Narayana Hrudayalaya Ltd
NSE:NH
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Narayana Hrudayalaya Ltd
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Good afternoon, all. Myself, Debangshu. And as you would be aware, I run the Investor Relations, and mergers and acquisition practices at NH. On behalf of the company, I welcome you all to the quarterly Q1 FY '22 earnings call of our company. To discuss our performance and address your queries, today, we have with us, Dr. Rupert, our CEO; Mr. Viren Shetty, our COO; Mr. Kesavan Venugopalan, our CFO; alongside Ashish Sukhija from the team.I'm sure you have gone through the investor collaterals, which have been uploaded on the stock exchanges as well as on our website.Before we proceed with this call, I would like to remind everyone that the call is being recorded, and the transcript of the same shall be made available on our website at a subsequent date.I would also like to take this opportunity to remind you that everything that is being said on this call that reflects any outlook for the future or which can be construed as a forward-looking statement must be viewed strictly in conjunction with the uncertainties and the risks that they face. These uncertainties and risks are not included and are included, but not limited to, what we have already mentioned in our prospectus filed with SEBI before our initial public offer in late 2015 and subsequent annual reports on our website as well as stock exchanges. Post the call, in case you have any further queries, do feel free to get in with us.With that, I would now like to hand over to Dr. Rupert.
Good afternoon to all.With the impact of the devastating second wave of the pandemic playing out for much of the period, our Indian operations were affected on expected lines in the quarter gone by. Despite the same, on a consolidated basis, we have been able to achieve our highest ever quarterly revenues at over INR 8.5 billion on the back of consistent solid performance by Cayman Islands operations.For the period quarter 1 FY '22, while registering a consolidated EBITDA margin of 16.3%, we are pleased to have delivered the highest-ever quarterly consolidated PAT of INR 762 million at 8.9% margin, resulting in return of equity of over 23% on an annualized basis. It's also happy to note that our overall cash accruals continued to remain strong, with consolidated bank balance and liquid investments of over INR 3 billion as on 30 June 2021.Our Indian business adjusted for vaccine revenue while growing [ 118% ] year-on-year due to the base margin [indiscernible] 8%, period with COVID-19 business registering its highest ever contribution at 23.8% of the total operating revenue. Excluding vaccine revenues, with cardiac sciences contributing at an all-time low of around 22%.While other flagship centers like Mazumdar Shaw Medical Center Bangalore, and the RTIICS Kolkata, registered a flattish sequential revenues. The Heart Hospital at Health City Bangalore, both the brand, while they're growing by over 44% quarter-on-quarter, adjusted for vaccine revenues. With us allocating almost 50% beds across Health City campus in Bangalore towards treating COVID-19 patients and driven by the much impacted cardiac sciences-based elective domain as well as its higher reliance on out-of-station domestic and international patients, resulted in an historically our most profitable facility reporting operational losses of absolute decrease of INR 359 million in EBITDA on quarter-on-quarter basis during the period. However, with the operating leverage ingrained in the system, we remain hopeful about the profitability tracing back to normalcy as the sentiments improve, all around with the reduction in COVID infections and increase in elective surgeries.Separately, we continued to remain encouraged by the traction being demonstrated by our non-flagship units, building upon the momentum over the previous few quarters. Notwithstanding, the COVID-19 and seasonal impact, the other hospitals, excluding the 3 newer hospitals in Jammu, grew sequentially at [ 3.9% ], resulting in [ 16.88% ] EBITDA margin, thereby improving upon its profitability over the previous quarter, quarter 4 FY '21.And even within our new hospitals, while we had limited infrastructure in NCR region and regret not being able to take care of a huge number of patients that needed critical care beds, our 2 facilities, together generated a positive EBITDA on account of the increased COVID-19 footfalls.Our overseas unit at Cayman Islands continuing its strong growth trajectory, delivered its highest ever quarterly operating revenues at USD 23.2 million, resulting in EBITDA of USD 10.8 million for the period. While our announced expansion plans in the islands remain on track, we have recently opened a state-of-the-art clinic at health city center, which shall be integrated with the larger new campus when commissioned. We remain confident in this regional business emerging as a strong lever for our future growth.Moving on with our focus on improving clinical outcomes through digital initiatives. We have implemented chat functionality during video consultations and instant refunds to improve patient experience. We've also enabled the IVR-based family communication feature in our app called AADI, which is meant for doctor insights, which is an application to ensure timely communication with patients' families. These initiatives form the backbone of health tech journey we have embarked upon so to provide best-in-class clinical care to our patients.On the clinical front, we continued to deliver cutting-edge quarternary work as reflected in some of the highlights of this quarter, as this quarter. The NH SRCC Children's Hospital, focusing on the high-risk birthing program, did a fetal surgery on a -- as part of our perinatology program, the first-ever intervention for our twin-to-twin transfusion syndrome. In this particular situation, there is a growth retardation in one of the twin because of a preferential blood flow going to the other twin. So they did a laser procedure endoscopically and ablated the vessels, which is done on the fetus on a 20-week old pregnant lady. With -- both the mother and the 2 kids, I mean 2 fetuses are doing well.The Mazumdar Shaw Center continues its eminence in solid organ transplant and performed 12 renal transplant, 5 livers, 20 robotic surgeries in the first quarter of the fiscal. And we have been continuously growing in our oncological program. And with one of the new modalities of therapy called as the HIPEC, which is hyperthermic intraperitoneal chemotherapy, which is used for advanced abdominal cancers. This was done for the first time in Mysore, and we've also done a similar procedure in the Cayman Islands.Narayana Superspecialty, Howrah, did the first heart transplant. This is -- they have previously done 2 more transplants, which were on pediatric patients. And the Ahmedabad unit also did a rare heart valve surgeries on a 2-year old child.As part of our mission to make health care accessible to all, as you are aware, our hospitals are administering vaccines at the cost of procurement at our centers. We have also partnered with several NGOs and global corporates to sponsor free vaccines for the underprivileged and stand in solidarity to extend support to the national vaccination program.Looking at [indiscernible] vigilant over recent developments taking place across some nations with respect to a fresh wave. Notwithstanding, the near-term COVID-19-related uncertainties, with vaccination rollout program picking up pace, we remain confident about our business prospects by continuing to focus on delivering quality affordable health care to all.Lastly, we do share the grief of all the affected people and continued to support our communities in this time.Thank you.
Now we can now open the floor for Q&A.[Operator Instructions] Okay. We have the question -- first question from Shantanu Basu.
Well, my first -- I mean, my question is that with respect to your new Cayman project, I understand 50% of that would be financed through debt. So that's roughly USD 50 million. So I just want to know, when would this debt come to your balance sheet? I mean, when exactly would this debt features on your balance sheet?
Kesavan, you can take this one?
It should be approximately around -- a part of it would come in 12-months' time frame and balance would come in another 6 months. That is totally by around 18-months' time frame, then we should get this borrowing into the books.
Okay. And what part would be coming in the first 12 months?
Kesavan, just to interject. Shantanu, I mean, with that cash accruals being as strong and robust that we are seeing over there in that business. Our actual financing to the extent of leverage financing might be a little lower than what we have previously guided you about. So the details around what you are seeking probably will be worked out as we go further on this project and also on the progress on how soon we take off the project from the ground because we are still in discussions with the vendors for the finalization of the contracts out there.
Okay. So would it be fair to assume that the debt would be around USD 40 million roughly?
By the end of -- at an aggregate level?
At an aggregate level.
Like I said, it would be difficult for me to give you a hard number guidance. But at a directional level, it will probably be lower than the guidance that we have given you previously.
Okay, okay. And so -- and as Mr. Kesavan was saying, part of it would be 12-months, I mean, after 12 months, and the balance after 6 months thereafter, right?
I mean depending on...
Depending on how and would go for the contractors. And so the construction period being started out, that will be a more phased approach, and then we can manage it with the cash flows. The equipment orders, most of them are on -- would be on 80% upfront, 20% on delivery basis, and they will come all at once. So 6, 8 months from now and staggered according to when the equipment is expected to land, because some are long duration, some are shorter duration. It will get spread out 6 months from now until 18 months from now.
Okay. Okay. Fine. And so -- and by the end of FY '23, just a ballpark -- I mean, sorry, by the end of FY '22, just a ballpark, can I assume around 60% to 70% of that debt financing to be in books?
May not be given the -- may not be given, there could be a downward bias to that number.
Thank you. So we'll move on to Charulata Gaidhani from Dalal & Broacha.
Yes. My question pertains to Cayman Islands as in terms of profitability and the accretion in revenues. What are the factors that have led to this growth sequentially?
In Cayman, there is a mild cyclicality to the way the spend happened and we noticed this over the past 5 years, most people operate on the -- and most insurance companies operate on the calendar year and benefits tend to get exhausted towards the end of the year. And so we always see the first 2 quarters of a calendar year, which is January through June. Those being the ones which tend to have the most amount of medical spend. By the time we get to October, November, December, most people exhausted their benefits. And so that's why you see that, it starts to taper down. So one is that effect. Like I said, it's a mild cyclicality. So quarter-on-quarter growth will happen, just purely because people are spending on that benefits plan.The other is the incremental investments we've been making in increasing our presence on the islands. We had indicated that we have set up a clinic in the Camana Bay shopping area, which is one of the most prominent high street locations of the Cayman Islands. We have added additional consultants in urology, medical oncology. We've gotten a lot of primary care specialities. We've also started more aggressively working with referring doctors and institutions on the island for critical care. So because our critical care is the best equipped on the island, we get now a lot more referrals for patients who need to be managed on the ICU with ECMO and so on.So I would say that what is leading to this growth is the fact that there were some departments, specifically in urology, medical oncology, where we were sort of debating between adding additional doctors or not. But given that we'd rather at this point be safe than sorry, we are going for a little bit all out and capturing as much market share as is possible in all the departments that don't have our presence on the island.And so definitely, we will see a revenue growth from that. It's taking time, obviously, because doctors when they come, they take time to build up a very good practice, and we're seeing the results of that now. But yes, going over the next 2 quarters, and especially if you're looking at October, November, December, it will start to taper down just because, as I said, the benefits will exhaust for, not all the payers, definitely, some of them would still have good benefit trends, but for a good number of them, it may get exhausted.
Okay. And the -- that is the reason for the higher profitability also?
To an extent, yes, because we have added a lot of consultants without that much addition of incremental any others cost, it's just manpower cost. But as we get up the new center and as we make more investments in primary cash, we're opening up several more clinics all around the island.Our expectation is that top line growth at this point is much more important for us. Gaining market share as well as being able to provide for every department in the medical field for the people of Cayman is more important right now than preserving the margins. So whatever it takes to build up the strong payer relationships, whatever it takes to get mind share for the people in Cayman, that for us, we will prioritize over maintaining a very strong margins.So for right now, we will start focusing a lot more on growing the top line. And it doesn't mean that we've set fire to the margins, but it does mean that it's something that we would not be able to feel as confident about as we are about growing the top line.
Okay. So on the additional clinics that you will set up, what are the time lines for that?
This will be on a staggered basis. We've already opened up 2. We have plans to launch 3 more. Over the next 2 years, they will come up as and when we sign a rental agreements and are able to get it going.Relatively speaking, the cost of these, they are about $1 million each for these clinics. So on the scale of payment are really not that much of investments. And we'll be rolling them up as and when we get the people to run it.
Okay. And my second question was on India business. Despite a large 23% contribution of COVID, comparatively, the profitability seems to have gone up well.
Yes. Is there a question?
Yes. So other than cost controls, are there any more factors?
Debangshu, start this, and I'll join in later.
Sure. Charu, I mean, essentially, there hasn't been any specific cost control initiative that we took on this time around. While you will appreciate that, obviously, COVID hit us hard, just like everybody this time around, but unlike, possibly the previous waves of COVID that we saw in the last year, this time, the average realizations per COVID, the patient, given the clinical protocols as well as the fact that a lot of the patients did end up in -- requiring critical care treatment as well as oxygen flows meant that we were possibly reimbursed much better than we were impacted in the last few waves of COVID that you would have seen.And that being the case, given that this quarter also saw the kick in of our annual wage escalation for the broader manpower segment is the reason why you saw the dip in the overall EBITDA that you saw at an aggregate level. And like Dr. Rupert mentioned in his opening remarks, if you split it across the units, you will see that, by and large, all units have been able to largely hold on to their own in terms of what they had been able to accomplish last time around. And that's the reason the fall in revenues also is not that meaningful.While there is a seasonal impact also, like we mentioned in our last call, it's just that the -- our flagship hospital, The Heart Hospital at Bengaluru both the brunt, degrowing by a huge 44%, 45% number quarter-on-quarter. And with the resident fixed cost in the system over there is the reason why you saw the kind of absolute decrease in our overall EBITDA. But for that thing, I think, in fact, we would have done even better during the quarter for the reasons that I outlined before.Viren, you want to add anything? I mean please go on.
I think one other thing was we were not idle this time. So because the second wave came so fast and so ferociously, it was almost like we were doing surgeries one day. And then the next day, the ICU beds were full. Also, we didn't have what we had in the first wave where there was a long period where hospitals were empty, people were not moving in and out. And so what you lose in terms of COVID, business being lower yield and lower ARPU, you will make up in the fact that it is constant. There is no lag between when one person gets discharged, another person comes in because we had people lining up outside the hospitals, both ICU bed and COVID bed. So there was a -- I think that would have been a strong reason why the EBITDA performance was there.Other than that, it's a little difficult for us to predict also how COVID -- how patients behaved during COVID and so on. So that's just something that we prefer it be a normalized time. And we've had, at least for now, 1.5 months of quite normal activity, and August trend then also looks good. And so we expect things to go back to a normal or so performance.
Thanks, Charu. I think we can move on to Nitin Agarwal for the next question.
One, I think, to start with. Within the disclosures which are there, breaking up the business across IPO and some of the other dimensions. Just helps us to give a little more granular understanding of the business. So thanks for that. Hope some of these presentation trends will continue. So that's one.Secondly, on Cayman versus our earlier apprehensions around the fact that, once islands open up, we'll stop losing -- we'll have a drop in footfalls. The Cayman Islands' patient footfalls, as I indicated in the presentation, seem to have gone up. They seem to be up much higher than what they were in the previous quarters. You alluded to a seasonality part of it. So is that a concern or really behind us in terms of when island opens up and then people probably the footfalls, the customers will sort of drop equally. I mean is that fair to say a concern is now behind us?
So just adding -- broadly, I think you're right. Anecdotally, even though the borders are closed, people are still going in and out, but it's very annoying. If you go, you have 5-day quarantine. And so several of our cancer patients who are getting treated at MD Anderson, we were managing them. They have gone back, and they're going to get treated at U.S. hospitals, but not as many as we thought.One, obviously, you have to factor in that people are a lot more scared about leaving the island, so that kind of retention. But I think from our doctors speaking with them, the patients are quite happy. They're happy with the convenience. They're happy with the kind of facilities we're offering. They're very thrilled that we're setting up an oncology center. And I don't think that we will lose as much business when the border reopens and then people go back. I think you're right. So it's been sufficient. And I think in one year, we've been able to double the number of patients visiting us.So while that may be BMS, I would maybe put caution around the couple of things. One being that we have a pretty large unit coming up. And for us, I said a little bit earlier, it's more important for us to grow our market share, because even with all of this, it is a high-margin business on a very low base. And there's a sort of $20 million, $30 million of business a quarter. It's not enough. We want to really grow that to be much more than what it is.Broad-based, not just in terms of the number of departments that we have in one island, but also spreading out across the Caribbean, because these are all ultimately very, very small alignments. And they're prone to all kinds of natural disasters. And we don't want to be too concentrated with just one place.So we have made a lot of progress. We run a project in St. Lucia, which is Eastern Caribbean Island. This is part of the French-speaking Caribbean. And over there, we are advising and consulting with the government on operationalizing one of the hospitals that they have set up. And in time, we will work with them to run it. We're also speaking with other islands in Jamaica, Bermuda and The Bahamas for sending our doctors over there to do clinical camps and to eventually start running clinics.So long term, this is something we want to view this as a very strong base, but keep growing, and going to different islands and geographies, and trying to build a very diversified business there.
That's helpful. Secondly, on the India business. Clearly, you mentioned in the previous conversations that inorganic growth is something you are -- you will be very cautious around in terms of overpaying for the transactions. So on the organic growth, now with government also incentivizing meaningfully in terms of giving out fairly low-cost loans and everything, I mean does that change anything for us, like enforcement with whatever essential to focus, which is coming through [indiscernible] on health care? I mean is there any rethink on our own organic growth plans for the business unit?
There is a rethink, yes, but not a rethink on the organic growth. This is -- sorry. Not a rethink on acquisition and that sort of expansion, but a rethink on what we reinvest in our own business. So you're right. The government has gone all out, and they're really encouraging for the setting up of a infrastructure, a health care infrastructure to deal with COVID. And we are taking advantage of this to renovate and refurbish a lot of the infrastructure that we have.The Health City Campus in Bangalore is our flagship performer, but also quite old. It's 20 years old. Similarly, the one we have in Kolkata. One of the building is quite dilapidated. The other places could do with a bit of a refresh. And so this gives us a chance not just to paint the interior, exterior, to completely rework all the floors. So for example, one of the activities we'll be picking up over the next 5 years is a total transformation of the kind of beds that we have. So what that means is investing more in ICU beds, critical care beds, private rooms, a lot more diagnostic areas, a lot more big care areas, a lot more doctor consulting rooms, and fewer of these large open plan wards, which are primarily used by the government scheme patients.So that is a kind of refresh that, one, it can be executed very quickly. I don't need to negotiate with anyone on the price of it, other than contractors. And it flows into your bottom line much faster than it would if you take up anything new. Again, not to say that we are completely rolling out, going to new areas and locations on. That's something we always retain. But as of right now, these are the near-term opportunities that we see.In addition to that, we are investing a fair bit in the service transformation, improving the sort of experience that patients have in our hospital. We've also invested quite a lot in the technology, for apps for patients to use so that their whole stay in the hospital becomes seamless and they can order their tests online. They can pay the bill online. They can view their prescriptions whenever they want. And soon we start working with other partners to make these apps a lot more full feature.So there's a lot that we can do with what we have without necessarily running around the country side and looking to buy more revenue there. Not to say that that's a bad thing, and hospitals shouldn't do that, they absolutely should. But these types of things are a priority for us.Off the hospital, we have been speaking with which are in our target area and which -- we're are in constant discussion with the promoters. Those discussions will take their own time, but we can't wait for that. And so these are the things will be picking up with the RBI concession loans in the meantime.
And if I sort of close that when all of these things are still for refurbishment, adding more service lines and probably adding more specialty that in others. Including, we should improve the yield for hospitals, yield per bed beds which are there, given the fact that you will be moving up the right it go away.
Yes. That's essentially why we're doing it. There will be a lag, obviously, from the time I -- so let's say, I break down 2 beds and turn it into one high-yield bed. There will be a time for the bed to be fill and a time for construction. So you'll see a little bit of a lag period. But then, yes, the whole idea is to increase the yield per bed.
Thanks, Nitin. I think next question is -- we can go to Mr. Parag Patankar.
Question for Viren. So I was looking at investor presentation, and it looks like in the cost structure has changed quite a bit in terms of the percentage of costs attributable to manpower, so employees plus doctors, it's 43% as compared to 71% a year back. And even doctors fee seems to be 21% compared to 35%. So is this something that was deliberately done?
So Parag, sorry, just to clarify. 71% as a percentage of revenue. Q1 FY '20, as you and I were both sitting at home or not going anywhere, there was no revenue. So that's why 71% is the aberration. 43% is more of the normal thing. Debangshu, is that right?
All right. Okay. So the basically, the revenue base was much lower and...
Yes, yes, yes.
So Parag, you shouldn't look at the Q1. I mean we have just put it out there for your pictorial representation. You should more look at it from the Q-o-Q comparison perspective. And if you look at it, actually, Q-o-Q, with the manpower costs as well as overhead cost as a percentage of total has gone up, because sequentially, we have also degrown, I mean, albeit a little lower, not that huge, but because of the COVID business as well as seasonal impact, we have degrown. So it has gone up. And as I've previously mentioned also, our annual wage escalation also kicks in from 1st of April. So that has meant that the manpower cost as a percentage of total is 43.7%. And actually, if you exclude the vaccine revenue, it's around 44% versus -- 45% versus the 41% that you saw in the last quarter. That's the more relevant and the right way of looking at it.
Okay. Yes. Thanks for the clarifying. So that was oversight on my part. So -- and so is that an indicative range that we are comfortable with, 40% to 45%?
It's higher, but that's also because of underperformance by a few key units from our side. But as things start to normalize, as international traffic resumes and plus as the few of the investments we're making on increasing the revenues of the units go up, that should start to go down. But yes, this is the key on the higher side for us.
Okay. So in the coming year, would we sort of target something like 35% to 40%?
45%, a little aggressive. But yes, maybe I'd say a couple of percentage points down can be managed, provided, of course, all things remain normal and there's no third wave and such.
Okay. I have a follow-up question, and this is related to the telemedicine and teleconsultation initiatives. So I saw there's a fair amount of automation. And I remember last year, we had a chat about this on the sidelines of the AGM as well. There's the fair amount of automation work that's going on, on improving workflows for patients and improving the efficiency of how the hospitals operate. I did not seem to see a corresponding amount of effort on the front end, essentially consultations for customers. And Apollo, for example, seems to be a lot more visible in this area. So is that deliberate? Or it's just the of services that we offer that differs from Apollo, which is sort of much wider and they do a lot of [ OPD ] consultations?
Yes. No. It's not deliberate. It's, I would say, a combination of things. One is oversight. And 2 is, I don't know what determines, essentially, what we were committed and focused on in. But this is absolutely. This was pointed out to us by several people in the past that we've done brilliant work in making our doctors more efficient, in getting all our labs automated, in sending discharge summaries quicker in the hospital. But none of that is contributing meaningfully to customer front-end experience. It's still the same rubbish website.The apps that they use are still better than what they were. But nowhere by any stretch are they full featured enough. This is an area we are working very hard to address. I would say that what was most important for us early on was to get the base platform right. We sort of maybe trivialize a little bit the challenge of building an app for ordering medicine, because from a technology perspective, that is the easiest problem. The biggest problem for him or her as they're developing software [ in-house chemist ], how that information flows within the system, how quickly they're able to call on different APIs from different entities within the hospital, whether it's a pharmacy or the supply chain side or the billing system. And that integration of all those things is something we focused on first.So that is the non-sexy, non-glamorous, completely back-end work that we spent the last 4 years working very hard at. And that is more or less done. Now that these guys this time is a lot more free is when we get to focus on things that actually start churning out money for us, and that is going to be the focus for us going forward. So yes, one year from now, I will have -- I'll be able to show you a much better response to the question you asked. But you're right. This is something that we did sort of as a way to focus on the back-end things, which maybe other groups, they focus more on the revenue side first. And then I think they fix the back-end part later. So, rest of the things we did the reverse.
Okay. That makes a lot of sense. So you're saying essentially the platform is in place. Now it's just the front end that needs to be built out and made a little more convenient and probably marketed a little bit as well.
Yes.
Does that also mean that the addressable set of patients we are looking at becomes much wider?
Yes. So just to give you a sense. Ever since our doctors wholeheartedly embraced any medicine, the traditional places where we expected patients to come from have gone up by 3x. We never used to get patients from Central India in the South. And now they are almost displacing the number of patients that we get from Bangladesh. The economy -- it definitely opens up a lot more catchment areas. New revenue lines, it does, but it would involve a commitment for us to build out the ability to service those requirements. So theoretically, so right now, our NH care app, which is on the app store, which patients download, it can take care of anything you want to do when you are inside one of our hospitals.That part is seamless. But let's say, you go home to wherever you're from, whether in Bangalore or Nagpur, where we don't have a presence, and you want a medicine deliver, we're not able to do that. So the sort of this one year time what I said from when we build a consumer facing app, will be entirely specs around the sort of markets that we decide to get into. It doesn't make sense for us to build medicine delivery business to service patients in Nagpur because we need to have a presence there and it's easier to get someone else to fulfill. But whatever it is that can be done remotely, I can then, with what we have, open up, let's say, a digital revenue, which is patients consulting me from geographies where they traditionally would not have.So right now, it is driven by people who know about us and are coming here. But soon be driven by people who have never visited us, have only peripherally heard of us and probably have no intention to ever visit an NH property. But they will get some element of advice and management of the medical condition from our centers, and it will be done remotely. And that's how we will be able to tap into people who outside our traditional network.
Okay. And is that initiative likely to be extended to the wider Caribbean? So using the Cayman's as a base telemedicine for the broader geography there?
Of course. But you would actually be surprised by how low the technology penetrations were there. The most important way patients interact with a hospital is not the app. It's the call center. And so they may even be a little bit behind on that, but it doesn't mean we won't roll that out, because whatever we do here just needs slight modification to be applicable there. But yes, it will definitely be something that we would be rolling out there. But simpler tools work just as well right now.
Wonderful. And maybe in future investor updates, we could include a slide on the way these technology initiatives are going, that would be helpful.
That's a good point. Thanks. We'll make sure to include.
Thanks, Parag. I see only -- Charu, do you have a question? Follow-up question? I don't see any hands raised other than Charu. Mayank, I see your hand is. Mayank, you can go ahead, from Axis.
Can you please explain a little bit in details how does the O&M model work? And what is the -- what is our revenue proportion from it? And if at all, there is -- is there any capital which is required in these businesses?
In Axis, you must be calling from the commercial banking division, wants to give us money for this.
This is Mayank from Axis Mutual Fund.
Mutual Fund. Okay. No, no, there are [indiscernible].
Okay. O&M is basically someone with a hospital property with no intention to run it. Mostly real estate people, sometimes, retired promoters, sometimes, nonprofit trust hospitals or medical education hospitals. And so what we do is we come in and we say we'll take over the operations of the unit, and we will pay you a revenue share. So the hospital stops being a headache for you.For us, at least. It's not true for most of the other people that got into O&M. But for us, at least, most of these were distressed assets. And so the revenue share payout or the fixed rental payout what we give them is quite muted and more ranked according to how much they were earning prior to us coming in. And then these are 30-year contracts. And the commitment is that anything medical related: the medical furniture, the cath lab, MRI, CT and so on, that we will invest, and they will take care of the building and so on. And this is how we've been expanding. As a percentage of the total top line, Debangshu, what would you say the O&M hospitals account?
Yes. Yes. So on an average, Mayank, you -- as a guidance, you can assume that figure to be 5% of the aggregate top line is probably shared. I mean, obviously, don't hold me on to this number because that would be very different for different hospitals and how the transaction has been structured. But just to give you a ballpark estimate, 5% would be a fair number to go by. I mean, the -- typically, the arrangements are either in the form of a revenue share or a rental, pre-agreed rentals with a fixed escalation built in over the period of the O&M period, which would typically, again, be 20-year-plus, if not even higher.
And what percentage of NH's revenues will come from O&M hospitals? Will be accounted by O&M Hospitals, which is basically 1 Delhi, Raipur, Shimoga. What do you think? 20%?
Not so much. I think possibly around that number. I mean, those numbers we can get to you, Mayank, separately any.
Yes. I was actually hinting more towards the Caribbean islands kind of arrangement which we have got into and are looking more to expand in that area. Is -- would that kind of similar?
No, no. Mayank, we have not gotten into any O&M arrangement in Caribbean islands as well. So the existing Cayman Island facility is a fully owned asset. And the St. Lucia project that Viren alluded to, at least for the moment is the pure management contract. There is a difference between management contract and an O&M. O&M is where we own the P&L, albeit on an asset-light basis. In a management contract, we don't own the P&L, and we just get paid fees just like a consultant.So in our management contract, your top line is your bottom line, with no ownership of the P&L. And St. Lucia project is that. We also have one such project in India. Yes, Viren, please.
But Mayank does raise a good point, which is, should this be the thing that we do and run around the Caribbean signing up? If the opportunity existed, great. But the problem is -- it works in India because you have this critical mass of people who build hospitals without knowing how to run it. And because there were excess of hospitals in the market and there were operators like us, so we were able to get those. That doesn't exist in the Caribbean.The cost being as they are, and in most places, health care being something that's socialized and provided by the government, they are built to exactly -- maybe a little less than what's required or in places where the payment systems are good, whichever hospital is there is doing quite well.Now there are real estate people who have come to us in the past. And they have offered that, we can put up the building to your spec. And you will take it on a permanent sort of lease from us. And yes, so it becomes asset-light for you. So they get a steady source of yield. And from our perspective, we get to have a hospital without paying for it and only manage the operations part. It is something that we would consider.So our clinics basically work on that principle, where we're just renting a space. We haven't yet been able to convince any real estate person to come on terms that we find acceptable. But should those things -- should those opportunities materialize, definitely, we would posit just because it's much more -- the overseas look much better. Breakeven -- well, not breakeven, but rather the amount of capital deployed will be much less because we can then focus only on the medical parts.
Got it. So in Caribbean islands, basically the prime focus area on a model of growth will be the management contract and if any good O&M opportunity comes by?
Should they come up -- in -- yes, in absence of that, not now, but a couple of years from now, if any greenfield opportunity presents itself in an island which is able to satisfy our requirements that are there in Cayman, which is our ability to bring doctors and manage the operations in the way that we want, we would take those up. But yes, we would also look for partners in that instance, but there is partners of a real estate kind where they build assets or partners of the equity partner set. That will be taken up on a case-to-case basis.
Got it. And management contracts typically would be how long?
So the St. Lucia one is for the duration of the project construction. So it's a 2-year contract where they are paying us to just get the whole thing permission, which will then have the option to convert into an O&M contract, but exercise at our discretion, based on a couple of things that we are discussing with them. More specifically, there being a universal insurance system in island, we may take a common whether to exercise that or not.
Got it. Got it. Secondly, on the new clinics that we are opening in the Cayman Islands. So the $1 million CapEx which regards to this is basically the CapEx on the machine, assuming that the place is on rental. Is that how we should think about it?
This is on rental, but we have to invest in making it look nice. And construction costs are extremely high and growing every -- growing much higher day by day. As you know, there's a massive housing boom in the United States. So it's nearly impossible to get construction material, manpower and so on. But yes, we are spending $1 million in these clinics because we make it look really high end, put really fancy furniture, get very high-end Apple computers on the front reception, get very good in scanning and diagnostic equipment and so on.
Okay. Okay. So these clinics are -- they are a little bit equipped. They're not like...
They come to us a base shell. We have to fill up the interior.
Thanks, Mayank. I mean Sameer has dropped me a message that he doesn't see the option out there of hand raise.So Sameer, you can go ahead. Sameer Baisiwala from Morgan Stanley. [Operator Instructions] I think some issues -- the next question. Yes, no problem. [ Kapil Marwah ]. Kapil, you can go ahead with your question.
Yes. Now with the COVID second wave impact, the severity reducing, are you presently seeing any uptick in revenues in the month of July and August?
Sorry. Say the last part again. Uptake of what?
With the severity of the second wave reducing, are you seeing any uptick in revenue in the month of July and August?
Yes, of course.
Okay.
So Kapil, just to give you a guidance on that. I mean July already appears to be our highest-ever India revenue business. We're bettering even our one that we did in March last year -- last fiscal.
I see. Good to hear that. And August also is more or less at par with July?
Too early to say, but yes, doesn't -- that doesn't appear to be prima facie any reason why it should fall off from July.
Other than third wave, of course.
Yes. Other than third.
And the work to get that.
Sure. The second question is that, in Q1 in June '20, there was dividend income from Cayman recognized. But I couldn't find that in the June '21 statements. Could you clarify about that, please?
Sorry, Kapil, can you come back again on the question?
In Q1 of the earlier year, there was dividend income from Cayman which was recognized. But in this quarter, I could not see any such recognition. So please clarify.
So we haven't yet received the dividend that we are possibly going to receive the cash inflow from our subsidiary at Cayman Islands. So that -- since that has not happened as yet. But it appear -- it remains on track. And possibly sometime during the later part of the fiscal, you could see that dividend cash inflow from our subsidiary back to the NHL listed India level.
I see. Do you reckon it will come in this quarter or it's too early to say?
We probably are trying to look at a few things in terms of trying to match the cash flows around the cash requirement at the Cayman project level given the new expansion. But over the next 2 quarters, possibly you will see that around.
Thanks, Kapil. I think Sameer got back to me again saying that has a laptop has gotten stuck. So Sameer, if you can hear me, you can go ahead and ask the question now.
So if you've talked about what was the vaccine revenue contribution? And how are you treating it in the books of accounts?
So Sameer, we have given that as details in Slide 6 of our presentation. The total vaccine revenues of around INR 21.4 crores, with the consumption of INR 17.9 crores towards that. So a contribution of 16-odd percentage at INR 3.5 crores. That is being treated just like a normal revenue and a consumption cost in our books of accounts.
Okay. Great. I think I missed that. Okay. And the second question is for Cayman Islands. Out of 110 beds, how many are right now operational? And if you can share what's the sort of ALOS over there.
So I think, Ashish, you can correct me. I think 95 out of the 110 or practically 100 out there operational out of the 110 capacity beds out there?
That's correct. Yes. That's correct.
And in terms of ALOS , I think we give it, Sameer, in the deck in a footnote in our thing. As an example, it was 6.6 days, as I can see from the footnote, for the quarter gone by. So you can refer to that. And just as a -- I mean, since you asked this, I mean though we have moved on from an occupied bed as a metric, and we have -- since we have already given you the number of discharges and OP footfalls for this, just as an additional guidance, this quarter, the quarter gone by, even otherwise saw the highest ever quarterly average occupied bed for that hospital at 450 numbers.
Okay. Okay. So it just means that you still have a long way to go or at least some way to go before it hits in a very optimal utilization.
I think, Sameer, we have -- yes.
We probably have to reconfigure the whole thing. There may not be a need for as many beds in 1 location. What we'll end up probably doing is using that space for more day care procedure rooms, outpatient areas. And so one of the things we'll be doing once the new unit is operational in Camana Bay is that the existing hospital that we have, we would start to reconfigure the space. So I would say a 100 beds is -- may come down. We may have to start reconfiguring those beds.
Okay. Okay. I got it. I got it. And just the last one from my side. When you think about expansion, I heard your commentary around the Caribbean islands. But outside of that, are you thinking something in India or internationally other than Caribbean?
Yes. Internationally, Bangladesh, that being our strongest referral market to international patients. We have the heart center already in Imperial Heart Research -- Imperial Superspecialty Hospital, [indiscernible] this is going through a terrible time right now. So we were not able to physically visit there and take stock of other things we could do over there. Again, we would operate on an O&M basis with a hospital we can partner with. And we're talking with quite a few. We will also look at creating something in a primary care, same as in India, focused a lot more on clinics and online consultations and diagnostics and so on. Those don't require a lot of investments over there.Outside of Bangladesh, I mean, here and there, we have conversations with the African countries, Middle East and CIS country, but the thing really nothing much exciting and nothing much fancy to report. North America is another region that we have looked at for a very long time and will continue to. There, again, more in the lines of -- right now, we're working with a couple of software firms. These are health tech companies, and building systems that these guys work with other hospitals, and we're working with them to get introduced to other hospitals and start putting in soccer that their doctors can use.In addition, we are talking with a few people that work on these really impoverished areas and there are hospitals over there that really struggle with that cost and because we have access to a huge amount of resources that are available to them in a 12-hour time distance. We're trying to work with them to see if we can help them really streamline their operations and help them break even on the huge number of Medicare patients that they run on. So North America's region that again will not take much investment or something that's more we're doing on a consulting sort of basis, and it won't be operating the hospitals they yet, but it's something we always had in mind when we go forward.
And India?
In India, I've said earlier, I think Charu has brought up -- someone has brought up what we're planning. Yes, I'll go through it again. the hospitals that we have, there's a lot we need to do to refurbish them, especially the oldest hospitals. And so these hospital built in a time when most people came and they stayed at a very long time. And the room configurations are a bit old, a lot of the couches and so on look shabby. So we're changing the whole look and feel as well as converting those huge open plan general wards that we have, not all of them, but converting a good number of them to critical care areas, procedure rooms, diagnostic rooms, transplant, OTs and so on.So what that will do is it will increase the yield per bed in a lot of the hospitals we have. But at the moment, there are capacity additional projects we are taking up in Mysore, in Raipur that we've taken up. We'll be adding oncology and -- radiation, oncology in Jaipur and Ahmedabad. We'll be adding medical robots to a lot of our hospitals with large transplant programs.So those are the near-term things we'll be doing. Expansion-wise, capacity expansion, it's mostly Kolkata focused because that's one with where we have capacity constrained, where there's really nothing more that we can do in terms of reconfiguring the space. And so we are looking at a few opportunities there, some inorganic and some organic expansion.Other than that, I don't think we look at any new geographies right now. Our existing geographies anything we can do to strengthen it. And we're also adding a lot of clinics in -- we start with Bangalore, then move to Gurgaon and then go to Kolkata. And clinics, mostly because we want to be able to take care of patients when they're not at NH as well. And so the clinics is about being closer to apartment, societies, companies and build something that allows us to have more a 360 view of the patient.
Thanks, Sameer. I think we can take on a follow-up question from Nitin Agarwal.
Just a quick follow-up on that. Viren, you talked about this whole India expansion strategy that you were talking about. So in the light of this, how does our CapEx plan really for the next 3 years look like? Any sense on that?
Debangshu, do you want to take this one?
Yes. Nitin, we have previously guided you upon the fact that for this fiscal at least, given that a lot of the things that were planned last year, couldn't take place because of the COVID thing, so this fiscal, on a normalized, the pure replacement/upgradation basis, you are looking at a much higher number than what you would otherwise see us spending in -- on a normalized basis every year. That aside, what Viren has just outlined in terms of the transformational things that we have said, a lot of it is still being crystallized as we speak. So I would not be able to give you a hard number guidance. But suffice it to say that the number guidance that we have previously given you upon for this year, which is a worth of INR 250 crores, in any which ways for -- towards the replacement CapEx and the normal upgradation CapEx, there could be a strong upward bias to that number going further as we further crystallize our plans over the next couple of months, if not more.And similarly, a lot of the things, for the reasons that Viren outlined, probably that otherwise expansion that service line or capacity that otherwise we possibly would have planned for, let's say, subsequent years would get a little pushed earlier or in terms of preponed over the course of time.So we are in the process of finalizing those plans over the next 3 years. And as on when we have absolute granular details around that, possibly we can come back to with the number guidance.
But it is going to be a lot higher than what we normally spend because we -- the past couple of years, we've really not been spending on our infra.
Fair. But this is largely clears mostly -- it's all going to be brownfield expenses. And I presume in a brownfield expansion, by whatever is seen in hospitals, the typical return ratios are -- return on investment is pretty solid typically.
Yes.
Thanks, Nitin. I also see a follow-up question, I guess, from Shantanu Basu.
Okay. Fine. So I think Viren talked about the refurbishment and reorganization of the whole hospital setup, the existing hospital setups in India. Now my question is, NH is known for a very high-quality care but set at an affordable price. So that's what the perception of NH is in the market. So now that Viren was saying that general wards would get reorganized and number of beds would get reduced and high-end beds would come in. So just want to understand, would that -- I mean, would the quality but affordable health care proposition of NH change in any way?
Answering that, never. I mean, this is our core philosophy. We would never get into turning our hospital into some 5-star place. But even within the acceptable limits of what normal people have to experience, just to give you anecdote, I went to one of the common area bathrooms in our hospital, and it was worse than a railway station, right? And I showed our team's pictures of what a railway station bathrooms look like. And now because the government has been really renovating and refurbishing the railway station bathrooms, even against that, we are looking quite shabby.So there are the basic standards that we need to get to. So in -- when we say -- I'm not saying we break down all the general ward beds. By keeping a significant number of our beds still, 20-odd percent for the general ward because there are patients who come who really cannot afford, and we have to keep them somewhere. But there are still a lot of spaces that end up going unutilized. And those -- and because our critical care needs are still so much more. And this, by the way, will be the same payer classes. It's meant for the same payer classes, those would be occupying general ward. But because the nature of the disease is changing and because so -- COVID was a big example of how under-equipped all hospitals are when it comes to critical care. Not that something like COVID will happen again, but the nature of disease changes, and we also have to evolve according to that.So this is just a response to both changing clinical practice. Not so much that I aspire to increase the payer categories and I want to build hospitals only for rich people. We tried that once with [ a husband's wife in ]. It worked okay, only up to a certain degree. But it's just not in -- as part of our DNA.The sort of hospitals that we run are catering to all classes and demographically are more aligned with the average Indian. And so what we would build would be more reflective of that. But yes, we have to build sustainable operations for all of it. And we can't turn away patients because we don't have enough ICU beds or we can't not be operating the highest level of clinical departments because we're short of space. And so for that, I would say there's a much higher need for more OTs and ICUs and diagnostic areas, then there is for this ward, wards and wards.
Thanks, Shantanu. I guess -- Nitin, you don't have any follow-up question, right? I see your hands raised.There is one question. Somebody has typed in, in the chat box. Viren, it says, can you talk about the profitability margins of the heart center and the Cayman business, the EBITDA margins typically?
Yes. Do you have the numbers for the heart centers?
Yes. We do give that. I mean this is Ashish, Ashish, we have given the number for EBITDA margin of heart centers at 12.5% for this quarter as against, I think, 30-odd percent in last quarter. So please see it in that context that even the heart centers, just like our other hospitals, also got impacted because of the COVID disruption this quarter. And HCCI business, we have already spelled it out in the opening remarks. And even otherwise, you could derive it from the presentation itself. So we did a post Ind AS EBITDA of around INR 10.8 million for the last quarter on an operational revenue base of around INR 23.2 million, which works out to be a little out of 45% for the qarter. And the INR 10.8 million becomes INR 10.3 million. So there is a INR 480,000 impact because of the Ind AS effect. So that it becomes INR 10.3 million on a pre Ind AS basis. So that's that, I guess. And unless anybody has any follow-up questions, I think we can wrap up our earnings call for today. Thanks, everyone.Sorry, I see somebody again putting enough message out there. I mean I think these are put to me only. Somebody has put in a message Viren which says, can you please throw some light on discharges? It still seems low. Is it COVID impact? Yes.
Discharges in India? Yes.
Yes, yes, yes. So it's definitely the COVID impact that you have seen that, the discharges. So I mean, again, since somebody has brought this up, so quarter-on-quarter, there is a 15% dip in our discharges, as you can see from the figures. And since we have given you the loss and the discharge figures, you can work out the occupied bed numbers. But on overall occupancy levels or occupied bed numbers, there is a drop of only 5%. That's because the 15% drop in discharges has been offset by a -- to 12% increase in ALOS given the COVID businesses that we ended up doing.So that's the reason. Despite such a high drop in discharge count, our occupied bed count has only fallen by 5% quarter-on-quarter.I think that's that. Thanks all for your active participation, and we look forward to such interactions in the future as well. Like always, should you guys have any further follow-on queries, do feel free to reach out to us. We'll try our level best to address that for your benefit.Thanks once again.