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Max Healthcare Institute Ltd
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Ladies and gentlemen, good day, and welcome to the Max Healthcare Institute Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.
Thank you. Good morning, everyone, and thank you for joining us on Max Healthcare's Q1, FY '24 Earnings Conference Call. We have with us Mr. Abhay Soi, Chairman and Managing Director; Mr. Yogesh Sareen, Senior Director and Chief Financial Officer; and Mr. Keshav Gupta, Senior Director, Growth, M&A and Business Planning of the company. We will begin the call with opening remarks from the management, following which we'll have the forum open for an interactive question-and-answer session.Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature and a disclaimer to this effect has been included in the earnings presentation shared with you earlier.I would now like to invite Abhay to make his opening remarks.
A very good morning to everyone. I'm pleased to welcome you again to Max Healthcare's first quarter earnings call for fiscal 2024. Before we delve into the quarter 1 highlights, I'm happy to share that this is our 11th consecutive quarter of year-on-year growth in revenue and operating EBITDA.Second, we have added 44 beds to our capacity through internal reconfiguration during this quarter. This is in addition to the 92-bed oncology block we commissioned at Shalimar Bagh in March this year. Notably, Shalimar Bagh hospital has reported an average occupancy of 77% in Q1 with a year-on-year growth in revenue and EBITDA of 37% and 43%, respectively.Third, we have released the inpatient module on a proprietary app Max MyHealth, which allows IPD patients to track the entire process right from the admission to the discharge. It also provides them access to the reports and up-to-date billing data with the ability to make payments online. This will not only enhance patient satisfaction on one hand, but also reduce administrative burden on the other.Now coming to the highlights of our Q1 performance. Occupied bed days, OBD, went up by 3% year-on-year, and the average occupancy for the quarter stood at 74%. Do keep in mind, this is on a higher capacity remaining flat compared to Q1 last year. This is on expected lines coming off from seasonally the best quarter to the worst quarter. With increase in occupied bed days and marginal drop in ALOS, the admissions were up by 4%.Institutional bed share fell to 29.7% compared to 30.3% in Q1 last year. However, it is pertinent to note that excluding Max Shalimar Bagh, where we strategically decided not to optimize payer mix at the cost of occupancy in light of the newly added 122 beds on a base of 280 beds, the share dropped by 270 basis points year-on-year to 27.4% institutional business on an overall basis. Moreover, as you may be aware, CGHS has revised its tariff in April and June this year for certain segments after a gap of 9 years, and we expect further revisions for the balance segments in the coming quarters. Therefore, we have not taken any aggressive call on this empanelment.The average revenue per occupied bed for the quarter touched a new high of INR 74,800 reflecting a growth of 13% year-on-year and 6% quarter-on-quarter. This was mainly led by improvement in specialty mix, particularly oncology, orthopaedics, cardiac sciences and doubling of robotic procedure volumes. This was further aided by price revisions across almost all channels, which immediately happens on the 1st of April.Network gross revenue was INR 1,719 crores compared to INR 1,473 crores in Q1 last year and INR 1,637 crores in previous quarter, which reflects a growth of 17% year-on-year and 5% quarter-on-quarter. Year-over-year increase was largely driven by growth in ARPOB and occupied bed days.Revenue from international patients grew by 31% year-on-year and 3% quarter-on-quarter. This now accounts for around 9% of the revenue from our hospitals.Digital revenue grew to INR 356 crores and accounted for 21% of our overall revenue. Direct costs were up year-on-year due to growth in surgical mix, medical oncology and doubling of robotic procedure volumes. On the indirect cost side, while the overall percentage is lower, there is an increase in absolute costs due to commissioning of 4% additional capacity, creation of around 10 new operation theaters and 80 ICU beds by cannibalization of existing ward bed over the last 12 months. In addition, we have strengthened our projects, digital and home care teams, while also increasing efforts on ESG activities and marketing for the international channel.Network operating EBITDA stood at INR 436 crores, reflecting a growth of 18% year-on-year, while remaining relatively flat quarter-on-quarter in spite of the fact that we are coming off perhaps the quarter 4, which is the best quarter onto quarter 1, which is really the worst quarter. The operating margin stood at 26.8% versus 26.5% in Q1 last year and 28.2% in the previous quarter. This is largely because we've been focusing on higher payer mix, which is international patients, higher clinical mix, which is oncology, cardiac sciences and robotics, et cetera, which has grown, which in percentage terms may provide lower margins, but in absolute terms, provide higher value.Most importantly, annualized EBITDA per bed rose to INR 70.4 lakhs yet again our highest ever, clocking a growth of 14% year-on-year and nominal growth quarter-on-quarter.Profit after tax was INR 291 crores versus INR 229 crores in Q1 last year and INR 320 crores in the previous quarter. Year-on-year growth of 27% was primarily attributable to the flow-through of improved EBITDA.Free cash flow from operations stood at INR 261 crores, of which INR 38 crores was deployed towards the ongoing capacity expansion projects. Net cash position improved to INR 957 crores at the end of June 2023 compared to net debt of INR 217 crores same time last year. Expediting our routine CapEx, coupled with buildup of accounts receivable led to higher working capital during the quarter.Continuing our efforts to give back to the community, we treated approximately 37,500 OPD and 1,260 inpatients from economically weaker section free of charge. Both our strategic business units continued to report robust performance. Max@Home reported a top line of INR 40 crores, reflecting a growth of 24% year-on-year and 7% quarter-on-quarter with critical care and medical room service lines being the major contributors to the growth.Max Lab expanded its geographic footprint to 36 cities and reported a gross revenue of INR 34 crores. This reflected like-for-like growth of 39% year-on-year and 10% quarter-on-quarter.During the months of June and July, there was a slowdown in the project's activity due to heavy rains in Mumbai, Punjab and Delhi NCR. The current status of our projects, expansion projects coming on stream over the next 3 years is as follows: for 300 beds at Dwarka, majority of the [ MEP ] and interior work are complete, while application for power, water and sewage connections are in progress. The developer is expected to apply for occupancy certificate in the latter half of this quarter. We expect to commission the hospital in Q3, subject to the developer obtaining [ NOC ].For 329 beds at Nanavati Hospital in Phase 1, excavation and [ glass work ] are nearly complete, steel fabrication and wall casting for Linac and brachytherapy are in progress. The project is largely on time, and we expect to cast the ground floor slab by end of October.For 300 beds at Sector 36 Gurgaon in Phase 1, 50% of site excavation is complete and the EPC contract is in the final stage of execution. All statutory approvals have been received.350 beds at Max Smart in Phase I, I stated during the Q4 update in May this year, this project was facing delays due to forest approval for tree transplantation. Happy to report that the final forest approval has now been received, and we are initiating the process of transplanting the trees shortly after subsiding of rains.For 300 beds at Vikrant Saket, environmental clearance has been approved and is under processing with the state level environmental approval authority. DDA has reconstituted our file, and we are planning to formally upload the drawings for approval in September, so this should be well on its way as well.[ 490 ] beds at Mohali, demolition of existing building and shifting of services have been done. D-wall is completed and excavation work is underway. EPC contract is in final stage of negotiation. The project is largely on time.Lastly, I'd just like to state that 3 months already into this fiscal, we continue to strive to improve operational metrics across all our current facilities and businesses. Keenly monitor and execution of all our projects underway, while also prudently evaluating inorganic opportunities in our existing geographies, as well as new promising geographies.With this, I'd like to open the floor for Q&A.
[Operator Instructions] The first question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Am I audible?
Yes. You're audible.
Just on the kind of growth what we have seen on ARPOB, how sustainable that is, let's say, for next 12 months to 24 months? And secondly, while the ARPOB growth is there, but the EBITDA per bed has been pretty stable, may it be on a quarter-on-quarter basis. So if you could share your comments on that?
So I think we'll keep doing what we're doing, focusing on higher end specialty, focusing on better payer mix, et cetera. So your ARPOB growth should continue. And when it comes to EBITDA per bed being almost flat quarter-on-quarter, like I said, Q4 is the most solid quarter in the year. It's the strongest quarter and Q1 is the weakest quarter.I'm very encouraged by the fact that in spite of that, our Q1 results are flat with our Q4 because if you look at it historically, and I'm taking away that one COVID year, Q1 is usually lower than Q4 because on April 1, you have increase in costs, particularly your salary costs, et cetera, for the whole year, increases on April 1. So the quarter 1, normally seasonally the weakest quarter, as well as high indirect costs usually has lower absolute EBITDA and margins, which emanates from it, but that has not been the case this year. It's been flat compared to Q4, so I see very encouraging sign.
Understood. So what kind of growth one can think of on a sustainable basis given the kind of bed additions that are happening over the next 12 months to 24 months on EBITDA per bed?
Look, I'm not going to give you guidance on exact EBITDA per bed. But I think this is our 11th quarter of year-on-year growth, like I mentioned. Also the fact that the last time -- I mean, recently when we opened Max Shalimar Bagh, 122 beds on a base of 280 beds, you are seeing that, look, with 77% overall occupancy within the first month or 2 months itself and is giving us a revenue growth of 37% and 43%, respectively. So I think that should sort of hopefully continue into the future as well. So it should be positive from that standpoint -- from all of these standpoints.
And just while you have already highlighted hospital-wise the kind of work underway in terms of [ great ] expansion, but just on the CapEx number, if you could also sum up for FY '24 and for the quarter?
I think we're looking at INR 900-odd crores...
Which are the [indiscernible] INR 900 crores. The government is subject to change. We just try to give you a block number. But you know that, it can change from 1 month to other month.
The next question is from the line of Damayanti Kerai from HSBC.
My first question is on your Shalimar Bagh, clarity on your comment that you decided not to optimize payer mix. So does it mean like you have taken up more institutional patients there?
Yes. Yes, yes. So what you do is -- I mean, you basically don't [ disempanel ] over there and you don't filter the institutional business because the extra capacity, firstly, has a significantly lower cost, right, because of operating leverage. And what it also does is, it gives you even at the institutional rates, you still generate EBITDA, which you see. But the first sort of this thing is that you bring in occupancy, and then you start filtering down at a later stage.
Okay. So institutional bed share at around 29.7% in first quarter. So earlier you guided like by end of '24 or so, you will bring it down to 15%, 16%. Does it still move? Or you have some different thoughts now?
Shalimar Bagh is down to 27% -- sorry -- Shalimar Bagh has come down to 27.4%, and clearly, we've had some increases in pricing from institutional business recently, although it doesn't have a big impact on ARPOB, it's about 0.6%, 0.7% so far, but we're expecting in the next month or 2, further revision of balance rates, as far as the institutional is concerned. So that sort of makes us go slow on the formulary. But again, the gap is still too much between institutional and cash. It just pushes the can down by a quarter or 2, not more than that. You still, you're going to face capacity constraints, and you're going to have to distill because the CTI business on the preferred channels still need those beds.
Okay. So as you said, the gap between CGHS state and CTS patient reduces, so you might not be chasing that 15%, 16% bed share very strictly, right?
No. So it's not a question of we're not chasing a 15% to 16% bed share. So let me put it in perspective. There is a certain rate at which my CTI business is growing, right? If the capacity doesn't come in, I have no place to accommodate that business. The best case for me is, if I keep the institutional and I can accommodate my increased CTI business. As and when I can't, I distill that capacity bring that down. And today, let's say, if I had a magic wand and I could put up these extra beds to accommodate the increase in CTI, I would not let the institutional business going up, I'm having to do that. So given the trajectory that we have said, and we come down to about 15% by that particular time, it may go up and down a couple of quarters because of these sort of changes, but that's about it. But that's still a trajectory. If I at some stage, let's say, we can -- I mean, let's put it this way. If I can today acquire big unoccupied capacity theoretically adjacent to my hospital, then I will do the -- both the businesses.
Okay. That's clear. My second question is on EBITDA. So a healthy ARPOB, but occupancy down sequentially and then EBITDA down around 260 basis points quarter-on-quarter. So does it mean like you did more of high-ticket surgeries, where ARPOB is high, but there you might be paying higher -- like higher payout to doctors, et cetera, like higher cost, and that's why your margins declined sequentially. Should we read in that way?
You need to complete the story. You see higher-end surgery, okay? Let's say, you do INR 10 lakh surgery, okay, cost you INR 85 lakhs, equipment itself is cost you, the implant itself cost you about INR 50 lakhs, right? Now if patient stays in hospital working days, if you make 4, 5 days, and you make the hospital about INR 15 lakhs. Your percentage is much lower.When you do robotics, when you do higher end oncology, when you do oncology, cardiac sciences, orthopaedics, any of the higher-end surgery, your percentage margins are lower, but the absolute bill is higher. And in spite of the lower percentage margins, the absolute profitability is higher for patients and for beds.When you do international business, okay, the international people come for more severe diseases to India. so the billing is higher. The ARPOB for patient is higher. Your percentage revenue is lower, but the absolute EBITDA per bed -- so I've always said that, look, I'd rather do a $10,000 surgery with a 20% margin, then do a $2,000 surgery with a 50% margin, right?So as you move up the payer mix, and you move up the clinical mix, you're going to see margins in percentage terms come down, but in absolute terms, EBITDA per bed, ARPOB, as well as absolute EBITDA move up, and that is what you've seen. So my EBITDA, overall EBITDA in spite of a lower occupancy in spite of -- by cost increasing in 1st of April, okay, it's been flat over Q4, and in spite of Q4 being the strongest quarter and Q1 being the weakest quarter. So I think that's a big, big positive, isn't it?
Sure. My last question is on your utilized bed. So as per your presentation, in last quarter, we have [ 2,523 ] utilized beds of the total operating beds, and this quarter, it came down to 2,474. So how should we read into it? Like...
[ As I already ] said that January quarter 1 will be quarter on occupancy. You will see the same trend even last year. Last year also, the occupancy was 74% in quarter 1, 77% in last quarter. So it's always tough comparison. This is the -- I've seen the business that in the -- during the quarter 1, when we have [indiscernible] doctor do go on leave. Then occupancy in the months of May and June can be come down.
Not last year [indiscernible]. Any hospital or hospital group, you'll always see the quarter 1 is lower, where the occupancy, EBITDA and everything else compared to quarter 4. So but at the same time, even if the occupancy is seen, the OBDs have gone up. The occupancy are -- we are not to add beds in Shalimar Bagh and other places, then the occupancy would have been 2% higher, right? We have also considered the [ factor rate ] will go down. The occupied bed days has moved up.
Okay. I have more questions; I'll get back in the queue.
The next question is from the line of Nikhil Mathur from HDFC Mutual Fund.
Sir, just one question I have. Now you have reported pretty strong occupancy on the incremental bed in Shalimar Bagh. We are able to track numbers for one of your peer, Fortis as well in Shalimar Bagh, they have reported decent numbers on a Q-on-Q basis despite 1Q being seasonally weak. So it kind of seems that in that particular micro market, the demand is very strong. Would you say that this is reflective of many of your other markets as well, where any concerns -- I mean, there's some bit of divided opinion n whether the demand factors will likely be weak or not in this particular year, would you say that a similar trend is kind of playing out in other micro markets as well, especially in which you are present?
I don't see this play out anywhere in fact for anybody. I have read other people numbers, as you know numbers. Year-on-year, you have an increase in occupied bed days. If my total capacity goes up by, let's say, 5% or 4%, right? And my occupied bed days goes up by 3% or 4%, and my percentage occupancy remains the same. It's bound to happen, right? When you increase capacity in percentage terms, your occupancy may be flat, but in actual terms occupancy is more.
Also, we have not seen any building of demand in any of the hospitals, right? So that's the -- that is -- that's what you see, there's no impact on demand. right? And all hospital [indiscernible] so as we know that June, January occupancy are lower, but we've seen that occupancy come back in this quarter.
Got it, sir. This was the only question I had.
So I don't cater to this point at all. I mean, I think demand -- and you have to look at the business year-on-year, quarter is year-on-year rather than quarter-on-quarter. Unless you have a fourth quarter with a good quarter, which is running below the third quarter or something like that, then I will be worried.
Right. No. And I'm looking at on a year-on-year basis only, but I mean, in this particular micro market, the numbers are looking strong on a Q-on-Q basis as well. So that's why this question I had. But I mean, I completely understand what your thoughts are on the demand and how it's panning out.
We have the next question from the line of Lavanya Tottala from UBS.
So I just have one question. So I understood that there is an increase in employee cost, but if I look at Max consol level, there's also increase in raw material as a percentage of sales. So is there any increase in the pharma, medicines that you are seeing, which is likely to sustain?
No. So I think as far as the pharma cost is concerned, there is an increase because like I mentioned, we're doing more higher-end work. Like I said, you doubled your robotic procedures. When you do all of it, the consumables are more -- are more expensive in that and as a percentage is higher of percentage of the procedure. But the overall EBITDA per procedure overall value that we get out of the billing is higher. So in terms of percentage is lower, I mean, you'll see ARPOB is higher, your cost of goods goes up, but your absolute EBITDA per bed and EBITDA also moves up. So that is what we've seen. One is that.I think as far as your second question was with respect to the employee cost, the employee cost moves up by usually about 6.5% to 7% per year happens on April 1. This year, you'll see a larger year-on-year increase because you also have 142 new beds that we put up, 144 plus 92 beds. We've created 80 more ICU beds and created 50 more sorry -- 10 more OTs. When you're doing that, the manning of all of these is more. So I would encourage -- I mean, it's almost like saying, I'm -- theoretically, it will double capacity, then you will almost be doubling your employee strength, and therefore, your employ cost. But then you have to have a [ tended ] increase in revenue, so you look at it as a percentage of revenue. I don't think there's much of a change over there.In absolute terms, when you look at it is bound to increase because we're doing -- we're putting up more capacity. If I put more 4%, 5% more capacity, that itself should give my employee cost should increase by about -- at least a few percentage points because of that, right? And then, I do a few percentage points of higher ICU beds -- for a regular ward, for example, requires 5 to 1 nursing, and ICU requires 1 to 1 nursing. So it's almost 5x the amount of people that you require for ICU versus that, but it generates you more, as well in terms of revenue. So you want to do all of those things.
The next question is from the line of Kunal Dhamesha from Macquarie.
So sir, I think there is some confusion regarding the seasonality, at least on my end. So I think there is seasonality to specialty mix that plays out in different quarters, and then there is what you cited is in terms of volume also kind of there is some seasonality, right? So -- and that impacts our revenue on a quarter-on-quarter, year-on-year basis. So could you help us explain how this seasonality? Because as far as for quarter 2 is more like internal medicine patients because of infectious season in the country, right? So how that impacts our revenue and EBITDA in a quarter, let's say, starting from quarter 1 to quarter 4, how you see specialty seasonality and then how it impacts revenue and EBITDA?
Look, orthopaedics happens less in winter. Cardiac sciences happens more in winter, right? More insurance sort of people come move for insurance setup because in Q4, this thing is like relapsing and so on. Usually, and I'm not talking about last year, I'm saying any hospital chain over the last 10 years, okay? Any hospital, any hospital, okay, mature hospital or otherwise. You speak to the management or you look at the history, Q4 is the strongest, Q1 is the weakest, okay, as far as occupancies are -- this thing.As far as Q2 is concerned, occupancy is higher, like you rightly said because of dengue, other medical this thing, et cetera. So you have the highest occupancy in Q3, but you have lower ARPOBs in Q -- sorry, Q2. You have the highest occupancy in Q2, but you have lower ARPOBs in Q2. Okay? Because of dengue, because of medical admissions, et cetera. So that's a very standard thing. I mean...
Our Q1 is also down because doctors on leave also, right.
They go on summer holidays. They postpone their strategies, et cetera, and the beds -- children's schools on holidays. In fact, people postpone their own procedures because its examination time for kids et cetera and so on and so forth. So all of these things matter. But it don't matter this year, they've been mattering every year for the -- I mean, ever since I've been in healthcare or before.
And let's say, to that extent, the trends in July and August, how are those panning out? Because we are anyway 1.5 months into the next quarter, right? So...
I'm not going to give you a forward-looking guidance, but let me put it this way, it's secular.
Okay. Sure. And secondly, on the 13% ARPOB growth, I'm not sure if I missed your initial comment because I joined little late, but on the 13% year-on-year growth in ARPOB, if you can highlight the major moving pieces because we have quite a few like CGHS rate revision international...
No, no, no, no, sorry. Look, CGHS rates, okay, does not impact ARPOB more than -- has not impacted ARPOB more than [ 0.6% ]. Okay. So we have doubled year -- let's look at year-on-year to start with. Okay. Your international patients grown by 31%, your robotics has doubled. Your oncology business, okay, is growing at a much faster clips than anything else, so is your cardiac sciences, so is your orthopaedics. These are all the high alpha businesses. When you do that, okay, your ARPOB increases, right? Okay. when you do that, and of course, the less medical admissions during this time, et cetera, so a lot of that also kind of helps in overall ARPOB increasing.The best part is, okay, that I can't remember the last time your Q1 was almost equal to your Q4, as far as overall EBITDA is concerned. Okay. I mean, I won't make a comment on the COVID year. For any particular, I mean, as a student of hospital, you will go through the history. Now your -- this is purely on increase, so there is not CGHS [indiscernible]. Every year, we have an increase in pricing impacts to our revenue by 2%, [ 2.5% ]. But in spite of increase in salaries and other indirect costs on the 1st of April, okay, you not only absorbed it, okay, but your Q1 overall EBITDA is equal to your Q4 EBITDA.
Sure. And then if I may, just 2 very housekeeping kind of question. What was the international bed share? We have shared the payer mix bed share, if you can share?
Yes. It's around 5%.
5%.
But will give you 9% revenue.
Yes. And yes, it's 9% of revenue. Correct, correct. And just a clarification. So the way I understood is any procedure, which uses more devices, which is where our EBITDA per bed would be higher in absolute terms, but in terms of margin, it might not be accurate. Is the correct way to understand?
Actually, any high-end procedure, okay, has lower percentage margins, higher value margin. Okay. So if you look at oncology, you look at orthopaedics, you look at cardiac sciences, all of these have lower margins percentage-wise, higher ARPOBs, higher billings and higher EBITDA per patient, higher EBITDA per bed.
Typically, you will pay doctor also more for medical procedure, right, compared to medical -- medical specialty. So there obviously will be higher spec there also.
Actually, yes. So on medical specialties, we are only basically giving the patient, we're giving him medicine, doctor visits, et cetera, your margins may be more, but in absolute, billing is lower.
Perfect. I have more questions, I'll get back in queue.
We have the next question from the line of Bino Pathiparampil from Elara Capital.
Just wanted to know earlier you used to give a schedule of new capacity coming online all the way up to FY '28. I haven't seen it for the last couple of quarters. So just wondering if all those time lines given earlier 2 quarters, 3 quarters back still stay? Or is there any change in that?
No. As you see the updates, there's no necessary change in that. And I think other than the update that I've given you. We sort of had put it out. It's still out.
Yes. It's there in the investor presentation.
It's there in the investor presentation [Technical Difficulty].
But I think, Abhay, have given you the update firstly. I think everything else is kept for Max Smart, where we are delayed because of the forest approval and those approvals also have also been received now. And we have to transplant the trees, that is the only project, where we're finding some delays, right? And we said that last time that because of those delays that we've seen, we are fast tracking the Vikrant Foundation [indiscernible] right? So that...
It will be any data, which is static, okay, which doesn't change. We don't give every quarter. I think we -- give changing quarter, but you'll see it on the website. It's on the investor presentation.
The next question is from the line of Kunal Dhamesha from Macquarie.
So to the fact that we have added this [ 42 bed ] in Shalimar Bagh, and we also said that we have added some of the doctors, et cetera, right? So would it be fair to say that the addition of, let's say, manpower would be largely in line with what our averages at network level would be?
No. Like I've said that we've added manpower for these hospitals -- no. So you're talking about for the incremental beds at Shalimar Bagh and others, but it's lower. It's lower because you don't have to add the same amount of -- especially not the same cost of manpower. I mentioned it's operating leverage, but that's not all, right? I mean you added 144 beds, you added 80 ICU beds, okay? You added 10-odd, OTs, okay? All of this generates a lot more than what it was previously being used for -- as both in terms of revenue and EBITDA, but has higher manpower requirement.And then, we've sort of -- over the last year, what we've done is, we've strengthened our projects team because all the projects we are doing, the digital team for the app that we've come out with, what we've done is a lot on sort of the ESG, et cetera, as well. So all of these things play out. But I would encourage you to look at it as a percentage of sales rather than on an increase necessarily year-on-year. Our salary increase has been the same 6.7% [indiscernible].
And one on the strategy side, if we are -- our earlier comment was that we would be mainly focused on the metro cities like Delhi and Mumbai, et cetera, right? But some of the competitions have been now opening up into Tier 2 cities, and we are seeing, I don't know, good kind of ramp up in terms of both top line and the profitability. So would we also look at these markets going forward and probably broaden our horizon, as to where we are going to expand?
So I think you missed out on almost every call of mine prior to this one, okay? But I will repeat myself. There are any city, where at least 1 or 2 of our competitors have proven viability, we will enter into those cities. Presently, the expansions we are doing, I'm not saying it because we only want to be in metros, we are doing because we have a business need. We've run out of capacities, okay. There is demand, which is surging. On my doorstep, I have waiting for a couple of days, if not more, sometimes in ICUs, okay? And so we're doing brownfield capacity in order to tap that demand, right?First and foremost, I need to elevate the business needs that I have. Thereafter, we're looking at other cities. We continue to look at. I've said in the past, there are 21 cities that we have identified that we're looking at. So these are cities, where at least 1 or 2 of my peers have proven viability. So we think we can go there and do it better.
And in terms of inorganic activity furthermore, obviously, probably my sense is valuation could be a factor. But do you see that intensity in terms of the ask price versus what we are willing to pay is reducing, increasing over the last, let's say, 6 months?
For that, you have to know how much I'm willing to pay. We are usually guided by -- we are guided by ROCE. We seek a 20% to 25% ROCE, right, business case. So it's less important what we're paying today. Of course, nobody likes to pay more. But what is important to us is what is the business case we are willing to underwrite 4 years or 5 years down the line. Do keep in mind that our EBITDA per bed is at least 50% to 55% better than the next best player in the industry. So our ability to write a stronger business case perhaps is more than others, and that's what we are [ willing to back ], right.
So that is why because...
[indiscernible] today.
So that is why I asked about the spread and not if you are willing to pay, right? So spread, whether that has increased, decreased can give us something?
It's such an irrelevant, right? The point is that no matter what companies -- there will always be people running fool's errand okay? They want to buy more expensive than what I'm willing to pay. But the fact is, look, I -- if I am today shooting for a 20% to 25% ROCE pretax, 4 years or 5 years down the line with a particular ability to underwrite the business case, that's the number I'm willing to pay, that's a maximum, I'm willing to pay today.We're not seeing there is somebody else, okay, who not [indiscernible] will be willing to pay a higher number. But the fact is the other person then has to write a business case, which is at least equivalent to mine, which at present, at least, I don't think anybody seems to be doing at least on their EBITDA per bed or performance, et cetera.
And the last, again a housekeeping question. Let's say, the consumption of drugs if you can quantify as maybe percentage of revenue in our hospital business as a percentage of revenue -- as a percentage of COGS, I mean, would be helpful, a broad range would also be fine not...
That's a -- this is not a static number, right? I mean, if we, let's say, if I was to do more surgeries, more higher-end surgeries, that number will increase. What you need to do. We have beds, and we have days in a year, right. EBITDA per bed...
Quarterly -- quarter basis, maybe 2 year, 3 year, I mean, average would also be fine or a range would also be fine.
No. We don't give forward-looking statements.
I'm asking about the historical, what would be the drugs, as a percentage of probably revenue...
It's in the range of 23% to 25%, right, depending on which month [indiscernible], but that range, I would say, historical number, right? And by the way, we don't call it material cost because that cost and these include the F&B costs right? So that's the definition.
Yes.
That is -- that -- this includes what...
F&B and so on and so forth. We don't give precise, as far as drugs are concerned or consumables are concerned, includes F&B and some of the other costs as well.
The next question is from the line of Dheeresh Pathak from White Oak Capital.
So you gave a commentary on the projects that are underway, but I'm just trying to get a better understanding of the commissioning time lines. So Dwarka, which is 300 beds Q3 of this fiscal year, FY '23 based on the....
End of Q3, yes.
End of Q3 right? In FY '25, as per the earlier investor presentation deck, there were 4 assets, Smart in [indiscernible], Nanavati 329. Mohali 190 and Gurgaon Sector 36, 300. So obviously, if you can individually call out their commissioning? As for your current understanding based on the current project progress.
Yes. They should be -- so Dheeresh, it's basically what we given the time line is for the completion of the construction right, you can presume that in the next quarter of that will be the -- for example, in quarter 4, FY '25, that means, quarter 1 of FY 26 will be decommissioned, right? So there will be obviously [indiscernible] there is a time line of 1.5 months, 2 months. But as Abhay had mentioned already...
[Technical Difficulty] also. Yes. More or less is the time line limit.
Yes. We have -- we are -- all projects on time except for the Max Smart one, which is [indiscernible] complex Smart, there, we are delayed by 6 months to 7 months because of the forest approval, right? And that's the only project, where we think there'll be probably slip in time lines, right? But in new geographies, we are cross cutting the Vikrant ones, which was also a thing from a complex [indiscernible] complex Vikrant. So that means the bond.
Sorry. So individually, if you go Nanavati 329, you expect in Q4 of '25?
Yes, and as scheduled.
So this will be finished in quarter 4 of FY '25, right? That is March '25 is when we finish and we will be starting this in the first quarter of FY '26 yes. February to April -- yes, February to April...
Mohali?
Similar.
Similar.
Similar. Okay. Sir, most of the assets, Q4 of FY '25 commissioning in Q1 of FY '26 is where the commercial...
Yes. We have mentioned end of '25, right. Yes. End of '25.
End of '25. Okay. Understood. Now just to understand, for these assets, whatever is the estimated CapEx outlay, I don't know if that number is handy or not. How much have you already spent?
So I think, as Abhay have given you the project updates, for example, in Nanavati, we would have spent probably around 26% of the total spend. But other than Nanavati, Mohali, we just finished the excavation, we've done the D-wall, suddenly move to the [indiscernible] given to the EPC vendors now. So I would say a large amount of our CapEx is yet to be spent. So on an overall basis, if you ask me, you'll see probably a 12%, 13% spend. But Nanavati is the only one, where we have more than 25% spent.
I mean, just keep in mind that 1 million square feet, right, if you're building -- hello?
Sir, the current participant has dropped from the queue.
Okay.
I also, I think the bottom line, I feel that generating CapEx spend is because it's also have equipment, right, particularly 30% of [Technical Difficulty] back ended.
The superstructure doesn't got too much, INR 2,000 a square foot. So if you're building 1 million square feet, you spend INR 200 crores in the structure. That's not the expensive part of the project, which you do upfront.
We have the next question from the line of Harith Ahamed from Avendus Spark.
Couple of questions around the CapEx numbers that you've talked about, roughly, the operating cash flows, you mentioned is lower because the higher routine CapEx spend this quarter. Will you be able to quantify the same the routine CapEx that you spent this quarter and the budgeted spend for the year?Just trying to understand what is our ongoing regular maintenance CapEx.
Yes. So typically, we spent around INR 170 crores, INR 180 crores in a year. This quarter, we spent INR 70 crores, right? So that means we obviously advanced and pass that [indiscernible] spend, so that the benefit of the spend will [indiscernible] the year. So that's the number.
Okay. And on the project CapEx, the INR 38 crores spend, I'm assuming, it was lower because of the weather situation that we had in the Delhi region? And then you should expect it to pick up. So for the year, is there a number that you can share?
Yes. We've said that already. INR 900 crores spent [indiscernible] this year.
How much, sorry, I missed that?
INR 900 crores.
INR 900 crores.
INR 900 crores. Got it. So there will be a significant pickup, as we go into the next quarters.
Yes. Yes.
Okay. And on the M&A front, are there any opportunities that you are exploring currently our names keeps coming up in various media articles in various M&A situations. And on the litigation that we have initiated against Care? Is there any update or what are the next steps on that particular situation?
Okay. I mean, the matter is sub-judice. I can't really speak about it, but we've filed an appeal in Bombay High Court. As far as inorganic expansions are concerned, yes, I mean, everywhere, whether that is true or not, it decides the point. But lots of places, where we are looking at things, our name doesn't come up also or for matters are not in the public space. So -- but I think to your point, we are looking at quite actively. We fortified our teams as well. Keshav has been a new addition to head M&A from our standpoint. So we are quite sort of focused on this.
The next question is from the line of Pallavi Deshpande from Sameeksha Capital.
Just wanted to understand how was the operating cash flow and if you could also highlight on the debtor days? And secondly, what would be the debtor days separately for the...
Sorry, I think, yes, the DSOs are at the end of the quarter was 66 days. They have gone up compared to 55 days at the end of March, right? There's a buildup of the AR in the PSU segment and also the PPA segment, the insurance segment. But what we see is that in July is getting unwinded a bit, right? So that's the DSO. You had a question on cash flow also right...
Yes. Sir, just continuing on this, I didn't follow the first part there -- you said there were 2 parts to the increase. So the first part was due to...
Yes. I said the DSO overall went up by 11 days from 55 days to 66 days, right? We guided at the end of March. [ 66 days ] at the end of June. Now this is basically because of buildup of AR, right? There's a AR buildup for the PSU segment, the [ CGHS and ECHS ] and these PSUs and also some buildup in the insurance, right. The insurance we had 24 days DSO at the end of March. This has gone up to 34 days at the end of June. So there's some buildup there. But as I -- as we speak today, I'm saying there is some unwinding, which has happened in July, right. So we got some of those overdues in July, right. So things are getting normalized.
Yes. And sir, overall, on the strength of the PSUs and the [ ECHS is this year, are we going to see better years than last year in terms of government making the payments faster?
Yes. I mean so far, the story looks bright. But we don't know, what's going to happen when their budget finishes and how much time they take to that allocation, et cetera, that's what determines how faster they pay.
The next question is from the line of Mayur Patel from 360 ONE Asset Management.
Most of the questions got answered. But just in your business planning, about the new assets, which you mentioned would be commissioned by end of FY '25. What would be the peak occupancy, which you're targeting in the new assets? Is it possible to share some thoughts around that?
Sorry?
[Technical Difficulty] what is the peak occupancy or...
With the new capacity.
Yes.
I mean, peak capacity would be similar, right, could go up to about 80%.
Okay. In line with whatever are your mature assets currently, 77% to 80% is [indiscernible].
That's right.
The next question is from the line of Amit Kadam from Canara Robeco Mutual Fund.
Yes. Sir, I Just like because you gave some time lines of the...
Sorry, to enter, Amit, but the line for is not very audible. If you could please speak closer to the mic.
I'll try 1 second. Yes. Is this better now?
Yes.
So just like on this new -- the time lines what you provided for commissioning of this previous bed. So from that, what I can understand is that from here on, 300 beds of Dwarka is expected to get commissioned in quarter 4, start of the quarter 4 of this year. And then we have something coming in the quarter 1 of FY '26.
Yes. Last quarter, '25, first quarter '26.
Yes. But then I'm just focusing on the commissioning or revenue generation potential.
I mean a little, little early to kind of project that because exactly which month it happened, we were -- I mean, we said end of '25, we meant February-March. Now whether it's February-March or it's continue to be February-March or it's March-April, it's a little difficult to sort of this thing, right? I mean, yes, but I assume it comes on stream next year for calculation purposes.
Right. So the broad -- so thing, which I want to understand, so during this particular period, so I understand we have a 300 bed to ramp it up. What are other levers in that particular year, which could still make sure that our moment -- growth momentum continues?
We fall back on payer mix, right? That's one. We have another 20, 30 beds when the margins will come on stream through the year, but that's about it. I think -- and this is in terms of occupancy and the quality of occupancy and occupied bed days. And of course, we have a case mix, which has increased, as you've seen, that continues to hold.
Okay. Because Dwarka is a...
If you look at Q4 or Q1 versus Q1 this year, I think other than occupancy, you've seen a big and you take out the 2%, 2.5% increase in revenue, you see the increase in ARPOB because of increasing clinical mix largely and payer mix, of course, more international in some.
So just I was going to come to the international, but before that, I just wanted to understand that when the Dwarka comes on stream, what are the changes this thing will have on our overall number because I think this will be a kind of a new complete stand-alone assets even though in the same region, but it would have its own individual stand-alone case where you have to do it all the recruitment start from top to bottom.
Right. Typically, we have a breakeven this thing, but it should be...
[indiscernible]. So there may be some loss in the initial sales. So I think this is the story if anything till right.
But that should not be -- exceed INR 30 crores, INR 40 crores.
It's not a big some of money that we won't lose there. But as I see, it will be 10th month that we are targeting a breakeven on EBITDA.
Hello?
Yes. So I mean, Dwarka is a kind of a greenfield. So we are targeting a breakeven in 10th month of operation.
We tend to do better...
But yes -- our reaction is about 10th month odd breakeven there. But you should not consume more than INR 30 crores, INR 40 crores.
Okay. No that INR 30 crores, INR 40 crores, that's what I wanted to understand from here and that answers my question. And the third thing and final thing is on the international thing. So we have been doing it quite well in that particular segment. How do I look at this particular thing, at least like on an annualized basis, how this thing should further do for us like moving towards double digit is like a percentage away. But then how do I look at this particular piece beyond that particular percentage point increase.
Look, it's going well. I think I've always maintained that this is a big area of growth for us. Again, I will stay away from making forward-looking statements. But Afghanistan, which is 12% of our business is down to [ 0 ], but very, very recently, they started flight from Afghanistan. So that's a very positive, big positive. And hopefully, in the next quarters, that should give us -- that should give us something as well. So this business is growing. We -- I'm going to avoid giving any forward-looking statements. But do keep in mind, we've had a 13% year-on-year growth, of which 3% has been through OBD, occupied bed days occupancy, as you may call it. Out of the 10%, if you take out a couple of percentage points for a price increase, I think the balance has really been through clinical mix, a little bit has been through the international and so on.
Right. Because why I was asking, so one thing is that the volume or the inflow or the patient count may go up because there would be certain -- like some geographies would open up, which was restricted or maybe there were some embargoes, and second is that some efforts what you guys have taken by going into various geographies, setting up of front-end offices there, that also will lead to your inflow. And second is that this inflow could also have like some kind of a delayed surgeries because they were not able to have that particular...
Well, not so far. I don't think we've come -- have got business for any place, which that embargoes. But hopefully, in the future, some of may see through that. We don't see any sporadic demand right now. I think it's being pretty kind of secular and should continue. I mean, that's the plan. We have not seen any onetime businesses is what you're saying, like what is our demand, which is certainly coming, and the rest is going to come later. We've seen this secular growth through the year.
The next question is from the line of Alankar Garude from Kotak.
Firstly, Abhay, when are we planning to commission the 100 brownfield beds at Vaishali?
Vaishali. Vaishali was commissioned 2 years ago.
Brownfield, we had signed an agreement, right, for 100 beds.
We have signed an agreement to -- we have signed an agreement to sell, right? So there's three keys for that, right? So there are some litigations going on [indiscernible]. Now basically, there are some ongoing litigations at High Court and in District Court, et cetera, so they have to settle those litigations before we can hand over the piece of land first, right?
So right time, it's early.
Yes. Early stage. I mean, first they have to procure the land. That's why I'm wondering, which Vaishali, you're talking about.
Okay. And then I think...
We want to -- we want to purchase the land, the land as we sorted and then, we will purchase the land and then they will be building over there. So that's still out in future, yes.
Got it. And the same question on Gurgaon, the second piece of land. I think there as well, there is a litigation ongoing, right?
Yes, yes. That's...
Status quo order from Punjab High Court. So there is a litigation, right? So they cancel the lease did after 1 year of given the situation...
And taking full money.
And taken the full money. And so I think we have a good case there. So the next date is somewhere in December.
But that was, in any case, post 2028 plan, that was never part of the plan until 2028. Even if you see the investor presentation, the CapEx plans, et cetera, et cetera, that was something, which was never even kind of a talk. Neither the funds nor commissioning nor start date for it -- what they were accounted for.
The next question is from the line of Senthilkumar from Joindre Capital Services.
Can you share this revenue and EBITDA growth excluding Max Shalimar Bagh in Q1 FY '24 on a year-on-year basis.
[indiscernible]. So we already said that the revenue has grown by 31% Y-o-Y in Shalimar Bagh and 43% EBITDA growth.
So what is the contribution in top line from Max Shalimar?
No, so I don't have the ready number, but just [indiscernible].
And my second question is, what is the gross debt as on June 2023?
There's no debt. There's net cash.
On a [indiscernible] INR 640 crores kind of number, which includes the city limits.
But we got cash with it, right, of INR 1,600-odd crores.
Yes. So net debt that is surplus of [ INR 957 crores ].
The next question is from the line of Amit Tavani, an Individual Investor. I was -- I saw the presentation, and I saw the performance in the oncology segment, and even some of the peer hospitals have reported some really good numbers in the oncology segment. So I was just wondering what's happening. Is there some kind of change in the health insurance policies that are allowing more coverage of oncology? Or can you elaborate a little on what's happening there?
I mean, nothing in particular. I think insurance of cancer increasing, awareness is increasing, more and more people are sort of acquiring health insurance and are able to afford to come to private-sector hospitals, which obviously for more high-end diseases are preferred compared to perhaps smaller nursing homes. We've seen a drive towards that.
And also, we've seen that in oncology, there are more usage of ORC drugs, right, which improves the revenue. These ORCs are expensive.
Got it. And how does oncology growth impact our inpatient outpatient revenue? Because how does -- how is radiation and chemotherapy really accounted in beds in terms of bed occupancy?
It's not. It's not. It's day care. Any daycare procedure is not part of occupancy or IPD sort of -- I mean it comes through the ARPOB because you take all the revenues and you divide it by inpatient beds. But any daycare procedures, daycare nursing, et cetera, is not part of occupancy.
Okay. So the ARPOBs then will go up?
It's not a part of the 3,400 beds.
These are not census beds.
These are not census beds. When you do occupancy, you can take a denomination of total number of beds. And if you -- we have 3,400 let's say beds or now 3,500 beds or whatever, okay, which does not include the non-census beds, which is the chemo resistance bed, dialysis bed, daycare beds...
ER beds.
ER beds. All of that will be on the [indiscernible].
The next question is from the line of Damayanti Kerai from HSBC.
I just have one question. So Abhay, you mentioned you added 44 beds through internal restructuring, et cetera, during first quarter, how many more such beds can come, say, in '24?
We expect another 20, 30 beds.
For this fiscal, right, 20, 30, beds.
40 beds. So plan is to add on the 40 beds. Some of them are added in July and some will happen in somewhere network.
Okay, [ 25 ], 30 beds. Okay.
40, 40 beds. 4-0.
Okay 4-0. 40 beds. And it will be ongoing exercise right, in coming years also, you can like choose to add such beds?
No, we can't. It's -- I mean similar [indiscernible]. We are now pressing and at the final stages of capacity, et cetera, we require that capacity, somehow you will find it. There's always some elasticity at the end.
We are laboratories out, we're moving the offices out, we're moving the kitchen out, and that's what we're doing to add these beds.
It's not annual. You can't do it every year. Let me just put it this way or at least that's what the team tell me now [indiscernible].
The next question is from the line of Lavanya Tottala from UBS.
I just wanted smaller confirmation. So the CGHS increase in rates related to the radiology test that has not come in, in the Q1, any impact, right? And what kind of impact that can have on ARPOB?
No, all of the -- all of the CGHS risk, and some of it came in June, sometimes it came in May, but I think all of the impact is about -- has been about 0.6% on ARPOB. Overall [Foreign Language]
Yes. So I think so far, we've all caught on the price increase of CGHS. CGHS business has 60% of that, that is billed in material costs, which is basically drugs and consumables et cetera. And 40% is what is the item, which are actually tariff items, right, in a way. So of the 46% -- 40%, 26% of the 40% has been touched by the price revision so far. And on that 26%, we have around 50% pricing. So in a nutshell, overall, price is 5% increase in the total billing for the PSU, right? So that's the story today. And the absolute amount for us would be around -- if I take the number from whatever has been the Q4 volume and paid the price increase, which has happened till June, there will be a [ 49, 54 ] number.
Okay. And on your side is still not there in Q1 number, right, then?
Yes, it won't be fully, yes. It is -- Q1 would be -- will be probably INR 10 crore, INR 11 crores out of INR 54 full year annualized number that we see in terms of price revision that benefit.
The next question is from the line of Alankar Garude from Kotak.
Yes. Sorry, I got dropped off earlier. Just one follow-up. Historically, in the run-up to the general elections, has Max seen any increase on the receivables front, given the higher institutional mix?
Not really. I think it's...
No. So there was an increase in the AR by the end of June. But in July, we've seen some of it is unwinding, right?
There's nothing like.
So there's nothing -- we don't see any impact of that.
Yes. But even in the prior years, be 2014, 2019, no impact per se.
No, no, no, no,
Thank you. Ladies and gentlemen, that was our last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
So we would like to thank each one of you for taking the time out and being on the call. I appreciate your time. Thank you and see you next quarter.
Thank you. On behalf of Max Healthcare Institute Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.