Narayana Hrudayalaya Ltd
NSE:NH
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Narayana Hrudayalaya Ltd
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Good evening, everyone. My name is Nishant Singh. I head the Investor Relations function at Narayana Hrudayalaya. I welcome you all to the quarter 1 FY '24 earnings call of the company.
To discuss our performance and address all your queries today, we also have with us: Mr. Viren Shetty, our Vice Chairman; Dr. Emmanuel Rupert, our CEO and MD; Ms. Sandhya Jayaraman, our Group CFO; Mr. Venkatesh, our Group COO; Dr. Anesh Shetty, MD of our overseas subsidiary, HCCI; and Durgaprasad, senior manager in the IR function.
I would also like to take the opportunity to introduce Mr. Ravi Vishwanath, who is the CEO of our newly incorporated company, NHIC. We hope you have gone through the investor collaterals, which have been uploaded on the stock exchanges as well as on our website.
As usual, before we proceed with this call, we would like to remind everyone that the call is being recorded and the transcript of the same shall be made available on our website as well as on the stock exchanges at a later date.
I would also like 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 in conjunction with the uncertainties and the risks that they face.
Post the call, should you have any further queries, please do not hesitate to get in touch with us.
With that now, I would like to hand over the call to Dr. Rupert.
Good evening, everyone. I warmly welcome you all to the Quarter 1 FY '24 Earnings Call Conference of Narayana Hrudayalaya Limited. The first quarter of the fiscal year delivered steady performance supported by growth in the business across our flagship units and newer hospitals.
Consolidated revenue for the current quarter stood at INR 12,334 million, reflecting a year-on-year growth of 19.4% and a marginal increase of 1% compared to the previous quarter. NHL generated consolidated EBITDA of INR 2,858 million in quarter 1 FY '24 at a margin of 23.2% against 22.8% of quarter 4 FY '23. This margin improvement is attributed to improvement in cost efficiencies and improved realizations across all our units, including Cayman.
HCCI Cayman continues to contribute significantly to the overall performance with revenue marginally increasing by 2% to USD 29.92 million. The newly commissioned radiation oncology block in the Cayman updated hospital has seen good traction in its first quarter and is on track to meaningfully contribute to our growth in the future. We remain confident that our Caribbean business will continue to grow further through strategic initiatives and investments.
Our overall balance sheet and liquidity profile remains strong with the group cash and liquid investments of over INR 8.2 billion against gross borrowings of INR 8.4 billion. Net debt of [ INR 0.19 billion ] as of 30th June 2023. Our debt-to-equity ratio has further improved to 0.01 against 0.06 in quarter 4 FY '23 giving us sufficient room to fund our expansion through a mix of borrowing and internal accruals. Of the guided CapEx of INR 11 billion for FY '24, we have incurred a capital outlay of close to INR 1.1 billion for quarter 1, and we expect to spend the balance amount in the remaining quarters of the fiscal year.
The first quarter of FY '24 witnessed strong momentum in high-end cardiac sciences work in Congenital & Adult segments, Oncology, Gastro Sciences, Orthopedics, Image-Guided Therapies and the other quaternary work across all our centers. Our leadership in cardiac care grew from strength to trust strength with Cardiac Hospital in Bangalore performing 2,263 cardiac surgeries in the quarter thereby achieving the highest ever quarterly volume.
In the Ahmedabad unit for the first time in Gujarat, they successfully were able to do a PDA Device Closure. PDA is Patent Ductus Arteriosus, which is present in the fetus and sometimes it doesn't close after the birth of the child. And in a child who -- a 30-day old child weighing less than 1 kg, at 900 grams, they were able to use Amplatzer Occluder Device and do this device closure without a surgical opening. This is a very remarkable feat in such a small child who was barely the size of a palm.
The Mazumdar Shaw Cancer Centre successfully conducted the first robotic surgery for malignancy of the ampulla of Vater, which is embedded within the pancreas. So this is a very major advanced surgery. And we have 1 of the largest series of robotic surgery on the pancreas for the -- in the country.
RN Tagore performed many Robotic Assisted Thoracic surgeries, including for excision of -- in the mediastinal mass, which is a very rare and a very complicated procedure considering that the heart and the lungs are very close to the area of work.
I'm delighted to share that we have successfully started the radiation oncology services at our hospital in Jaipur and over 70 patients have been registered in this quarter. This hospital successfully also performed what is called as the Prostate Artery Embolization for the enlarged prostate, without -- has a minimal access work without the use of the surgical way method of usual what is done in the currently.
Our focus on digitization and business transformation has led to significant improvements throughout the NH system. With the implementation of athmâ across and laboratory services, we have experienced a 36% improvement in turnaround time of the top 5 tests. We have also been able to reduce our paper consumption by 34% in this quarter, adoption of AADI app continues to be very strong and has led to a 50% improvement in discharge, turnaround time over the 2021 numbers.
Our recently incorporated company, the Narayana Health Integrated Care, has seen good traction in the Retail Health segment. With Bangalore as our focus, we have reached 6 points of presence as of June end.
NHIC revenue for the quarter has crossed 45 million with the patient transaction numbers crossing 29,000. We are confident in growing this business and serving our customers with a clear focus on building India's leading Integrated Care program.
We continue to invest in our clinical and non-clinical operations across the group, transforming the patient service levels, increase our throughput capacity, invest in more digital patient outreach channels and improve our operational efficiencies. We are simultaneously pursuing organic and inorganic growth opportunities, both in India and overseas that will derive synergies from our existing operations, maximize value for our stakeholders and keep a close watch on the return on capital. Thank you.
Thank you, sir. [Operator Instructions] Yes, Prithvi. Please, go ahead with the question.
Anesh, this question is regarding Cayman business. So could you give us some numbers from the new oncology block, what has been the revenue contribution in this quarter, what kind of procedures are we offering here? And how has been the patient flows?
Thank you for your question. So the radiotherapy block, as we've discussed earlier, is 1 part of the larger Camana Bay development for us. So there are Block A and Block B. Block A is the radiotherapy. Block B is a much larger hospital that will be a multiservice similar to our hospital in East and that will cover everything else. We offer the entire spectrum of radiotherapy services up to stereotactic radio surgery, which is a very high-end kind of radiotherapy. The machine is a true beam, which is a state-of-the-art latest generation machine and the most modern machine in the region.
For your question on the specific revenues, given that -- it really is a service line for us like a specialty, a department. We won't be able to disclose a service line level revenues, but we are confident and comfortable to say that it has met our expectations, and we hope to continue on the growth trajectory we're on.
Sir, just a follow-up on this. Despite the oncology block getting commission, the margins in Cayman remained out of 40 percentage. So can we expect the same to sustain even for the coming quarters?
Actually, this -- see, the radiotherapy block is a very small block while in terms of investment, it is high because the radiotherapy is very capital intensive. From a P&L perspective, the costs were not -- never a concern. So it was never planned to be margin dilutive, whereas the bigger hospital, which we will hope to commission in Q1 of FY '25, will come with a lot of fixed costs, because we'll be essentially doubling our capacity in the region. So there, we will expect to see margin dilution. And it won't happen when the hospital commissions. As we build towards that date, we have to start accumulating a lot of costs in manpower, nurses, doctors, et cetera, preparing for the commissioning of the larger building. So we will see some margin dilution as we've discussed before. But radiotherapy was always meant to be neutral, but it was not expected to be margin value too.
And on the India business. Can you give a breakup between the new hospitals revenue and profits in the quarter?
Sorry, was that about the India business?
Yes, India business.
Yes, I'll hand it back to Nishant.
Venkatesh, you'd like to take that question?
Sure. So when it comes to the performance of India business, quarter-on-quarter, we have actually shown a jump of around INR 4 crores from the previous quarter. Generally, Q1 is generally weak for the hospitals as per historical data. But what is happening to see is that, we have shown a 15% growth in revenues over Q1 of FY '23, which is actually considered to be a good performance. Though first quarter of the year is generally weak in the hospital because of the some of the patients, family members delaying treatment, doctors not available at times. Considering all these, our performance in Q1 has been very strong. The business should pick up in the coming quarters as per the plans. We are hopeful of ...
My question is more on the actual numbers. So what has been the revenue from the new hospital?
So I'll tell you, in terms of the new hospitals, what we have seen is, we have been more or less on track in terms of what we have done. Our new hospitals continue to perform on the expected lines. There is a little bit in Q1 due to seasonality. But however, we will be able to recover and perform well in the succeeding quarters. Mumbai is also on track. We continue to target breakeven by the end of this year or even slightly EBITDA positive by the end of this year. What is more important for us to see is that we are currently prioritizing investments in our Bangalore, Kolkata and Cayman. Once we are exhausted with these, we will also look at bringing about more investments in these new hospitals, which will accelerate the growth in these hospitals. But overall, we are on track and the performance is around expected lines for the new hospitals.
Yes. Just to add to that from a specific number point of view, we have flat to last quarter, about slightly above last quarter, we came in at INR 115 crores for the cohort. That's 10% nearby -- near to 10% growth year-on-year. Our EBITDA margins came in at about 6 -- upwards of 6% for the cohort. This is the new hospital cohort.
Viren, final question to you on the gross margins. See, there has been a sequential decline in the gross margins. And are we seeing any further inflation headwinds on the gross margin side?
What happens when you start the New Year is that you incur a lot of manpower cost increases or the salary revisions. There is price revision, but that doesn't happen all at once. These are things that have to happen over the year as you renegotiate your contracts and you're able to transmit any price increases. But these will all be moderated. The headwinds that we expect over the near term for the gross margin, these are all in the realm of probability. One would be further medicines being added to the NPPA, which as it is quite a lot of drugs have been added there. Some indication of trade margin capping on all the drugs and consumables.
Whether it happens or not, we're not sure what time frame it will have, but these are headwinds that are there. Not all of it is instantly able to pass on to patients. It's not easy to do so nor would you want to. So there will be some hit that the business will take, which we would recover not through just raising prices, but through some process efficiency, increasing our volume and reducing the throughput or increasing the throughput, and that should be able to bring us back on track. But it will take this quarter for us to take the hit, that is Q1 and Q2, Q3 and Q4 to recover.
Can we have the next question from Dara?
Sorry for the delay. Just 2 questions on the India business. Like the employee cost in the quarter has somewhat increased to 13% year-over-year and 5% quarter-on-quarter. So is it only the element of price increase or annual increment? Or is there any one-off item apart from that implement?
Yes. Dara, we normally have our annual increment cycles coming in from April. So that is causing the increase from an employee cost point of view. There is no significant onetime in that number.
So ma'am, how much would be the annual increment in the quarter? And should -- will it normalize going ahead? What could be the cost for employees going ahead?
Yes. So the baseline that we have set in Q1, I think, that will be the normalized baseline. Obviously, as we improve our revenue and improve our throughput on the same cost, we are able to deliver more output. So that will help us bring the cost as a percentage of revenue, but that will be over a period of time. We have to constantly work on the efficiencies like we have kept doing in the past. And as Viren explained earlier, over the quarters, we'll utilize the cost impact of the manpower cost increase that comes in the first quarter.
Sure, ma'am. One more question regarding the EBITDA. So in Western Region Hospital, we have 2 hospitals Ahmedabad and Mumbai. You said Mumbai has already been turned somewhat positive. So should we assume the same for Ahmedabad also? Or is it negative EBITDA -- both these hospitals in this belt is negative EBITDA currently?
So Ahmedabad has never been negative EBITDA. It has not been an extremely high number like the flagships. But Ahmedabad has always been positive EBITDA and positive cash flow. It continues to be.
So if we assume that Mumbai will be turn positive EBITDA in the Q4 of this year, so overall margins of that entire group at would come around 3% to 5%, should we assume that EBITDA margins for the Western belt?
These are not significant drag on the EBITDA, not a significant contributor. So the revenue base being a very small percentage of the overall, more of the EBITDA increase that would happen over there, which is more attributable to the performance of Bangalore and Kolkata hospitals and Delhi, which is much larger.
Can we have the next question, please? We don't see any raise of hands. Next question be from anyone? Yeah, [ Mujeeb. ] Please go ahead.
So my question is on the little bit broad side on the industry. So I was going through some result like where there was mentioned that 1.5 beds per 1,000 people in India. So what should -- in your opinion, like what the number of beds should be there in ideal condition or is there any guideline for 1,000 people? And let's say, if we have to grow from the current bed capacity at industry level, so how many beds would we require, let's say, in 1, 2, 3 decades of the time to reach that ideal benchmark which can be 5 beds for 1,000 people or something like that? So if you can highlight the broad industry landscape, that will be quite helpful.
I'll take this one. So the statistic in India is 0.7 per 1,000 people. The WHO recommends anywhere from 1.7 to 2, as you highlighted, but that is a very fluid number. The truth is in India because we have so many people, you can't really expect that we will ever achieve the 2 per 1,000 norms that is there in Western Europe. Because what we're seeing with time, length of stay keeps coming down, the nature of the bed, what you needed to get admitted for in 1 point of time, you don't really need to get admitted, a lot of daycare things are happening. So the nature of the business is changing.
But I'll take your larger point in that the market size is enormous. And not just in terms of the number of private hospitals you're seeing, all the listed pay backed, all the organized hospital that you see, the ones which declare results and borrow money and grow and expand and run an organized fashion, don't even account for 10% of the total bed capacity in the whole country. Another 40% is in the public sector, which means 50% of all the current bed capacity that is available in India is completely unorganized.
And all of that will get organized slowly either through them becoming more professional or market share, they're slowly seeding market share to more organized players. So there is tremendous headroom for growth. But there are a lot of challenges.
The biggest 1 in India being available to your manpower, the second 1 being making the numbers work. Because the minute you start organizing a lot of facilities, you start growing, then you have to comply with all kinds of regulatory norms, you have to start declaring the income, which a lot of single clinics don't necessarily have to do, because the practice of an individual and the practice of a clinic is indistinguishable. So these things start to come in, and there was a cost and those overheads that every born if the patient won't always pay. But over time with growing insurance penetration with all these things starting to come in, we see a huge scope for expansion for all players across the country.
Right, right. So is it safe to assume like even if we, let's say, prefund the organized capacity still [indiscernible] far headroom to go ahead for maybe 2, 3, 4 decades?
Easily, but there will be some concentration risk. If, for example, everyone concentrates adding too many beds in just 1, but -- so let's say, overbuild in Gurugram, then maybe for the Gurugram population, you're a bit overserved, but then you're tapping into a much larger population growth, which is people from Haryana, people from Uzbekistan, and all that will come to Gurugram for treatment. And so -- there is, for the next easily 3 decades, there's enough growth that this sector will see. But it will follow more closely to the underlying trends of where the doctors are most available, where the supply chains are most prevalent and more important than any of that, where the ability to pay exists, if we're talking about private health care.
And in your opinion, like if the organized sector has to capture the larger pie of the market. So what are the challenges that any organized player would face, like even our business or to the general that the mistakes we should avoid in terms of like doubling the market share of the organized players, it will be quite helpful if you can highlight some like, there is parameter for some guidelines, you can help the business to be successful.
One is we have to change the cost structure of this business radically what's happening right now is that the cost of construction is extremely high and the cost of setting up a new bed is very high, salary cost is extremely high. We can't change any of that. But there are a lot of these non-core costs that have to be lowered by a lot and a lot of efficiencies in the way the hospitals work in the sort of the waiting time patients have in the hospital, the amount of people you need to take care of the non-medical work. All of that has to be addressed through some kind of process automation and digitization.
So unless you address that on a war footing, the more you expand, the more the cost will also keep growing and then you'll face a situation where you will be completely outpriced for the services you're offering. So someone who's building a hospital in, let's say in Gurugram, you'll pay the top dollar for everything and people will be able to pay for the services. But you try and replicate the same thing, in Sonipat, it does not work.
The market of people who can pay very high prices, surgery is much less. It doesn't mean there's no demand in Sonipat. The 100% is demand there, but at a very different price point. So you have to build a very different kind of hospital, and you have to still use the same equipment, still have to hire the same doctors, still pay the same salaries, still use the same construction cost, but you have to be able to break even at a much lower realization. So for that, all the companies that are trying to expand, they have to be very careful about what the return on capital looks like, how much they're spending and whether there's enough of a market that can cater to that price point.
Right, right. And is there any like internal capital efficiency guideline that repeats for any matured asset?
Sorry, could you repeat that internal what?
ROC mark, like there should be the ROC at matured hospital, some guidelines if we are keeping or maintaining at an older hospital?
So currently, as you are aware, we are running at a high ROCE of close to 30%. But ROCE is a cycle. So when a lot of capacity comes up, then till the capacity catches the revenue and EBITDA cycle, you will see some dilution in the ROCE and then we will catch back. So we are targeting a healthy ROCE on a constant basis to -- for each of our hospitals. So that's the target with which we are working. But it will be, to some extent, cyclical as and when we create capacity.
Right, right. And in terms of like geography expansion, if we have to go by Tier 1, Tier 2 or Tier 3 cities. So again, my question is on the very long or long-term point, like maybe a decade kind of horizon. So in your humble opinion, like are you focusing more on the, let's say, metro cities? Or are you focusing on the Tier 2 or Tier 3 towns? And what will be your geographical expansion in terms of, even in the foreign land and also on the domestic landscape, if you can throw some light, it will be again very helpful.
In India, the demand is pretty uniform wherever you go, small town, big down does not matter. There are still people needing heart surgery, oncosurgery. But the ability to cater to that demand at the current set of price points, unfortunately, is best met in Tier 1 towns.
Having said that, our priorities in the short run, it is not so much about Tier 1, Tier 2. For us, our priorities are the existing network. We have existing patient flow. We have incredible demand. We have a lot of need, and we have a lot of waitlist for people who want surgery, and we don't have enough beds too and OTs to cater to them. So our immediate expansion priority is the existing network. Once we've exhausted the opportunity set in the existing network, then we look at expanding in, in a little bit of radius around those hospitals so that we build very strong overlapping capabilities where smaller hospitals in small terms refer to the larger hospitals in the same state. So that's the strategy we would go. There is a much larger macro play where there's demand all over India. But at this point, we can only think about what we currently have.
Thank you, Vijay, for your questions. Can we please have Gagan to post the questions?
Yes. Am I audible?
Yes.
Yes. Sir, the first question is around the tax rate for the first quarter. It was fairly low at 10.6%. Can you elaborate on that?
Gagan, thank you for that question. Good you asked. So we were in the earlier tax regime till last year, because we had some brought-forward losses in MAT credits that needed to be set off. So we have completed that, and we have opted for the new tax regime. But what has also happened is that we had deferred tax credit, which we were -- deferred tax asset which we were carrying, which came in as a deferred tax credit, because the tax rate has gone down. So effectively, our India tax has come down to around 18%. That's because around 26% to 27% is the parent tax rate. And then, there is about a 9% deferred tax credit, which has come, which is a onetime for the current year only. And that's why you've seen that significantly low tax rate. We will still be lower than FY '23 when we go into the next year also, but we will not have this about 9% deferred tax credit, which we are enjoying in the current year.
Okay. So for the whole of this year, you will have the benefit of the deferred tax credit. And then starting FY '25, it will be effectively 26% tax rate for your India business. Is that correct?
Correct. Some small point to keep in mind is that, some subsidiaries will still have some brought-forward losses to set off, and we may not move to the lower rate of tax. But it will not have a significant impact from an overall ETR point of view.
Right. And if I recall correctly, last year, you had some pending receivables from the government which came through, because of which your cash flow was sort of -- saw some benefit. And I think, that would also, in some way, help to retain a healthy leverage on the balance sheet. This year, again, you have a sizable CapEx. Would the current gross debt need to rise further to fund this CapEx and by how much if so?
Sure. So, I will just answer the receivable piece and then I will hand over to Nishant on the debt piece. So 2 parts to the receivable. We had sovereign receivables from St. Lucia, that came in, in the last quarter of the last year. That, yes, gave us a cash flow as well as an EBITDA benefit. And if you see, we normalized for the one-timer impact in our disclosures also. Separately to that, as far as India receivables are concerned, I think, it will follow a certain pattern this year being the election year. I think collections will be cyclical, but we will have some slowness towards the later part of the year as the election start coming through. So there will be some working capital impact that we are anticipating in the current year. It will not be as good as it was last year.
I'll just hand over to Nishant to explain the borrowing strategy.
Yes. Thanks, Sandhya. See, as we have guided the CapEx for this year, if we add up both Cayman and India, it's going to be around INR 1,130 crores, INR 1,140 crores. At this juncture, we are very comfortably placed even better than the Q4 of last year. Our net debt is only 0.19 billion or maybe INR 19 crores. So if we have this spend done for the entire year, for the month we have mentioned, will be going around, say, 60% to 70% of the entire CapEx through debt, both India and Cayman put together, which would essentially mean that, our gross debt and net debt, both will go up, but the net debt amount will go up by only say, INR 550 crores to INR 600-odd crores, which will still keep our net debt-to-EBITDA ratio at a very comfortable number of less than 0.6, 0.65.
Right. And for your Sparsh acquisition, which you did last year, if you could give us some idea of where things stand as of today? And for the whole year of FY '24, as you exit it out, how should we think of this piece?
Yes, I'll take that. When it comes to Sparsh for this quarter, revenues are very well in line with the plan and with a very healthy EBITDA margin of around 34%. The unit when we took it up in Q3 of the last year, the entire team of the erstwhile setup was taken up by us.
We had actually worked a lot on cost controls and our projected overheads were around 23% of the revenue. We could leverage a lot of benefit from the existing hospital operation, because it's a part [indiscernible] Health City. And thereby, we could work out better EBITDA margins, much, much more than the projections. But what has happened is, though it started very well with higher projections than the budgeted figures, it has grown in strength quarter-on-quarter. And from a 30% to 31% EBITDA, we've grown up to 34% in Q1. We expect the trend to continue in the coming quarters. But of course, there are certain headwinds which we need to work around.
But having said that, we are positive and confident that we'll be able to deliver a good EBITDA percentages by the end of this financial year, consistent with what we have done in the last financial year for Sparsh.
Okay. The final question, I mean, last year's CapEx breakdown, if I look at your presentation apart from Sparsh, there's day care beds and radiology equipment argumentation, surgical robots. So these are equipment as and when they commission they, in a way, give you additional capacity, you can increase your throughput, you've indicated it in the past as well. So I would sort of infer that -- or surmise that this CapEx gives you sort of a lower payback than simply adding bed capacity. You already have the demand, but you are unable to meet it for the lack of equipment. Is that now taken care of? And if so, effectively, how much additional capacity do you get by these increments on the radiation oncology on the surgical robot and radiology equipment?
I'll take this one. The last priority for us for expanding is through adding new beds. Why? Because for every bed you add, you need 4 walls to encompass it. You need a lot of people to hire to be able to treat the patients who occupy those beds. So the fastest payback for us comes with incremental capacity expansion or things that reduce the throughput. So a lot of technologies such as faster MRIs, more cath labs, ICU beds, increase the throughput of our existing infrastructure. So through bed reallocation or through changing the interiors, we're able to have patients get discharged faster, and with the same manpower, or sometimes with even lesser manpower. So those are the opportunities we pursue at the highest priority, but in parallel also going with beds, because beds deliver on top line. And ultimately, that's the 1 that we would most want to pursue.
So if the bed count were to remain what it is, Ceteris paribus, I mean, the bed count doesn't change. With all of this additional investment what -- how much can you move the revenue line or the profit line? I'm not asking for exact figures, but if you could give us some quantification of what you get out of in terms of return on investment or fixed asset turn from this investment -- sizable investment that you've made? And what time frame does that happen? I presume it will happen quickly.
Yes. So the investment itself, some of it is to improve the throughput, but some of it is inevitable. There are some things that are just about replacing, aging MRIs, and changing the interiors of, let's say, bathrooms and so on. So those are things you have to incur. But all of this is meant to sustain the current pace of revenue and EBITDA growth under the same current capacity of beds that we have until the new capacity comes online, which will be 3.5 years from now.
So if that comes in, then the new capacity will lead to further top line growth. But of course, certain margin dilution would be expected when that day comes. But right now, a lot of this is to continue the current pace of growth of what we're doing without necessarily having to add more hospitals to achieve that.
I may just want to add that, we had almost 20% growth last year coming in without adding any beds actually. So a lot of it came out of the work that got done on the throughput side. So there is a lot of juice in that to extract, and that's a key focus area for us.
And that delivers the highest ROCE, because it's just a onetime investment that you make of this, and it's immediately accretive.
So sorry, just adding to that 1 more line. We continue to work on these efficiencies. We have discussed about this earlier also. So this will actually create those additional space and that we will address the bottlenecks through adding more OTs, ICUs, the lab, the diagnostic, on this equipment, which we have mentioned, to make sure that we increase on the revenues at that same cost levels. So with this till we get into the capacity expansions, we'll be able to maintain the margins, till such time we are able to get the capacity expansions going in the next 2 to 3 years' time.
Right. So when you say that the current CapEx '23 and '24 can address 3.5 years of growth requirements barring the greenfield at Cayman, are you sort of referring to the FY '23 growth number as being a sustainable one?
We really can't guide like that, because, we are aspiring to maintain a healthy growth momentum. But it's -- and we believe that we have enough ability to, in being able to expand our throughput and new capacities may not become a bottleneck for us to grow. So that's the aspiration.
I get it. So just my final question, which is that, it would seem to me that, none of the CapEx that you've so far commissioned is going to be EBITDA dilutive. And is it also a reasonable assumption that even at the PBT level, this is not going to be dilutive even post the additional depreciation and interest cost?
There will be a little bit cyclical there, because when we capitalize immediately, especially Cayman capitalization will happen back end of the year and early next year. The improvement in the EBITDA is not going to come upfront. So while Anesh spoke about some of the costs coming online, depreciation will also be a cost that will start coming online. So that will cause some dilution from -- but other than that, yes, a lot of the CapEx that we are doing may not cause a significant EBITDA dilution. But 1 point we have to keep in mind is that, there is a past headwind that all hospitals are facing, including us, both on the material side and on the other cost side. So we have to...
Those are the micro things. It's not caused by adding these beds and cath labs and so on. Some things outside of our control could have the potential to dilute margins as and when they happen, mostly on the price control from the government.
Thanks again for your questions. Harith, can we please have a question from you?
So can you provide an update on Narayana Health Integrated Care? You had announced this initiative last quarter, and I see a INR 6 crore EBITDA loss for this quarter. So these are actually coming from new clinics that we set up during the quarter or these were existing clinics? And any updates on your targets here and your strategy here?
Yes. Some of the updates are on the slide towards the end, but I'll ask Ravi to give the overview.
Sure. Thanks, Viren. Thanks for the question. So yes, we've been piloting our Integrated Care offering from 6 locations in Bangalore. It's still early days. And I think we're kind of building that. We've got pretty good traction at the moment, as we've noted in the deck as well, about close to 30,000 transactions and about INR 45 million in revenue so far. And as I said, we'll focus on Bangalore and then learn and adjust the model and expand subsequently.
So yes, sorry, I went on mute. So my question was, do we have any targets in terms of number of centers or clinics that we aim to have in the next couple of years?
So at the moment, it's in beta mode, and our focus is really on building an integrated model and solving the customers' requirements. And as we build that model, as we'll get more learnings, we will figure out the pace and phase in which we want to expand. But at this point, we don't really have numbers that we are ready to share in terms of number of clinics or expansion plans. We're very much in learning mode right now.
Well then, I can put it in another way. We want to provide a coverage for our -- that current target market in Bangalore with as many clinics as is required to achieve that coverage. Coverage meaning all the customers were going after, whether we're able to give the medicine in the house, whether we're able to take care of their kids when they are sick left [indiscernible] in the morning. Those are the services we'll keep adding. Then that requires 10 clinics, 50 clinics or 100 clinics is the iterative process, we would need to get there. But this is entirely oriented around building capacity to serve the needs of the subscribers to our integrated plan, not about adding a bunch of clinics and then running around and trying to get more people to walk in through the doors.
Okay. Got it. My second question is on the ARPOB growth. I see that ARPOB has grown at around 11% at the network level. And this is in line with what we have seen in the last few years as well. So you guided a bit cautiously during the last conference call on ARPOB growth that we will not be able to sustain the rate that we've seen in the last few years? So how should we think about ARPOB growth going forward? Not exactly looking for a number, but just qualitatively, the levers we've had in the last few years, are they still there? And then any color would be helpful.
You can write down somewhere that the guidance from this company will always be cautious. The ARPOB growth is essentially like we said, a function of efficiencies as well as whatever realization increases that can happen. Efficiencies are how much faster the discharges happen, realization through not much of a price increase, but in terms of the complexity of procedures that we do. But more so increasing the number of discharges, daycare procedures, and that's what we're doing. So more of these hospitals mature, the more we invest in things like robotics and daycare procedures and getting now more into orthopedics, which has very quick discharges, this ARPOB number should improve margin level. But yes, we are cautious because we don't really use price increase as the leverage to drive this.
Asif, can you please have your questions? Okay. So we can move to Rishad.
Yes. Can you throw some light on the insurance segment? Where are we and where do we see ourselves in the next 2 years?
Okay. Yes. So at the moment, we have applied to the IRDA for -- as a stand-alone health insurance company. And we are working with them to get approval for setting up the company. That's the status at the moment.
And can we expect in this FY that the business can be up and running or the next year?
I think, difficult to exactly commit to that because, as you know, it's a long process. But we are engaging closely with the regulator to make sure that we have all the approvals in place. But it's not just the approvals. There are a number of other things that also need to fall in place, in terms of our systems and other things that have to be ready, so that we can start serving our customers well from day 1. But the key thing, of course, is the regulation. So I would say, we'd like to get going as soon as we can. But at this point in time, I don't want to give, the end of this year or early next year time frame, could be either.
Okay. And 1 more question regarding the Samyat Healthcare. Can you throw some light there?
It's just a more tax-efficient distribution model, because we have a lot of subsidiaries coming through. So because of GST leakages, we are finding a more efficient way of keeping our inventory and being able to dispatch them to our subsidiaries. So -- at the moment, there isn't too much to read into that.
Okay. So it is right to assume that it will be restricted to our subsidiaries and not any outside hospitals or it is open for that?
Yes, it will be restricted to our subsidiaries at the moment, that's where the thinking is.
Okay. So can this improve a bit of margins because of cutting down the middle people?
So what's happening is because of the price control, we faced a lot of margin pressure on the medicine sales. So, I guess, this would claw back a little of -- some of the losses, but it may not improve our consumable margin from where we are.
Asif, if you're ready, can we have the question from you, please?
Yes, I'm audible?
Yes.
So my question is regarding the Cayman Island business. As we can see here, the average revenue per percentage declining sequentially from 39.3% in September '22 to currently, it's 30.9%. So could you please put some light? What's the reason behind this? What's happening?
So just to clarify, were you asking about the average realization per patient?
Yes. Yes.
I can hear you. Go ahead, please.
Yes, yes. I'm asking on the average revenue per patient.
Sure. So if you look at the trend over a longer time horizon, given that it's a relatively small asset in volume terms, we see these swings from time to time. But if you look at, say, the past 6 or 7 quarters, there was an anomalous quarter where we were at around $40,000 -- close to $40,000, $41,000 per patient. But more or less, we have been hovering in the range of $30,000 to $35,000 per patient. And that's been pretty consistent for some time. The challenge is we're looking at just a few quarters, 1 or 2 quarters as it gets significantly skewed either -- neither which we sometimes up when we have 1 or 2 large very long-stay patients who have a very high discharge value, et cetera. That tends to skew it because the base is small. So my suggestion would be to look at these trends over at least 6, 7 quarters or so, and then more or less in a narrow range.
Can we have the question from Vallinayagam, please?
I'm audible?
Yes.
Yes. Sir, my question is about the trade payable days in our annual report to 2023. So as per the annual report, we are -- our trade payable turnover is 1.92 range. And so it means we are paying our vendors at 172 or 180 days. But if you look our sales, we our majority, we are getting cash in hand. So in this context, why we need to pay the vendors at very long period like 6 months at all, whether my understanding is correct or not? That is all for my first question.
And second one is, whether it is an industry-wide phenomenon? That is my second question. And third one is suppose if you are able to release the payout -- release the payment a bit early, is there any possibility to get discount from the vendors and the same may flow to our margins? So this is what my overall questions.
See, actually, Vallinayagam, if you look at the trade payable days, the income parcels varies, it has calculation, it has provisions, it has different line items in that. The underlying payable day, we pay between 60 to 90 days to all vendors and MSME is much faster. That's the industry norm. Most of the companies pay between 60 to 90 days, and I don't think paying faster than that has a significant cost benefit. But we do assess from time to time if an early payment is more efficient, and therefore, it is able to give us any leverage in terms of our landed cost. Then we do take those opportunities with the vendors. So we are in line with the industry on this.
But I would add these conversations have been had with the companies. But since we have such a fragmented supplier base, I know 1 vendor has such an outsized impact on the purchasing volumes. This volume-based discounting really does not apply -- sorry, the early payment based discounting like what Demat and the rest of them do, does not apply to our business.
Thank you. Can we have the question from Lohith, please?
Just wanted to understand that strategically, is there any thought process on adding complementary specialties, other hospital comps currently are also gearing up heavily on specialties like mother and child care, some are scaling up their diagnostic practices. So is there any thought process on that from the management?
We have all the specialties, but stand-alone businesses like mother and child care, that is something that we'll be doing as part of the NHIC program. So Ravi's team is building out these different format of small clinics, medium-sized clinics, polyclinics, that will cater to a range of requirements. So we won't be building like what Apollo Cradle or NephroPlus have done, where it's dedicated to just 1 specialty. For us, these are called Narayana clinic. And the idea by Narayana clinic is that everything is available to you and the range of offering will modify based on what the needs are.
So if we are in a location that, let's say, the demographics SKUs, slightly older than there may be geriatric specialist over there, whereas if the same Narayana clinic is in a place with a lot of new apartments and young families that may have a more robust pediatrics. But we would -- the complement specialties that is we create a referral pipeline in primary care through NHIC, which will cater to the entire primary needs -- primary care needs of the patient, which is medicines, diagnostic, lab test and consultations.
Understood. And the plan will be to keep them co-located with the existing setup or go independently also?
I mean, it will serve the larger hospital setup. So then like Viren explained, there's no point in children and anti-natal mothers to come to the major hospitals for a routine checkup. So they'll all be done in the clinics and the clinic pods, and that will be more than sufficient and give a better patient experience for that. You only need to come to the larger hospital setup for something which is more complicated and you need a little higher imaging and a little complicated investigations to be done. Otherwise, everything else will be sufficient to be handled because 99% of these things are handled on out patient basis. So all these things will be handled by the clinic level. And as and when it is necessary, they will coordinate with the necessary subspecialists in the hospital for them to visit and take the necessary help.
So in Bangalore, for example, our Health City is in Hongasandra, which is in the extreme southern tip of Bangalore. So the places currently where we're building the clinics are in the areas in the southern part of Bangalore. So in Electronic City, in HSR, in Sarjapur, Whitefield, these places, we will slowly start adding clinics and then start to cover the rest. So it won't be -- the departments will still be there with some mother and child department in the Health City in Bangalore, but smaller OPD based clinics will be all over the place. So that you can see the doctor there, but when it comes time for the delivery, that's when you come to the hospital.
Even the chronic ailments like hypertension, diabetes and things like that. Wherever we can handle them on a video consultation, will be handled, but wherever they do need to come for a routine once and 3 months or kind of a checkup they'll all go to the clinics, where our doctors who will also be available as and when required.
Understood. Sir, essentially more like primary, secondary care?
Yes.
Thank you, Lohit. Can you move to Damayanthi for question?
I have 2 questions. First, I wanted to understand your India operation. So you recorded growth of around 14% year-on-year. So can you explain like of this growth, how much might be contributed by volume or how much be driven by mix improvement, et cetera. So like broader understanding on some drivers here?
Most of the driver through the footfalls, occupancy, throughput. The business mix remained more or less the same. We did have some slight uplift in certain departments, like orthopedics and oncology, which we've spent a lot of time focusing on. But a lot more of it has just been the overall volume of patients we've been able to serve in our hospitals go up, as well as our ability to discharge them faster and treat them and take them in the day care mode as gone up.
So a lot of that is driven by the ability to service more patients. Some realization increase has also come up, that is there as well, both through pricing and efficiencies. But I would say volumes have increased. There's also been a slight change in the payer mix as well. The number of patients that we treat under the insurance programs have gone up as a percentage of the total, slightly. International is more or less the same, and cash segment has gone down a bit.
Okay. So primarily volume-driven and then process efficiency, then you think that the business mix broadly remains unchanged?
More or less, yes.
Okay. And in terms of annual price hike, what's the general range which you take? Like I understand a smaller part, but nonetheless, by like what percentage you generally increase our tariffs while revising it?
We think low single-digit price hikes every year, like we have always said, we don't pass on the entire burden of the cost increase to the price. We work through with our efficiencies and throughput improvement to offset some of the cost and only some of it we pass on, on price. So that's the same philosophy we have followed this year also. Our price hikes will be in the range of low single digits.
And it's already taken for this fiscal year?
Yes. Our price hikes are taken on the 1st of January every year. We make our price list available on our website at that point in time. So that there is transparency to the patients. So the impact of the price hikes are already flowing in. It flows in with a slight lag into the realization profile, but they've already started flowing into our realization profile.
Okay. My second question is on your international business. So what are your thoughts here, like, say, over the next 3 to 5 years, how much you want to scale it up from current label?
Venkatesh, go ahead.
Yes, international patient volumes have actually grown quarter-on-quarter. Even in this quarter, it has grown much more than what it was in FY '23. So that's not all -- I mean, we are basically focusing on the core market of Bangladesh. When it comes to the numbers, we are not purely relying on these numbers. And I don't think we'll be able to reach the numbers which we had pre-COVID, because we have cut off all the arrangements with any type of an intermediary. We're also trying to restrict our activities to key markets on a direct engagement models.
Plus what we are doing is, we're trying to shift more into the marketing spends on digital and domestic activities, which actually are much less impacted if there is any travel disruption due course of time. What happens is, the international medical travel will keep reducing as our neighboring countries keep developing in terms of the healthcare sector. And eventually, they match us. So a lot of new hospitals are also coming up in [indiscernible] Chittagong and other important cities. So it's time that we try to focus more on our digital and domestic activities as an alternate. So the core focus will be only on this, but the entire alliance will not be on industrial marketing, though, the trend shows tractions -- positive tractions quarter-on-quarter, even including this quarter.
Can we have this question from Alankar?
The first question is given that we are not going to expand bed capacity for the next 3, 3.5 years, and the focus is on sweating existing assets. Would it be fair to assume a pretty decent margin expansion in the domestic business over the next few years?
Not that we're not expanding over the next 3 years. It just takes 3 years for all the significant capacity to come online. Meantime certain smaller projects are happening in Ahmedabad, in Howrah Hospital, and here and there, some bed realignment in Bangalore and Kolkata. It's not that we are actively avoiding it. So that's 1 thing to -- we are investing, it's just construction projects take much longer than they used to.
In terms of margin expansion, not -- I mean, we'll do our best, but it won't be as much as when the new capacity becomes fully operational and breakeven and so on. We'll do the best that we can to counteract a lot of the margin pressures through salary increases, the trade margin capping, the NPP and those sorts of things through whatever efficiencies that we get.
And my second question is, is there any update on the second leg of CGHS price hikes, which was expected to come through in July?
We haven't heard anything yet so far. Whatever they announced before about changing the OPD fees from INR 100 to INR 150, that has an impact of about INR 2 crores for the whole year.
Any other questions from anyone? So as we don't see any further raise of hands, we would like to close this Q&A session.
Thanks, everyone. Thanks for your active participation, as always. Please do feel free to reach out to us in case of any follow-on questions. Thank you once again.