Fortis Healthcare Ltd
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Good day, and welcome to the Q4 FY '23 and FY '23 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, [ Vico ] Very good morning and good afternoon, ladies and gentlemen, and welcome to Fortis Healthcare's Quarter 4 FY '23 and FY '23 Results Call. We have on the call today, Dr. Ashutosh Raghuvanshi, our Managing Director and CEO. With him, we have Mr. Vivek Goyal, the Chief Financial Officer of Fortis. From SRL, we have Mr. Anand, the CEO of SRL; and with him is Mangesh Shirodkar, the Chief Financial Officer of SRL.
We will start the presentation by some opening comments by Dr. Raghuvanshi, followed by some highlights of the operational diagnostics business that Anand will take you through, and then we can open the floor for question and answers. I do hope all of you have got a chance to look at our investor presentation and press release. I just wanted to also state that the discussion today will be subject to the forward-looking disclaimers that we have as we mentioned in both the press release and the presentation.
With that, I hand over to Dr. Ashutosh Raghuvanshi.
Thank you, Anurag. A very good morning and good afternoon, everyone. Thank you for taking time to join us on our Q4 financial year '23 earnings call. I hope all of you are doing well.
Before I dwell into quarter 4 and the full financial year results, I'm pleased to inform you that our Board has recommended a maiden dividend of INR 1 per share, 10% of face value subject to the approval of shareholders. This signifies the transformational journey that the company has undergone in the last few years. And as a result, the healthy operational and financial performance that we have witnessed in our business.
Coming to the performance of the company, I shall comment on the year as a whole and then move on to quarter 4. For the financial year 2023, consolidated revenues for the company stood at INR 6,298 crores compared to INR 5,718 crores in financial year '22, a growth of 10%.
Our hospital business revenues for the year has grown 19.8% to INR 5,107 crores from INR 4,264 crores in financial year '22. Our diagnostic business has witnessed a muted performance with a significant decline in COVID volumes. Revenue for the diagnostic business recorded a decline of 16% to reach INR 1,347 crores in financial year '23.
Our consolidated EBITDA stood at INR 1,163 crores compared to INR 1,096 crores in financial year '22. This translates into a margin of 18.5% in financial year '23 versus 19.2% in financial year '22. Our hospital business margin have strengthened from 15.8% in financial year '22 to 18.1% in financial year '23, clocking an EBITDA of INR 922 crores. However, margins in the diagnostic business were at 19.5% versus 26.5% in financial year '22, a drop of almost 700 basis points, impacting our overall consolidated margins.
Consolidated profit before tax before exceptional items was INR 740 crores compared to INR 673 crores in financial year '22, largely contributed by the performance of the hospital business. Consolidated profit after tax before exceptional items stood at INR 559 crores versus INR 475 crores in financial year '22, a growth of 18%. On the quarterly performance, we recorded a consolidated top line of INR 1,643 crores in quarter 4, a growth of 19.2%. The hospital business revenue grew a robust 29.7% to INR 1,331 crores compared to INR 1,041 crores. While the diagnostic business revenue declined 10.8% to INR 332 crores in quarter 4 of financial year '23. Our consolidated EBITDA was at INR 285 crores versus INR 227 crores in quarter 4 of financial year '22, translating into margin of 17.3% versus 16.5% in financial year '22.
EBITDA for the hospital business stood at INR 230 crores compared to INR 144 crores in quarter 4 of financial year '22 with EBITDA margins at 17% versus 13.8% in quarter 4 of financial year '22. EBITDA for the diagnostic business stood at INR 55 crores compared to INR 84 crores with margins at 16.5% versus 22.5% in quarter 4 of financial year '22, primarily due to the fall in COVID volumes. Consolidated PBT before exceptional items was INR 173 crores in quarter 4 of financial year '23, an increase of 37% compared to quarter 4 of financial year '22. Our profit after tax before exceptional item is increased 47% to INR 128 crores in quarter 4 of financial year '23.
On the balance sheet side of things, we have a healthy net debt to EBITDA of 0.29 versus 0.6 over the corresponding previous period that is quarter 4 of financial '22. Our net debt stands at INR 330 crores as of 31st of March 2023 compared to INR 549 crores as on 31st March 2022. Our finance costs are also lower by 12%, both as a result of debt reduction and lower rate of borrowing.
I shall now take you through some qualitative highlights of our hospital business for financial year '23. Our hospital business had an average occupancy of 67% compared to 63% in financial year '22. Our ARPOB witnessed a growth of 11.5% to INR 2.01 crores in financial year '23 versus INR 1.8 crores in financial year '22. The growth in ARPOB was led by a healthy increase in our revenues from key focus specialties such as oncology, cardiac sciences, neurosciences, renal sciences, gastroenterology and orthopedics, which cumulatively grew 31% in financial year '23.
The other important driver of ARPOB was the higher contribution of surgical volumes seen in financial year '23, which stood at 59% versus 53% in financial year '22. In addition to the above, there was strong traction from our internal business revenue, which grew 98% in financial year '23 to INR 425 crores. Revenue contribution of international business stood at 8.3% in financial year '23 versus 5% in financial year '22. Our focus on strengthening our clinical programs continue through the year across all our facilities in terms of investing in high-end medical infrastructure and onboarding medical talent.
The year witnessed addition of several eminent clinicians across various specialties like cardiac sciences, oncology, neurosciences, gastroenterology and orthopedics. Some of the key medical equipment that we installed during the year included LINACs, PET-CT, da Vinci surgical robots, cath labs, neuro navigation systems and orthopedic robots.
Just to put some numbers in context for this out of total CapEx spend of about INR 300 crores in financial year '23 approximately INR 200 crore has been incurred for medical equipment. Amongst the other key strategic growth initiatives that we have spoken of before is our brownfield bed expansion plan. We have added approximately 140 beds across our key facilities including FMRI, BG Road, Mulund, Mohali, Ludhiana and Nagarbhavi in Bangalore. Our plans to add close to 1,300 to 1,400 beds over the next 4 to 5 years are on track.
As we have said before, our growth would comprise not only of our brownfield expansion, but also efforts to expand our size and scale through inorganic efforts. This is evidenced in our signing of a definitive agreement with the VPS Group for the acquisition of hospital asset of Medeor Hospital in Manesar, Gurugram, which could potentially add 350 beds to our network.
We further expanded our presence with the launch of a 200-bedded multi-specialty hospital in Greater Noida under an O&M arrangement. In addition,, we also commissioned the state-of-art cancer daycare center at Defense Colony in New Delhi. On our digital transformation initiatives, one of the key highlights in financial year '23 was the launch of an electronic medical record system that we believe would eventually transform the way patient health records and databases are stored and shared and accessed by relevant stakeholders. This has the potential to significantly enhance our patient experience and service parameters.
With respect to costs, we have achieved reasonable traction, cost optimization initiatives, primarily related to drug and consumables and consumption optimization have also contributed to the hospital business margin improvement. Like I said before, cost optimization across functions and expense line is an ongoing process, and we are actually conscious that this can be an important contributor to our profitability going forward.
Some thoughts on our diagnostic business. An important highlight was that while our overall diagnostic business saw a decline, our non-COVID business revenue grew 12%, both for the quarter and financial year '23, respectively. The diagnostics business environment remains challenging at present, but SRL continues to work towards expanding its customer touch points, have added more than 1,100 customer touch points in financial year '23. This takes the total number of customer touch points to approximately 3,500 plus as on date. The business conducted 39.1 million tests during financial year '23 as against 44.2 million tests in financial year '22.
Anand will take you through further details on the performance for the year and the quarter. With that, I would now like to conclude my comments. Thanks. Thank you all for your continuing support. And on behalf of my team and I want to assure you that we remain committed to our growth objectives and would ensure that all efforts are made to better our business performance going forward.
I shall now hand over to Anand for his thoughts on SRL.
Thank you, Dr. Raghu. A very good morning and good afternoon to everyone on the call. Thank you for joining us today. On behalf of SRL Diagnostics, I warmly welcome you all for our Q4 FY 2023 results conference call.
During the quarter, we reported a revenue of INR 332 crores with 97% of our revenues coming from non-COVID testing. Our reported EBITDA stands at INR 54.7 crores with a margin of 16.5% for Q4 FY '23. We conducted 9.8 million tests and serviced 4 million patients during the quarter. Non-COVID revenue has posted a growth of 12% over Q4 of '22 and 41% growth over Q4 of '20. Revenue from genomics showed 36% growth in Q4 of '23 versus Q4 of '22 while our preventive testing portfolio has grown by 27% in Q4 of '23 versus Q4 of '22.
For the financial year FY '23, SRL reported net revenue of INR 1,347 crores. The company's reported EBITDA for the year stood at INR 263 crores, representing a margin of 19.5%. The business served a total of 16.6 million patients and completed 39.1 million tests during the year. Our preventive portfolio revenues showed a growth of 29%, and the genomics revenues showed a growth of 41% in FY '23 compared to FY '22. We have added 1,100 plus CTPs and 53 new laboratories during this year.
The B2C: B2B revenue mix stands at 54:46 in FY '23 compared to 55:45 in FY '22. The business continues to have a well diversified geographical mix with no overdependence on any region, allowing it to capitalize on the pan-India network optimally. Our workforce of over 7,000 plus employees across our network are the pillars of our strength. One of the company's core areas of emphasis is learning and development. In the recent years, SRL has advanced to provide a variety of specialized competency enhancement programs.
About 5,200 mandates were locked by the company in learning and development initiatives during FY '23. We rolled out the future-ready leadership development program and strength-based leadership development program for SRL identified high-potential employees. We continually expand our test menu in a way that it not only meets the needs of diagnostic options for the present, but also keeps us future-ready. We are happy to have added over 200 new tests to our test menu in FY '23. We have also launched an online directory of services on the website that helps patients and doctors get the necessary information on our test menu with a simple search.
Digital transformation has been one of our priority areas in FY '23. Our app installed numbers have grown by 8 lakhs and our website recorded 8 million visits in the year. Our customer NPS improved from 74 in FY '22 to 80 in FY '23. Apart from delivering accurate and timely test reports, we have also built a convenient customer experience process at our centers for home visits and across our mobile app and website. SRL operates one of the largest accredited network of laboratories in the country. 43 of our labs are accredited by NABL, and 3 of our labs are recognized under the NABL M(EL)T program. We also have 2 CAP accredited laboratories in Mumbai and Dubai.
Being prepared for the future is one of our corporate goals. The transition to next-generation diagnostics, digitization of diagnostics along the value chain and the customer demand for omnichannel and on-demand services in our opinion, are the 3 major themes that will shape the diagnostic industry's mid-term future. By enhancing our expertise in next-generation diagnostics, we are staying ahead of the curve.
We are also optimizing our processes through digitization, during sample collection and logistics, laboratory automation at pre-analytical phase and in reporting. The current trend inclines towards consumer choices, consumer empowerment and consumer wellness, and we are cognizant of this ever-changing landscape and are making the right strides in this direction.
Finally, I take this opportunity to thank you all for your trust in SRL. I would like to hand over the call now to Mr. Anurag Kalra, Head of our Investor Relations.
Thank you, Anand. Ladies and gentlemen, we shall now open the floor for questions and answers. May I request the moderator, please.
[Operator Instructions] Our first question is from the line of Kunal Randeria from Nuvama.
Sir, firstly, on SRL. Some of your peers have taken price increases on some of the tests in their portfolio. Have you taken in? And if so, how much and on what percent of your portfolio?
Thanks, Kunal. So we have still not taken any price increase on our portfolio so far. So we are evaluating the options and probably look at it during the midyear.
Midyear, sure. And sir, I mean, if I look at the SRL business as a whole, your realization seems to be holding steady. If I were to compare to pre-COVID years, there's been a very sharp margin compression, but at the same time, some of your payers have been able to maintain margins. So it seems that cost structure might be a bit bloated. So I just want to understand what are some of the operations changes that maybe you would like to get to the other business?
No. On our margins, what you're asking is pre-COVID margins are different from what -- what is that? I didn't get what you're asking.
So I mean, in FY '19 or even FY '20, you used to clock somewhere on 20%, 21% kind of margins. Now in Q4 of this year, it's 16.5%. Your realization was fairly steady. So it seems that the issue might be somewhere at the OpEx level. So just want to understand how -- what SRL has done differently to some of the payers, who seem to have largely maintained some of the margin trends?
In FY '19, we were at about 20%. And in FY '20, we were at 18% of margins. And in FY '23, our margins are now at about 19%. So Q4 had some exceptional items, which could have got that drop in that particular quarter. But we also have to note that we have grown our infrastructure, and we have -- we're working on all the aspects to make sure that we continue to grow on their margins as well. Mangesh, you want to add?
So Q4, Kunal, ahead -- the CSR for the entire year are INR 5 crores. And secondly, we had taken -- there was one of the HPPPP the government contract. We have taken a provision. This is as per ECL method of around INR 6.5 crores in this quarter. These are the 2 one-offs in the quarter, though we are confident of getting the payment from HP Government. However, on a conservative basis, as per ECL method, we have provided for this one. These are 2 abnormals in the quarter because of the percentage, the margins may look lower.
Sure. Okay. Fair enough. Would you like to call out that number?
INR 6.5 crores, as provision for doubtful debts in HP and INR 5.1 crores is CSR.
Got it. Got it, sir. And just one more on the hospital side. So the last few quarters, your margins seemed steadied around between 16.5% to 17.5% kind of levels. I think now the way forward could either be from the less than 10% kind of hospitals start ramping up. So I just want to understand what should we expect in the next 18 to 24 months in this business.
Yes, Kunal, I can answer this question. So as you rightly said, our margins are steadily moving forward, actually, and we have achieved now 17% margin for this financial year. So our aim is to quickly move to 20% margin. It is not a question of whether we will be able to achieve this year or next year.
Sir, I understand your guidance, but what I'm trying to understand is where will it come from? So the 300 bps margin expansion. So I'm not even holding on to FY '24. It could be even '25, but I'm just asking where it will come from.
Yes. So there will be different levers for margin improvement. One is obviously the improvement in the payer mix and the specialty mix. So payer mix I was mentioning earlier also, we have government presence of around 20%. So we are working towards improving that care mix slowly. It will happen gradually. That will give us improvement in the ARPOB.
Second lever is, of course, the speciality mix. Some of these specialities are the more focused speciality for us like onco and neuro and cardio, of course.
And the third lever is, of course, the cost lever. We are working constantly to reduce the cost structure and optimize the cost structure. And that should also help us in improving the margins, all 3 levers will add.
And fourthly, on the expansion phase, as Dr. Raghuvanshi mentioned in his initial comments, we are expanding our brownfield bed capacity. And this way, we will be able to achieve the economy of scale, which will help us in improvement in the margin.
And lastly, on the portfolio rationalization side, there are certain units we have discussed in the past, which are on -- which we are trying to rationalize our portfolio where we feel very little chance to improve by us. And that's why those loss-making unit, we are planning to divest, and that will further give a boost to the EBITDA margin.
Sure. And if I can just follow up on the point that you made on payer mix. Interestingly, because I mean, if I were to see a payer mix today around 18%, 19% would be coming from government and CGHS and not the CHS but even 4, 5 years back, the mix was fairly similar. So you're confident that you can reduce your footprint over here going forward. Is my understanding correct?
Yes. So no, there is some improvement, and it needs to be seen unit-wise because there are units who are operating, for example, at 60% occupancy level. So there is no reason why this should be reducing our government payer there. But there are certain units, especially in NCR region, where the payer mix, the occupancy level is at around 80%. And there, we feel there is opportunity to rationalize this payer mix to the extent possible. And as I said in the beginning, it may not be very prompt.
And lastly, on the payer mix, the unit where we are going for extension, and we know that there will be substantial capacity we'll be adding. There, we are going slightly slow on this shifting because quick ramp-up of those brownfield expansion program.
[Operator Instructions] Our next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just the first one on the growth we have witnessed in the hospital business and what's the outlook for, say, fiscal '24 over '23, about 20% growth we have seen. So how should we look at fiscal '24 revenue growth. And if you could disaggregate that into either utilization, ARPOB has grown 11.5%. So I just want to understand the outlook on your revenue growth for the hospital business for '24.
Yes. Shyam, sorry. So Shyam, on this question, last year, means '22 was affected because of COVID, and that's why you have seen this 20% type of growth rate. I don't think so we will be able to achieve that type of number. but double-digit growth, we are aiming for 24%, and we are quite confident we'll be able to achieve that.
To your second question, we are expecting an ARPOB growth of around 6% to 7%, in the current year because ARPOB level has settled, let's say, we have seen a significant increase in the ARPOB in the last couple of years. So we feel the ARPOB increase may be limited.
The third lever for growth will be our occupancy ramp up, so we are at the 67% occupancy level. So we are targeting at all our hospital level. We should be achieving at 70% occupancy level, and that should give us a major growth plus the additional bed capacity we are adding. So all put together, I think we are targeting around 11%, 12% growth rate for the '24.
Got it. That's very helpful. If I were to look at the surgical mix, 59% of hospital revenues. Can we see this go further up? Or do you think in some of the key therapies that you have been tracking and I think there's a nice table that you've given now on what is the individual therapy level growth? So which are the areas that you can see further expansion in, say, next year?
Yes. So Shyam, as far as the mix is concerned, I don't expect a dramatic shift this year. However, there is definitely a phenomena where hospitals such as ours are attracting more of quarterly kind of work. So that is why the surgical numbers are growing. As far as specialties are concerned, we are seeing quite a significant growth on the oncology side. And in the oncology surgery component we are expecting that we would see a similar kind of increase happening this year as well. But overall, as far as the ratios are concerned, it would probably not change too dramatically.
Got it. And if I can quickly squeeze in last one on non-COVID volumes. I know there is a degrowth on the overall headline number for volume growth. But Anand, if you could help us understand what's happening on the non-COVID volume. I know value is 12% growth. But just disaggregating that into volume and realization, what's happening there?
So on the non-COVID volume, Shyam so on like-to-like basis, if you look at it, we are seeing about 15% growth in the non-COVID volume. But if you -- because of we had in the last year, we had the HPPPP, which was a high contributor to the volume. So that contract was not there in this year in FY '23. So that has led to some shrinkage in the volume because of that. But if you take like-to-like, there is 15% growth in volume.
And Anand, you are not really -- this contract is not coming, right? So '24 will have complete and when do we lose this contract or stop this contract?
This was in May of FY '22. which -- sorry F'23, so which means that May '22, up to May '22, we had this contract. Only 2 months of FY '23 has revenues of this contract, whereas in FY '24, it will not be there completely.
Our next question is from the line of Nitin Agarwal from DAM Capital.
On the expansion plan for the hospitals, I mean, a, if you can probably help us understand more about the Manesar asset that you've acquired, what opportunities do you see for that asset? And given the fact that it is further down in Gurgaon, I mean what kind of -- is it a very different catchment area versus, for example, FMRI sort of hospital?
And secondly, going -- on a going-forward basis, what are the kind of expansion plans do you have in mind apart -- you highlighted some of the bed expansion thoughts but if you can elaborate more about how you think about more expansion for the next couple of years?
Yes. So as far as Manesar is concerned, it is an upcoming area, and there is a lot of new residential developments as well as infrastructure development, which is happening. There is a new highway, which is express way, which is connecting Delhi to the national highway. That is almost nearing completion. And as a result of that, the uptake of the residential apartments in the vicinity in that area being more affordable is happening quite rapidly.
We see that this area will be quite a prime area in next few years. because of the physical infrastructure of the highways and et cetera, which is developing and is getting ready. So that's why it is an important position for us to take within the Gurgaon micro market, having these 2 positions are very, very important. One is present and the other is future.
Then it is a brownfield acquisition. So within the next 12 months, we should be able to once we have concluded the closure of the deal, within 12 months, we should be able to get the hospital going with about 150 beds in first phase, and then we will take it to 350 beds. This is a full-service hospital, and it serves a lot of interland of Rewari, et cetera, as well. So it is not a small market, but it is a large market, which is growing very rapidly. So that is why we are very excited about this. Similarly, the brownfield expansions, which we are doing, some of that is almost ready.
As we had said that this would take 3 to 5 years to do the about 1,300 to 1,400 beds. This is very much on track in various stages of operationalizing. So in Mumbai, for instance, the beds, about 100 beds are ready. And part of that, about 45 beds have already been commissioned. As a matter of fact, we inaugurated that flow just last week. Similarly, in NCR in the Noida facility, the construction has begun, about few months back, and it is absolutely on track. Faridabad, the construction has been on for about a year, and we expect to complete that within next 6 months. So the capacity should get added by the end of this year.
Similarly, we have the finalization. We have the construction, which is started in FMRI facility itself. And that would add about 180 beds. This would take about 2 years or 2.5 years, I would say, to complete. Similar is the time frame for Shalimar Bagh where we are in the process of getting our plans approved, and that is almost in the final stages. So very soon, we expect to begin that construction as well. So all these are very much on track.
Similarly, the last one I would like to add is about 100 beds, which we would commission in Calcutta are physically ready just some last mile permissions, et cetera are due. The moment all that is done, those beds will be commissioned as well.
So this would mean about 200 or 250 beds within this year other than Manesar. And Bangalore also, we have some expansion facility where we have approximately about another 150 beds, which we will be adding over a period of next 2 years. So as the occupancy levels over there have been slightly lower, that's why we have not commissioned that number of beds there. But we expect that in next 2 years, we should be able to absorb that capacity as well.
Secondly, on the hospital, just continuing the hospitals part, we've had a pretty reasonable growth in the hospital business revenues through the last 3 or 4 quarters. Intuitively, one would have thought that our EBITDA margin should have expanded with the increase in revenues through the quarter -- through revenues and I'm talking about from Q1 to Q4 of FY '23. So any reasons why despite probably having the best revenues in the year for the quarter, we've had a slightly lower margins for this quarter?
Yes. So if I can answer this question. So there are a couple of reasons for this. One is, of course, the CSR expenses have booked in this quarter, which is around INR 9 crores for the hospital business. Number two is there are certain expenses which we have booked in this quarter, which are a sort of one-off like the Anandapur facility, we are getting the approval. And for that, we will pay certain fees. Similarly, for the Mohali facility the adjacent land parcel, we are -- we have provided for certain penalties which are imposed for non-construction. And there are certain legal cost which has been provided for. So these are the one-offs. If we exclude those one-offs, there is a hard improvement, actually.
So, what would be the aggregate amount of these one-offs if you can just call that out?
So it is around, on EBITDA level, it is not impacting much, but because certain income also has been added. So just to explain this in slightly more detail, certain provisions and advances have also been returned back. So that's why the revenue has gone up by INR 35 crores approximately. And around a similar number has been the one-off expense item as in book. So net-net, there is not -- no major impact, but because the revenue has increased by INR 35 crores because of this one-off, the margin has impacted.
And then lastly, you talked about closing certain nonviable operations. So how many such operations which you probably potentially could be considering for closure?
We always discuss about these 2, 3 facilities, which are dragging sort of our number. 2 facilities are in Chennai. So one, actually, we have disclosed in our financials, and we have classified as an asset held for sale, which is Arcot Road facility. And that facility, we are exploring to dispose off. And as you might be knowing, this is a loss-making facility, and we are incurring around INR 3 crores per month EBITDA loss on this entity and that's why we finally decided to highly talk.
Another facility in that category, I will not say we have not advanced to that extent but [ Mannar ] facility, again we are exploring various options, which may include divestment also.
Our next question is from the line of Amit Khetan from Laburnum Capital.
So first, a follow-up on the major acquisitions. So how many beds -- so you mentioned you plan to operationalize about 150 beds in the first phase. What is the amount of CapEx that we need to incur to bring this up to our network standards?
If I can answer this question. So as you might be knowing, INR 225 crores, we have paid -- we'll be paying for acquiring this. There will be another INR 15 crores, INR 20 crores growth of GST. Apart from that, because this facility is not in the running for last 1 year. So there will be some expenditure on the -- bringing this facility in the running stage that will require another INR 25 crores approximately. And balance INR 75 crores is for the medical equipment side. So another INR 100 crores, we will be spending on this facility to bring it up to running.
Understood. And secondly, on pricing, can you quantify the impact of the price hikes, the steel price hikes announced by the government on our business, and have we taken any price hike on the nonscheme business starting April?
So this is, I will say, the sort of regular exercise which the special team do, and the normal price increase we take within the range of 3% to 4% advancement, it happens at 2 times in a year. And plus the CGHS price increase, in fact, will also be there. So I think the overall level, we should be able to achieve the same or at least 2% price increase on our revenues.
Got it. Got it. And lastly, for this year, can you share the CapEx numbers, both maintenance as well as expansion for this -- for FY '24.
Yes. So maintenance CapEx will be in the range of INR 250 crores to INR 300 crores because there are certain equipment which are due for replacement. And plus there is a CapEx as we have said the brownfield expansion, we have opened at 4 sites. So some expenses will come from that. So in my view, the cash expenditure will be coming to the extent of INR 600 crores to INR 700 crores in this financial year.
So INR 600 crores to INR 700 crores includes the maintenance CapEx, right?
Yes. Maintenance CapEx of around INR 250 crores to INR 300 crores, which includes IT CapEx also.
Our next question is from the line of Nikhil Mathur from HDFC Mutual Funds.
My first question is on the ARPOB divergence that we see between your different facilities in the same region as well, Delhi/NCR. Now I understand that FMRI obviously has a lot of international patients, the case mix and everything would be amongst the best. But still the divergence versus, let's say, Shalimar Bagh or FEHI has kind of increased in FY '23.
Looking forward, what should we expect for the ARPOBs of these assets, which are lagging massively versus FMRI? I mean, would this divergence increase? Would this divergence reduce? So if you can give some color on what should we expect from some of these assets in Delhi/NCR, which seems to be pretty lucrative at least on the occupancy front when I see the second chart.
Yes. So I think when you compare the unit with FMRI, you will see the substantial gap. And the reason for FMRI ARPOB increases as you rightly said is the international decent flow, which has increased tremendously. And because there is certain facilitator piece is also included there. So that's why, in gross level, the ARPOB level is high.
Having said that, if you see, you might have seen that chart which we have shown on our [indiscernible]. in almost all the facilities, the ARPOB has increased, and that is a very good sign. And this is this lead to -- this is coming from the better speciality mix as well as some improvement in the payer mix also.
So should we expect that in some of these facilities, the ARPOB increase can be reasonably higher versus FMRI in the coming 2-3 years? And then also occupancy is quite good, right? I mean, FEHI at 71%, Shalimar is at 75%.
I don't think you should expect that the ARPOB in all these facilities would be at similar level and certainly not at FMRI's level because of the difference in the nature of these hospitals. Like for example, in FMRI, there is no beds which are given for EWS, whereas in Delhi hospital that is the case, especially in Escorts, for example. So that's why even at the higher occupancy there, ARPOB seems low because 10% of the beds are free. So that's some kind of differences like that, you would see. We can expect a good healthy ARPOB growth in Shalimar Bagh, Noida, Faridabad, et cetera, but not so much at FEHI, but definitely, there will be a differential between FMRI and these hospitals because of the excessive income opportunities.
Okay. Understood. Sir, circling back to the EBITDA margin expectation of, from 17% to 20%, if I look at the 3 or 4 levers that you have increasing ARPOB occupancy and closure of couple of facilities, if these 3 happen, only then will you achieve 20% or 20% is achievable even if there are some misses and hits on some of these aspects.
So I think 50% EBITDA margin, we are reasonably sure. And I think if we're able to divest this asset -- without divestment, let me put this way, we should achieve 20% EBITDA margin. And if we're able to achieve the divestment, that will further boost the EBITDA margin by 1% to 2%.
Understood. So is there some explicit cost control, which you are expecting and hence, this confidence of 20% EBITDA margin?
Yes. One is as I said, because of the expansion program, the brownfield expansion and the ramp-up of the occupancy level. So that is the major lever for the margin improvement, followed by the adding certain more specialties and the payer mix change. Plus cost side, we are doing continuous effort by better acquisition, by optimizing our cost structure, by improving the productivity to the extent possible. All those measures we are taking to improve the margins.
Understood. And one final question I had on the Medeor acquisition. Now I think INR 320-odd crores is the total CapEx that is likely to be incurred for 350 beds, unless you achieve the current EBITDA per bed, which is roughly INR 33 lakhs to INR 34 lakhs, it will be, I think, difficult for you to make 20% ROCE in this particular facility because I mean, the CapEx will be roughly around INR 90 lakhs, INR 95 lakhs per bed, by the next year or so.
So -- and going by your comments that there are new highways coming up Rewari is the catchment area in those areas, I'm not too sure if this is likely to get achieved in 1 or 2 years. So can you give some thoughts on what is the target ROCE that you're looking from this investment? And in how much timeframe is that possible to achieve that target ROCE?
Yes. So this is for all practical purpose, this is a sort of new facility because this hospital is not in operation. So as Dr. Raghuvanshi mentioned earlier, it will take 1 year time for us to start the hospital and then to reach a particular occupancy level. And that's why the return on capital metrics will follow some occupancy ramp up, be able to achieve.
Having said that, if we're able to ramp up the capacity for that, our ROCE will be faster. We are targeting at least a 17%-18% ROCE by -- by fifth year we're targeting to achieve that 17%, 18% of ROCE level for this facility. It means we will be able to achieve ramp-ups.
Right. And then just one associated question here. Will there be some shared costs with FMRI? I mean, FMRI is not very close to this facility, but still, it's not very far off as well. So would there be some shared cost between the 2 units?
No, I think there will be operational synergies. But in terms of cost, I don't think there would be too much of sharing. But definitely, there will be a lot of synergies on the operational side, and that will help to have a quick ramp up as is.
Sir, do doctors at FMRI have bandwidth to kind of attend to this hospital as well whenever it's up and running?
Yes, of course, we have second line of clinicians, which is ready to take further responsibilities. We have seen at just the announcement that we are intending to complete this transaction. We have seen a lot of interest from many other clinicians as well. So that is certainly no challenge at all.
Our next question is from the line of Bino Pathiparampil from Elara Capital.
Most you have answered. Just one clarification on SRL. If I look at the 4Q margins, obviously, Y-o-Y case, it is looking bad because of the high COVID volume of the prior year. But even if I compare sequentially to Q3, there is a major contraction in EBITDA margin, even if you adjust for some sort of seasonality that used to be there. Could you explain that, please?
Yes. As explained to an earlier caller as well. So this is because of some one-off expenses which have happened in Q4. So the 2 adjusted, if you adjust that, EBITDA is at 20%. The 2 adjustments are CSR. CSR for the whole year is accounted in this quarter, which is INR 5.1 crores, and there is a PFDD for our HPPPP, which we have taken on a conservative basis, which is at INR 6.5 crores, both if you take together, adjusted margin will be 20%.
Our next question is from the line of Saurabh Kapadia from Sundaram Mutual Funds.
Sir, just one clarification, INR 100 crore CapEx on margin sir, [indiscernible]
Sorry, your voice is breaking. Can you speak again?
I was asking INR 100 crores CapEx of Manesar is for 350 beds.
No, no. So INR 150 crores is the additional expenditure we have to put in the equipment and for keeping this facility to bring the facility to full operational level. Apart from that, there is around INR 240 crores total acquisition costs. So put together, all put together, it will be around INR 340 crores, total investment for Manesar facility for 350 beds.
Okay. And secondly, if you can provide the revenue and EBITDA -- or the EBITDA loss for the Arcot Road for '23?
So EBITDA loss was around INR 36 crores and revenue...
INR 51 crores.
So revenue was INR 151 crores.
INR 51 crores. INR 51 crores.
Sorry, INR 51 crores.
Yes.
INR 51 crores.
Okay. So the growth for next year, what we are saying double digits excluding the ARPOB number, right?
Yes. ARPOB is still is in our port. We are in the process of finalizing the deal. So I think it will take another 2 months' time for us to close this. Till that time, this loss will continue.
Our next question is from the line of Abdulkader Puranwala from ICICI Securities.
Sir, just one question on your hospital margins. So if I look at the segmental breakup and if I compare the whole of FY '23, so the start of the year, we had close to 4 facilities with the EBITDA margin upwards of 25%. And where we're ending FY '23 is just having 2 facilities. So just wanted to understand, so the revenues across Mohali, Shalimar Bagh and FMRI has grown consistently over the quarters. What would explain this kind of a dip into the EBITDA margins?
So Abdul, when you look at this chart, I think there are a couple of highlights that we wanted to share with you. One, if you look at the top 3 brackets, which is the EBITDA margin range from 15%, 20% to going up to 25%, almost the revenue contribution in FY '22 from just these 3 margin brackets was about 69% in FY '22, and that's actually gone up to 78% in FY '23.
Not to mention when you also look at this, the ARPOB numbers as well as the occupancy numbers have also increased significantly. To your specific question on the more than 25% margin which were 3 facilities in FY '22 have gone down to 2, that was just a smaller facility. Kalyan, which has now fallen below. Kalyan did very well during COVID times, but it's a small a 50-odd bed facility, which has now gone below. But other than that, I think all our facilities, whether it's FMRI, whether it's Shalimar Bagh, whether it is Mohali, they are all in the 20 to 25 and 25 plus brackets. So when you look at FY '23, Mohali, BG Road, Shalimar Bagh, Mulund, Anandpur, Ludhiana and a couple of more are all in that bracket. So you have to look at this holistically and how the overall number of facilities are moving towards the higher end of the CapEx.
Got it. And final one on the diagnostic side. On the [indiscernible], what was the kind of volume growth we should peg in for the non-COVID business, and on the price increase -- so a couple of years have indicated that they have started to taking some price increase. So in our portfolio, have we started that evaluation? And what could be the [ counter ] margin?
You are not very clear, Abdul. But from what I understand, you are asking about any price increase, price increase, as I was telling the earlier caller also that we have not done any price increase so far. And we are contemplating an increase probably during the middle of the year. But as of now, we have done no price increase.
The volume growth on a like-to-like basis will be about 12%. Our ARPT growth is zero. That is the actual growth because we have to remove the HPPPP, which is a high-volume business, which we had in FY '22, which has only 2 months of component in FY '23.
Our next question is from the line of Saion Mukherjee from Nomura Securities.
Sir, on SRL, would you like to give some guidance on growth or margin, let's say, for the next year or maybe even for the medium term?
I think, as we all know, the industry is expected to grow at about 10% CAGR over the next 3 years. So I think SRL will be around 1 or 2 basis points higher than that. That would be the expectation.
Okay. Sir, if I look at one of the initiative was to sort of increase the touch points, so I mean that should -- and that was quite significant in the last few years. But the growth number seems to be muted related to the kind of expansion that we have done. Any particular thing that I'm missing or any reason that you can attribute to that the expansion probably hasn't really contributed as much to growth as was expected.
So the network expansion strategy in terms of adding more network or labs, we started it around early FY '20. And as you know, we have been continuously expanding over the last 3 years. We have added close to about 1,000 centers every year. But because of the COVID pandemic in between, in the last 2 years, we have seen more activity on COVID, and we have not been able to fully ramp up these centers. And usually, the centers take about 18 to 24 months to reach critical volume. So we are seeing that growth. So the centers which are more than 3 years old, they are reaching some critical numbers. But the newer centers that we added this year will still need some more time to reach those numbers. So it's going to be a growth, which will be -- we have added capacity, so the growth will happen over the period of time.
Okay. Sir, any guidance on margins that you would like to give, where we could reach over the next few years on EBITDA margin?
I think that we will not be able to provide any guidance as of now because it's quite a dynamic environment at this point of time.
Okay. Fine, sir. Dr. Raghuvanshi, just a few broader level question. You talked about looking for acquisitions. So how is environment, and what's the strategy for Fortis in terms of what kind of assets you would look at in terms of geography, brownfield like what you had in Manesar or complete an operational facility. And we're seeing a lot of interest from your peers as well as private equities participating. So in terms of valuation, how -- I mean how comfortable you are in the market that we could see some large acquisition? And also in terms of size, what kind of size you are looking at? And up to what size probably you can go. If you can give some color on sort of the M&A landscape and how Fortis wants to participate.
Yes, you're absolutely right. There is a lot of interest in acquiring newer assets. So we definitely have competition there. Now having said that, as far as our strategy is concerned, we are very clear about a few things. One of them is our broad geographical strategy. So in any market we want to operate, we would not like to operate in isolation. So if we are going to a new market, it has to be a cluster of hospitals and not a single hospital. Otherwise, we want to stick to the clusters where we operate. So namely the NCR, Mumbai and its larger suburbs, and then followed by -- and this could be in the case of Maharashtra, it could be even other cities as well.
And then Bangalore cluster and our Punjab and Calcutta, these are the areas where we want to remain limited. Now the assets, we are typically seeking for something which is at least 200 beds, and then we should have a clear visibility among ourselves as to what kind of profitability enhancement we can do from the current state. So that is very important. And then, of course, the valuation has to be reasonable.
Now if you look at the Manesar deal, which we are in the process of concluding, our core bed cost would come to only about INR 9,500,000 per bed, which today, if one was to do a greenfield hospital would typically be somewhere close to about INR 2 crores. So unless until this comes in attractive valuation, it does not make sense.
So yes, there is competition. And -- but I think there would still be assets. And as far as our ability to absorb is concerned, we are quite comfortable in our minds to take up something of the tune of about 1,200 to 1,500 beds. So any such opportunity if it will come to us and it comes at a proper valuation, we would certainly be happy to conclude there.
Okay. That's helpful. Sir, one last question. pre-COVID and post-COVID in terms of the cost inflation cost, manpower power, doctors cost or any of the talent costs. Have you seen any change in the dynamics in the marketplace?
So the dynamics have not really changed much. I think the larger change continue to attract more clinical talent, and the availability of clinical talent is easing out. The issues with the nursing availability is still there. But as far as the specialists are concerned, I think that this situation is easing to a large extent for the larger organized players. So I don't see that as a challenge at all.
Okay, sir. That's helpful. And sir, one last, I just missed Anurag, if you can share the Arcot Road EBITDA loss for the year?
Sorry, for what?
[ INR 36 ] crores approximately.
Due to time constraint, that was the last question of our question-and-answer session. I now hand the conference over to the management for closing comments.
Thank you, Vico. Ladies and gentlemen, thank you for your time today. I hope we've been able to respond to your questions at best possible. If there are any further clarifications, my colleague Gaurav and I are here to help you. Please do feel free to reach out to us. 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.