Narayana Hrudayalaya Ltd
NSE:NH
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Narayana Hrudayalaya Ltd
Earnings Call Analysis
Q2-2024 Analysis
Narayana Hrudayalaya Ltd
Narayana Hrudayalaya has posted a solid financial performance for the second quarter of FY24, showing robust growth and improved margins. A team led by Viren Shetty unveiled that the consolidated revenue has increased significantly to INR 13,052 million from the same period last year, a 14.3% growth year-on-year and a 5.8% growth from the last quarter. The improvement is not limited to domestic operations but is also evident in their Cayman units which boasted their highest quarterly revenue to date. Higher revenues, coupled with enhanced cost efficiencies, pushed the EBITDA margins from 23.2% to 25%, marking a commendable increment.
The company is strategically investing in brownfield expansions in its flagships located in Bangalore and Kolkata, and is progressing towards constructing a new facility with the aim of broadening its geographical outreach and capacity. The company's capital outlay for such developments has reached INR 3.94 billion up to the September quarter and plans to allocate the balance in the successive quarters. Beyond the financials, accolades like securing first place among Indian healthcare groups to receive Joint Commission International Enterprise Accreditation and a Guinness World Record for ECG exemplify their commitment to industry excellence.
Narayana Hrudayalaya is employing a high-throughput focus to enhance their service capacity without substantial investment in new beds. This involves utilizing cutting-edge technology and process efficiencies like swift patient discharges, seamless appointments, and faster lab results. Though the net bed count may remain consistent, the company aims to increase patient turnover, with the average length of stay (ALOS) already reduced from 4.8 to 4.4. While this increase in throughput is expected to yield higher revenues, the management cautions of possible headwinds from macroeconomic factors such as inflation and government policies.
The executive team projects that high-single digit growth in revenue and margins could be achieved without additional investments, however, they noted the importance of reinvesting to prevent infrastructure degradation. Further investments would be needed not only for maintenance but also to deal with the increasing patient inflow and the operational limitations of current facilities. Therefore, while the business could grow over the next decade with minor adjustments, substantial investments in facilities and technology are essential for maintaining industry leadership and meeting growing demand.
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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 2 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, our Group CFO; Mr. Venkatesh, our Group COO; Dr. Anesh Shetty, MD of our overseas subsidiary, HCCI; Mr. Ravi Vishwanath, CEO of NHIC; and Durgaprasad, Senior Manager at the IR function.
We hope you have gone through the investor collaterals, which have been updated on the stock exchanges as well as on our website. As usual, before we proceed with the 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 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. We would like to answer them to the best of our ability.
With that now, I would like to hand over the call to Dr. Rupert.
Good morning, everyone. I warmly welcome you all to the Quarter 2 FY '24 Earnings Call Conference of Narayana Hrudayalaya Limited. After a steady quarter 1, the second quarter of the fiscal year delivered strong performance supported by the growth in business across our units, leading to improvement in realizations in India and Cayman. Consolidated revenue for the current quarter stood at INR 13,052 million, reflecting a year-on-year growth of 14.3% and a quarter-on-quarter growth of 5.8%. NHL generated consolidated EBITDA of INR 3,265 million in quarter 2 FY '24 at a margin of 25% against 23.2% of quarter 1 FY '24. This margin improvement is attributed to higher revenues, improvement in cost efficiencies and realizations.
Our Cayman units continue to deliver strong business performance with the highest ever quarterly revenue of USD 31.53 million. The recently commissioned radiation oncology block in Camana Bay Hospital has seen good growth in this quarter, contributing meaningfully to the overall growth in the region. We are confident that our Caribbean business will continue to grow through strategic initiatives and investments.
The balance sheet and liquidity profile at the group level remained strong with group cash and liquid investments of INR 8.74 billion against gross borrowings of INR 9.61 billion, a net debt of INR 0.86 billion as of 30th September 2023. Our net debt-to-equity ratio remained steady at 0.03 giving us sufficient room to fund our expansion through a mix of borrowings and internal accruals. We have incurred capital outlay of close to INR 3.94 billion till the September quarter, and are on track to spend the balance amount in the remaining quarters of the fiscal year.
We take immense pride to announce that Narayana Health is now the first health care group in India and sixth globally to be awarded Joint Commission International Enterprise Accreditation. With this achievement, 8 of our hospitals were accredited with JCI accreditation for delivering world-class care at industry highest standards of quality. To improve awareness towards preventive health care, we conducted the highest number of electrocardiograms, that is ECG in a single day at a single place, which has earned us a coveted spot in the Guinness World Records. This record-breaking attempt took place on 21st September at the Health City campus in Bangalore.
On the clinical front, the Health City campus successfully performed 22 cardiac surgeries using the robot demonstrating our capabilities in adapting the latest technology. The Mazumdar Shaw Center successfully performed 5 cases of limb reattachments during the quarter. The RN Tagore Hospital in Kolkata performed some cutting-edge complex clinical work in oncology and renal sciences segments such as the redo video-assisted thoracoscopic surgery for recurrence of a lung tumor in a 3-year-old child and a robotic renal transplant in an extremely obese patient with a BMI of more than 37 where the patient was discharged within 9 days of surgery.
Our focus on digitization and business transformation has led to significant improvements through the NH system. We've been able to reduce the administrative workload by 36% through our Narayana health app and patient kiosks. Our doctor application called the AADI has helped to reduce their doctor response time by 45% through real-time alerts and integrations. By enabling payments and discharge alerts on WhatsApp, our patients are now able to get discharged directly from the ward hassle free. We have also launched a new app for nurses called Namah, which is aimed at reducing paperwork and manhours spent on data entry.
Our new venture, the Narayana Health Integrated Care has shown healthy growth this quarter after starting on a positive note in quarter 1, seeing good traction with the retail segment. Revenues for the quarter has crossed INR 52 million with more than 45,000 patient transactions. We will continue to grow this business and serve our customers with clear focus for improving the health outcomes.
We continue to upgrade our clinical and nonclinical operations across the group, transform the patient service levels. increase our throughput, build more capacity, invest in more digital patient outreach channels and improve our operational efficiencies. We are reasonably on track on our ESG commitments and continue to focus on creating meaningful social impact in addition to pursuing our environmental goals and upholding higher standards of governance. 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 all our stakeholders while keeping a close watch on return on capital.
[Operator Instructions]. [indiscernible] please go ahead.
So my question is pertaining to your slide where you have mentioned the CapEx breakup. So I see around INR 250-odd crores for some brownfield expansion. So could you please elaborate as to where this brownfield expansion is expected to come up and by when we should be seeing that?
Like we have explained earlier. We are looking at brownfield expansion in our flagships, which is mainly Bangalore and Kolkata. We have land in our Health City campus itself, and we have already started -- we've initiated the process to start building. And we are in advanced stages of closure of land in Kolkata, and we will start building next year. So that's largely the brownfield plus greenfield that we have spoken about.
Okay. I thought the Kolkata land would be in the greenfield part of it, the INR 150 crores?
Yes, yes, that is correct. The land itself will be in the greenfield part. That is correct.
Okay. So if I have to look at your bed capacity expansion from here to 2 years later, then how should we look at the bed addition then?
See what we do is we keep continuing to enhance our ability to treat more patients and bed addition is just 1 way in which we do it. What we have done is recently we added 2 floors in our Howrah unit in Kolkata where we would have those operational 110 more beds by the end of quarter 4. We will also start construction work in Bangalore Health City. We've got all the permissions and we should start the groundbreaking from Q4 of this year with a plan to add 700 more plus beds for the next 3 to 4 years, plus Sandhya has already mentioned about the advanced stages of land acquisition in Kolkata with more updates in next quarter. If things work out in that way we have planned it, towards the end of first quarter and the second quarter, we will start construction there.
Plus, we are also looking at other projects in our greenfield in our flagships, both greenfield and brownfield in an opportunistic way. It should materialize in the days to come. But what happens is there won't be any significant bad additions until the construction of all these complete in 3 years. But -- however, we believe that we have sufficient efficiency levers to cater to our demand and growth aspirations in the interim until we have these beds completed next 3 years time.
Understood. Understood. And lastly, from -- going forward, what levers do we have on margin expansions for our India business?
We'll continue -- yes, go ahead, Venkatesh.
So we -- as we have said, we reiterate the same point, we keep focusing on our high throughput all the time like we have been doing. One is improving on our throughput. We are also significantly investing in technology to improve our throughput, we're working on faster discharges, faster lab results, seamless appointments. We perform various cardiac surgical procedures and robotic procedures, which is a morning-evening admission discharge type of a thing, where we utilize our beds more effectively during the prime time. We're also working very effectively on those discharges which happen post 2 p.m. and costing shortages and morning admissions, trying to overcome that. There have been substantial penetration we have done on that and things have improved a lot.
We're improving throughput in ICUs. We are developing communication tool to doctors and nurses to coordinate care and discharge patients faster. If you see the ALOS, our plans are to bring it down over a period of time to 4.1, and we've already got it from 4.8 to 4.4 now which means we are utilizing our beds more effectively. So it's like we're significantly investing in technologies to grow our throughput. And all these will help us achieve higher revenue and see what is happening in the areas which we gain out of this we address the capacity bottlenecks by adding more ICUs, more OTs, more diagnostics, more labs, which enable us to increase our revenues and the same infrastructure and same cost level in the next 2, 2.5 to 3 years till we have a capacity -- expanded capacity ready for utilization.
I would only want to add 1 word of caution there that there are also significant headwinds that we continue to face from inflation, government action point of view. And so we have to take the commentary in collaboration with that as well.
Can we have the question from [ Prithvi ], please?
Congrats for executing so well over the last few years. So Viren, my first question is on the India business. So obviously, we are now at almost INR 1,000 crore revenue and 18 to 19 percentage operating margins. I mean, obviously, you have been talking about various throughput efficiencies, et cetera. But given that bed addition is going to take some time, how much more can we squeeze in India business? And can this revenue be 15% to 16% higher only from the existing beds?
With or without further investment?
Right, without any further investment.
Without any further investment, you can do maybe high single-digit revenue and margin expansion. But eventually, your doctors will leave and the building will start to look shabbier and shabbier. We will have to reinvest in the rooms every 5, 6 years in changing the equipment every 10, 12 years. All of those things are required to generate slightly above that. As well as expansion to meet the needs of the fact that so many patients are coming, and we're running waiting list. So without investment, this business can still grow for about a decade, but then you'll be a has been in the industry.
I think my question is more on next couple of years. As there won't be any new bed addition, how much more you can squeeze from the existing assets?
There will be minor bed additions. It's not that nothing is happening. The things that are coming up are brand-new buildings, but there's still a lot of work that is going to happen in the existing buildings that won't necessarily lead to bed addition. The net beds may stay the same, certain beds will come up, certain beds will close down. Certain ICUs will come up, OTs, procedure rooms, OPDs are [ where we're ] configured. What's more important to stress is our ability to keep taking in new patients will go up. So throughput and total numbers served in the same infrastructure will keep increasing till the new infrastructure comes where suddenly you have a whole lot of new capacity, and that will take you much higher.
And on the margin side, what do you think about sustainable margins for the India business?
It is as the guidance we always give. We'll do the best that we can and keep retaining our focus on providing extreme value-based care, be very fair on the pricing and treat as many patients as we can. What we can deliver, we'll continue to deliver.
Can I have the breakup of new hospitals revenue and margins for this quarter?
Venkatesh?
Yes. I'll give you that information. So when it comes to new hospitals, these 3 hospitals, which is SRCC, Gurugram, Dharamshila combines is at around INR 119 crores for this quarter against INR 115 crores in Q1. So it has reasonably grown and EBITDA has improved meaningfully from INR 6 crores in Q1 to around INR 8.7 crore in this quarter. So SRCC Mumbai, we have been able to reduce our shortfalls from INR 2.2 crores in Q1 to INR 0.6 crores in Q2. We remain on track to reach flat EBITDA by the end of this year. We're moving in the right direction on the new hospitals, and we're confident of the group continuing to grow and deliver improving margins in these coming quarters and years.
Few of these initiatives in both Mumbai and in Gurugram, we are looking at a combination of both -- when it comes to specialties, a combination of both inorganic and organic initiatives in both these in terms of certain new introduction of new specialties, trying to rebuild on existing specialties to see how we can consistently maintain and improve on our margins for these new hospitals. So Dharamshila is already on track and hitting 15% to 17% margin, and these others will also follow in the next 3 to 5 years based on these plans, which we have worked out.
Anesh, couple of questions on Cayman business. One, obviously, this quarter, there seems to be a fall on the footfall number on a Y-o-Y basis. Could you just explain what led to that?
Which footfall are you talking about, the outpatient?
Yes, it's on outpatients.
So just to clarify, the -- if you're looking at the investor presentation, the blue bar is last year, Q2 FY '23, 7,600. The red one is Q2 FY '24, that's 9,600. So I'm not sure -- I think you're looking at the right information.
Okay.
Just to clarify, it was 7,600 Q2 of last year and 9,600 Q2 of this year.
And could you give some time line on the new CapEx? I mean the new hospital in Cayman??
Yes. So as we spoke about the last time as well, we remain on track to commission that in Q1 of the coming financial year. So that would be in the April, May, June time frame, hopefully, in the earlier half of the quarter. We are making meaningful progress in the civil work, in fact we're starting the services and the -- a lot of the interior detailing as we speak. And of course, there's some time that it takes for approvals and inspections, et cetera.
May I have the next question, please? Anuj, please go ahead.
Congratulations on a very good set of numbers. So I just wanted to get some understanding in terms of the occupancy and other basic metrics like I know you don't track the ARPOBs. So from an ARPP perspective, while today morning in the commentary, you guys have said that there was not a material impact on ARPPs. So I just wanted to understand if you could give a breakup of how Bangalore, Kolkata, and other noncore geographies have performed in terms of occupancies? Because you guys used to give that data earlier, but now I think you've stopped. That will be helpful if you can share that again.
I mean, when it is occupancy, why we keep reiterating on the same thing. We don't want to view occupancy in isolation. We have said we are a high throughput center. So occupancy actually doesn't material -- I mean, it is not so materialistic in terms of our performance because I have said you already invest in throughput technologies for improving discharges, appointments. We perform morning and evening procedures, which doesn't take too much time for the patient to wait. It comes in the morning and goes in the evening. We are also developing communication tools, improving ALOS.
But our occupancy, having said that, is far higher at the India level on the upwards of 65%, and this improvement can be seen across all our units. But we continue to, again, hark on the same point that midnight occupancy measured on sensors, that is not a good measure of hospital utilization. In fact, the revenues which we have grown more than double digit for 2 consecutive years without any meaningful bed addition is actually a proof of that. So when it comes to occupancy, we are upwards of 65%, and you can see that across all our units.
Yes. While I understand that, I just wanted to understand if there is a breakup of core and noncore geographies that we can provide. I just -- it's more of an academic question. I understand that. And that's why I said not just occupancy, I wanted to understand the other metrics as well. While I understand that ALOS is down from 4.6 days to 4.4. I just wanted a view on how the other metrics are performing?
Yes. Let me comment a bit on ARPP, which we acknowledge is a better metric than ARPOB. We have -- as you are aware, for us, pricing is not the primary lever for improvement, and we focus heavily on efficiencies. So we take very moderate price increases. And if you see there is a certain -- year-on-year, we have shown a reasonable price increase, which is I think, healthy and yet affordable for our patients. Would -- the short period of time, these numbers fluctuate a bit. And therefore, they are not very representative quarter-on-quarter basis. Our ARPP numbers are shared in our deck.
From a utilization point of view, just 1 more small color I want to add is that while we have improved on utilization across all our units, as you can see from our revenue mix, our flagships are continuing to perform very well. And therefore, they are also running at very high utilization. As we keep debottlenecking, we will keep being able to process more throughput through the same facility that will help us use our resources better until our capacity addition comes up.
Can we have the next question, please? Yes, Gagan.
I hope I'm audible?
Yes.
So the first question is on your ARPP Cayman Islands outpatient are from $1,000 to $1,300 if I read it correctly. Year-on-year that's a 30% jump. If you could elaborate a little bit on that significant ARPP jump? I understand or possibly infer that the onco unit might have something to do with it, but if you could explain that?
Yes. Actually, Gagan, your guess is spot on. We classify radiotherapy patients as out patient because there's no length of stay. And it is a relatively much higher realization than your traditional outpatient services. So you will see that spike over there. We don't expect any further increases because the full effect of the radiotherapy has already born out in the quarter. But yes, you are right.
So it sort of stabilizes at 1.3 or rather $1,300 is what you're indicating?
Yes, that's a very specific number. It's not something we would look to aim for. But yes, where it is now is more or less where we expect it to be. There will be some other changes when we add more -- as Venkatesh and the other commented, we are constantly looking to convert more and more services to daycare. So we'll be starting daycare joint replacement and so on. So once that happens, obviously, that number could move. But for now, this is where it should be.
And then there is a good jump in your outpatient volumes, 7,609 going to 9,615. Again, that would also have a very substantial contribution coming from the onco unit or that is a wrong...
No, onco -- I mean, of course, oncology would contribute to it, but by volume, it's not very substantial. This is the general improvement in all specialties. But a large chunk of it is we are now reporting our ENT, the acquired business as well, which is predominantly an outpatient service. So it's a high-volume outpatient service.
So you're saying that [ first trial ], this was not reported in the OP volumes, and now it's being reported?
We recently completed the acquisition, and we wanted to start it after finishing an entire quarter and this is now reported in that. So it's a combination of our organic growth, the oncology, which you identified as well as a large percentage of it would be because of ENT. It's there in the footnote as well, in footnote 1 of the slide here.
Okay. All right. And the ARPP for your inpatients actually dropped year-on-year in Cayman from39,000-odd to 34,000-odd. Any explanation there?
Yes. I wouldn't look too closely in that. It's just that the similar quarter last year was an unseasonably high number. But if you look at the general trend, Q1 was 30,000 -- around 30,980 whereas we are at 34,000 now. So in general, I think the trend is positive and where we are comfortable being, it's just once in a while you're going to be comparing it to a base quarter, which was unseasonally high.
And I mean, the start of the call, you indicated almost INR 394 crores of CapEx has been done for the full year, the budget is around INR 1,137 crores, your cash position is very healthy. And so is the cost debt position not really moved up too much from last year. Is there reason to believe that in the second half because the CapEx might spike up to INR 700-odd crores from the INR 394 crores that we've seen, there will be a requirement to add further to the debt? And if so, to what extent will you need to fund it via debt?
Yes, Gagan. So out of the CapEx spending for the remaining of the quarters, we'll be spending around another, say, INR 400 crores to INR 500 crores of debt -- of CapEx. Out of that we can fund, 50% of that money will come from the debt. So even if we do take that, say, INR 250-odd crores as debt, our net-debt-to-EBITDA ratio will still be very comfortable at 0.3 to 0.4.
Correct. Correct. So it's not really too much of a substantial debt addition at all. And now you've had 2 years running of INR 1,000 crores plus CapEx, and you managed to do that without really leveraging your balance sheet?
Yes, because we have got pretty healthy cash flows. If you look at the EBITDA, we have seen crossing INR 1,000 crores on the annualized basis. So with that in mind, we should not be above 0.5% at any point in time for this financial year.
So last year, I think there was an indication that cash flow was very healthy because of certain one-offs. This year, again, if you could sort of give some idea. Has the cash flow been equally strong or better and you're even adjusting for the one-offs?
I think the cash flow is a representation of the underlying performance of the business given that our EBITDA has been healthy, and we've been able to maintain the payer mix with a reasonable balance Therefore, it is reflecting in the cash flows.
Right. So 1H was 587 versus 535 last year. So there's no change in the working capital here at all? I mean, in terms of day...
No significant change in the working capital this year. We kind of operate at almost neutral working capital position. So we've been able to hold on to that in the current year also.
Right. And again, at the start of the call, you indicated that without any investment at all, you can still manage to grow high single digit and you obviously are investing and investing quite substantially in you're reconfiguring, you're adding OTs, you're adding equipment, your grading equipment. So just to take a queue from that statement, if without investing, you can add or incrementally to sales by high single digit with this investment, part of it, which is going to increase throughput and part, obviously, comes later in brick and mortar in bed terms, even with the investment that goes in increasing throughput ideally the minimum growth limit should be high single digit and possibly supplement to that with whatever capacity expansion you're doing in terms of equipment. Is that a reasonable surmise?
That's a forward-looking kind of statement, which we don't want to make. But what we can definitely say is that indicators are all in the direction of being able to grow as well as we've grown in the past. Obviously, there are various factors, like, for example, Q3 is a seasonally weak quarter. So therefore, our volumes will be -- every Q3 volumes are slightly weaker. There are various factors that come at play. So it's very difficult to give a number like that.
I understand seasonally, I'm not looking at quarter-to-quarter movements. I'm obviously comparing year-on-year, which adjust for seasonality. And in any case, I'm looking at a 2-, 3-year time frame. And I'm just trying to validate the logic not looking for numbers here.
The final one on tax rate. It's think been pretty low for the first half and you had indicated last quarter that this year will be effectively a low tax rate number. How should we budget for tax rate this year and then going into next year?
Tax rate, we will be around what we have seen around 10%, given that is a good estimate to take because we have moved to the new tax regime in India. So we will be able to see that benefit.
And next year, how should we think of that?
Next year, there will be no significant change, except how the mix moves, which we cannot comment at this point in time.
So next year, we should budget for any [ like 25% ] tax rate from India. Is that a reasonable basis?
Yes. Around 25% for India is -- you can take that number.
Final one again on Cayman. The ALOS at Cayman tends to be 8.9 to 9.1 days. Any reason why that number is as high as that, because in India, you are at around 4.5?
Yes, Gagan. So in Cayman, we are sort of the national hospital for the country, and there are -- there isn't much health care capacity aside from us and the government hospitals. So there are certain chronic patients who are very, very sick and who perhaps need longer-term care, some amount of nursing. In other countries, they would be assisted at home or they would have some other sort of home care or out-of-hospital care. But the government's obligation is to care for these patients and they're universally insured. So we, on behalf of the government admit these patients for a very long time or many, many months at a time. So this just skews the ALOS number.
Can we have the next question from [ Vinay ]?
Yes. Just 1 thing on your numbers for the quarter. I'm comparing quarter-to-quarter. You have around 212 new doctors added in this quarter. But if I see the expenses on doctors, it has actually gone down. Can I have some explanation on that?
Because of the revenue effect, revenue has come in much higher. So therefore, as a percentage, it is not reflecting.
But a number point of view, most of them would be training positions from the postgraduate training positions would have joined in the quarter 2. But we do keep adding senior doctors as and when required from every unit. So that is a constant ongoing process that we follow. But for this relatively larger number, it is from the students who have been joining us in this quarter.
Yes, because the total doctor expenses have actually gone down from INR 2,315 million to INR 2,221 million. And the other part is the other admin expenses and other employee expenses have also gone up disproportionately high. While the others have been very well controlled, and I must give you for doing a good job there in controlling your costs. But any particular reason why the other employee expenses have really gone up by around 14% quarter-on-quarter, whereas your sale has gone up by 5.8%?
We have taken some investments in repair and maintenance in quarter 2 because it was a good quarter, and we wanted to get some of the R&M work done. So because of which there is a onetime investment and increase that you are seeing. It will taper down going forward. There is a certain level of base that will continue, but some of it will taper down.
Okay. And lastly, I see a drop in depreciation. Any particular reason quarter-on-quarter drop in depreciation?
We will capitalize our work in progress, any new significant capitalization has not happened. And some of the assets as their life cycle ends, they get de-capped. So you don't need to overread into that number because our depreciation will go up. We are capitalizing INR 1,000 crores this year, we are -- so we will -- that will go up only.
Okay. And the last thing is on the NHIC working. You have seen a good healthy addition of patients in this quarter compared to the last quarter, but your average billing has gone down from 1,538 to 1,158 and the losses have also, I think, increased from INR 5.8 crores to INR 6.4 crores. What are you -- of course, it is early days. It's hardly a year since you put that up. But how do you see that contributing in the future?
I will request Ravi to take the question.
Thanks. So yes, I mean, as you said, it's early days, and we keep experimenting with various value propositions to the customers. So I would think that for a little while, this might go a little bit up and down as we come up with new propositions and new products. And so I -- don't again read too much into that. Right now, we're focusing on transactions and learning from our customers, understanding exactly what they need, what is the best value and best service we can give them. And as our learnings grow over time, of course, directionally, we do want it to get up. And I think over time, it will stabilize. But I think for the next few quarters, this might be a little bit up and down as we experiment.
Yes. And how do you see the contribution of NHIC into your -- is this a feeder into your main hospitals? Or how -- what exactly is the role NHIC plays here?
I'll answer this one. At this point, NHIC is a stand-alone entity that will build out clinics and offer subscription plans for patients with the idea that we want to keep them healthy and keep -- do checkups and manage them in the clinic itself. Obviously, once they are familiar with our system and get to know the brand better, should anything happen in the future, then there was a possible referral to the main hospital, but that's not the primary goal. The doctors over there are trying to keep them out of the hospital and with a mission that's oriented around keeping them healthy.
Can we have the next question from Chinmaya?
While responding to one of the participants, you talked about inflationary headwinds and government action. Could you elaborate that point? What specific actions are we referring to?
Usual things that happen before elections. There are, in the past, certain populous things around price control, certain states will offer expanded Ayushman programs. A lot of government departments tend to run out of money just before an election. So there are little headwinds that one usually faces just before a national election. We're just a little cautious about in addition to whatever seasonal impact that Q3 will have.
Understood. But nothing material, right?
Nothing material yet. But as and when these things happen, we all will get to know at the same time.
Anyone else?
Any more questions, please? We still have around 20 minutes to go, if anybody has any questions, please ask. Yes, [ Vinay ].
Yes. Just looking on the Cayman Island business. We are looking at currently working at around 50% occupancy of the 110 beds that you are working there with. Because when I see the average revenue per occupied bed, you are saying it is $2.3 million, for $31.5 million sale. Am I reading those numbers right? Or is this -- there is some error there?
Where are you -- could you please clarify which document you're referencing?
It is the Slide #11. Point 2, the small note 2, ARPOB. You are saying $2.3 million per quarter FY '24 against our operating revenue of $31.5 million. I couldn't relate to it. I mean how do you read this figure?
Yes, no, I think we will clarify this. So your question is there's an ARPOB of $2.3 million over there. But we don't have the occupied beds. So how are you relating that to the revenue.
Yes, I'll tell you what I'm doing. I'm just looking at the numbers of your discharges and multiplying them by the average length of stay to say how many bed days are occupied out of the total 9,900 bed days that you had in this quarter and then working out what is the average stay there. When I divide, I don't get this $2.3 million per occupied bed.
Yes. That's because the average revenue per occupied bed will include all revenue, inpatient and outpatient. Whereas the discharge number will only represent the inpatient revenue.
Okay. Because that's the only thing which I couldn't reconcile here. So I thought I would just check on with you.
Yes, sure. No problem. No, it won't add up because you're missing a component, yes.
Okay.
Nishant, you could just clarify if that's -- no, no. Nishant can...
Yes. So, Vinay, if you have any further doubts, we can get on a 1-to-1 call, and we can clear this. As Anesh said, that this is not the only number. We have this even the OP numbers but we'll give you more clarity in case if you want after the call.
Outpatient in the sense, they get admitted in the morning and leave by the evening. And so they don't contribute to the inpatient but they're still occupying the bed for the whole day and account to the OP numbers.
And this is also exactly why we don't prefer ARPOB as a metric. But yes, to your question that's the answer.
Yes, [ Vineet ], can we have your question, please?
Yes. First of all, congratulations on a great set of numbers. I think my question is also on the Cayman Island. So is there any -- how do we see the future of Cayman Island? And is there any competition coming from Indian hospitals? That's one. And is the U.S. insurance can that be used in Cayman Island now?
[ Vineet ], thank you for your question. So in terms of competition, there is the government hospital, which is a very large tertiary hospital. There's also another private hospital. It's a very active health care market, there are over 400 registered medical practitioners and over 100 different practices of wearing configuration. So it is a market that is quite competitive in certain areas. We are not aware of the plans of any other Indian operators. We can't comment on that. It is a small market, and there is -- most players know the other one. But we have no information, and we can't comment on that. So that's to your first question. Could you repeat the second one, please?
On the U.S. medical insurance ,can that be used for having a treatment in Cayman Island?
So most insurers will cover if you're here on a holiday or if you're traveling here for other reasons and you require hospitalization, almost every U.S. insurer will cover you. Now in terms of a patient electively going that isn't usually done. But when there is a process for patients to apply to the insurer to do that. And in most cases, we have seen it be approved simply because the costs here are so much lesser than the U.S., but it's a very, very unusual fringe use case aside from an emergency use of a travel insurance sort of benefit.
Yes, Gagan. Can we have your question now?
Yes. I mean, referencing the previous question on ARPOB. If I look at your operational slides on India, Slide 9. The ARPOB for India is also indicated at around INR 13.4 million for Q2 versus -- this year versus INR 12.1 million Q2 last year. I'm just trying to clarify, are you annualizing the ARPOB figure and then giving it out? Because INR 13.4 million ARPOB, if I then consider it as an annual number and then divide by 365, the ARPOB comes to INR 34,000, INR 36,000 odd, which looks more sort of understandable. Or am I getting it wrong here?
We annualize the number, Gagan, that your reading is correct.
Okay. So the same would have been done with the Cayman number as well, your annualized number that $2 million odd?
Yes, yes.
All right. And on CapEx, while your slides indicate last year, I think if I look at last year's presentation and even this year, indicated a CapEx of INR 1,000-odd crores. But then if I sort of try and tally it up on the balance sheet by looking at how much gross block has moved up by and how much capital work in progress has moved up by sort of take the difference between close of FY '22 and close of FY '23 probably comes closer to INR 700 crores then INR 1,000 crores, if I've got it correct. So basically last year then has the CapEx been in the order or INR 700-odd crores or INR 1,000-odd crores?
It could also be because of some of the equipment in pipeline. So there may still be -- we would have raised orders and the equipment would still be landing. But from a commitment point of view, that money is spent. So the amount we are reporting are all committed CapEx spend, which will capitalize. You should give us 6 months lead time for us to be able to capitalize and show those numbers in the books.
But if you're sort of committed, does it not come up in CWIP?
It won't line up exactly. The intent is that all things planned. We want to spend about INR 1,000 crores last year and this year, but a lot of orders got delayed or construction work got delayed. And so it didn't exactly line up. So there's been a bit of lag in that. We're trying to catch up, but it won't be exactly INR 1,000 crores added to the balance sheet.
But if you look over a 6-month time frame, it will start reflecting because the cash is spent, it's just getting capitalized or coming into CWIP at different points in time.
Okay. Okay. Right. Last one on Cayman. You indicated that you will start the new hospital, I think, in the first quarter of next, next financial possibly '25, if I got it correctly. How should we -- I mean, because this is going to be different from the onco unit that you put in, which has ramped up fairly fast for you. How should we look at the financial implications of that new hospital phase by phase, let's say, for the first 6 months, next 12 months and then when it stabilizes, what time will it take to stabilize and hit an optimal utilization. And at that level, what implications does it have financially for margins and growth? If you could give us some indication of the road map of how this will move?
Gagan, your question is very specific, and unfortunately, my answer has to be quite vague, but it is a new hospital, as we've discussed before. There will be a decent chunk of fixed cost that will come online when we commission the hospital. We -- it is not a hospital in a new location with -- I mean, in a new country, it's in the same location. The patients know us. So the ramp-up, we do expect it to be reasonably fast. But having said that, it is obvious that there will be margin dilution until we truly see incremental revenues coming in. How long that will take and quantifying that is something we're not in a position to give out at this moment.
And will you be able to run it with the existing doctors that you have in your existing hospital or you'll incrementally add? And if you will add, can you give some indication of how much staff, nurses, doctor, paramedic will you need to add? And how will you be sort of recruiting them? Will you be sourcing them from India and how you go about it?
Yes. So to the first part of your question, definitely, a lot of the services we offer are similar to what we're already offering. So those -- it will be the existing doctors whose output will increase. A lot of them -- a lot of departments will need the second or third line of doctors to come online to handle the increased volume. Some don't. Nurses obviously is directly correlated with the number of patients we treat. There's not real any operating leverage there, the more patients we treat, which we will be, we'll be hiring more nurses.
To your question around sourcing, we'll follow the usual sourcing routes we've been following for our existing hospitals, which is a combination of our network in India and other relationships in the region closer to this part of the world as well.
So just curious to know, I mean, for your staff that goes from India to Cayman, do they sort of go for a specified tenure and then return and you roll between staff and some new set of people going after a stipulated period or do they stay there until they serve you under the new...
Yes. So the senior people are more or less constant they're here for -- it's a longer-term relocation, and this is more of a permanent or a longer-term plan. Certain frontline staff, junior people they're here for certain times of -- in their career and their personal lives, and this makes sense. And after a couple of years, they go back home or they cycle out, but that's the junior staff. Most of the senior people would be more or less constant. At least that's our intention, yes.
How is your sort of attrition at Cayman in your junior staff or in your nursing staff compared to your India facility?
So definitely -- yes, definitely, nursing attrition isn't as much of a problem as it is in India because once you're earning, how much these people earn in Cayman, there aren't many places where you can earn more. Having said that, there is attrition mainly to the U.K. right now. And the reason for that is not compensation. In fact, our compensation would be a little higher than the U.K. It's just an issue of post-tax compensation. It's just a concern around in the U.K., there are more opportunities for their partners and spouses to have, and education, there's a more clearer route to citizenship and a long-term security for them, whereas here for a nurse, it's -- those things are going to be difficult. So we do have attrition, but not as much as it is in India.
I mean, do you sort of facilitate education for their children in Cayman to a certain degree. I mean, is that something you've been doing to sort of help them retain or retain them longer?
Yes. It's not the cost of education. It's just that in Cayman for a nurse, it's next to impossible to get long-term citizenship over here. They not fulfill the criteria, whereas in the U.K., they will. And in Cayman if their spouse is not a nurse, and if they're working, there's very little employment opportunity outside, it's very difficult. Whereas in the U.K., those things are much easier. So all factors considered, family, personal, et cetera, for quite a few people the U.K. is holistically sometimes a better option, so they pursue that. But wherever we can to make this more attractive, we do, do that.
Can we have the next question from Alankar, please?
Just 2 questions. Firstly, would it be fair to assume that the sequentially higher margins in this quarter is also a function of higher margins at Cayman due to pickup in the radiology block?
It's a mix of both. Yes, Alankar. We have had seen good performance in India as well as in Cayman. Yes.
Understood. And the second question is, so when you talk about improving throughput, are the efforts more skewed towards Bangalore and Kolkata given the relatively higher occupancies there? Or these are uniformly happening across our entire India network?
So it's -- we just not concentrated only on these 2 sectors. All these initiatives in terms of technology is our core plan across the group. So it happens irrespective across all the regions where we exist, which is not Southeast west, everywhere. And there is nothing unique to only flagships in these initiatives. Throughput, technology efficiencies are driven uniformly across all our units in the group and not specific only to Bangalore and Kolkata.
The impact of this throughput changes is more -- it's felt more in the larger units and the flagships. So that is the stuff that we have noticed in the heart hospital, the same facilities, same infrastructure of ICUs and the operating groups. Earlier on, we use to -- pre-COVID we used to do around 500-plus cardiac surgeries. Now we are able to do around 870 to 900 cases in the same interest.
That is the outsized impact.
Just the impact becomes very big.
Do we have any more questions? Last 5 minutes. Yes, Kapil.
Congratulations on a strong performance in the September quarter. I would just like to know if this traction of strong performance has continued so far in the present quarter, October to December, of which we are already in the middle?
Q3, Kapil, is a seasonally weak quarter, as you are aware, because there are a lot of festivals that come in Q3, we have Durga Puja, then we have Diwali and then we have Christmas coming on. So for all hospitals, Q3 is relatively weaker. So standing today, we can only say that. Anything else will be forward-looking.
A lot of these things get pushed forward. These are mostly -- we're doing a lot of elective cases. So we've seen that patients tend to postpone their procedures to Q4.
Alankar, do you have any further questions?
No, no, clearly. Sorry, I forgot to -- Yes.
Any others?
So if you have no further questions, we would like to conclude our session. Thanks, everyone, for your active participation. As usual, please do feel free to call us, reach out to us in case of any further queries.