to 54%, the month of March, we saw the occupancy recovering to about 63%.
Overall, for the quarter, we were at 59% occupancy. We did better than the corresponding previous quarter on most parameters, but were lower when you compare the performance to the trailing quarter since this had negligible COVID revenues. We recorded a consolidated top line of INR 1,378 crores, a growth of 10% over Q4 of financial year '21, our EBITDA margins were better at 16.5% versus 16.3%, and our profit after tax also increased 40% to INR 87 crores for the quarter. Our hospital business revenues grew 6% with EBITDA margins at 13.8% while the Diagnostic business revenue grew 22%, with EBITDA margins marginally better than the corresponding previous quarter at 22.5%. I shall now share with you some qualitative aspects and operating metrics of both our businesses for financial year '22.
Firstly, the hospital business, I'm quite pleased with the way the business is evolving. Our occupancy in financial year '22 was 63% versus 55% in financial year '21 and ARPOB has increased 14% to reach INR 1.80 crores. We have grown our revenues from key focused specialties such as oncology, cardiac sciences, neurosciences, renal sciences, gastroenterology and orthopedics which contributed 55% to overall hospital revenue versus 53% in financial year '21. These have shown a robust 43% increase in revenue versus last year.
Most of our hospitals have done well in the fiscal. And what is also encouraging is the turnaround we are seeing in some of our underperforming facilities such as FEHI. We continue to invest in state-of-art medical equipment and infrastructure and expand beds in select facilities in our focused clusters. We have commissioned capital in neuronavigation systems, PET CTs, BMT units and the like in select facilities. Also supplementing them by onboarding reputed clinicians in order to significantly strengthen our clinical offering and medical programs. We remain focused both on revenue and cost levers to improve our profitability.
Leveraging digital channels such as mobile app, websites, our online campaigns, coupled with our sales and marketing effort on large payer mix segment should drive the top line. Cost has and continues to be a priority area as we look at optimizing both direct and indirect spends. We continue to evaluate our drug and consumable metrics, including substitution and consumption optimization. We have also largely in-housed our outpatient pharmacy business and radiology services in our facilities, which we believe would add incrementally to our margins. All in all, cost continues to be reviewed across expense lines, functions and facilities, and we remain cognizant of the criticality to our performance.
We continue that our portfolio rationalization program, aligning this with our focused cluster approach to grow both organically via brownfield expansion and inorganically in geographies of Delhi NCR, Maharashtra, Bangalore and Kolkata. This will not only help us analyze our resources more effectively, but also help us gain from economy of scale efficiencies and benefits of cross-leveraging clinical and nonclinical resources. Our plans to add 1,200 beds in the existing facilities over the next few years are well underway. Moving ahead, I expect that our hospital business will continue to grow steadily, led by the investments we have made and continue to make and with our efforts, both from a strategic and operational perspective.
Now on the diagnostic business, I shall be brief in my comments on this as Anand shall take you through in detail. SRL has significant turnaround aided both by the higher volumes of COVID tests in Q1 and Q4 of financial year '22. And its acquisition of DDRC SRL joint venture in April 2021. SRL conducted a total of 44.2 million tests in financial year '22 versus 23.5 million in financial year '21. More importantly, SRL in financial year '22 has significantly strengthened its channel mix with the B2C versus B2B component at 55 versus 45. It has aggressively expanded its network, adding close to 750 net customer touch points and 400 direct clients in financial year '22, the highest ever annual addition so far.
While this business has done exceedingly well in the last fiscal, it would also be important to highlight the current market environment where we are witnessing an increasing level of competition from new incumbents, both online and offline. In addition, we also do not expect the high COVID test volumes seen in financial year '22 to witness the same trend in the current fiscal. This could result in short-term abrasions, but I do believe that given SRL's size, scale and spread, we should be able to mitigate this as best possible. I'll let Anand speak more on this in his comments.
As I sum up, I believe financial year '22 has made us more resilient and adaptable in our business, we have emerged much stronger in the aftermath of COVID and have the building blocks in place to maintain our growth momentum. All this, of course, begins within our framework and pursue of excellence in patient care and clinical outcomes. These have and will be continue to drive our performance in the future for all stakeholders. Thank you once again, and please stay safe and well. I should now hand over to Anand for his thoughts on SRL. Thank you.
Thank you, Dr. Raghuvanshi and a very good morning to everyone on the call. Personally, I hope that you are all safe and keeping well. On behalf of SRL Diagnostics, I warmly welcome you all to our Q4 FY 2022 results conference call. Firstly, I would like to thank you for your confidence and trust in SRL Diagnostics. I am pleased to report that we have ended the year in a strong position. This is a testament to the commitment and perseverance exhibited by our teams across the country. It has been reassuring to note that SRL's ability to consistently deliver high standard diagnostic reports has once again been on display during the pandemic.
Our 7,000 members strong SRL family takes immune satisfaction in having delivered the absolute best to the citizens amidst the most challenging circumstances. The diagnostics industry has come a long way since the pandemic. It was first announced in the country in March 2020, with growing awareness on importance of laboratory testing and reliable reports, coupled with an increasing health consciousness among the young population, we are witnessing an uptick in our preventive packages as well as non-COVID testings, growing diseases categories and specialized portfolio. Our numbers reflect this as we registered the highest ever non-COVID revenue in March 2022 and our non-COVID revenue in Q4 2022 has grown by 24% when compared to Q4 of '21.
At the beginning of the fiscal year, we envisaged a full recovery of non-COVID testing by end of FY '22, and we are pleased to confirm that Q4 '22 has been promising on this front. In Q4 '22, the first 6 weeks were affected by the omicron wave of the Pandemic, which had an impact on revenues, while there was a corresponding surge in COVID testing. The non-COVID revenues recovered significantly by March 2022. During the quarter, we reported revenue of INR 332 crores compared to INR 306 crores in Q4 '21, a growth of 22%. The company EBITDA for the quarter stood at INR 84 crores, representing a margin of 22.5% compared to 22% margin reported in Q4 of '21.
SRL conducted 10 million-plus tests in Q4 '22 and serviced over 5 million patients. SRL added 270 net new collection centers to its network in Q4 of FY '22, taking the total number of touch points to 2,502. SRL's B2C, B2B revenue mix strengthened to 54:46 in the quarter compared to 49:51 in Q4 of FY '21. SRL continues to witness a healthy traction in its walk-in patients' revenue, which grew by 77% in Q4 FY '22 versus Q4 of FY '21. For the financial year, '21-'22 SRL reported net revenues of INR 1,605 crores compared to INR 1,035 crores reported during the financial year '21, a growth of 55%. The company operating EBITDA for the year stood at INR 425 crores, representing a margin of 26.5% compared to a margin of 19.3% reported during the previous financial year.
The business served a total of over 21 million patients during the year compared to 11 million during FY '21. We completed 44 million tests during the year compared to 23 million tests performed in FY '21. SRL has been aggressively expanding its network and have added over 750 customer touchpoints in FY '22. We are now present in 28 states and 8 union territories and across 6,000-plus cities. The B2C, B2B revenue mix for the year was at 55% to 45% compared to 48:52 in FY '21. The business continued to have a well-diversified geographical mix with no overdependence on any particular region, allowing it to capitalize on a Pan-India network optimally. Regional Q4 '22 revenue contributions were 30% from the North and Central India, 23% from West, 29% from South, 13% from East and 5% from international territories.
Digital has been one of our priority areas in FY '22. Our app install numbers have grown by 8.9 lakhs in FY '22 on our website is visited 2 million times each quarter. Our digital revenues doubled in FY '22 compared to FY '21. As part of the digital drive, we are also collaborating with online platforms to reach out to new customers. We have taken a slew of measures to improve our customer experience. From live phlebotomist tracking to introducing smart health reports and being available on demand on messaging platforms like WhatsApp, we are continually taking steps to offer the best in customer service.
The WhatsApp that bot especially enables customers now to book tests, get a status on the report, get reports delivered securely, inquire on tests and also search for nearest centers. Our goal always has been to launch diagnostic solutions that not only meet the challenges of today, but also anticipates future needs. We have added close to 100 tests to our test menu this year with a special focus on genomics in the field of cancer, reproductive disorders, rare diseases and inherited disorders.
Our workforce of over 7,000-plus employees across our network are the pillars of our strength. Training continues to remain one of the company's key focus areas. In the last few years, SRL has progressed to bring many tailor-made competency enhancement programs. In FY '21, '22 the company clocked approximately 5,000 mandates of learning and development programs. I am proud of what we have achieved and optimistic about what we can accomplish in FY '22.
I would just like to once again thank all my colleagues at SRL Diagnostics for an incredible effort. We are committed to improve customer experience through data-driven actionable insights and by enabling a convenient one-stop-shop for all our customers' diagnostic needs. We are well positioned to continue our momentum in delivering profitable and sustainable growth in the coming years. Thank you very much for your attention. I would like to hand over the call now to Mr. Anurag Kalra, our Head of Investor Relations.
Thank you. Thank you, Anand. Ladies and gentlemen, we shall now open the floor for question-answers. Moderator, if I can request you please.
[Operator Instructions] We take the first question from the line of Shyam Srinivasan from Goldman Sachs.
First one is on the hospital business. So you said, I think, March, we have reached 60% plus occupancy, if I recollect the number, right? So just, Dr. Ashutosh, just the outlook for fiscal '23 in terms of where utilizations can actually improve maybe you can make an assumption that there is no -- like you said, no subsequent COVID wave. So how should we look at hospital occupancy we have had about for the full year growth, but I think fourth quarter was 6%. So just want to understand occupancy plus what is the revenue growth outlook for the hospital business? I also noticed that the ARPOB is whatever, right, 1.88% for the quarter. And this quarter, I believe there is no COVID, I think 5%, 6% occupancy only for COVID. So what are some of the drivers, if I work the other way around per day? I think we have reached an INR 50,000 ARPOB per day. So just want to understand the dynamics on ARPOB and utilization. And how that will drive revenue growth for next -- for fiscal '23? That's my first question.
Sure, sure. Shyam, the -- as far as the occupancy levels are concerned, we are currently tracking at about 65% and more in some hospitals. So we should aim to go towards 70% by the end of this year. This -- it may happen in the next quarter itself because we are seeing a recovery happening on the international segment as well. But certainly, that is the target, which we are working towards. As far as ARPOB is concerned and the factors which influence that, was essentially a larger mix of the operating -- I mean, the procedural cases and complex cases, which have higher yield. We have had some marginal benefit happening from some of the rate revisions in GIPSA category. But other than that there aren't any rate correction. So this ARPOB is quite sustainable in our view. Though with the little bit of case mix change happening towards medical patients, it may get moderated a little bit downwards, but it is likely to sustain at this level. What was the other part of the question?
Just the outlook -- revenue outlook for fiscal '22?
If I can take Shyam-ji's question, Vivek here, so the revenue as Dr. Raghuvanshi has mentioned, we are hovering around 65% occupancy, and this is resulting to the increase in the revenue side also. So last -- so definitely from the last quarter, means quarter 4 of the last financial year, we are targeting around 10% growth in the revenue.
Okay. So Vivek 10% growth in revenue. Let me be greedy. So can you also share margin guidance for fiscal '23 for the hospital business?
Yes. So if you see our previous quarter, means last quarter was affected because of Omicron. Previous quarter, we were able to achieve margins of 16% plus. So we are targeting that same number this quarter also.
Sorry, Vivek, I missed that, can you repeat that last line?
16% I said, we have achieved 16% pre-COVID previous wave.
In the third quarter, Shyam, our EBITDA was about 16% plus. And we expect to remain at that level or go higher than that.
Okay. And the long-term guidance of us reaching 18% to 20%, is that over a 2 year that we think we can reach there?
Yes, that remains, Shyam, that remains. We are targeting that, and we are moving quite okay on those targets.
I'll not hog more questions. Last one on diagnostics. Just Anand, just on the non-COVID revenues, INR 305 crores for the quarter, but I know you've not called out the DDRC number in that. It used to do INR 50 crores, INR 60 crores per quarter. If I strip that out, it's declined non-COVID revenues. So just your outlook around non-COVID revenues, I think Dr. Ashutosh called out that this year, 18% of revenues will be at risk, given that there is no wave so far. So how should we look at growth for diagnostics?
So the non-COVID revenues, Shyam, it's almost similar to the Q4 of '21. If you look at like-to-like kind of a thing. So if you remove DDRC. So including DDRC, then you are seeing this growth of about 24%. But excluding DDRC, you will ice that it's almost like-for-like. So there is no dip.
Yes, thanks for that data point, but the outlook Anand just for fiscal '23?
The outlook would be that we have to understand that we have about this year, I mean FY '22 revenues, we have about 20% of the revenue coming from COVID tests. And considering that in this year, we have also had a lot of COVID allied tests also happening especially during the Q1 of FY '21 -- I mean FY '22. So it will have a significant impact on going forward in terms of overall revenue contribution for this year. So what we see is a healthy growth in non-COVID revenues. But if you see on overall revenues, they will tend to remain in the same range. And the growth may not be very significant on the overall basis.
We take the next question from the line of Mr. Praveen Sahay from Edelweiss. [Operator Instructions]
So the first question, just a clarification on the diagnostics, non-COVID revenue have some allied tests also related to COVID and which will be not there. So we will see there is some dip in the non-COVID or some permanent revenue because of the dip?
No, I didn't get the last part of your question.
So sir, for '23, as you had mentioned that in '22, there is a COVID testing as well as some COVID allied test happened. So in the '23, definitely what the non-COVID revenue we had reported for '22, we will see some dip in that because of that?
See, currently, we have reported INR 1,605 crores of revenue in FY '22, out of which 20% is for COVID and there is about 4% or 5% contribution from non -- I mean, COVID allied tests actually to this. So overall, you can say about 25% is coming from COVID. And this year, we expect that the COVID contribution will range from somewhere around 3% to 4% or 4% to 5% kind of a range. So if you take that, so the revenue is very similar or around those range of what we have this year in FY '22 numbers similar for FY '23 number.
Okay, great. Yes. Helpful. The next question is, as you had mentioned about the guidance related to the hospital business of 10%, but you are also expecting your occupancy level to reach to around 70%. Is it what you had said? So with this...
Sorry, not on the next quarter if I can answer that. Occupancy level what Dr. Raghuvanshi was mentioning by the year-end.
Okay. So this 65% by year-end reach to 70%?
Yes.
And one on this ARPOB that as you have reached to the some specialized testing contribution to around 55%, is there any further room for improvement from clinical mix?
Yes, there is room. But at the same time, it also depends on the specialty mix, which we are doing. So sometimes, some of the specialty, the ARPOB is higher, but margin may not be that higher, for example, oncology. So -- and transplant, yes. And so from that angle, that this ARPOB increase is sustainable, more or less because one important thing we could have achieved in last year is the payer mix. We are being able to shift towards TPA and cash business and which we expect to grow further. And that will help to improve the ARPOB further. And plus the international business coming back, that will also help in improving the ARPOB. So overall, we are confident that we will be able to achieve this type of number in ARPOB side.
Okay. And how much is currently the international overall mix has moved and what you are expecting to go further?
Yes, it is around 7% right now. And our expectation is to move it toward 12%.
Okay, okay, okay. And any color on the operational beds? Is there any chances to increase the operational beds from the current level?
Yes, definitely because in the current financial year, we are expecting to increase our operational background to 50 beds, okay? But there is one contract where we have come out, Dehradun. So there will be a reduction of bed by 50. So there is overall around 200 beds increase should be there by the year.
Okay. So around 200 bed in the operating bed improvement we will see by FY '23?
You are right.
We take the next question from the line of Sarvesh Gupta from Maximal Capital.
Sir, 2 questions. So one on the -- pertaining to the previous participant's question also. I think the plans for the increase in the hospital beds have been really sort of tepid. So from maybe not this year, but from a 3-year's perspective, what is the plan for Fortis in terms of the increasing the number of facilities or number of beds from where we are? Because earlier, we were of the assumption that there's a lot of brownfield capacity, which can be undertaken within the overall system, which will cause a good increase in the number of beds. But we are just talking about 200, 300 beds, which is really low compared to the size of operations that we run. So that is number one. Second is on the operating margins. Now again, the company has been run under the new management for a while now. And -- but we are still very much behind despite a very high ARPOB numbers, we are still very much behind some of our peers in terms of where we have been able to reach in terms of EBITDA margins. So are there levers that you see, which are still present for catching up with some of the other peers? Or are there any problems structural in our business model, which is causing us to be at a distance compared to our peers in terms of the margins? So these are my 2 questions.
Yes. Sure. So first of all, on the expansion side, we are well on our plan for expansion, which is the guidance we have given earlier. And on the execution side, we are on the top of it. Last year also were able to achieve 120 beds. And current year, there will a plan to increase another 250 beds. The bed which we are seeing, which will be shut down is not nonprofit-making thing in Dehradun and which we plan to exit and we exited. And having said that, the 1,300 to 1,500 brownfield bed expansions is online. Out of this 500, 600 beds is the ramp-up of the existing facilities that we will be doing means the bed capacity we , but we have not operationalized the bed because of the -- we are opening up the bed as per the market condition. And balance is now sort of brownfield, but there, we are building a new tower, where approvals and structures and everything needs to be designed and need to sync with the existing operations of the hospital. And as a result, initially, it takes some time. And once it is designed properly and then the execution may not take much time. So the dining part will be very critical part here because overall hospitals need to be taken care of. So from that angle, it was planned like this also, and we are well on target on that. .
As regard to your other question on margins. So margins we tend to not compare ourselves with others first of all. And because all business models are different, they are operating in different geographies and the business dynamic and the company dynamics are different. For example, in our case, as I mentioned in several calls, we are having some legacy costs still coming on because of this ongoing legal battle we are having because of the fraud conducted on this entity by [ Emquore ] [indiscernible]. And secondly, there are certain new hospitals like the Arcot Road have started new and which is at the stabilization phase. And initially, those -- this hospital is incurring loss. And there are 3, 4 hospitals, which we have highlighted earlier also, which are on the revival path. And we are making very good progress. Earlier these hospitals were in EBITDA negative, and we have now moved to the almost double-digit EBITDA number on these hospitals. And there is a scope for going forward. But it is very well process will not happen immediately. Most of our hospital, operating hospitals are at 20%-plus EBITDA margin. That is quite assuring which will be compared with the other industry players.
Sir, so on the first question, if we are at around 3,500 right now, what is the target to reach, let's say, from a 3-year's perspective? And on the second question, again, the same thing. If we are talking about achieving 16-odd percent next year, where do we want to reach in the next 2, 3 years?
Yes. So we right now have [Technical Difficulty] bed actually and we are targeting to reach it to, as I said, in next 5 years to 1,500 beds and probably next 3 years to 4,000 -- 5,000 beds.
Okay. And on margins?
And margin side, as I mentioned earlier, from 16% in next 2 years, if you're asking, we will be reaching around 18% and if you're talking about 5 years, we will be about 20%.
Understood, sir. Sir, any update on the legal case, if you can provide us any update on that case which is going on?
Yes. So we haven't received the verdict on the Supreme Court case. Currently, again, the court has gone in recess. We expect that after this, it should come because more than a year has passed. We will certainly be making a mention in the bench once the court is back from its recess.
We take the next question from the line of Ranvir Singh from Sunidhi Securities.
The question was related to for this FY '22, how much operational bed we have increased?
120 beds.
And at which location?
So it is in -- one is in Shalimar Bagh and others in Arcot Road we have [indiscernible] and little bit like in Ludhiana, we have operationalized that, Jaipur we have operationalized that. So as I mentioned earlier, we have around 600 beds in our system, which are ready to be operationalized but we are operationalizing depending on the market conditions. Occupancy level of those hospitals and things like that.
No. Hospitals at Chennai, that [ Noida ] planning, that was 250-bedded hospital was supposed to get consolidated. So that has been consolidated now?
Yes, that has been operationalized, but we are operationalized -- the 250 beds, we have not opened immediately. So we are operationalizing as this hospital is ramping up the bed occupancy level so right now, around 75 beds are operationalized.
So contribution of 75 beds are there in Q4 numbers, right?
You are right. It is -- EBITDA side is still negative. That is what I was telling in the earlier question.
Okay. Okay, fine. And so going forward, what we are guiding 200 beds roughly to be added in '23. That is related to Dehradun. So in addition to that, the part of that 600 beds which is lying to be operationalized, so that will also come up in a system, right?
Yes, yes. .
So any idea of what would be the total operational bed by end of '23, including this out of the existing bed which is getting -- going to be operationalized.
Around 4,200 beds.
Okay. And secondly, that litigation related to that Emquore so what is your status there that has showed the promoter for challenging acquisition. So what is the status there? And what is your stand?
See that is a litigation somebody has filed outside India. And our legal counsel has presented that. So it is -- the claims had no merits because the matter is outstanding. In fact, we have filed a case against that entity in Delhi High Court. So we have a very strong case, and we feel there is no merit in that litigation.
Okay. Okay. And earlier, the SEBI had disposed of that case against a statutory auditor. So any part of litigation is bearing to promoters of Fortis also?
Yes. So you are talking about the SEBI investigation in order after that?
Yes, yes, yes.
Yes. So SEBI has come out with its final order actually, and they have imposed penalties on ex-promoter and their entity and they have also post penalty on Fortis and 2 of its subsidiary, FHL and Escorts. The total penalty amount is INR 2 crores.
INR 2.5 crores.
INR 2.5 crores. And the main thing SEBI have mentioned in this order. The main thing is because there was a sort of misrepresentation in the account in the -- during that period when promoter was controlling this entity, and we have used this -- they have understood that they have used this entity for their benefit. But as a separate legal entity because company was used to -- for this fraud. And the accounts of the company was not -- was giving misleading presentation in the form of not showing the related party transaction and things like that. So they have imposed this penalty. But we are planning to maybe litigate this. We are evaluating the legal course of action. In [indiscernible] penalty we will be litigating that.
Now so litigation will continue from Fortis side on this issue or this issue has been resolved now?
So the penalty amount had been -- is sort of fixed now INR 2.5 crores. So we are litigating that there should be any penalty because we are the return of the case and to the company and the management, there is new management, new promoter, new shareholders. So why the new shareholders should be punished. So [indiscernible] shareholder we are fighting this case.
Okay. Okay. And just a clarity here because the case -- one case was related to improper payment to erstwhile promoter. So that statutory auditor -- the investigation and the statutory auditors was related to that payment or this is a separate set of litigation?
Yes, this is the same thing. So actually, the statutory auditor has received to sign the account in 2017 and post that the SEBI thing has started. And then new directors have been appointed by the shareholders, they have done a thorough investigations and based on the investigations and the finding of E&Y and Luthra & Luthra Company, we have filed the criminal complaint also against the ex-promotors and their entity, and we have filed a civil suit also. So that recovery proceeding is going on.
So it is -- litigation is from company towards -- against erstwhile promotor, right?
Yes. Erstwhile promoter and their entities.
Sir, there are no further questions. [Operator Instructions] We take the next question from the line of Saion Mukherjee from Nomura.
Sir, the one question I was thinking what kind of cost pressures in general you're seeing for both your hospital and diagnostic business? And are you in a position to pass that and net-net, these inflationary pressures? Is it like a positive, negative or neutral for both the businesses?
So in general, there is a cost pressure because of the inflation and as we see the inflation is going up and so is the daily wages and other costs, transportation costs also, and for the extension, we -- some of our equipments are imported. So the import -- because the repeat upgradation that cost is also going up. So we are able to absorb some of these costs through price increase and the mix increase in the ARPOB, as I mentioned in going towards higher payers. But having said that, we feel this pressure will continue going forward also. And we have to figure out a way how to absorb this cost.
So you would say at the margin, this is negative for both the businesses?
When I was giving the guidance, I have taken care of this inflationary thing. And that is the reason I was not very bullish about the margins when the other interments was [ speaking ].
Yes, yes. And sir, you mentioned about the diagnostic industry with the new entrants coming setting up some large targets. What is your view about the industry's competitive dynamics, and how is SRL planning to respond to that? And if you could just take us through you have done some significant expansion in touch points, et cetera. So how should we think about, let's say, organic expansion of touch points, labs or even acquisition. Anything that you want to share from a strategic perspective, given that the segment is seeing, I think, a lot of -- there's a lot of changes it seems is happening here.
Thank you. So actually, we -- as we all know, is a full service laboratory. So we operate across all segments. So we do -- we have collection centers. We have home collection. We have digital networks for reaching out. And we also have hospitals labs [ instruments ] we operate. So I think to expand across these segments, we have been aggressively working on improving our network expansion strategies across geographies. So that is why about the last 6 months, if you see every month, we have been adding close to 100 customer touch points to our network. So apart from that, we are also working on how we can improve our relationships with hospitals and smaller labs.
We are working on hospitals stand-alone lab management projects also to expand in that space. While at the same time, we also revamp and improve our capabilities on the digital front, so that we can give a complete digital experience for our customers. So that thing is also going on. In the panel, we also work with the digital aggregators, aggregators who operate in the preventive space. So basically, the aggregators work mostly in the direct-to-consumer segment, which means there on those steps where the patients or the consumers take decisions by themselves. So on those tests, based on their requirements, these aggregators tie up with labs like us. We provide the back-end services for them just testing services. So these are the various activities that we do in which we expand across all these segments. Apart from this, we are still evaluating options for inorganic expansion as well across the geographies that we work in. So we are evaluating some opportunities, and we'll be working on them.
And sir, on the pricing front, our prices coming down, what are you seeing on ground? Because we see a lot of competitive offers by new entrants so are we set for a lower price, higher volume kind of a business? How should we think about what is your assessment as to where the margins are headed for this business over the next 2, 3 years?
So this business, as we have seen over the last so many years is largely driven by doctors and their prescriptions. So almost, you can say about 60% to 70% of our work is driven by doctors. So the direct-to-consumer segment, as I discussed earlier as well, works mostly in the wellness category. And that too, the wellness sort of budget wellness, as you can say, because the price points are much lesser and where patients take decisions for themselves. And in some of the chronic segments where patients do testing by themselves like things like related to diabetes. So only those segments patients would be very price conscious, and there would be opportunities for price reduction and what we have also realized that these price offers are limited for a period of time, and they are very geography specific.
So even when we launch new labs into new territories, we also make offers, bundled offers to our customers so that it encourages them to experience our services. So the laboratory service is not something that we are going to think about every day. So no amount of prodding is going to make you go and do a test even if I operate 3. So unless there is a specific requirement -- so -- and this requirement today is largely driven by doctors. And the acute and chronic portfolio of PC is much higher even today for SRL, the preventive wellness, only of our total revenue. So -- and if you take it that way, there is a huge area of acute and chronic diseases, which are our primary markets, which will continue and which will continue to thrive in the way it is doing now.
Okay. So this 22%, 23% margin you think is sort of sustainable? I mean, given your business model and plans that you have?
Yes, around that rate.
Okay. And then just one question I had. I remember initially when IHH came in, there was this thought of using the SRL platform for test volumes, international test volumes using the IHH network. Is there any plans on that front? Is that something given all the infrastructure that you have to sort of utilize it better?
Yes, I think we are evaluating all options. So we were making plans for that. We are discussing on that.
Okay. And sir, can you just share the CapEx number that we should factor in for FY '23 and '24?
So FY '23, we are targeting around INR 400 crores CapEx, which include maintenance and growth CapEx. So you can look at 50%, 50% for both.
[Operator Instructions] The next question is from the line of Mr. Nitin Agarwal from DAM Capital.
My question is regarding the hospital profitability metrics that you've shared. In this, we have about 10 hospitals, which are in the lesser 50% range. In fact, 8 of them are below the 10% EBITDA margin range. And that's a reasonable chunk of our operational beds as well as revenues. I mean when you look through the next year or so, where do you see some of these numbers really moving in terms of how many of these 10 hospitals are we actually seeing getting into the -- at least in the 15%, 20% bracket range? And are there any specific hospitals where these kind of improvements look a lot more difficult than the other?
I think we are working on this tier and there are 4, 5 hospitals, which may remain in this category still because of the problem these hospitals are having, for example, the hospital in Chennai, it is having its own problem relating to infrastructure and of market-related challenge there. So we are not expecting it to be revived. But some of the hospital like right now, there is a one, he's there, he and Jaipur is there. So both the hospital are showing a very good sign, and we expect this to move if not in the current year, maybe next year to the double-digit margin type of things. EBITDA margin.
Sir, since you mentioned there are about 4 or 5 hospitals, which seem to be struggling. Is there any thought to have -- I mean, to look at any sort of structure strategic options for these hospitals? Or they will continue to be part of our network despite these challenges?
We are evaluating all.
Nitin, of course, there is -- has to be adequate and fair effort to turn around the problem assets. But if that is not to be, then, obviously, the rationalization is something which we are very open to and we would take those decisions at the right time, and we are evaluating what we -- how to go about it.
We take the next question from the line of Neha Manpuria from Bank of America.
Yes, my questions have been answered.
We take the next question from the line of Pranav Tendulkar from Rare Enterprises.
Sir, currently, we have, if I just Currently, we have around 3,900 beds. Is that right?
Yes, around 4,000 beds.
Right, right. So total brownfield and greenfield expansion. So as you said, that greenfield will be expanded by 200 beds and then there will be a brownfield addition. Am I right or I heard it wrong?
No, not really. So we are having only a brownfield expansion program, not any greenfield right now.
Okay. So that is 200 beds for next year.
There is one O&M project, which we are going to commission in this year, but that is the beds we don't count.
Right. All right. Sir, have you benchmarked on a hospital facility-wise surrounding hospitals in the city or the vicinity? And are there any key takeaways from that? Like like-to-like basis, if you see, and if you just remove the expenses from the corporate case and legal expenses, et cetera. Have you benchmarked existing portfolio vis-a-vis comparable facilities around?
Yes, we do that exercise on a regular basis at the hospital level and benchmark the competition also. And as I mentioned in my earlier comments, most of the facilities we are quite competitive when we compare ourselves with our competition. And there are very few hospitals, which are coming in the last thing, which we have deferred the last question, 4, 5 -- there are some other structural problems may be cost related, maybe infrastructure maybe market related that is the only place where we are selling. But most of the places we are doing quite okay when we compare our competition?
Right. All right, sir. what is the strategy of greenfield expansion? Like how would you select various cities or localities, can you just highlight some parameters on selecting the same?
Yes. So greenfield is not a preferred way of expanding for us. That's last option. The only situation or circumstances in which we would choose greenfield would be that if there is a cluster where there is a very potential future side, if I have to give an example, for example, the North Bangalore area, it has less hospitals. So that would be one area where we could consider a greenfield hospital. So it has to be a growth area. It has to be an area where the greenfield properties are available and then only we will consider. Otherwise, it will have to be a brownfield or inorganic model only.
We take the next question from the line of Mr. Kunal from Edelweiss.
So most of my questions are answered. But just one question. Sir, fair look at peers have very strong balance sheets now. And you have also seen -- we have seen a lot of improvement in your balance sheet also. Are there enough acquisition opportunities available? Or do we sort of run the risk of you overpaying for it? Or if you acquire hospitals that are maybe not most efficiently run and there is a pressure on your margins going ahead. How should we look at things?
Yes. So obviously, any asset we evaluate, we would look at of synergy and improving the performance from the base level, whatever is there today. That is of prime concern. And though we are looking for expansion, but we would definitely be very mindful of how these valuations are sitting. So if there is an extremely competitive kind of situation where people are maybe willing to pay unreasonably high amount for the asset. We would not be in that again, but definitely, there are many assets which will become available for us, what is the most important criteria is, first, as I said, that we should be able to synergize it with our existing network which means that it has to be in the main geographic clusters, which we have identified namely the NCR region, Punjab and Mumbai and larger metropolitan region and Maharashtra then we would look at Bangalore and Kolkata where we have presence. So within these clusters, if there are opportunities where we can derive synergies on our human resources and all other systems, there only we will prefer to go.
Sure, sir. And just maybe just part in my clearance here. I see that 21% of our revenues have come from digital of your hospital revenues. So what constitutes digital revenue there? Is it mainly outpatient? Or what exactly is it pharmacy revenues? Or what exactly is it?
No. The digital revenues, digital channel patients could come for procedures. They could come for ambitions et cetera. That is just we look at digital as only a channel of patient flow. So yes, there are outpatient consultations, there are but we don't have any pharmacy supplies or anything like that. if they are coming to the hospital and they are using our pharmacy, that revenue may be getting counted here as well. but it is essentially the inpatient as well as outpatient revenue put together on the patients which are acquired through the digital travel it's in the CRM, it is separated out as to which channels the patients are coming from. And those who access us through the website or the app or external apps, those as the key here.
Sure, sir. And just one last one. It's been, I think, 2 months since the government has allowed all international fights in India. So where would you be now versus pre-COVID levels as far as medical tourism goes?
Yes. So we have almost recovered to about 70%, 80% of pre COVID levels in terms of international patients. We expect that to recover complete to complete 10% level, which was pre-COVID, and then go back -- go ahead of that and settle somewhere around 12% to 13% of our total revenues. Before pandemic, we used to have about 10% of our revenues coming from.
We take the next question from the line of Amit Khetan from Laburnum Capital.
Just one question on diagnostics. You mentioned about collaborating with the online aggregators. Could you shed some light on what is the difference in the margin profile on the business that you see from these digital aggregators versus your normal business?
Thanks. So we treat such opportunities similar to how we handle our regular B2B clients. So they will be similar to that the way we handle other B2B clients.
Got it. So these will also come in the 22%, 23% kind of range?
It's overall, it is visible yes.
Sorry, what?
Overall, it will be similar to our B2B customers, so it will not be out of range.
Got it. Got it. And you had earlier guided for, I think, for the last few quarters around 23%, 25% kind of a range for the Diagnostics business, would you stand by that guidance right now? Would you like to revise that in the light of competition?
I think in the last year and also during our previous calls, we have guided around 20% to 23%. So we will remain in that range.
We take the next question from the line of Varun Khandelwal from Bullero Capital. [Operator Instructions]
Afternoon, everyone. One quick question. To what extent does the impending Supreme Court judgment have a bearing on existing expansion plan or fundraising plans? And also, is there any -- are there any thoughts on what the open of a price is likely to be going to remain at $170 million? Or would the -- would IHH be compelled to revise it higher? Would you have any clarity on that?
Yes. So the supreme court thing is definitely had a hearing on our funding ability. Having said that, we're able to raise attract a quality bank and our rating, as mentioned by Dr. Raghuvanshi, the beginning has also upgraded. We are now engineering in sorter and AA rating AA minus rating in the long term. We expect that based on the rating is the further scope to go up and we may -- with that and this embargo Supreme Court going away will help in attracting some more quality bank and that will ultimately help us into using the cost. Having said that, our requirement is not much for funding for this compile extension. And the capital is quite strong. And with those cash flow and the support from the existing bank, we'll be able to manage all this cash flow. Regarding your second question, pricing, this is to be debated by IHH, and we are not supposed to be having any news about this.
Right. Just one more follow-up question. So for some of the existing facilities, I believe there is more space available as per the ratios of applicable to those areas. I think for plasma will now have some room for potentially regional -- has the -- has that -- is that still the case? Or have you already expanded and consume that recap those potential beds that could have been?
Yes, whenever we are doing the brownfield expansion, we are keeping the existing available FSI and trying to optimize the asset to the extent possible. So all the brownfield is taking in view this FSI.
We take the next question from the line of Mr. Tushar M. from Motilal Oswal Financial Services.
Just on Diagnostics side, given that the online guys are coming up with a significantly lower prices and at the same time, there is a good amount of traction on -- in terms of better service to the customers. Is that putting a question mark in terms of having like physical front-end presence as a business model?
Thanks, Tushar. In fact, you have seen my presentation, I mean the investor this thing which are saying. So we are actually grown on the walking front significantly compared to the previous quarter. So walking into the centers are so significantly improving. While home collection will also continue and digital will be primarily driven through home collection. But otherwise, walk-ins will continue. So -- and they will have a very good impact because the last mile connectivity is provided by these centers, and so these centers will have a very key role in the overall growth of the company.
Got it. So volume-wise, probably there's not too much of a difference, but at the pricing level?
At the pricing level also, there is no difference.
Okay. And secondly on this, while these online guys are also kind of trying to build up their own diagnostics lab, of course, the network is currently not so strong as the existing company like you -- but eventually, even they are also kind of building it. So why would anyone kind of tie up with SRL diagnostics? Going forward, not in the immediate term, but as a long-term.
Tushar, the kind of test menu that large labs like us have, which is in the range of 4,000 plus. It is not comparable and it has been a long period of time. we have been in existence for 26 years now, and it has been built over a launch period of a long period of time. And we have large laboratories across the country. So replicating this infrastructure is not possible in the short term. So that is going to be a very important factor. So these kind of focus to digital marketing will happen more on the routine tests, which are more self-drive. So it will not be more of a doctor driven. So for those tests, you will require a larger infrastructure, which you will have to build across different parts of the country to serve and compete and provide services as per the TAT requirements of those customers in those areas.
As there are no further questions, I now hand the conference over to the management for the closing comments.
Thanks, Richa. Thank you, ladies and gentlemen, for taking the time to be with us on the call today. If there are any follow-up queries or questions, please feel free to reach out to Gaurav and myself. We'll be more than happy to address those. Thank you once 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.