Narayana Hrudayalaya Ltd
NSE:NH
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Narayana Hrudayalaya Ltd
Earnings Call Analysis
Summary
Q2-2025
The recent earnings call revealed positive signs as the new hospital cluster in India achieved a 13% year-on-year revenue growth, reaching approximately INR 130 crores. The management updated their guidance, reducing expected margin dilution from 6-8 quarters to 4-5 quarters, reflecting improved cost control. The outpatient services are generating strong interest post-commissioning, and future patient volume is expected to ramp up as full hospital services launch. Additionally, plans are underway to add around 1,500 beds over the next four years, enhancing capacity in key markets like Bangalore and Kolkata.
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Hello, everyone. My name is Nishant Singh. I head the IR function at Narayana Hrudayalaya. I welcome you all to the Quarter 2 FY '25 Earnings Call for 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, CEO and MD; Mrs. Sandhya Jayaraman, our Group CFO; Mr. Venkatesh; our Group COO; Dr. Anesh Shetty, MD of our Cayman business; Mr. Ravi Vishwanath, CEO of NHIC; and Vivek Agarwal, Senior Manager in the IR function.
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 Exchange later.
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.
With that now, we would like to start the Q&A session straight away. [Operator Instructions].
My first question is, if you can talk about how the new unit in Cayman is ramping up, whether it was a ESOP launch, it's a full-scale launch for you? And how do you see cost normalizing for this facility?
Damayanti, thank you for your question. This is Anesh here. So the hospital has been -- the outpatient facility of the hospital has been commissioned about a week ago. So in the quarter, which results you are seeing, that is Q2, the facility was not commissioned. We started outpatient services that is doctor, consultations and limited diagnostics now. We've been approved to do that. We hope to get approval to start the entire hospital in about approximately, we hope, in the next 4 weeks or so, and that's when we'll start.
Having said that, on the -- to the cost section of your question. In Q2, in the last month of Q2, we think we have incurred approximately about 65% to 70% of the total cost for that new hospital. And in October, which is the month just gone by, that's closer to about 75%, 80%. So we are currently incurring most of the costs and the revenue ramp-up has gradually started, and we'll see that more aggressively once the entire hospital is commissioned.
Okay. So in next 4 weeks, you mentioned you will be seeing a full-scale offering of services and then the footfalls, et cetera, should be much better compared to...?
Yes, in the next 4 weeks, we expect the whole hospital to be commissioned and ready. And then it will take -- it's a new building. So it will take a couple of weeks for people to start flowing in. But yes, you are right. we expect to be all good to go in approximately 4 weeks is our hope.
Okay. And in terms of cost, as you mentioned, already 75% to 80% of costs are already in the books. So going ahead, we assume most of the costs will be in line with like what kind of pickup you see on the business side because I...
You are right.
Okay. Okay.
Yes, that's correct. Yes.
Okay. My second question is on your CapEx projection for FY '25. So I understand you have earmarked around INR 9 billion of CapEx towards greenfield and inorganic growth opportunities. And [Technical Difficulty].
Damayanti, sorry, we're not able to listen you. We can't hear you.
Damayanti, can you hear us?
Maybe we can move on to the next one.
Yes. We'll move on to the next one. Damayanti can join back in the queue. Prithvi, can you go ahead.
Yes, the first question is again on Cayman. Given that -- the hospital is now almost ready to commission, do you have some kind of guidance say over the next few quarters, how do you expect the ramp-up to happen? And how do we see margins shaping up?
Yes. Prithvi. So if you recall in the previous -- in last quarter's call, what we had said is that once the hospital -- is fully started, we expect margin dilution to last for approximately 6 to 8 weeks. Having said that, now that we are very close to the hospital being fully commissioned, and we've actually commissioned the outpatient services. We're happy to see that our cost control is more in line with -- is more on the positive trajectory. So we'd like to change our estimates from the 6 to 8 weeks and make it closer to about 4 -- 6 to 8 quarters and change it to about 4 to 5 quarters is when we expect some margin dilution. So we're more optimistic on the cost front.
Now that we have commissioned the outpatient services, we are seeing a lot of interest, everybody is very, very impressed with the hospital and the reviews have been fantastic. But it's just the outpatient, which is a limited service. We hope to see -- continue to see this positive response in about 4 weeks or so, when we commission the whole hospital.
When you say margin dilution for 4 to 5 quarter, you mean the margins will be less than 40 percentage for 4 quarters. Is that the point?
No. No, no. So if you recollect just prior to commissioning the hospital when we were -- when we did not have any of the cost on the books, our margin was higher than the number you mentioned. And at that time, we had said that once the hospital is commissioned and once all costs are in line, we expect to take 6 to 8 quarters for the margin to come back to where we -- a steady base. We are now more comfortable changing that 6 to 8 quarters to about 4 to 5 quarters.
So it's not that it will -- it'll be -- the worst will be in the first quarter, and then it will hopefully taper away as we move closer to the end of the year.
That's clear, Anesh. Second, on the India business, can you give the breakup of the new hospitals' revenue and margins in this quarter?
Yes. The new hospital cluster has done pretty well in this quarter. It's given a very strong revenue growth, around 13% year-on-year with revenue crossing around INR 130 crores for this quarter with an EBITDA of around 11%. The Mumbai has also shown positive EBITDA of around 1.5% and Gurugram at high single digit EBITDA, and expect it to grow more by the Q4. So overall, the new hospital cluster has done well in this quarter.
So what expense this traction in the new hospitals? Is it more of any seasonal factor? Or you are seeing it structurally going higher?
It would have happened, just that it took a long time for that to occur. We are on track to achieving normalized performance for all the hospitals. The Mumbai Hospital being a children's hospital, that will take much longer, given its very specific focus. But the Gurgaon and Dharamshila hospitals will go on the normal trajectory.
A final question on the CapEx. Did you finalize the numbers on the number of beds that will be added in Bangalore and Calcutta?
Yes. We are still working with the architects, the number of beds for HSR. Yes.
So I mean, we know that the majority of our investments are now planned around Calcutta and Bangalore and some other geographies where we have our strong presence. We already committed projects, which include greenfield in Calcutta and Bangalore, totaling around 700 beds and a brownfield in Raipur with around 150 beds. This will come up in the next 3 to 3.5 years' time.
We are also working closely on trying to close around 1 to 2 more greenfield projects. But all in all, it would be adding around close to 1,500 beds in the next 4 years from now with no material delays expected on the projects. And obviously, the large portion of it will come in the third and the fourth year.
Nithan, can we have your question, please?
Congratulations to management on a good set of numbers. My first question would be regarding the Rajarhat facility in Kolkata. It is was supposed to get approvals by October 2025, supposed to start -- the constructions are supposed to commence in Q3 FY '25. So any updates on it?
So the applications have all been done. The process approvals are in progress. We expect all the approvals to be sorted by the next 3 to 4 months' time before we start the groundbreaking there.
Okay. 3 to 4 [ months ]?
Yes.
And the second question is regarding the Cayman facility. It's going to be commissioning 50 beds, I suppose, right? The new facility, which is the outpatient daycare facility.
Yes. That is correct. But again, given the way the facility is configured and the focus on daycare and emergency and services that would not constitute a bed as the unit of revenue. Just be cautious about extrapolating a bed-driven revenue number with the existing facility.
All right. And one last question is regarding Cayman as well. So the number of outpatients have been declined on a quarter on -- year-on-year basis and as well as AROP has been declined 6.6% quarter-on-quarter as well as discharges and OP volumes are also a bit down on a Y-o-Y basis. So is there any particular reason of seasonality or any particular? Can you share some light on it?
Not particularly. But on an overall basis, we weren't too happy with the quarter. There were a few factors that led to the slowdown all across its uniform, it's not any particular specialty or particular category. Everybody, the whole team has been focused for the past few weeks on commissioning the new hospital. It's a lot of time to fulfill all the compliance-related obligations.
We had a couple of hurricanes that led to about 7 to 10 days of underproductive work. Just a general slow quarter, but we're happy and comfortable that in the month of October, things are back to a very positive trajectory. And we think that that's behind us.
Abhishek. Can we have your question, please?
So my question is regarding your liquidity levels. Right now, if we look at your balance sheet, you have a lot of liquidity tied up in Cayman. That is after considering the outlay that has happened for expansion in Cayman. So any plan to put that liquidity to work because I understand getting that money to India, there might be taxes, which we'll have to pay. So right now, we are using it to pay dividends. But how do we get that money to work because it's a large sum of money. And I'm assuming you would not want to do further CapEx in Cayman, right?
Yes. So Abhishek, you raised 2 good points. The first is you are right that the majority of our capital outlay in Cayman is mostly complete. I mean we have a last few -- a little bit of expenditure for the new hospital post commissioning. But with this -- with the new Cayman [indiscernible] Hospital, we are done with any significant capital outlay in that market. So that is correct.
The liquidity, I would just -- although there is a cash balance, it is also significantly netted off against our outstanding debt, which we essentially borrowed to finance the new hospital. So just looking at only the cash reserves in that market, it should be offset against the outstanding debt there to see on a net cash basis, how much we have.
There is some surplus even on a net cash basis. And we are obviously using that whenever we have a suitable opportunity. As we've previously said, we continue to be on the lookout for opportunities in the region and elsewhere as well. And all options are on the table, whether it's to repatriate it to India, if there's a need and a suitable opportunity or in some other market. We continue to consider all of them come from time to time.
Understood. My second question is regarding your growth. So now I understand that it's a long gestation period projects of the hospital industry where the bulk of your CapEx is spent loaded, and it takes 3 years to make the hospital and another 1.5 years to breakeven. So why is it that we are not looking at acquisition as an opportunity because you already get a built-up hospital and potentially broke even. So we save a lot of time. So why this decision to go greenfield?
Abhishek, it's not that we aren't looking. Nishant leads a fairly busy M&A practice looking at all acquisitions. It's just that you understand as well as we do on the outsized valuations of some of the private equity-backed assets that are out there. So new hospitals do not make a lot of sense for us. One is that it's fully, fully priced in. And there isn't too much delta available for us to be able to make a lot of sense of the acquisition.
The last thing that we would look at then would be single hospitals, individual hospitals. Those are not as easy to find. The ones that are for sale are very badly built or they're not in strategic areas of focus for us or they may have a lot of issues with the promoter, or they'll be really, really old [indiscernible] assets. So it's -- we spent since 2016, trying to pursue multiple opportunities, both asset-light, acquisitions, all of that. It's just that out of absolute compulsion in the absence of finding anything else to do, we have gone for the greenfield.
But still, we are pursuing a few acquisitions, things that are still in discussion both here as well as overseas. We are looking at certain O&Ms and asset-light opportunities. It's just that these are the ones that we were able to finalize in a very long time frame, absent anything else happened. We haven't turned our back on the availability of the opportunities out there and constantly evaluating. But when these things come, we do take it up, for example, Sparsh had 1 hospital that we acquired. Similarly in Cayman, there was an ENT practice that we acquired. So whenever these things come up, we do.
But you're right. It does seem like all the things we're presenting to you are greenfield and these have a very long gestation period. What are we going to do for growth in the meantime? There remains sufficient headroom in the existing business to deliver on moderate levels of growth. And these greenfields will deliver a much larger footprint for us 3 years from now. But in the meantime, we'll look for things that those haven't materialized in the price band that we wanted.
That was very helpful. One last question. Anything we are looking at Tier 2, Tier 3 cities? Because I'm assuming...
Yes.
Okay.
Yes. But with all the same problems, which is asset price, almost the same as in a Tier 1 city with a much lower earning profile. So there are a few distressed acquisitions we found in our core geographies, which is in West Bengal and Karnataka. We'll be pursuing those. But so far, the ones that we've been finalized and announced, it happen to be the ones that we have to buy the land and get going. But there are opportunities, and we are an active pursuit of all of them.
Ridhi, can you please pose your question?
Yes. So my first question was, despite the growing demand for health care services in India and the relatively low debt equity ratios of established hospitals like Narayana, why are there not more new hospitals being established across the country? Like I'm talking from an industrial point of view and not just related to Narayana.
That would be a combination of things. If you're just asking for a broad level industry reasons, why aren't more hospital company up for the same reason that Abhishek had brought up. It's very expensive. It takes a long time. The return on capital oftentimes is less than the cost of capital for a lot of these new hospitals coming. The huge reliance on payers who aren't very dependable on paying on time, very poor patients in most parts of the country where there is greatest demand.
So greatest demand exists in the very small towns. But over there, there are almost no organized payers' [indiscernible] pocket, or the government is a payer there. Lack of doctors, extreme lack of super specialists, them wanting to work in large metro towns and not so much in the small towns. So there's this oversupply in large towns and very undersupply in the smaller towns.
The organized players have all announced significant bed additions over the next 3 years including us.
So all of us are, I would say, expanding to the best of our capabilities, keeping our -- the debt equity ratios in mind, making sure we don't overstretch and overleverage ourselves. And all the players are in a pretty -- I would say, by historic standards, aggressive CapEx expansion. But yes, we are nowhere close to, say, any of the quick commerce companies or the cement companies or road and railway companies in terms of how much CapEx they are doing and how much projects they're announcing.
I don't -- our business is not one that has any barriers and any sort of in-built protections. It is highly competitive, highly consumer oriented. And it's one in which it's very, very difficult. We have the same upfront investments and long payback periods. There's infrastructure with none of the benefits that infrastructure projects get, which is extremely long-term lending as well as a guarantee that when you put up a highway, no one builds a highway right next to you.
Okay. So I also wanted clarity on the CapEx that you are currently coming up with respect to Kolkata as well as with respect to Bangalore like...?
We have spent about INR 530 crores in H1, of which INR 320 crores is in India and balance is in payment. Out of this INR 320 crores, INR 160 crore was for the land we bought in Bangalore and the rest was regular CapEx, which we spent for biomedical, et cetera, and some amount small brownfield CapEx we have incurred in Kolkata. So this is what we have spent so far. Once we get the approvals for building, then the Bangalore and the Kolkata build will start.
And therefore, while we have put in some money there in terms of how much we will spend. Some of it may get pushed out by a quarter or so. In addition, we're also looking at a few more greenfield land opportunities. So depending on how we time the deals and conversion as well, some of those costs will also get incurred.
Okay. So earlier in one of the con calls, Narayana had mentioned that 1,000-odd beds were going to be built in Kolkata. And then in last quarter, they said -- I mean, you all said that it will be around 600 beds in Rajarhat. So I'm just a little confused whether it's 1,000 or 600-odd beds, which are going to come up in Kolkata.
That is correct. The intent is to add 1,000 beds in Kolkata, but it will go live in 2 phases. So the first phase which we are building is what we have factored right now. Then the -- once those get completely occupied, then we'll go for the second phase. The 1,000 beds is coming from our longer-term demand view as well as the ability of that infrastructure to be able to accommodate that capacity. So from that perspective, that outlook has been given.
So in first phase, it will be 350-odd beds and then later on in the [ Cayman ], which you plan to add, right?
Yes. Yes.
Okay. And secondly, you already have a land in -- as an annex to the hospital in Bangalore, right?
Yes.
Yes.
Correct. So there also on last con call, it was said that the CapEx that you plan to do is around INR 500 crores. So that is only with respect to now constructing the building, right? There is no land cost that will be there.
I think the INR 500 crores estimate was given for the greenfield opportunity that we are doing in Bangalore.
Okay.
And there is a land available next to the -- our current hospital, and we will be building in that. But depending on the -- we will be prioritizing on the cash flows and the opportunities that we keep -- that we are attempting from time to time. So the confirmed builds, which have commenced are the ones that Venkatesh called out in his part of the answer.
Okay. So any idea on the number of beds that you plan to build for the annex that you already have, the land which you already have?
We won't be building it at this point in time, things that we've announced, the 1,500 beds between Bangalore, Kolkata, Raipur would be all the new projects. The annex building we had announced earlier, but then we decided to push it in favor of pursuing something much closer to the city because there are sufficient beds in our flagship health city. We have a desperate need to build that right now.
Okay. So this INR 500 crores is for the new greenfield project that you're saying, INR 500 crores?
In Bangalore, yes, the one that we've already announced.
This is both land and beds cost...
Correct. Correct.
Parikshit. Please go ahead.
So first part, I want to understand is that the India business, it seems like the bulk of the growth that we have gotten is because of the IP ARPP growth, which seems to be about 14.5% nearly this quarter. I'm just wondering why that -- why such a high number in this -- in the ARPP for in-patients?
See, actually, if you see the India growth, there is a mix which is playing out. And we have called this out. Our international mix has significantly declined, and we have made it up with domestic business. Historically, the domestic ARPP has always been higher when compared to international ARPP. So some of that has played in terms of the average ARPP that has come through.
Second also is some of the advanced procedures that we do, there was a healthy growth in these complex procedures, which come at higher realization. So that has also helped in the growth of the revenue per patient. So in all, the ARPP has shown a healthy year-on-year and quarter-on-quarter growth.
Yes. Adding to that, even the peripherals, included in the Eastern and the Western part of the country, there has been a substantial moderation of certain poor payout payer profiles. Obviously, because of that, shifting them into more of preferred payers. The benefit is also shown in ARPP and margins. That is also an added contributor to the increase in the ARPP for this quarter.
But can I just request you to repeat the first point, again, Sandhya, because I didn't understand that the -- we usually have better ARPPs in India versus abroad. And then I couldn't follow why that would increase the ARPP in India today.
I'll explain that. Our international patients primarily come from Bangladesh. We had taken a call that we would not charge people coming from abroad at different rate than what we charge domestic patients. The people who come from Bangladesh to our hospital tend to be poorer than the average patients that we get from patients in Bangalore. The ones who can afford more end up going to the hospitals that charge more. And so the average patient realization goes up when we refocus on domestic patients.
Got it. So that means that -- are the footfall that you're getting from Bangladesh is impacted and continues to be impacted because of whatever is happening there. Is that a fair statement?
Correct.
And there are multiple volatilities associated with business in India depending too much on foreign patient travel. In the past, it was the war in Afghanistan or some issues or you may have trouble with some countries in the neighborhood. So it's not something that we want to be too reliant on going forward. And so we I've given guidance, and I'll continue to do so to say that the international business is one number that I expect to go to 0 over the next 10 years.
So we're not spending too much time and energy, focus on attracting more patients from international geographies and focused instead entirely within the domestic radius, highest priority within the 15 kilometers of all our hospitals and larger circles around Central India and Eastern India.
Got it. So the flip side of this coin is that for the fourth quarter now, we have -- our inpatient footfall has either been flat or slightly negative on a year-on-year basis. So is that -- is the story [indiscernible] same that because we have to replace the footfall you're getting from Bangladesh or from abroad and we are finding -- we're replacing them with domestic customers and that is taking us some time. Is that the story?
I think we are replacing with higher-paying customers, whether it is, for example, 1.5 scheme patients equal to 1 cash patient. That is how the mix works. So when we are rational -- when we are able to attract more cash patient paying customers, it may look like you are seeing a lesser than regular growth on the footfall. So I think that's why it is coming out like that. We are replacing reasonably well.
So value-wise, the replacements are far superior to what it was earlier, but the degrowth through these international patients have been to the extent of 19%, but the domestic has grown by around 13.5%, 14%. But that 14% has contributed to a higher value than the degrowth in the international patients to the extent of 19%. So that's how this equation has worked out.
Perfect. Perfect. And the other thing you mentioned is that the mix of the complex procedure is growing. Is this a onetime or slightly a more arbitrary change in mix? Or is this a mix that we should continue to expect going forward?
Dr. Rupert will answer that.
Yes. This mix, you should continue to expect that. There will be some month-on-month changes, but considering the way we are focusing and some of our flagships are into very high-end tertiary and coronary work, we will continue to see this trend.
For example, our flagship cardiac center did a record number of TAVI procedures. TAVI is a very advanced cardiac implant and same of the cost.
Yes. So -- and also the kind of procedures that we are doing, we're able to very high-end the cardiac work not only that but oncology, robotic works have been going up. We did the highest number of robotic cardiac surgery in 1 quarter. We did around 113 robotic cardiac surgery in 1 quarter. And there are some hospitals which have done 500, 600 over 7, 8 years period.
So this is the volume of work that happens here. And we will continue to see this kind of high-end work going up in this one. And the good thing is most of our centers are also picking up on the complexities of the work, and we will see the uniformity of the complex work across most of our centers.
Got it. So there is a pretty large difference between the ARPP growth in the IP segment versus the OP segment. Would it be -- would I then be correct to assume that these complex procedures are mostly inpatient procedures and not outpatient ones?
Yes. Most of the complex procedures are inpatient, but we are also reducing the length of stays of this. As the team is getting better and better, we are constantly working on that to reduce the length of stays of these procedures.
Got it. So this 14.5% in ARPP growth for inpatients. Would it be directionally possible to split this between normal inflationary increase versus complexity increase versus better pay masters -- better paying customers increase. Would that be possible to directionally split that growth?
See, our typical price increase is low single digits, 4%, 5% every year. So anything beyond that is all efficiency driven, efficiency, realization, higher order procedures, better payer mix. So everything is driven by that. Our price increase typically compensates for inflation partially and partially we offset inflation through efficiency.
Got it. Okay. Fair enough. So coming to payments, I think you've given -- you gave an explanation that the team has been focused on setting up the new hospital. They have been slightly more distracted. But this is now the second quarter where there has been negative footfall in terms of IP, right? So again, I would ask, is there anything structurally happening in the Caymans market, which is leading to fall in market share in that space? Or is this the hurricane stuff and the [ distraction ] and basically that's it, nothing else?
No, there's no structural change. In fact, we continue to be positive about the early traction with the new hospital and all the new services we are commissioning. I think it would -- it gives a more holistic picture in a small unit with relatively low transaction volumes to focus on not one metric, but multiple metrics to triangulate on a picture to get a better sense of the performance of the business. So while just focusing on one metric can lead to alarm, I would just request you to look at more of a holistic picture and directionality over several quarters at a time.
Yes, [ Bino ] please [indiscernible] the question.
Most questions answered, but just adding carrying on from the previous question, how is the -- what is the latest situation about these Bangladesh patients? Has the travel and other issues sorted out? Or is it still impact?
So the situation in Bangladesh, it continues to suffer. The visa restrictions are still in it's minimal. Only the critical patients allowed entry into the country. It would definitely take a long period of time for the situation to normalize. We don't even know and have no clarity in terms of the time line by when it is going to get normalized. But as of now, the situation still remains grim in terms of footfall from Bangladesh to -- in our hospital here.
Got it. And just a follow-up one question on Cayman. So this quarter, for whatever reason, the inpatient numbers and the revenue per patient was lower. You just mentioned that it's just a quarterly phenomenon. So are we expecting growth to continue, pick up and continue next quarter onwards?
Yes, absolutely. In fact, we've already seen that in the first month of Q3, which is October, and there will be 2 reasons for that. One is just a return to normalcy and also by -- at least by December of this -- the last month of the quarter, we hope to have the early signs of the new hospital with outpatient work and inpatient work kicking in. So we have every reason to believe that, that will be back to normal and a little better.
Yes. But the new hospital, of course, [indiscernible] that is a new hospital, but just the patients' inpatient volumes and revenue from the old hospital, would that separately continue to grow or get back to growth back in this quarter?
Yes. As I said, so in October, we did not commission -- we had no activities in the new hospital. It started only in November. Even in November, only the outpatient work. And in October, we've already seen a return back to our old trajectory for the old hospital as well.
Yes, Rishith, can you please ask the question?
Yes, sir. Congratulations team for the decent set of numbers. Sir, I wanted an update on the insurance plan Aditi. We did a pilot in Mysore, now we are expecting expansion in Bangalore. So what's the ground attraction and what's the response at the pilot level?
Rishith, this is Ravi Vishwanath. Yes. I mean, as you rightly said, we started with our pilot in Mysore. And the focus, of course, is making sure that our process and everything was good. We were sufficiently encouraged by the results that we actually preponed our entry into Bangalore and launched in Bangalore as well towards the end of the quarter.
And right now, our focus is on building our distribution. We've done about INR 1.2 million of premium, GWP since we started. But obviously, we're building a retail business and a direct retail business, and that takes time to scale up. And so our focus right now is on scaling it up and building various distribution support and channels for this, but the results have been encouraging, and we are looking to accelerate growth in the coming quarters.
Okay. That's great, sir. My second question would be on the overall business with Cayman coming in from this quarter and a lot of CapEx coming in already. What type of growth number do we see for this financial year as well as the next financial year. What's the internal growth target for us?
We don't normally give out guidance on the growth numbers. We're just trying to maintain a healthy pace of growth, keeping in mind that we're not adding any new beds and we're doing a lot of internal reoptimizations, and with a focus on a very healthy EBITDA and focus on improving the realizations per patient, reducing the ALOS. So the trajectory that we've been able to keep so far, we'll continue to try and maintain.
Understood.
We have a long way to go but utilizing our efficiencies, transformation projects, using technology for improving the efficiencies. We have always demonstrated this growth in the last few years, and we'll continue to do that.
Understood, sir. And sir, one accounting question that we have been taking advantage at the consolidated -- I audible?
Yes, you are audible. Yes.
At the consolidated level, we are getting a tax advantage due to the Cayman facility, now the new facility coming in, do we see any further tax advantage coming in at the consolidated level? Or will stay in that bracket of 14% to 17%?
See, Cayman comes at 0 tax and India comes at India taxation rate. So if the share of profit of Cayman in the overall mix goes up, the ETR goes down. So that's the logic. But what we are seeing is that India also has been doing quite well in terms of India's performance itself and Cayman will come back up after the new facilities come in. So we would like to maintain the outlook on the tax rate as it is going currently.
Yes. Avneesh, can you have a question, please?
Yes, I just have two questions. Means first one is what's the ROE number of the old established hospital and what's for the new hospitals?
ROE.
Can you repeat your question...
Could you just repeat that, please?
What is the...
Yes, what's the ROE number for the old hospitals which established earlier? And what's the ROE for the new ones, which we recently established?
It is not a number that we are separating out and reporting. Our ROE overall as a group, if you would see, we are -- this -- as of 30th September 2024, we would be around 26.3%. So that's the number that we've reported out. If you split it between India and Cayman, India is slightly on the higher side and Cayman is slightly on the lower side, but still in that range only, mainly because of the CapEx that has gone online in Cayman.
But we've not reported out separately ROE for mature assets and new assets. It may also not be representative to split it out like that because some of the newer assets are asset-light and the mature assets, some of them are sweated out. So they are at different stages of investment. So it may not clearly make sense if we split it out like that also.
Okay. And I have just a second question that how many years in which our investments come back entirely from when we've done our CapEx means suppose we've done a INR 100 crore CapEx and establish a hospital, then in how many years we return back the INR 100 crore?
See, hospitals are a very long-term investment business. So actually, it takes 8 to 10 years, but you must also appreciate that a lot of the investments outside of biomedical like the -- the big chunk of the investment goes in land and building. So your ability to sweat that asset exists almost perennially. So to that extent, while you may take 8 to 10 years to recover the money, but on an ongoing basis, then you have such investments, they deliver more positive return on investments.
Yes, Kapil, please go ahead.
My question is on the expenses, which are classified under other expenses in the P&L, now the quantum of such expenses shown for the preceding quarter and in the quarter of the corresponding year were at similar levels. But for this particular quarter, there is a fairly significant increase. So can you kindly elaborate on the reasons for the same?
I think we would need to understand which line you're specifically looking at, is it okay with you...
Other expense is in your consolidated P&L or your stand-alone P&L item under expenses shown as other expenses. The terminology used is other expenses.
The other expenses essentially overheads. If I look at the numbers, we are more efficient in terms of our overheads versus last year same quarter. So are you asking what has contributed to that efficiency?
No, let me clarify. What I was -- what I saw was that the expenses incurred in the preceding quarter of this year as well as the quarter of the prior year are at a similar same level. However, in this particular quarter, there is a fairly significant increase. So I was just is what led to that increase?
Can we get back on this to you?
No problem.
Sure.
[indiscernible], you still have your hand up.
Yes. So actually -- there are certain other thing I want to ask. On the insurance platform, what's the guidance regarding the gross written premium growth? And any reason that we're going to expand in the coming years [indiscernible] years?
Ravi, the question is on GWP growth. And just rough estimate how we're thinking about the first year.
So I think generally, while we're not giving specific guidance on numbers. Some of the things that we're looking at, at the moment are -- which should lead to accelerated growth, is building out a lot of our distributions. We're also looking at [indiscernible] set a new products that we'll be launching later on in this financial year [indiscernible].
For this financial year, we expect to be focused on the markets that we're in, in Karnataka and look to expand in the market as we build momentum and build experience and understand the product market [indiscernible].
There's a little bit of disturbance and I hope you're able to hear me.
Yes, I got you. That was helpful. And one last question, sir, that is on the Athma platform that's a SaaS provider. So what is the -- what's the growth trajectory that the application is on? Any new hospitals that any new health care institutions or [ profession ]?
Yes. Athma, for those who are not aware, that is our in-house hospital operating system. Our entire hospital runs on that, all our clinics, doctors, labs, radiology, EMR, patient apps, doctor apps, all of that essentially works off with that. We have created a SaaS-fied version that is available to outside partners. And we've enrolled on a trial basis, Adas Cardial Memorial Hospital, which is a spin-off of the CMC Vellore Group. We partnered with a few nonprofit trust hospitals.
There is a very large diagnostic chain in Karnataka that uses this. There are a lot of other smaller clinics that take this up. But we've not been aggressive at all in pricing it services. For us, at this point, we're just driving adoption. So the revenue from our external clients is minimum. But what we want to do is to build up a habit and understand what are the modules that they value the most, so we get a better understanding of their utilization.
And over time, once we increase adoption, then you can see any significant contribution, both from Athma as well as from Medha. Medha is our analytics and AI product, which again is used both internally as well as a lot of other hospital groups are using that. So as a revenue contributor, it's not contributing anything much now. Now we foresee it will be anything significant in the next 2, 3 years. For now, we're just looking to really increase adoption and improve the product.
Nilesh, you have your hand up.
Yes. Can you share the revenue and the burn in integrated care and insurance business for first half?
Yes. Just give us a second. Nishant?
Yes. So that number is there in the IR deck. The EBITDA burn for this NHIC and NHL put together is around INR 13.5 crores for this quarter and this number was INR 11 crores for the first quarter. So collectively for the first H1, first half of the year, we have spent around -- EBITDA loss is around INR 25 crores.
And remaining year may not be significantly different from this.
Okay, sure.
[indiscernible] can expect a bit more, but the total number should not exceed INR 55 crores.
Okay, sure. I am a bit new to the company. Can you explain 2 things? One is that what is the business model in integrated care, and how do you see this scaling up? And secondly, what is the reason for entering Cayman Islands? And do you think -- do you see further foreign entry in the future?
How much time do we have? These are two of my favorite topics. I'll give you a quick summary.
The Integrated Care, the way we think about it is that the growth of the health care business in India is closely tied with the growth of the payment systems. No country in the world you see at this level where so many people are paying out of pocket. In our system, 60% pay out of pocket. And even for the best health care group in the country, easily half their patients are paying out of pocket. That's simply not the case in most parts of the world, where you either have the government or the insurance company pay.
Now with insurance, of course, health insurance industry in India is growing very fast, but it's still not growing fast enough as it should because of various reasons. So we wanted to create an alternative product that is sort of like health insurance, but is more in line with bundled health care. So bundled health care means where you pay us insurance premium and you pay us a care management plan. Both of these together will take care of the entire health care needs of your family within our network as well as a narrow network of providers, we enroll.
And the goal with this is that you pay us, and we've screened you, we will keep you healthy. We will keep you out of the hospital. We'll make sure you live a long productive life. But should anything happen, we will take care of you. No questions asked. No exceptions, no room rent disallowance, none of the issues that normally plague the traditional insurance company because we have 100% trust and alignment between the hospital and the insurance company.
So we created these as 2 separate entities, NHIC, which will run clinics and care management plans and house a lot of the doctors and clinicians. NHIL, which will be the regulated, IRDA regulated insurance entity, which will sell the policies, do the underwriting, collect the premiums and disburse to the things in network.
Yes. The question you asked on Cayman, Anesh will answer.
To your question, why we started Cayman, essentially in India, we have a structural cost advantage. So if you look at us versus peers, we realized on a per patient or per transaction basis a phenomenally lesser amount, almost 35%, 40%. But on a profitability metric, there isn't that much of a difference. So the goal and aim was to see if we could take the structural cost advantage or this more efficient way of operating in India and translate it through to a very, very different market, where reimbursements are exponentially higher and see if that would work.
So Cayman essentially was an experiment to see if we can take our low-cost, high outcome -- high clinical outcome model and export it to another country. We started that about 10.5 years ago. And so far, it's been very, very successful.
Yes, Santosh, can you please have your question?
Yes. So I have a question regarding our revenue contribution from specialty. Are we concentrating on any specific specialty apart from the top 3, which we have for the next 3 to 4, 5 years? And what is the reason behind it?
Yes. Apart from the cardiac sciences and the oncology, I think a lot of focus is going into GI Sciences, orthopedics. Nephro urology has been a very strong point in most of our centers. But we are also focusing on the acute care aspect of it. So the ICUs and the emergency care, some of these areas that we are working on.
So we have close to 1,800 beds in the ICUs. So that is one area where we are working significantly on the care of that as the number of geriatric patients are going up and comorbidities are -- there is a significant need for [indiscernible] that is where we are looking to.
One specialty, we will be looking at investing in the latest modularity for treating patients. So a lot of our hospitals have robotic surgery. Eventually, all our hospitals will have robotic surgeries. Similarly, in cancer, we'll be getting into immune therapy and offering that for our patients. So we also want to be at the very advanced edge of what new therapies are available in the market.
Okay. So the greenfield expansion and all this CapEx, is it aligned with this kind of shift which you're looking into or...?
Yes.
Okay. Okay. Understood.
So all the CapEx that we're putting forward are almost adjacent all within a short driving distance of the hospital that we have. There will be tremendous complementarities between the doctors who work in our systems and the doctors who will work in the other hospitals that we run.
These hospitals will be built to the absolute cutting edge of spec. The thing about our flagship hospitals that even though they are the largest revenue contributors, their infrastructure dates back to 25-plus years. And so they are quite dated in their design and their layout in spacing, where the new hospitals will have a very, very different way of thinking about how patients come in and they are organized. We've invested a lot with Athma on digitizing the entire patient journey.
So the new hospitals will not have as much waiting rooms as many registration desk reception. It will be a fully paperless reception deskless system where with your phone and with kiosks, you are able to navigate yourself through the hospital. Similarly, all the rooms will be able to turn into ICUs because our focus on intensive care means, we want to be able to offer the full modality of care.
The rooms will be single and double rooms and they will -- all the operating theaters, we'll have the ability to convert tomorrow into robotic operating theaters. So these facilities we're building going forward in our network other than the ones that we acquired, but whichever hospital we will build from scratch will be absolutely future-proofed.
There we'll also a significant number of daycare beds. So that will take care of the short stay and ambulatory care. So even though you look at the overall bed strength, a significant portion of them will be allocated for the ambulatory and the daycare allocation. Very similar to what the new unit in HCB is doing [indiscernible].
Okay. Okay. My second question is regarding the insurance part. If You see in the presentation, you showed the payer profile, 29% comes from insured parents and all. So -- and you also had in the call, you explained about insurance part where developed countries, most of the payment is done through insurance. So -- and India also, we are slowly moving -- there is the -- what we say, moving to health insurance. So in next 5 to 10 years, what is the difference we can see in our revenues or the working capital when the percentage of insurance increases in our profile?
Yes. So definitely, cash does wonders for our working capital, but it's also very deleterious to your realization because people are paying out of pocket are much more price sensitive, whereas people that end up being insurance, while the insurance company will negotiate very hard with the companies on the rack rate and discounts on the rack rate. What ends up happening is that your customers are a lot less price sensitive. And they will opt for private loans, they will opt for the robotic surgery over the normal surgery.
So one definitely is much better than the other. Given a choice, we definitely want a situation where the bulk of our patients are insured. So they are not fully exposed to the actual costs. So the working capital part, yes, it will be stressed, but we're also investing in an insurance company of our own. And so we're hoping that 10 years hence, a large number of patients in our hospital will come from our in-house insurance unit, so it can be netted off.
Yes, Raman. Please have your question.
Yes. Most of my questions have been answered, but I just wanted to understand more on the mix of [indiscernible] coming in from the out-of-pocket expenses and the ones which are covered by the insurance. So what is the bifurcation of our top line?
Top line?
Yes.
So how much is cash and how much is insurance? You're asking for payer mixes, is it?
Yes, payer mixes. Yes.
It is part of our investor deck itself. We report it out. 45% of our patients pay in cash and about 29% of our patients, I'm talking about India our insured patients.
Okay. And how do you see these numbers going forward? Like what has been the industry like?
Industry-wise, insurance is 40% to 45% on average. It will be higher for certain cities like Delhi, if a hospital group is only focused on NCR, are only focused on Hyderabad or Bangalore, it will be higher, maybe 50%, 55%. But on average, if you do hospital groups that have a mix between Tier 2 and Tier 1 cities around 40%, 45% insurance patients is about average.
Before we go to the next question, I want to answer that overhead question that was raised earlier. Sorry, I couldn't catch the question properly at that point in time.
See, the reason other costs are going up is because the overall number that you are seeing includes the cash burn that we are seeing in the Integrated Care business. So that -- a large part of it is bunched in other expenses. If I eliminate the impact of the cash burn, then the absolute overhead costs, which are being incurred in the Hospital segment has come down only as a percentage of revenue.
Though we have seen some stress in terms of fuel and power costs, which have gone up across all locations. However, we've been able to offset it through other efficiencies. So as a overhead of the hospital business, we are okay, but some of these cash burns when you're seeing overall numbers, they're getting bunched up in other expenses and that's why it is looking disproportionate to you.
Rohan, can we get your question?
So my first question was largely about the occupancy in the India business as well as the Cayman business for the quarter compared to last year?
Occupancies have been good for this quarter as far as India business is concerned. Other than the flagship, the other units have mostly accounted for near 70%, which includes units like Raipur -- Howrah, Raipur and units like Mysore, Shimoga. When it comes to flagships, the occupancies have been at 64% to 65% and had not this issue of Bangladesh and the issue which has happened in Calcutta in this last quarter happened, the flagship would have also registered occupancies to the level in which the other hospitals have registered, which is near 70%.
Okay.
Occupancy was -- Cayman occupancy was a little muted in Q2 on account of a lot of patients postponing their long-stay procedures because of the hurricane and pushing it into much weaker. Generally, I mean, occupancy is not a number we track to -- because of the huge amount of focus in Cayman for day care and a lot of the outpatient services, but Cayman occupancy hovers about 50% to 60% on average.
All right. And my second question was regarding the Cayman facility. So as we see that Q2 is generally a stronger quarter than Q3 and we've seen a decline of 7% in the top line Y-o-Y. So how do we see that going ahead in the next few quarters? Are we expecting the same number ahead? Or are we seeing the business is going on.
Yes. So as I answered previously, the quarter was a little slower than we expected. There were quite a few small things adding up to lead to a disappointing quarter. But then in the month that's gone by, that's October, the first month of quarter 3, we're already back to our previous growth trajectory and a little better as well. So it was just a quarter that is likely to be -- I mean, that is certainly a onetime occur.
[indiscernible], please go ahead.
Sir, you mentioned that 65% to 70% cost of the Camana Bay Hospital were incurred in September, possible to share that number for the full quarter, second quarter?
No. So in the second quarter, we did not -- I mean it would be very difficult. And I don't -- not sure that would be helpful also. But what would help answer your question is that, so by September, these costs would ramp up. They're not -- it's not onetime. They are ongoing cost. So the cost would be less and lesser in the early months of the quarter, but we estimate about 60%, 65% or so were incurred by the end of the quarter. And we're now closer to early November, we're closer to about 70%, 75% of the cost.
And in Q3, you will see by the end of Q3, 100% of the costs having been incurred. Having said that, what I can share is that we are more confident that our measures taken to control these start-up costs have been successful. We initially anticipated about 6 to 8 quarters to return to pre-commissioning margins. We now think that, that will be closer to 4 to 5 quarters, as I had shared earlier as well.
And cost, in this case, mostly refers to salaries of the manpower we've hired [indiscernible] new facility?
Yes. And one big fixed cost for the facility itself, that is just one chunk.
Understood. Sir, actually, that was my second question because -- and the hospital is there to be fully operational. And even the OPD you mentioned has been operational for just a week. So is it just the cost factor, which is giving us confidence to advance the time lines.
Yes. So definitely, the revenue ramping up quicker than we anticipate, will help, but we don't know if that's going to be quicker than we've anticipated because it's just been a few days. But looking at the way -- the costs are shaping up, that did give us the confidence to give us slightly better guidance on that.
Sorry. But the confidence comes from the outpatient footfall and the expression of interest from patients who are saying that they will come and bring their business to the new place. So that is giving us confidence that it will ramp up much faster , and we won't be bearing this huge, fixed cost without any commensurate revenue for as long as we had initially thought.
Yes.
Understood. Okay. The second question is, I mean, if you look at the margins for Cayman based on our understanding seem to have reduced by more than by 600 basis points on a sequential basis in this quarter. Now possible to broadly break this decline due to higher costs, which you mentioned for the new hospital as well as on the second side, lower sales in the existing hospital?
Yes. So I mean, an exact breakup won't be possible, but you can sort of -- for example, we're at $29 million for the Q2, the previous quarter was at 32 and before it was at 30.5 or so between 30 and 31. You know our margins over there. So that gives you a rough sense of what can be attributed to the revenue decline. And what will be on account of the new facility costs a rough sense, that should help.
Fair enough. And two final bookkeeping questions. Broadly, what are our annual corporate overheads today? I mean, what's the current run rate?
About 4% of revenue is what we normally clock in its corporate overhead, but that also includes a significant investment in technology because we are investing significantly in Athma and Medha. And including that, we do about 4% of revenue.
Understood. And the second one is what was the contribution from Bangladesh to overall sales before the disruption?
Bangladesh...
To overall sales?
Bangladesh typically was around 8% to 9% of revenue. We have come down to 6.5% of revenue.
Prior to pandemic, it used to be 11% then it settled down post-pandemic at 9%. Now it's come down to 6%, 7%. But like I indicated earlier in a decade's time, this number will go down to 0.
Understood.
[indiscernible] do you have any questions to ask or should we move to Devan. Devan, we can have the question, please. Yes.
So in the integrated business, the realization per transaction has dropped sharply in Q2, almost a 25%, 30% drop. So any reasons for that?
Ravi?
No particular reason. Part of it is also to do with seasonality and people coming in for kind of lower ticket items, is one reason in terms of the transaction.
Okay. Got it. And finally, for the next few years, what kind of EBITDA, let's say, cash burn rate do we expect for the NHIC and NHIL business?
Similar burn rate, we can assume at least for the next 2 quarters. See the logic with which NHIC works is cohort-by-cohort, which means that we start a particular cohort, which is a group of clinics and those -- that cohort breaks even in about 18 months.
In parallel, we move on to the next cohort, which will take another 18 months to break even. So it's a cyclical thing. So we will continue to burn similar amounts of cash in the near future as we will be adding cohorts.
We'll take a question from Prithiv, and then I'll go into the chat questions.
Yes. I just have one question. [indiscernible], so Cayman business, you have mentioned that 65 percentage of the cost from the new facilities are already part of P&L. So can you assume that for the entire Q2, there is 0 revenue with a 65 percentage of cost from the new hospital, is that right?
Prithiv, just to clarify, I said as of now, that is -- sorry, as of the last month of the quarter. So last month of Q2, we estimate that about 60%, 65% of the costs were online and 0 revenue. That is correct.
But for July, August?
It will be a number much less than 60%, 65%, but it's tough to accurately estimate because there are some fixed costs, some people who are shared between both facilities. We're not maintaining 2 distinct P&Ls, as we've discussed before, because it's a very -- it's sort of like 2 campuses of the same facility, a lot of costs are shared between the 2. But this is a rough estimate.
So [indiscernible] that's the case, can we assume the Q2 margins are like bottom and from next quarter, as revenue scales up, the margins should gradually improve on a sequential basis?
No, because in Q3, we will see, for example, all of October, again, 0 revenue, November minimal revenue because of just outpatient facilities being commissioned. If all goes according to plan, December is when we'll start seeing the revenue. But for October, November, we would have incurred very significant costs, November, especially, and December will obviously be 100% of cost.
Okay, got it.
So I'll get to the chat questions in sequence. The first question was, is the QIP on the company's mind?
Not at this point for 2 reasons. One is we have sufficient leverage available within the India balance sheet to be able to fund a lot of the expansion what we plan through borrowing. [indiscernible] we have sufficient internal cash flows also to take care of a lot of that. We are planning to do a lot more than that post this phase of expansion, which point we would consider.
The other reason why the QIP is not something that we're too happy about right now is because we do believe that the value that the market expresses and our company is not reflective of the underlying potential that exists. And it's something that we think maybe we have to do a better job of communicating with the shareholders, and we'll work harder towards achieving that.
So for those 2 reasons, at this point, we think QIP neither raising money at what we believe an unfair valuation, nor the need exists for it to be done right now, but it's something we're open to doing in a year or 2 time.
The next question was asked about sharing current occupancy [indiscernible] Cayman, which was asked, and we had shared earlier.
Question after that on Medha AI, which was incorporated in December, any updates?
We had shared that earlier, but I'll give a quick update again. Medha is our AI and analytics division. They run a lot of the programs that we use internally, both for AI tools that our doctors and our managers use as well as the dashboards that help us run the finance and supply chain functions.
This is also a service that we offer to other hospitals and quite a few hospitals run our analytics program. And they also are in discussion with a couple of more hospitals, but we're not too aggressive on the pricing as well as on the go-to-market strategy is something that we've focused a lot on product building at this point and having it grow organically. So the revenue impact of this will be muted for the next year or 2.
The next question is NHIC revenue per patient dropped Q-on-Q as a transaction bank?
I mean, Ravi answered that. It's just seasonality. Anyone who was in Bangalore in this past quarter and had to deal with the rain and the traffic associating from that, we'll understand why no one wants to get out of the house and walk to a clinic.
The next question is a pretty long one. Plan on selling the -- okay. So this is a question that is asked about the Athma, which is our hospital operating system, are we targeting any particular hospital? And some clarity on what the plan is for Athma?
So the plan for Athma is, even though we have at least for this part of the world, the most comprehensive hospital operating platform that includes nearly every module that you require for running a modern hospital. It is still something that we believe has years' worth of work left into it, both to make sure it's comprehensive and end-to-end and two, to achieve our business objectives. The business objectives being able to either eliminate or automate or extremely simplify a lot of the manual wrote paper-based Excel file-based system that exists in hospitals throughout the world. Unless we do this, we don't believe we can bring a transformational reduction in the cost of deploying every subsequent hospital that we're looking at. So our headline goal for Athma and Medha is that the hospital we put up in future should not have a single person working there who is not touching the patient.
Now the things we have to do to achieve that involve a huge amount of digitization and reorganization and that is the stuff we're working on. But in terms of the value that it currently provides to us is recognized by a few hospitals, and they're happy to have the software. It is just not matched entirely by their enthusiasm to pay a lot of money for that software, and we are not pushing them too hard either because at this point, we just want to drive adoption.
There's a question from Vinay about can a Mumbai-based person get covered under insurance?
Not at this point, our insurance is restricted to Bangalore and Mysore at this time. And the way in which we will be rolling out our insurance will be rolling it out in all the areas where our network provides a huge amount of coverage. And so in Mumbai, we only have a children's hospital at this point. We are actively looking to get an adult program there as well. When we do, we will set up a large number of clinics. And along with the clinics, we would roll out insurance. But for right now, our priority markets are Bangalore, Mysore, and then eventually, we will get into Calcutta and then Delhi.
The next question, give up -- give the breakup of EBITDA margin between India and Cayman, Sandhya will answer?
So our India margin is -- our India hospital margin is there in our Investor Day. We've also given the cash burn that we incurred in NHIC and NHIL. So the group margin, minus the cash burn and the margin that India has made is the Cayman margin. So I think that's something that you can calculate for yourself.
The next question is, does Bangladesh footfalls affect only the Calcutta cluster?
Actually, no. So Bangladesh, so our Bangalore hospitals, specifically the cardiac hospital Bangalore has a much greater exposure to patients coming from Bangladesh because of the legacy impact of Dr. Shetty's active clinical practice. So Bangalore tends to be a lot more affected by a reduction in Bangladesh footfalls.
But as to why the discharge growth has reduced 8%, it's a combination of things, as Venkatesh has said earlier. One is obviously the reduction of people coming from Bangladesh, but also the general movement away from very low payer segments towards those who are much more better place. So that means you don't end up having a large amount of footfalls in low-yielding patients. We can focus on fewer higher-paying patients taking higher-end procedures that are much more viable for running this business.
This is a good question that Avinash has asked. What does the management think before establishing a new hospital or any new initiative?
The most important thing before establishing new hospital is, at this point, is it beneficial to the thing that we have. So a new hospital can be there in Bhopal. There are opportunities in Agra, Meerut. There are opportunities all over the place. But if it is not immediately value accretive to the current network, which is not in the vicinity of any of the hospitals we have right now, it gets assigned a relatively lower priority.
The highest priority we assigned to our flagship centers, Bangalore and Calcutta. Next in priority would be Delhi and Bombay. And then the other hospitals, we'll look at in reducing order of priority.
What do we think before any new initiatives?
Again, there are many initiatives that exist in health care industry. There is a single specialty hospital that is all the rage. There are people doing eye care. There is a lot of -- there are companies that are spun off their diagnostics, their lab business, their radiology, pathology business. There are hospitals that have gone into home care.
For that, again, we think what makes sense for the whole. We have retail pharmacies, but we have retail pharmacies only in our retail clinics. We have retail clinics, but we don't have retail clinics all over the country. We have retail clinics that are highly beneficial in terms of getting patients to our main hospitals.
Home Care is something that is offered as a service bundled with the managed care plans, but it's not something that you can independently pursue. Similarly, eye care is something we haven't done because we believe most parts of the country are adequately served with eye care. Other single specialty, we had experimented with dental in the past.
We have thought about single specialty, but it's not something we think is -- well, something that customers expect from Narayana. I think people come to us for an overall value proposition, someone who is able to offer really high levels of care across the specialties at a very affordable price. So it's not the best fit for us. So in the end, it's generally the strategic intent of how we think about it.
Does mental health care feature in your future plans? This is a good question.
So mental health is a huge and growing need in the country. It is something that is offered as a service in all our hospitals. But as to whether we can offer it as a spun-off stand-alone service, we don't believe so. In our NHIC clinic program as part of the bundled health care services that are being offered, we would eventually offer physiotherapy, mental health care, lifestyle coaching, wellness and those sorts of things.
But it wouldn't be something that you would specifically come to a Narayana run mental health clinic. I don't think we would be very good at that. I think we're good at offering a large bundle of services and not hyper focused on just one thing.
Prayank has a good question. How do we add new operational beds in the existing network [indiscernible] Sorry, Shivani, could you mute your -- yes, okay.
Prayank ask a very good question. How do you add new operational beds in the existing network without incurring much CapEx?
Easy, you don't add more beds. You take the bed that you have and do more with it, which is you turn it into a higher yielding bed, or you look at things that can reduce the length of stay or improve the number of discharges. So that adding more bed is the last thing we would absolutely think of.
And so if you absolutely have to add a bed, you would try and add it within the same building, either next to an existing bed or on top of the existing building or adjacent to the existing building or if you're not able to do that, then you have to buy land and go somewhere else.
So O&M models are a way of paying for it. But the problem is you don't always get to choose when you go for an asset-light building. How it is built, where it is built for us, the location and its proximity to our existing hospital matters the most. If we're able to find a hospital that is absolutely synergistic on all fronts. It's built the way we want, build where we want and comes at a price that we want, then we would add that. If not, then we'll have to make the investment ourselves.
There's a question about issuing bonus shares. That's a good point. I will sit with the IR team and discuss with them.
That is all the questions that I think is there in the chat. If there are any other questions in the call.
We couldn't finish her question earlier. [indiscernible]
If there are no other questions. If there are no other questions, we would like to conclude our session.
Thank you, everyone, for the active participation as usual. Please do feel free to reach out to us in case of any follow-on queries that you may have. Thank you.