Max Healthcare Institute Ltd

NSE:MAXHEALTH

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Max Healthcare Institute Limited Earnings Conference Call. PAUSE [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.

[Anoop Poojari]

Thank you. Good evening, everyone, and thank you for joining us on Max Healthcare's Q4 and FY '24 Earnings Conference Call. We have with us Mr. Abhay Soi, Chairman and Managing Director; Mr. Yogesh Sareen, Senior Director and 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.

[Abhay Soi, executive]

A very good afternoon to everyone, and a warm welcome to Max Healthcare's earnings call for the last quarter of fiscal 2024. This has been yet another noteworthy of for us. We witnessed a robust growth in revenue and profitability with both gross revenue and operating EBITDA registering a 16% to 17% growth year-on-year. We touched all time high for all our key operating and financial matrix including ARPOB margin and EBITDA per bed.

This year also marked our foray into 2 new cities, namely Nagpur and Lucknow, adding approximately 750 beds to our existing bed capacity with further expansion potential. Both these cities represent key markets in the fast-growing and popular states of Maharashtra and Uttar Pradesh. We consummated the Nagpur transaction on February 9 for a net consideration of INR 395 crores financed through internal accruals and QIP funds.

While the Lucknow transaction was consummated on March 7 for a net consideration of INR 993 crores with INR 600 crores being financed through external debt. We have already embarked upon the performance improvement journey for these hospitals, which include the revamping of existing infrastructure, expansion of bed capacity, sensoring of clinical talent and establishing a robust sales and marketing program.

These hospitals have been renamed as Max Super Specialty Hospital, Lucknow and Max Super Specialty Hospital, Nagpur. We expect them to be the key drivers for future growth in these regions. In addition, we have also acquired 5.44 acres of prime land at Shaheed path in Lucknow with the potential to build approximately 550 beds. The plan for this hospital will be firmed up once we turn around the operations of Max Super Specialty hospital, Lucknow. Now coming to the quarter 4 performance. This is our 14th consecutive quarter of year-on-year growth. The new hospitals have added INR 42 crores of revenue and INR 3 crores of EBITDA and a net loss of INR 11 crores during Q4, including onetime transaction expenses.

Consequently, overall network gross revenue stood at INR 1,890 crores, registering a growth of 15% year-on-year and 6% quarter-on-quarter. While network operating EBITDA was INR 503 crores, a growth of 15% year-on-year and 7% quarter-on-quarter. Profit after tax dipped marginally to INR 311 crores compared to INR 320 crores in Q4 last year due to increase in effective tax rate having an impact of INR 31 crores. Net loss from the new hospitals of INR 11 crores and movement in noncash items of fair value of contingent consideration of INR 25 crores, which reflects improved projected profitability for the managed hospitals.

Growth numbers from here on are being shared on a like-for-like basis, excluding new hospitals. Average occupancy for the network was 75% occupied bed days rose marginally by around 1% year-on-year and 3% quarter-on-quarter, driven largely by increased admissions under preferred channels, which is cash, TPA and international. Growth in occupancy and footfall was impacted due to capacity constraints. Average revenue per occupied bed, ARPOB for the quarter improved to INR 78,100 growing by 10% year-on-year and 2% quarter-on-quarter.

Year-on-year growth was driven by increased share of super specialties versus oncology, neurology and cardiac sciences, an increase in tariffs, including that for the institutional segment. Institutional bed share was 29.1% compared to 29.2% last year and 29.5% in the previous quarter. However, after excluding Max Shalimar bag, the overall institutional bed share stood at 27% during Q4, and occupied bed days were down by 6% year-on-year for this segment.

Network gross revenue was INR 847 crores compared to INR 1,637 crores in Q4 last year and INR 1,779 crores in the previous quarter. This reflects an increase of 13% year-on-year and 4% quarter-on-quarter. The international patient revenue grew by 14% year-on-year, slightly subdued due to credit risk related actions taken by us and visa related issues in 2 markets.

Network operating EBITDA touched the magic mark of INR 500 crores, reflecting a growth of 14% year-on-year and 6% quarter-on-quarter. Most importantly, annualized EBITDA per bed rose to our highest ever of INR 78.5 lakhs clocking a growth of 12% year-on-year and 4% quarter-on-quarter, while operating EBITDA margin stood at 28.4% for the quarter.

Year-on-year growth in EBITDA was impacted due to cost of people hired for Dwarka Hospital, GST on variable management fee and higher provisioning due to buildup of accounts receivable. Max Shalimar Bagh, where we added 122 beds recorded year-on-year growth of 33% and 48% in its revenue and EBITDA, respectively, with an average occupancy of 78%.

Profit after tax was INR 322 crores versus similar level in Q4 last year and INR 338 crores in the previous quarter. Free cash flow from operations generated this quarter amounted to INR 412 crores, of this INR 176 crores was deployed towards the ongoing capacity expansion projects and INR 1,509 crores were spent for recent acquisitions. Consequently, net cash position stood at INR 22 crores at the end of March 2024 compared to INR 733 crores same time last year.

Continuing our efforts to support the local communities, we treated approximately 35,200 patients in OPD and 1,200 patients in IPD from economically weaker section of society entirely free of cost. Both our strategic business units continued to report significant growth in the revenue and profitability. Max@Home reported a top line of INR 46 crores, reflecting a strong growth of 25% year-on-year and 3% quarter-on-quarter. This SBU continues to garner customer loyalty and has now expanded its footprint to over 10 cities.

Max laboratories -- Max Lab, the non-captive pathology vertical now offers its services in 41 cities and has a network of over 1,100 collection centers and active partners. This SBU reported a gross revenue of INR 39 crores, reflecting a growth of 26% year-on-year and 15% quarter-on-quarter. On the status of expansion projects for 300 beds at Dwarka, we are awaiting last few licenses and will be ready to launch the hospital by early June.

We expect to launch it by early June. We have already onboarded over 280 people, including senior doctors. For 329 beds at Nanavati, the hospital structure should be up by mid-July, and the project is on schedule with expected completion by Q4 FY '25. 375 beds at Max Smart at Saket complex post the initial delay due to Tree transplantation issues, this project has now been fast tracked and is expected to be completed by Q1 FY '26, 9 months ahead of the previously communicated time lines.

For 155 beds at Mohali, the slab work for the 3 basements is underway and base raft has been completed in May. The number of beds has reduced due to change in configuration and requirement to build a fire ramp, which is a new requirement as per Punjab Fire Authorities. Project completion is expected by Q1 FY '26. For 300 beds at Sector 56 Gurgaon, slab work for the 3 basements is in progress. The pace of work at the project has slowed down due to restricted working hours in view of adjoining residential complexes.

This will likely impact the project time line by a maximum of 6 months. For 250 beds at Patparganj, Fire and Water Departments have issued NOCs for the building plan, while the EC and Municipal Corporation approvals are in process, tendering work has been initiated. We expect it to be on schedule. For 300 beds at Max Vikrant and Saket complex, the environmental clearance and the consent to establish have been received, tendering work has been initiated.

For Nagpur Hospital, work has been initiated to add 25 beds through internal reconfiguration by Q3 FY '25, while we are simultaneously firming our plans to augment infrastructure by another 140 beds.

For Lucknow Hospital, we have commenced work for installing additional 140 beds and refurbishing existing 250 beds by December 2024. We plan to add another 140 beds by Q2 FY '26 subject to requisite approval. Further 50 beds will be added through internal configuration in FY '26.

In addition, we plan to put up a new tower of 350 beds by Q1 FY '27. Finally, moving on to overall performance, including new hospitals for the 12 months ended March 31, 2024. Network gross revenue stood at INR 7,215 crores, including new hospitals, reflecting a growth of 16% year-on-year.

Network operating EBITDA grew by 17% year-on-year to INR 1,907 crores, including INR 3 crores from new hospitals. Increased ARPOB, improved case mix and augmentation of network bed capacity translated into a 13% improvement in EBITDA per bed to INR 74 lakhs.

During the fiscal year, we generated INR 1,336 crores of free cash flow from operations after interest, tax, working capital changes and routine capital expenditure, of which INR 441 crores has been deployed towards ongoing expansion projects, INR 97 crores was distributed as dividend and INR 1,509 crores was spent for recent acquisitions.

With this, I would like to open the floor for questions and answers.

[Operator]

[Operator Instructions] we'll take a first question from the line of Tushar Manudhane from Motilal Oswal.

[Tushar Manudhane, analyst]

Sir, firstly on Lucknow, where we already have acquired Sahara, where you also plan to add 140 beds and then another tower of 150 beds. So if you could just explain conception the need for the buying land at Shaheed Path, Lucknow, that is my first question.

[Abhay Soi, executive]

Okay. Firstly, the size of UP itself is the size of Europe, and it is extremely, extremely underserved market. It has a major supply of clinical talent, okay? Because traditionally, you had many, many government hospitals and many sort of other things well over there. It brings a lot of patients to -- from various places, right, up from Bihar to right up to Nepal and so on. We believe that there is immense need for quality infrastructure over there. And our presence at the -- in the Lucknow market, in the UP market, furthering business over there will add to further volumes.

I mean, we've barely been there since the 9th of March and in the last couple of months itself, we moved the capacity occupancy by 8%. Just our presence right now is taken up from 54% to 62%. So that's the extent of ramp-up that we expect. Having said that, I would also like to tell you that capacity, our infrastructure is AAA plus over there. It is right in the heart of Lucknow, if you're familiar with Lucknow.

This is in the heart of Gomti Nagar, 27 acres of land. And with access like no other. In terms of infrastructure, it is superior. In terms of location, it is superior to anything else over there. And we are seeing -- I mean we believe there will be a lot of traction. The state of UP itself is the kind of development which is happening, I mean you just see the -- I mean, the 5 airports which have been launched, another 4 over there, which are being launched, the development which is happening, aiming to be a $1 trillion economy by 2027.

It's not a matter whether they do it by '27 or '28 or '29, But the rate of development over the second to none -- I mean not second to none, but it's right up there. So development of any state, any economy, the quality healthcare is a prerequisite. I think there is a lot more demand over there.

[Tushar Manudhane, analyst]

Understood, sir. Sir, but just that when we could have spread across maybe other cities of Lucknow because peers are also trying to at least build up 500 bedded hospital if not in Lucknow but in other small cities so that can sort of reduce the pace of patient flow to Lucknow, and they are also coming up with super specialty hospital like that. So from that perspective...

[Abhay Soi, executive]

Please understand the demand is there across the country, right? The supply of clinicians is where the problem is. Lucknow is where the clinicians reside. That is where the government hospitals, the medical colleges have traditionally been. Now my belief is as far as tertiary care is concerned, okay, the entire tertiary care of the region will be serviced through Lucknow. You cannot set up treasury care hospitals in tier 3 cities over there, in smaller cities because doctors aren't willing to go there and stay there because the social infrastructure isn't there, the school isn't there and so on.

And given the kind of roads which are being made, the connectivity, which is there and so on and so forth, it will act like what Delhi is in NCR. You get people from various places. You will have Lucknow. You'll have many more hospitals over there. I mean for the entire state of 280 million people, literally, I mean, they are 1.5 corporate hospitals and both of them in Lucknow. We haven't heard of a third hospital in all of UP, right?

I believe that you can have 5 more super specialty hospitals, why 1 or 2 more. The only question that I needed to ask at that point in time when we were even bidding for this piece of land is, look, okay, does it deserve another super specialty hospital and what if somebody else gets it and so on and so forth. I think, like in Delhi, our approach is a cluster approach. We believe that is the next Delhi NCR. And frankly, it can do with many more hospitals.

[Tushar Manudhane, analyst]

Got it, sir. That's helpful. And secondly, with these beds sort of coming up and just to refresh per se in terms of the EBITDA growth for, say, '25, '26, the kind of expenses that will be coming on board, particularly for FY '26. So if you could share in terms of whether we'll be able to grow on the EBITDA front even in '26?

[Abhay Soi, executive]

You're talking about '26 or '25 now.

[Tushar Manudhane, analyst]

FY '26, particularly.

[Abhay Soi, executive]

Look, so imagine what's happening to FY '26, right? You would have had Dwarka, which starts now in the 1st [indiscernible] of June, okay. We break even by the end of the year. Okay, next year, definitely in the black and making money. You put all the building blocks of Lucknow and Nagpur in place, both of them are profitable in any case, okay? They become more profitable in '25.

But look, it will have a tremendous growth in '26 simply because this year, we are putting all -- we'll be fixing everything and so on and so forth. Then you have 3 basically capacities coming in, in beginning of FY '26, effectively, which you will get the benefit of the whole year, will be Mohali 155 beds, 329 beds in Nanavati and 375 beds in Max Saket.

All 3 are brownfields. I mean, right in the adjacent 2 properties, which are already fully occupied. You should see the same sort of results that you've seen in any of our brownfield. I mean FY '26 will be a very exciting year for us, in fact. I think this year, if you look at FY '24, it was always meant to be a year of incremental growth. We're very fortunate we were able to add. In fact, '25 would have also been incremental growth if we hadn't added sort of both Lucknow and Nagpur.

We'll have the EBITDA and the revenue kicking in from both these. You add to it, look, Dwarka, where you will have some losses, of course, up to breakeven in the first year, okay, which we get more than absorbed by Lucknow and Nagpur, but next year all 3 will be exploring. And in relation to that, we have 3 brownfields, okay, which don't take time to breakeven, have you seen that in the past.

[Tushar Manudhane, analyst]

Understood, sir. That's helpful. And just lastly, what may push or in fact, prepone the Max Smart by almost 9 months. If you could just elaborate on that.

[Abhay Soi, executive]

So I mean, as you are aware, we were coming up with a much larger capacity in 2 phases in Max Smart, and we were also coming up with the first phase of Max Vikrant capacity. Now the fact is that we got delayed on Max Smart. So what we've done is instead of doing one phase of Max Vikrant, which is contiguous, which is joining on a joining land and doing 2 phases of Max Smart, we are doing one phase of Max Smart and 2 phases of Vikrant.

So what we've done is essentially we preponed. We are not going to be making so many basements that takes less time and we preponed the entire project. I mean, we'd rather have 375 beds sooner than have 600 beds later and then another 300 beds coming through Vikrant at an even later stage. Right now, we kind of caught up with Vikrant time lines, which is supposed to be later. And that's how we've done this.

[Operator]

Tushar, does that answer your question?

[Abhay Soi, executive]

I'd like to add, so this would be a surprise to everybody. It's a pleasant surprise that we've been able to prepone Max Smart. I think a lot of people are expecting delays, later no delays, we preponed this entire project.

[Operator]

[Operator Instructions] We'll take our next question from the line of Damayanti Kerai from HSBC.

[Damayanti Kerai, analyst]

Abhay, you mentioned in your opening comment, there were some visa issues in 2 markets, which slightly impacted the international segment -- international patient segment. Can you please elaborate on it?

[Yogesh Sareen, executive]

So Damayanti, basically there are markets [indiscernible] et cetera, where we have a buildup. So we obviously took some calls on the site control and we said we will not take more patients till [indiscernible] money. And that's what Abhay was alluded to. There are also some margins, where is some disturbances on the visa side, right? So the -- because of the elections, the visa et cetera were not being given, right?

So that's the -- these are the 2 markets that got impacted, right? So that the -- you'll find that -- overall, we've been growing the interest of market by around -- interest revenue by around 23%. This quarter, it is 14%, 15% growth. So a bit subdued growth because of these 2, 3 reasons.

[Damayanti Kerai, analyst]

Okay. And these are more temporary in nature, right?

[Yogesh Sareen, executive]

Yes, yes. Very much.

[Abhay Soi, executive]

We continue to see great traction with new offices that we are opening overseas, is very, very positive, and we intend to sort of double down on that further.

[Damayanti Kerai, analyst]

Okay. So in all focus markets, you will be doubling down your effort to get more footfall.

[Abhay Soi, executive]

We started the direct-to-fly kind of setting up offices, okay? As you recall last year, and we've seen great traction with that and great throughput through those. So we're seeing a lot of success through the new markets where we're setting up our own offices. We will continue that strategy.

[Damayanti Kerai, analyst]

Okay. Abhay, is the way you mentioned attractiveness of Lucknow market in terms of like demand and then availability of clinical talent, et cetera. Can you talk a bit about how do you see the Nagpur market? And do we have similar supply of clinical talent in that market, too?

[Abhay Soi, executive]

Yes. So I mean, you have supply of clinical talent. But if I look at the -- if I look at India, Lucknow that is unique, perhaps it has the most amount of -- and just to give you an example, a lot of -- at least 20% out of our own doctors in Delhi, which work for Max have come from Lucknow. So it's traditionally been a this thing. Of course, Nagpur is also repository for clinical talent, but not to the same extent than Lucknow. Because Lucknow is Lucknow. You don't have other places the same sort of this thing. I mean I would compare Nagpur more to Dehradun and where we have hospitals which are doing quite well, et cetera, but I would compare it to those markets rather than. Having said that, it's also -- it is emerging as the transplant capital of the country.

Because you have a huge amount of awareness of organ donation and a lot of people seems to be a cultural thing there, donating organs and so on. Also, it has been a big distinct for mouth cancer because of much higher consumption of Gutka and so on and so forth. So we're seeing a lot of oncology patients in Nagpur. So I think that oncology is being our mainstay, I have no doubt that -- I mean this -- by the -- so let me also clarify even Nagpur also has much fewer sort of quality health care assets.

I don't think there is anybody even compared to Alexis over there. Competition is also significantly lesser. So we will have first day to pretty much all the clinical talent over there. So we are quite comfortable that it may be less than Lucknow, but nevertheless, we'll get the best. So we don't have a challenge getting the clinical talent. And the market itself is quite big. It also draws a lot from Madhya Pradesh, Singhwara and so on and so forth. [indiscernible] free state, it also has great connectivity and infrastructure.

[Damayanti Kerai, analyst]

Okay. And my next question is a quick clarification occupancy. So now you're giving it on like-for-like basis, 75% for fourth quarter and then you have given separate numbers for the new units. Can you just for understanding purpose, on a blended basis, what is the number occupancy number for fourth quarter?

[Yogesh Sareen, executive]

To be around 70%.

[Abhay Soi, executive]

Do keep in mind that Nagpur has only been there since 9th of February, and that has been -- Lucknow has been there since 7th of March. So you don't get the full import of the fourth quarter, right?

[Damayanti Kerai, analyst]

Got it. And my last question is like your upcoming hospitals, most of which are very -- which are -- most of which are located in very attractive locations, brownfield location, et cetera. So for both, I guess, we are assuming breakeven within a year of start of the operation.

So very broadly, like what kind of loss you generally incur when hospitals are ramping up maybe like loss per month or any indication. For your upcoming hospitals, most of which are brownfield. So I just want to understand while hospitals are ramping up, what kind of loss you generally incur.

[Abhay Soi, executive]

So I'll give you the example of the last brownfield we did. We added about 152 beds on, I think, 240 or 250 beds. That would have broken even in 10 days or maybe 15 days. And by the 40th day, the additional beds were generating 40% EBITDA margin. And in the whole year, I think we have a 78% average occupancy of the new and old beds. So brownfield don't take time to breakeven. They don't take years or take months. We normally say a quarter at best, but we're kind of out beating that every time.

[Damayanti Kerai, analyst]

Yes. Just like in NCR, I can understand this kind of performance we may aspect. But is it true for, say, Nanavati or Mohali, et cetera, also, we should see similar ramp-up?

[Abhay Soi, executive]

No doubt. I mean Nanavati is on Bombay, right? I mean in the heart of Bombay, we have another 375 beds of quality beds coming in. And in a place where no new hospitals come up in 20 years, I don't see a challenge in breaking even. Mohali again -- it's the highest ROC, the highest occupancy that we have in the country right now is in Mohali, it's not Delhi and Bombay.

[Operator]

We'll take the next question from the line of Neha Manpuria from Bank of America.

[Neha Manpuria, analyst]

Based -- given the background you gave on Lucknow is it fair to assume that Lucknow can get to what we have margins for our corporate average much faster probably, let's say, in '26 itself. Would that be a fair assumption? Or do you think because of the addition, et cetera, that could take a little bit longer?

[Abhay Soi, executive]

See addition is a separate altogether. Addition is the capital expenditure, right? The margins are...

[Neha Manpuria, analyst]

No. I mean the [indiscernible] with the addition, et cetera?

[Abhay Soi, executive]

I didn't get the question. Can you repeat the question?

[Yogesh Sareen, executive]

Neha, basically, in terms of margin, we can probably get to the overall similar kind of margin very soon, not probably in the initial part of the year, but maybe by the end of the year. But I think the EBITDA per bed, which have to wait. Because the ARPOB there is low, right? So the ARPOB in Sahara Hospital [indiscernible]. So I think the ARPOB has to go up, right?

The margin on the lower ARPOB doesn't mean much because we generally see that in EBITDA per bed domestic rates. So EBITDA per bed will have to wait. I would say it will take some time to get to that level. But margin by probably the end of the year, we should be closer to what the margins are in overall basis.

[Abhay Soi, executive]

I think on all -- pretty much all ARPOB and other metrics, I think we will be able to catch up in the next 2 years. When I say catch up, catch up, you know the numbers of some of our peers over there. So I think we should be able to get there if not further.

[Neha Manpuria, analyst]

Okay. Understood. And what about Lucknow, given the margins there at least the numbers that you gave seem close to 14%, 15%. And it's probably not as flushing as -- would that take a little bit longer, a much slower pace to...

[Abhay Soi, executive]

Nagpur or Lucknow?

[Yogesh Sareen, executive]

Lucknow.

[Abhay Soi, executive]

Actually in the Nagpur. So Nagpur is a different ARPOB. See please understand different ARPOB means different ROC as well. I mean today, Mohali and Dehradun, okay, you compare it to similar to a Dehradun rather than any other sort of this thing. You can't compare ARPOB of that to Delhi and Bombay for that matter. You'll be looking at obviously more subdued ARPOBs. But given the price you pay, you look at ROC.

[Neha Manpuria, analyst]

So if I were to look at the Nagpur ARPOB, it is very similar to where Lucknow is, right? So that's why I was asking. Will it take the same trajectory as Lucknow or that be little...

[Abhay Soi, executive]

Today it is, but Lucknow has potential or a lot more, right?

Like I said, Lucknow, we will sort of -- if we even look at some of our peers who are operating there, they operate at a significantly higher ARPOB, correct?

[Neha Manpuria, analyst]

Yes.

[Abhay Soi, executive]

Nagpur as a market, we will -- you can use maybe Dehradun as a surrogate.

[Neha Manpuria, analyst]

Okay. Understood. Got it. Okay. And in terms of incremental M&A, now that you've announced this in land in Lucknow, you've always said we'd rather be the second or third player in the market. Any markets that you think are interesting, particularly given you've done 2 of these back in Lucknow now, which could interest you?

[Abhay Soi, executive]

In the 20 cities, where at least 2 people or 3 of my proven viability and doing fairly well. We intend to go there if we find the right targets. And we are quite confident we'll be able to perform better in them.

[Neha Manpuria, analyst]

And Abhay, what would be your target leverage? I mean, let's say, if you were to get a multiple assets, what leverage are you comfortable with in terms of when you're looking at M&A, particularly given the strong cash flow generation?

[Abhay Soi, executive]

Yes. So we are quite comfortable going up to 2.5x debt to EBITDA, right? If you see our EBITDA at present, I think we will be in circa INR 2,000 crores, okay? You have [indiscernible] but if I add up 11 months of EBITDA for both Nagpur and Lucknow okay. We'll be closer to INR 2,000 and plus, right? And then you have growth in the current year.

But even if we take 2.5x that, you're getting some INR 6,000 crore, INR 7,000 crores of debt that we can use. So do keep in mind, anything bigger than that would mean that we're acquiring something which is listed. And if it's a listed entity in any case, you'll have to look at a merger because you can't have a step-down subsidiary of a listed company to be a listed company.

[Operator]

We have a next question from the line of Andrey Purushottam from Cogito.

[Andrey Purushottam, analyst]

Okay. I have 2 questions. One is, could you comment on the valuation parameters in acquiring these 2 hospitals, they are actually different EBITDA multiples. Are they into the ROC feature? Or what is the philosophy in -- financial philosophy apart from growth, obviously? That is my first question.

And my second question is going forward in the next 12 months, how do you see the lever for profit working in your favor, whether it is the increase in mix of international patients, whether it's a better mix, whether it is a lower proportion of government cases, et cetera, et cetera. I just wanted to gain your general outlook on the trend that you see in the next 12 months that will lead to [indiscernible].

[Abhay Soi, executive]

I think 2 aspects. One is on the financial aspect, we seek a 20% to 25% pretax ROCE within the space of 4 to 5 years. In both these cases, my belief is we will be able to hit that number far sooner than that. And we do this by seeing what is the value we are paying versus what we believe with adequate amount of intellectual integrity.

What is the business plan that we are able to or capable of underwriting. [indiscernible] for that number at 20%, 25% pretax ROCE, and that's how we come up with the maximum that we are willing to pay for assets.

Of course, we will pay that maximum. We try to negotiate and pay as little as possible, but that's where we are on the financial side. I hope that answers your question as far as what is the physical target. Now as far as drivers for the current -- for the current year is concerned, I think it is all of the things that you -- sorry?

[Andrey Purushottam, analyst]

For the next 12 months.

[Abhay Soi, executive]

Next 12 months is this financial year, right, effectively.

If you take 12 months, I will draw a line at 10 months or whatever because that's the number of months left for the current financial year. I think all of these that you mentioned, I think a higher international patients. So that means better payer mix, better clinical mix. We are seeing more robotics happening.

We are seeing more sort of [indiscernible] oncology, higher-end surgeries and so on and so forth. So I think all of these things should be in play. We're also hoping that and we believe that CGHS rates will get reworked. And on the institutional side, we're expecting better rates. So I think all of these are levers for us in the current year.

Other than that, of course, compared to last year, we would be adding the EBITDA and incremental EBITDA emanating from both Lucknow and Nagpur, whilst Dwarka will have some sort of initial losses at start-up.

But those initial losses and startup should be, maybe able to more than absorb it with our new profits that we're generating through Lucknow and Nagpur.

[Andrey Purushottam, analyst]

Right. And do you see a drag on profitability?

[Abhay Soi, executive]

No. Like I said, of course, you have Dwarka will take time to breakeven, but you -- we've added 2 new capacities, which is 500 beds, which are already generating profits and free cash flows. We will be adding to that. That number is only likely to go up in our -- under our watch.

[Operator]

We'll take a next question from the line of Bino Pathiparampil from Elara Securities.

[Bino Pathiparampil, analyst]

Just 2 clarifications. One, did you say you're adding -- planning to add more beds in Nagpur over there over and above between 200 beds there?

[Abhay Soi, executive]

That's right. We're going to add another 150 beds on top of the 200 beds that we have.

[Bino Pathiparampil, analyst]

By when would that be?

[Abhay Soi, executive]

I think we are working that out at present, but definitely within the next 24 months. I think we've given a time line -- yes. So I think that will be within the next 24 months.

[Bino Pathiparampil, analyst]

Okay. And I didn't quite understand the Saket, Smart and Saket Vikrant. So both put together, how many beds are now getting added in FY '26?

[Abhay Soi, executive]

No, Vikrant, nothing is getting added by '26. Saket is getting added in '26. Vikrant wasn't meant to be added by '26. Vikrant doesn't come in play, whereas Saket, which was going to be added in '27, has been preponed by 9 months, is going to come through in Q1 FY '26.

[Bino Pathiparampil, analyst]

That is 350 beds?

[Yogesh Sareen, executive]

375 beds.

[Bino Pathiparampil, analyst]

Sorry?

[Abhay Soi, executive]

375.

[Bino Pathiparampil, analyst]

Sorry, 375, okay. I was looking at your Feb investor presentation, that shows Vikrant 300 beds in FY '26. Is that old one?

[Abhay Soi, executive]

I don't know. I think maybe you're looking at older presentation. Which presentation you're looking at Yogesh.

[Yogesh Sareen, executive]

No. So I think the investor mentioned, we have to change for all the 375 bed changes et cetera doing. And I think that will be updated now with whatever we have done in terms of preponing the beds, right? So there are some beds being proponed and some being postponed. So I would say this recently updated in another week's time, the new one. And that is the one that should be deferred, right? So because as Abhay mentioned, we've done some resetting in terms of getting some beds in advance and some beds are getting delayed for that reason.

[Bino Pathiparampil, analyst]

Okay. Understood. I will refer to it.

[Abhay Soi, executive]

Your total number of beds remain the same. But like I said, this gets preponed. The total number of beds don't change.

[Operator]

We have a next question from the line of Rishab Tiwari from Elegro Capital.

[Unknown Analyst]

So I have three questions. Firstly, what would your EBITDA look like now post rent for this quarter and for the year?

[Abhay Soi, executive]

I don't give forward-looking projections.

[Unknown Analyst]

Sorry?

[Abhay Soi, executive]

We don't provide forward looking.

[Unknown Analyst]

For this quarter and for the...

[Yogesh Sareen, executive]

We don't provide guidance, right? So we don't generally provide guidance for the next quarter or for the year.

[Unknown Analyst]

No, I'm asking for Q4 and FY '24.

[Yogesh Sareen, executive]

Yes. For Q4 EBITDA was INR 500 crores from the existing hospitals, right? There's a INR 3 crore of EBITDA, which has come up from these 2 hospitals that we added in quarter 4, one was in February, other was in March, right? And the INR 3 crores is actually net of INR 5 crores of expenses that happened on the deal side. So the overall EBITDA for the year is INR 1,907 crores.

[Unknown Analyst]

This would be post end year right?

[Abhay Soi, executive]

Yes.

[Unknown Analyst]

Yes, I'm asking post end year, that is pre May.

[Yogesh Sareen, executive]

So for [indiscernible] by around INR 70 crores. So that will be -- if we can ease is up, that's the only difference in our case. So these costs would be around INR 70 crores.

[Unknown Analyst]

For the year or for the quarter?

[Yogesh Sareen, executive]

For the year.

[Unknown Analyst]

And next question is Abhay you mentioned that we did the occupancy up from 54 to 62 in Sahara Hospital. I just wanted to know more about the [indiscernible] was this through operational levers? Did we see some improvement in seasonal mix or something. How do we take this within Q1?

[Abhay Soi, executive]

No, it is changing some basic processes. You always have some very, very early easy win when you walk in, right, because you would have seen those things. Those things kick in. These are very cheap early wins...

[Unknown Analyst]

Okay. And are we looking to add any beds here as well in Sahara?

[Abhay Soi, executive]

We will be adding beds. Like I said, we will be adding 140 and another 140 and then 350.

[Operator]

We move on to our next question from the line of Ameya [indiscernible] from JM Financial.

[Unknown Analyst]

Congratulations on a good set of numbers. The first question I have on the volume growth. So IPD volume seems to be around low to mid-single digits. Anything to read there? Or do you expect the volume growth to remain at this kind of level?

And second question I have is on the safety selection. I understand we generally have 20-odd cities across country. What would be the cities you would not like to enter into? And what are the reasons for the same?

[Abhay Soi, executive]

Okay. So first and foremost, you have to keep in mind that our occupancy growth till we come up with new capacity brownfield or otherwise, okay, will be fairly muted because we don't -- we have a capacity constraint. I mean we don't have places to put more patients. So that's why we are doing the brownfield, right?

So having said that, when we will have a -- because of constraints on capacity, our occupancy ramp-up will be limited, whilst it will have a play, a positive impact on ARPOBs. So what tends to happen is that the lower-end surgeries get posted, okay, at a later date, whilst the larger surgeries are more significant ones, okay, get a priority as they should. So therefore, the lower-end ones sometimes have a tendency of evaporating because the patients then decide to go to some other facility or some other brand because they may not be very important sort of surgeries as well.

So what happens is that your -- while the occupancy does ramp up your ARPOB, okay, you see a significant growth in ARPOB. But when you come up with brownfield capacity, the interplay which happens is that the occupancy ramps up immediately, but your ARPOB growth becomes more muted. Having said that, the impact on overall EBITDA per bed is positive simply because you have huge operating leverages emanating in the new capacity that you add because the management cost, the clinical costs, et cetera, are already being incurred by the previous capacity.

So I just wanted to answer that question as far as occupancy is concerned and kind of assure you that there's nothing to read into it simply that we don't have capacity. So our occupancy, obviously, will go up at a smaller sort of pace. Having said that, when you look at your second question was with respect to with cities, I would not go to -- so conversely, I would not go to cities where my peers have not proven viability or unchartered territories because we don't see ourselves as pioneered going into places where in taking chances.

We'd rather have somebody else define the market, be able to sort of demonstrate success to go there and try to do it better. We've been very comfortable in doing it. We've been successful in doing that.

[Unknown Analyst]

So is there any city in which you think is oversupplied with the quality of the beds, et cetera? Or is just that the -- because it's unchartered territory, that's why you don't want it.

[Abhay Soi, executive]

So let me give you an example. Look, the maximum amount of beds, okay, in any geography is Delhi NCR, right, the national capital region. We have 11 hospitals over there, and we have 5,100 beds. We are the largest player by far. We are equal to our next 3 peers put together multiplied by 2 in terms of number of locations, and we are equal to all 3 of them put together, okay, as far as number of beds are concerned.

And the next 15 players have amount of bed locations, a similar amount of bed capacity. Yet we only have 2,100 beds, 10% of which are pre, 10% of which are catering to international business, 40% of which catering to upcountry. So essentially, if the largest player has 800 beds, catering to the national capital region, okay, and the next 3 peers of mine, okay, that you heard of, they also have 800 beds and then the next 15 people have 800 beds, that is like 2,400 beds or 2,500 beds for a population of 48 million people, which is 85% of the U.K. population.

And this is a place where you have the maximum order supply. Look -- I mean, look at the places we're going to -- if we are going to Lucknow, I mean, literally the 1.5 corporate players, then we've come up with a hospital and a state with a population of 24 crore people, which is Europe's population. I mean we -- in Dehradun, we are pretty much the only players over there. We have, in Mohali, us and one more player. I mean you look at -- I mean if some of my peers in Patna, they are the only players over there.

If you look at places like Kanpur or Puna is that, I mean, every place is underserved, right? Even a place like Bombay, the only hospital come up in 20 years. I don't think India, we have a problem of oversupply anywhere.

[Unknown Analyst]

Right. But in generally, you speaking about the Mumbai, like we generally don't see except -- I'm talking about the private hospital, we don't see hospitals being overrun or something like that or there is a like we have not seen many hospitals getting added, but we have not seen capacity getting over...

[Abhay Soi, executive]

[indiscernible] Keep you hold you there. You haven't seen hospitals being added because to make a 400-bed hospital you need 4 acres of contiguous land. Firstly, you can't find 4 acres of contiguous land in Mumbai. And even if you found it, you'd rather make a residential complex or a commercial building there, right?

I mean I know has been wait for 20 years. I mean it's the same hospital in Hinduja, the same rich candidate. They haven't added one square in where is the space. Even they brought down early hospital and made a new hospital, right? Bombay Hospital is the same one, just look at the same one. Nanavati is the only one which has the land. So they built it.

[Operator]

We have a next question from the line of Kunal from Macquarie.

[Kunal Dhamesha, analyst]

So just kind of continuing on the previous question. So mature hospitals, we are at 75%. And we are seeing that there is not enough capacity for us. But we have done quarters with 77%, 78% occupancy, right? So what is it that -- is it a mix of hospitals where our good hospitals are already full and some of the hospitals are below that 75 run rate.

And secondly, if it's kind of across the hospitals, we are facing difficulty in terms of capacity, then why our peer mix improvement is not accelerating in terms of reducing the institutional patients?

[Abhay Soi, executive]

Because Kunal, it's a seasonal business, okay? There are some quarters which are surgical quarters and some quarters which are medical quarters, okay? In a medical quarter, you require rooms while surgical quarter, you require more sort of ICU beds. And it's not -- every kind of capacity is not fungible across every hospital. In fact, some hospitals may have certain constraints that they're operating at 75% because you have maybe lesser single rooms where there's demand for and more [indiscernible] where you don't have demand for and so on and so forth.

But whereas in a dengue season, even the lesser sort of rooms or multi-share et cetera, get absorbed. And that doesn't happen in the surgical season. So that's the reason that we are constrained by seasonality as well as the kind of infrastructure that we have. Now as far as the payer mix is concerned, okay, the payer mix is a slow turn now. If I look at ex Shalimar Bagh, new capacity that we've come up, okay, it's come down from 29% to 27%, but there's been a 6% reduction as far as the occupied bed days are concerned.

So I think what we are seeing is -- we are seeing a turn perhaps more so on the occupied bed days than anything else.

[Kunal Dhamesha, analyst]

Sure. But let's say, when you say the 122 beds added in the Shalimar Bagh capacity or hospital. And we say that it's been EBITDA positive in 10 days. Is it more on a contribution margin? Because if I back calculate our payer mix for that 122 beds, there'll be roughly 46%, 47% of those beds have been occupied by institutional patients, right? And we all know that the ARPOB roughly 50% of what you get in other channels.

So is it on a contribution margin we are seeing that the EBITDA turned positive in 10 days, was it loaded with the management cost? Or how should we think about that?

[Yogesh Sareen, executive]

Kunal, it's an EBITDA. It's after the incremental cost that you have to -- [indiscernible] so it's not contribution of EBITDA that you have to understand that we had an option. We had an option to open only 50 beds to start with, not on all these 122 beds right? So the -- so what we did is we said we'll open all the beds and fill up the balance also through the institutional beds or institutional patients.

So there are 2 options that we have, right? So we chose for the option. We said, let's open all 122 beds and then try and fill up and then filter that -- so that's where we are today. But when we say number, the number, 40% is EBITDA margin, right, after incremental cost.

If -- open, there are more manpower being recruited, right. So there are nurses required. There'll be GD required, maybe less doctors, but there'll be -- obviously there will be more costs, et cetera so it's after all those costs.

[Kunal Dhamesha, analyst]

P So even with 46% kind of institutional payer mix, we are making 40% EBITDA there. Is that the correct...

[Yogesh Sareen, executive]

Because the incremental cost of those beds, which we open is very less, right?

[Abhay Soi, executive]

Let me explain this separately. Let's say, if you look at bed-by-bed, [indiscernible] wise, right? Or let's say, all 100% of the beds over there, okay, where you were operating only for institutional business. It will still be EBITDA positive.

Okay. It will be EBITDA positive simply because you got operating leverage. The only thing you're getting over there is necessarily, okay, is the nurses, which is not very expensive, is the resident doctors, again, not very expensive, okay? And allocated to those beds alone, which are operational. What you're not doing is you're not fitting out beds and you're not sort of staffing beds where you don't have capacity.

You open floor by floor, right, whatever you have demand for. So there's no fixed cost associated or fixed variable costs associated with beds which are not operational. And the ones which are operational, we have only the low end cost. It does not have high-end sort of [indiscernible] et cetera, or minimum guarantee, which are being taken on board for that. Because those clinicians already exist, the minimum guarantee is already paid. Utilities are common. The general set of -- your management cost has already been incurred. You don't operate a separate CEO, separate Medical Director, separate HR, separate Marketing, nothing for that.

[Kunal Dhamesha, analyst]

And if I may, just one more on the Supreme Court matter. Now it seems that the next date for that hearing of PIL seems to be somewhere around September. So what's your internal assessment? Is it kicking the can down or would you say that the risk of adverse outcome has reduced meaningfully in your view? How do you view that?

[Abhay Soi, executive]

I would not want to comment on it. It's the Supreme Court matter is subdued, okay, we've seen the RAP IMA got. I definitely don't want to be speaking about it. But I think the last hearing, the comments, the observations of the judge, et cetera, were for everybody to hear, and make their own influences.

[Operator]

We'll take our next question from the line of Shubham Harne from Purnartha Investment Advisors.

[Shubham Harne, analyst]

Sir, on Dwarka back, I want to ask questions. So that is getting added in tranches or it will be on one go?

[Abhay Soi, executive]

No, in transit only. I think because our occupancy will also have been transit only.

[Shubham Harne, analyst]

Okay. So initially, earlier, you have said 160 beds will be added and then 140 like -- something like that only?

[Abhay Soi, executive]

Occupancy also ramp-up. Ramp-up in that manner. No point starting on all the 300 beds when you don't have occupancy day 1 of all 3.

[Shubham Harne, analyst]

Got it. And on Gurugram sector 56 hospital, by when it will get commissioned or something from -- around that.

[Abhay Soi, executive]

I think Gurugram sector this thing, we should be -- we delayed by 6 months. So whatever the original later by 6 months, I think it will be third quarter of '25.

[Yogesh Sareen, executive]

Q3 FY '26, yes. Calendar year '25.

[Operator]

We have our next question from the line of Rishab Tiwari from Allegro Capital.

[Unknown Analyst]

Sir, just one follow-up on the lease impact. So INR 70 crores is what you mentioned for the year, is this taking into account the recent acquisition? Could you please help us with the like-to-like number for...

[Yogesh Sareen, executive]

The recent acquisition doesn't have any lease rentals, right? So that land is obviously getting some into free hold. We already put [indiscernible]. So this is on the existing hospitals. INR 71 crores is a total impact. There's one or more two entries which comes up in the low the line. So I'm taking all those, donations also, the liability for donations that we have so that also comes up. INR 71 crores is total impact of the India movement. If I was to do either accounting, then the INR 71 will come before the EBITDA.

[Abhay Soi, executive]

I think just the last thing is an important one. I don't know if you picked up my statement or not that during the fiscal year, we generated INR 1,336 crores of free cash flows from operations. This is after interest, tax, working capital changes in routine CapEx also let alone leases.

So our translation of EBITDA post Ind AS EBITDA to free cash flows, post -- pre Ind AS impact, pre-interest tax, working capital changes and routine CapEx, et cetera, 70%. This is a significantly high number.

[Operator]

We'll take our next question from the line of Senthil Kumar from Joindre Capital Services.

[Unknown Analyst]

My question is, what is the management policy on writing off goodwill and other intangible assets over a certain period of time as a matter of prudent accounting policies.

[Abhay Soi, executive]

What in?

[Unknown Analyst]

Management policy on writing off goodwill and intangible assets, sir.

[Yogesh Sareen, executive]

So goodwill is not under the Ind AS, the Goodwill is only tested for impairment. Intangible assets represent some of these contracts that we obviously, over the period of time, we are writing them off, right, over the period of the contract. But there is an element of brand in the intangibles, which we ran test for impairment, right? So the Ind AS accounting standards required to only [indiscernible] from payment, the goodwill and the brand.

And for the other intangibles, you will find that they are coming down protectively year after year because we're putting them in the amortization charge.

[Operator]

We'll take our next question from the line of Vipul Makwana from Makwana.

[Unknown Analyst]

Apart from all the financial queries which my peers have asked, I just want to ask on the qualitative aspects like what is Max doing separately or concisely different than the others were seeing a good number set, like on ARPOB and everything. So Abhay, if you could just throw some light on it.

[Abhay Soi, executive]

I think first and foremost, proof of the pudding lies in its eating. The fact that we have a significantly higher occupancy levels than any of our peers or whatever means that we are doing well on qualitative aspects as well. We -- and the value proposition that we be able to provide to our patients. It's not only Delhi, Bombay.

Our highest occupancies also continue to be in Tier 2, Tier 3 cities. So yes, I think it's for people to perceive -- the patients to perceive more than what I can say in terms of what is the policy that they sort of this thing. Yes, we continue to cater to a lot of 3 patients. There are thousands of patients in a year that we treat free of cost, and I mentioned to, I think, 35,000 patients in OPD and some 1,500 patients in IPD in the last quarter itself that we treated.

We, all our hospitals, are teaching hospitals. We have 850-odd students, both -- these are postgraduate prudent. We write a lot of -- you've seen the number of publications that we're doing, which is the highest ever that we did last year, both for international and domestic journals. So we continue to academics and research as well besides, of course, the financial parameters [indiscernible].

[Operator]

We'll take our next question from the line of Amit an individual investor.

[Unknown Attendee]

My question has been answered.

[Operator]

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comments. Over to you.

[Abhay Soi, executive]

Thank you. I would like to thank each one of you for either covering the company or having invested in the company. We appreciate that. And we believe the next 2 years will be years of exponential growth for us, particularly FY '26 where a lot of things are going to be coming on stream. So we look forward to an extremely lucrative journey going forward. Thank you.

[Operator]

Thank you, members of the management team. On behalf of Max Healthcare Institute Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.