Narayana Hrudayalaya Ltd
NSE:NH
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Narayana Hrudayalaya Ltd
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Ladies and gentlemen, good day, and welcome to the Narayana Health Q3 FY '19 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I'll now hand the conference over to Mr. Debangshu Sarkar from Narayana Health. Thank you, and over to you, sir.
Thank you, Van. Good afternoon, ladies and gentlemen. I'm Debangshu, and I run the Investor Relations and Mergers and Acquisitions practices at Narayana Hrudayalaya. On behalf of the company, I welcome you all to our quarter 3 FY '19 earnings call. To discuss our business and financial performance outlook and to address your queries today, we have with us Dr. Ashutosh Raghuvanshi, our group CEO; Mr. Kesavan Venugopalan, our CFO; Mr. Viren Shetty, who spearheads the Strategy and Planning practices at NH alongside Ashish Sukhija from the team. I'm sure you would have gone through the result release along with the investor presentation, which has been uploaded on the stock exchanges as well as on our website. Before we proceed with this call, I would like to remind everyone that this call is being recorded and the transcript of the same shall be made available on our website. I would also like to remind you that everything 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. These uncertainties and risks are included but not limited to what we have already mentioned in our prospectus filed with SEBI and subsequent annual reports on our website. After the end of this call, should you have any further questions, please feel free to get in touch with us. With that, I would now like to hand over the call to Dr. Raghuvanshi.
Thank you, Debangshu. Good afternoon, all of you. On behalf of NH, I welcome all of you to our Q3 financial year '19 earnings call. With the third quarter being a seasonally moderate one, during which the patient footfall tend to come down due to onset of the festival season, we are pleased to announce a healthy set of numbers. We achieved a strong growth in consolidated revenue on the back of steady performance [indiscernible] Indian operations and a robust uptick in our Cayman Island operations. Indian operations centered around sustained performance of our mature facilities, along with acquired operations, which together registered a growth of about 12% year-on-year, helped the India business grow by 13.5% in the third quarter of fiscal year 2019. On the profitability front, adjusted for the losses of the 3 recently commissioned facilities across Delhi, NCR and Mumbai, the Indian operations delivered a strong EBITDA growth of almost 21% year-on-year for quarter 3 financial year '19, resulting into an adjusted EBITDA margin of 13.5% for the quarter. Another impressive highlight of this quarter being 27% year-on-year growth in revenues in quarter 3 financial year '19 at our Cayman Islands facility, leading to an exemplary growth of 75% EBITDA and a margin of 21.1%. That this unit is still being in its first year of operations, given the operational leverage of underlying business, we remain excited about its potential to deliver meaningfully to our group's overall profitability and cash flows.Moving on, we are also pleased to share with you that our continuous interventions across the [indiscernible], vis a vis [ Ahmedabad ], Guwahati and Jamshedpur have resulted in a turnaround in this trial's profitability from being in the red to green. That this [ string ] and absolute improvement of INR 4.4 crores in EBITDA at a margin of about 5% for Q3 financial year '19 over Q3 financial year '18. Despite this, we remain cautiously optimistic about these facilities and would like to put in all efforts on a continued basis to ensure that the survival is sustainable. On the clinical front, with the traction in the core organ transplant program, our focus on delivering advanced quaternary care is playing out well with consistent robust growth in the gross ARPOB EBIT by international patients, contributing 10.6% of the India business for Q3 financial year '19. Our enhanced focus on creating regional centers of excellence centered around high-end specialty, such as organ transplant, is reaping us the benefits and has led to the following inspiring developments.We performed over 140 bone marrow transplants, approximately 500 kidney transplants, 15 heart transplants and 20 -- and 12 liver transplants across our network during the first 9 months, ending December 2018. Mazumdar Shaw Medical Center in Bangalore achieved the feat of completing 1,000 bone marrow transplants since its inception, thus becoming first facility in Karnataka to have achieved such a distinction. Narayana Multispeciality Hospital also achieved the distinction of performing 100 kidney transplants since the program was initiated over there. Moving further, I'm also pleased to announce that during the last quarter, our organization was recognized at various platforms, the key ones being the Dharamshila Narayana Superspeciality Hospital was awarded the Times Healthcare Achievers Award in the multispecialty hospital category, and Narayana Health was awarded the Forbes India Leadership Award in Conscious Capitalist category in November 2018. At last, I will say that in the near to medium term, we would continue to consolidate our operations after the well-calibrated expansion exercised across Mumbai and Delhi NCR in India and overseas at the Cayman Islands. Overall, we are of the view that this health care sector is poised to continue to grow at an impressive pace and we believe NH is uniquely placed in the value chain. And moving forward, we will continue to provide our affordable quality health care to all as we go further. Thank you so much.
[Operator Instructions] The first question is from the line of Anuj Jain from ValueQuest Capital.
I have a few questions. To start with, first with regards to Jammu unit. So we have seen that revenues have declined quite a bit in the last few quarters for Jammu unit. So the question is whether we have received the money for the losses from the shrine board? Or is this money still pending and it's added to the receivables?
I would request Debangshu to give you the detail. It is not a fact that the revenues have declined. They have remained static. And as we have been talking about it earlier, the receivables are not a challenge in this particular location because the viability gap funded exists. And that is what the period of the first 5 years of this institution, we are currently at the third year. So that viability gap funding happens at the unit level and it doesn't contribute to our EBITDA in any way. So that's why at the EBITDA level, it is 0. As we have also shown in the Slide 10 of the presentation, you would see that the EBITDA remains 0, which was the same case in the last financial year and the revenue growth have been only marginal. So you are right that the revenue growth have not been sharp, but they definitely have been static. They haven't [indiscernible] in any way.
So sir, I need to understand whether the funding is actually happening or it's just on the books and the receivables are increasing. So actually, the money is being given by the shrine board to the company or it's still pending?
No. Its funding happens on a quarterly basis at the unit level so it's not an outstanding payment in any way.
Okay, okay, understood. And sir, any particular division regarding Jammu unit? We -- in the last phone call, we mentioned that we are contemplating some pain regarding Jammu unit.
See that unit because of the dynamics of the unit, the way it has panned out and the way that we see the business developing, there are certain developments with the stage team, et cetera, that the revenues are likely to go up. There are certain other collaborations in terms of the ECHS, CGHS, et cetera, which weren't there earlier. So entirely, the entire revenue was cash-paying patients. So now that -- with all those tie-ups in place, we expect the revenue to grow a little bit. However, due to the construct of that agreement and the EBITDA at this stage in the time the viability gap funding exists, remaining 0, it is a project which needs a regular review, which we keep doing every quarter. Depending on how it pans out over the next 2, 3 quarters, we will take the appropriate decision.
Okay. And the second question is regarding the debt repayment schedule for our foreign currency loan. What is that schedule?
Spread over a period of 7 years.
Over a period of 7 years and it's like equally divided or how -- like we are making like around, on an annualized basis, if I just annualize this quarter's number around INR 12 million of EBITDA in payment. So by how much time we will be able to repay this debt?
So Anuj, on the [ application ] side that the structuring of the loan currently is back-ended, ballooned. And obviously, it is a function of the cash accrual that we had and the optimal usage of the same that will decide how to extinguish that loan. But please be aware that the foreign currency loan are twofold: one is at the entity level that came in of around $32-odd million. Additionally, we have a foreign currency USD loan at the India level of $25 million, which we settled through our India international patient USD business that we receive. So the 2 separate loans, both are average door-to-door tenor of around 7 or 8-odd years.
Okay, understood. And lastly, if you can just provide some update on the unit. As you mentioned in your opening remarks regarding Ahmedabad, Jamshedpur, Guwahati, if you can give the individual profitability of these units?
We won't be able to comment on the individual profitability of each unit because we divide it by buckets. But what we disclosed is that they are no longer in the red and we're going to work towards making that sustainable.
Okay. And in the last con call, you mentioned that Raipur is operating at around 20% margin. So what's the update on Raipur? Is it still operating at the similar margins?
As Viren said, we won't like to comment on individual operations of individual hospitals. However, you know the trend in Raipur has been good, and we are putting up a cancer facility also there. So we expect that unit to continue to perform well.
[Operator Instructions] The next question is from the line of Charulata Gaidhani from Dalal & Broacha.
Yes. My question pertains to the Gurugram Hospital. By when do you...
Sorry, can you speak a bit louder? We're not able to hear you.
Yes. My question pertains to the Gurugram hospital. By when do you expect it to ramp up in terms of sales and occupancy?
Gurugram Hospital has been doing well. We've seen a lot of good traction there. We expect the path to sort of achieving operational breakeven to follow, more or less, in the similar dynamics as the rest of the units. Again, given that there are a lot of competitive pressures in Gurugram that may not have been there for the other hospitals, it's very likely that it could take 6 months to a year longer than the traditional trajectory, but it's not something that we will know any great degree of certainty. Having said that, it has ramped up very well and we expect that this will be a hospital that should perform adequately.
Okay. And my second question pertains to the outlook for Cayman in terms of occupancies going ahead.
Yes. So Charulata, currently, the occupancy levels over there are approximately 48% to 50%. And the trend of the growth has remained and it appears that it will keep growing at a healthy pace. So though we will not be able to put an exact number but definitely, the occupancy is likely to increase in a healthy manner during this coming year as well.
How much was the occupancy in the current quarter?
56. 56 occupied the [indiscernible] as against 24 of the corresponding period of the previous year.
Of the previous year.
Okay. So currently, it has gone up to around 48...
-- percent.
Okay, fine. And could you also throw some light on the increase in ARPOB and how far you see them increasing going forward?
As we had mentioned in the past couple of investor calls, we have taken this very conscious call to invest a lot in improving the case mix, moving away from being known as a predominantly cardiac-focused hospital towards increasing the mix through investments in oncology, investments in our solid organ transplant program, in more robotics and daycare surgeries. And so we've seen very strong ARPOB growth. The other that -- we have got a lot more international business coming in, and this is a number that have grown from what used to be single digits to now almost 11% of the total footfalls coming to the hospital. And since we've also opened up in relatively high ARPOB geographies like Mumbai and Delhi, specifically Gurugram, so we expect this number to constantly be improving quarter-on-quarter.
The next question is from the line of Nitin Agarwal from IDFC Securities.
My question on Cayman. Now Cayman, you mentioned that we are operating at about 48%, 50% occupancy. So when you look at Cayman pick up a slightly long-term view on this asset, I mean, how should we see this? I mean, so at what -- at some stage, will you go back, you need to do CapEx in the business? Or do we sort of continue with the current setup that we have and try to sort of do as much with it as we can? How should we look at the Cayman business over a medium-term perspective?
Yes, I think the Cayman business doesn't require any fresh CapEx in a big way. Whatever developments to add new service lines, et cetera, are concerned, I think they would be able to do it on the basis of whatever cash or tools that they might have. So it doesn't require that kind of a commitment in terms of CapEx. In terms of the business profile, we do intend to add new service lines, et cetera, which could give a good uptick to this business as we go forward. Since the latent capacity is already there, as you said, I think it needs to be sweated more since the ARPOBs are very impressive over there. And most of the costs being fixed in nature, the more we grow the revenue, the better the returns could be. So I think there is a huge potential to generate good cash flows for the group per se without actually committing too much on the terms -- on the side of CapEx.
It's not that we're not investing. Here and there, we have done a little bit of realignment added. We've improved the look and feel of the ICU beds. We've changed the outpatient entrance. We'll be adding new service lines and so on. So there will be minor investments here and there. And as for sweating it, we do need to start making more attractable place for our patients from the other neighboring countries. So our doctors have been going doing camps across the region and bringing those patients that can't be operated there into this -- into our hospital here.
What I really meant to ask is it's about 100-bed capacity -- it's a 75-bed hospital, right or a 80-bed hospital?
106 beds.
Okay, 106 beds. Okay. And so do we foresee a situation where we need to increase the number of beds there and is there provision for us to increase the number of beds there?
Not in the -- you would increase the number of daycare beds, you increase the number of ICU beds, chemotherapy, for example, but that's more of realigning within the existing setup. So for example, a ward that may have 5 beds, I would probably break it down and turn it into a 2-bed deluxe ICU. And so I wouldn't change the absolute total number of beds. But here and there, we'd make investments in changing it based on the demand that we see.
[Operator Instructions] The next question is from the line of [ Pritesh Chheda ] from Lucky Investment Managers.
Yes, sir. In the India operations, what would be the like-to-like revenue growth for our business? And I'm asking you in this the question, in the context for the fact that the industry has [indiscernible] headwinds. One was the implant cost reduction; second was generally the competition, which was visible in the metro cities. So in that context, what would have been your like-to-like revenue growth rate in the India operations?
So just to understand it better, Lucky, does your question pertain to the fact that we have added the new unit in our India operations this time around, which is Gurgaon, which was not there in the last fiscal year adjusted for that? What is up there on both of our India business?
Yes.
So India business, as you can see, has grown by 13.5% overall. And adjusting for that -- I mean you can just straightaway adjust for the Gurgaon revenue which we have separately provided in our Slide #10. So adjusted for that, it will be closer to around 12-odd percentage of like-to-like growth that you would have seen for the India business in Express.
Okay. And how would it be for 9 months?
I don't have that answer readily available right now. It would be closer to that kind of a number. That would be my hunch. I mean, we can take this offline and can -- to inform you the actual numbers. But you can easily calculate that given that quarter-on-quarter for the last 3 quarters, I've actually provided you the Gurgaon revenues.
Second, my second question is on the India operations or, let's say, on the total company operations. Based on the improvement in the business in the licensee of your hospital and improvement in the business in, let's just say [ to 5-year bucket ]. What would be the pace of margin expansion that your business should see over the next 2, 3 years? And what should be the pace of like-to-like growth that the business should see over the next 2 years or 3 years, whichever you're comfortable with? So this is excluding the new bed addition.
I mean, you've been on enough of these calls to know the same line that we always give, that it's hard for us to forecast and that's not something we would do. All that we maintain is that, yes, what you'd said in the first part, which is there have been headwinds and challenges. And so whatever happened in 2016 came completely unexpected. We don't expect too many of those happening again in future. And for [ devel ], we've anticipated with happening with government actions, we've taken the relative steps to mitigate against that. Anything going forward should be as per the current trajectory. So our India business, an exception to the new units that have come in, was year-on-year around in here from 10% to 12%. In the short term at least, we don't expect it to deviate too significantly from that number, especially given that a whole lot of new units that we set up will start to mature and ramp up accordingly.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
Just a question on global ramp. How are -- what are the steps that the company is taking towards the operational ramp up in terms of the therapies that have been launched, the pricing strategy and sort of thoughts maybe made to attract the medical talent over there?
Specific to Gurgaon?
Yes.
Yes. So Sameer, as far as the clinical offerings are concerned, we started with the limited offering then gradually kept on adding facilities. So the latest we have added is that we have got the licenses for the transplant program as recently as within last month. So those are the programs which are going to be a big focus there, both the renal as well as liver transplant program. Other than that, of course, there is a huge cardiac program. The other thing which is in the pipeline and the machine is in the process of being installed is the radiation oncology machine, [ certainly next ], which is likely to be commissioned by April, May. So with all these clinical additions, the trajectory would be much higher this year compared to last year in terms of the top line growth. However, as is asked about the clinical talent, the clinical talent comes first and then the revenue follows. So there could be a lag period in terms of the profitability in spite of having huge growth on the revenue side. Now as far as our strategy for clinical talent, has always been very clear that we want high-quality clinicians who have an institutional mindset. So those are the areas on which we do not compromise. And that is what gives us the kind of leverage we get in terms of the throughput which our physicians are able to provide. And from the company side, we ensure that they have a good ecosystem to work, which has academic and all the other components, which make the professionals successful. So we do not move for trying to [ force ] people at a higher salary level, et cetera. So that has been our approach always and it has worked fairly well for us.
Yes. Sure, that's helpful. Just wondering, how are you getting the senior surgeons? I mean, is it all locally sourced or are you also maybe hiring from outside of Delhi?
Majority of people are local who some of them at mid-level, some of them from government institutions, like we got part of the professors of cardiology from [indiscernible] Hospital who joined us in the field of electrophysiology. So these are the kind of people we are having. Other than that, one interesting thing which we are trying to do is to create clinical [ collaborations ] across our network. Like I earlier mentioned, the transplant services. So what we have done is that we have hired a senior level resource for liver transplant along with our largest team which is based in individual institutions like in Bangalore, Calcutta, Jaipur, Ahmedabad, et cetera. So that forms one single team with a senior resource being placed in one location. In the case of liver transplant, the senior person is based in Gurgaon but he runs the program across the network. So that way, we get the advantage of creating that network of services, the patient movement is also -- becomes easier with this.
Okay, great. And just the other question. If you think about Narayana 3 years forward, how do you see the revenue profile by different therapies: cardiac, ortho, onco, et cetera, change from what it is right now?
See, if you would notice from 2016 until now, in within the last 3 years, the ratio from 47% cardiac has gone down to 41% cardiac. So my expectations are that the transplant growth is going to be much higher paced than cardiac growth. Cardiac will also remain in the growth mode because of the simple fact that the needs of cardiac care is huge. So those are percentage terms that may come down, but in absolute numbers, it will keep growing. The ratios will obviously alter and the numbers on the GI front, oncology front will be the ones which will increase significantly.
Okay, great. And with your permission one more. So was any price action taken by the company across its network in the quarter gone by?
No, not in the previous quarter. As Debangshu mentioned earlier, we had done some kind of corrections in terms of the pricing structure, but we did not change -- make any changes in the absolute quantum of price. So the price changes will possibly come sometime during this coming year -- I mean, forthcoming quarters. So the previous quarter, there were no pricing changes. Actually, what you see the increase in our core business is a result of case mix and the decrease is the length of stay rather than any price corrections.
[Operator Instructions] The next question is from the line of [ Pritesh Chheda ] from Lucky Investment Managers.
Sir, I wanted to know the CapEx plan for the next 2 years, and if you could split it up into maintenance CapEx and new asset creation CapEx and how many beds?
[ Pritesh ], I mean, as this is something that we have been continually discussing over quite a few of our previous calls, if you'll recollect. So going back past precedents, we -- I mean, obviously, to standings today, I would not be able to give you guidance on new project CapEx or the addition at this stage. Having said that, just to give you a sense on the kind of maintenance CapEx that we have been seeing is to the tune of around INR 125-odd crores annually, I mean, going by the historical evidence. But with the growing base of the growth block CapEx then, there's an upward bias or upward pressure on that number surging ahead increasingly as [ year-over-year ].
Okay. And growth CapEx, if you don't want to give the bed count, but you can at least give the growth CapEx number and the debt repayment schedule.
Debt repayment, we have already probably discussed in one of the previous questions, whereby we said that all our debt are by and large a [ lengthy note ] of average maturity of 7 to 9-odd or 10-odd years. And so there is a -- I mean, those are all structured and customized in line with that expected cash flow accruals that we expect out of the business. As far as the new beds is concerned, like we have been discussing or telling you in every other quarter, increasingly enough, we are seeing that bed as a relevant metric of discussion for this industry, is losing a lot of relevance. And towards that extent, we are not actually looking at it from that perspective. That aside, as you would have realized, there is around 1,000-odd beds of latent capacity already available within our existing network. So the idea, as has been clearly articulated and communicated over our communications over the last couple of quarters, is to focus on our existing operation and sweat those out before we look to embark upon the next phase of external inorganic-driven growth.
So -- okay. So looking at that delta [ weight ], INR 20, is it fair to assume that you'll have INR 100 crores repayment every year?
Approximately, yes. I mean, half of that is obviously USD-denominated, yes.
[Operator Instructions] The next question is from the line of Nitin Agarwal from IDFC Securities.
Sir, just one question. On the [ newer ] hospitals, 11 5-year-old hospitals that we have. In terms of EBITDA margin expansion for these hospitals, the primary driver is going to be revenue growth. Are you actively working on some cost containment measures also? Which has been the primary driver for margin improvement in the assets -- in these groups?
[indiscernible]
He said less than 5 years [indiscernible] and then lower [indiscernible].
So Nitin, there's 2 categories of those. In the less than 5-year bucket, you have the ones which are within the 3 years, [ bolt-on ] acquisitions and so on. Those are primarily on revenue growth. There's not much leeway you have on cost cutting just because the team is new. And there are a lot of inefficiencies built-in in the supply chain. As it's just getting the act together, you may not really have that much co-producing days, inventory and such. But in the 3- to 5-year bucket, yes. For a couple of places, if you're talking about the more mature centers, like [indiscernible], Raipur, Shimoga -- sorry, the Whitefield, HSR and Guwahati, there will be a couple of things you can do on efficiencies. So in HSR and Whitefield, for example, given that they're in Bangalore, we will be integrating them into a common supply chain platform. And so that should reduce their inventory holding costs. Guwahati is a bit of a challenging location, given it's in northeast India and availability of talent and manpower is a bit of a premium. So there we've -- there will be a couple of challenges, especially in trying to cut costs over there. But we know what those initiatives are. There are a lot of inefficiencies coming with joining up, so this is just something that we have a lot more scope to address. But Guwahati does have a lot more occupancy so they're also mostly driven through volume growth.
Okay. And where in -- on Ayushman Bharat in some other -- is there any rethink on some of the hospital network that you want to utilize or probably get them accredited with the Ayushman Bharat at this point in time?
Yes. This is different for different states. So the 2 biggest states for us are Karnataka and West Bengal. The West Bengal is not in impaneled [ in service with ] Ayushman. They have their own state scheme called Swasthya Sathi which we were doing earlier and we continue to do. And that is some percentage of the patients. Karnataka, we were doing scheme patients and that just got moved from one bucket to the other. So in Karnataka, we are enrolled in Ayushman. We haven't seen the numbers surge in the way that a lot of the press and expectations were. The sort of rollout has been quite measured and many patients haven't really been taking advantage of Ayushman or maybe the coverage is not as much as we thought. But in a lot of places, the numbers have -- the key numbers have been steady in Karnataka. In Delhi, as you know, there is no Ayushman. So there, it doesn't count. Most people come either through CGHS, ECHS programs. The other places, in [ SM ], for example, it's not yet fully launched. It's starting to be launched. We will take it up in Jamshedpur. We're taking it up Guwahati -- sorry, in Ahmedabad and Rajasthan. There are state schemes which we were doing before and that will get rolled into Ayushman. But again, I think if you just go by the trend, it is not going to start converting a large number of cash patients into scheme. And in fact, in some of the -- here too down in Karnataka, we actually noticed the opposite, where a lot of people who previously had scheme are now being converted to cash because they lost their coverage. I mean, they lost their coverage because there was a lot of fraud in the system earlier. So the systems are [indiscernible] now.
And then, lastly on Dharamshila Hospital, how should we view this hospital in -- when you take a 2- to 3-year view of the business? We've been adding new specialties there. And how has the pickup been on those specialties? And how is [indiscernible] oncology program running there?
Yes, so the oncology program has stayed steady. The thing about Dharamshila is that even though it was a 20-year business when we took over, it was, more or less, in a sort of life support sort of thing. It was just doing a very bare minimum oncology program. So the 2 things that have been growing are the onco as well as the multispecialty business that didn't exist before. That had to be grown from scratch so we made the investments in adding the beds, realigning the infrastructure, adding more ICUs and so on and getting the clinical talent for that. So we took a business that was barely above breakeven but at a much lower base to one where the revenues have been growing quite strongly. But of course, these investments will take time to pan out. So we actually internally treat it more like a greenfield project that we have taken on. So this again has demonstrated very strong trajectory. It has a strong brand in the area. And us coming in, patients are coming very enthused with the cardiac program that we're offering. We will slowly start upgrading the facilities. We're adding new capacity there. In conjunction with the trust, we'll be adding more advanced radiation therapy over there. And so the entire profile of that hospital will change. But it does take time because it was more of an affordable alternative and now we're pitching it more towards high-end services.
The next question is from the line of Charulata Gaidhani from Dalal & Broacha.
Yes. My question pertains to payments. What is the outlook for a BBB breakeven?
Sorry, you broke even in at PAT level.
At PAT level. Okay, fine. So can you give me the number?
In terms of what the PAT was at the hospital?
Yes.
Charu, we can take that offline.
The next question is from the line of [ Pritesh Chheda ] from Lucky Investment Managers.
Just wanted to check on one [ beat ]. The industry headwinds which were there for the last couple of years in terms of multiple challenges. Have those abated by -- in revenue parts on it?
I mean, one doesn't know, right? It's not something that this government will advertise when in advance and tell you that, "In 9 months, this is what we're planning to do." But you can take a sort of directional guidance from statements that have come from time to time. So for example, in The Economic Times, the GST Council had announced that for patients -- so right now in the healthcare sector, there is no GST but for Pharma, there is and for selling medicines, there is. But for patients who are in-patients, there is definitely a drug element. They are giving medicine as part of the overall treatment. So right now, we roll it all up into one package that's given to them. The GST Council sees this as a sort of leakage and they've indicated that they would want hospitals to start splitting up the bill for in-patient into drug disposables or the consumables and the [indiscernible] services separately. This will be -- it will be very difficult to implement, given that so many -- it's very hard for some to distinguish between giving drug-related service and whether that comes as part of the overall package. So anyway, just given that this is what they want to do, we're internally realigning our hospital information software to be able to accommodate that. So that in the point where they say, "Okay, look. Now you need to switch this mechanism," we'll be ready for that. Other things on price control and so on. It doesn't look like there has been a lot of activism on that so far, and a lot of the decisions that used to be taken by the NPPA and the DPCO have been moved to an [ ACIO ]. [ NPIO ] has created a taskforce of which Dr. Shetty is also adviser to that. And they're working on some more holistic solutions towards addressing the cost without it really being something about fixing price. But having said that, [indiscernible] takes decisions very quickly. And it may be that they may decide to fix prices in, let's say, lab services or radiology. It's just that there's no way for us to know. But yes, that fact also that given that we're entering to an election year, I doubt anyone's interest will be on this. We shouldn't expect anything going forward. But as far as the GST thing, I think it's just more of a software correction, and that's something we've made the changes to. Any future price control? One thing is on chemotherapy. On the chemotherapy drugs, they've indicated they'd start bringing that under the DPCO. But that anyway is more to do with the manufacturer side. We are just the infusers. So that again, we've indicated in previous calls that we want to move it from making margin of medicine and moving margin towards services. And that's the sort of alignment as an organization, we've been doing over the past couple of quarters.
Okay. So only thing which is still pending to get implemented is splitting of the bill?
Yes. But that again, pending the sort of official announcement from GST. Our software and our packages, all of that is ready. So when that does happen, that will be a bit of a disruptive thing. On price control and so on, we honestly don't know.
And anything on the imaging services?
So there are the odd person that will make a random announcement and say we want to fix this price, it's too expensive, blah, blah. The question is we don't really know the level of seriousness. And another point is the practicality of doing such a thing. The thing with imaging is no 2 images are the same. They're done on different technologies, they're done on different machines. Most of the imaging is done on software these days and those come at a huge cost. These things are very hard to implement. But having said that, you can't just assume that it won't be done. We just have to be prepared for such.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
A general question. For the third quarter, is there some sort of a seasonality versus other quarters, there being more holidays in this quarter?
Yes. Third quarter is always -- as I said in my opening also, the third quarter is typically a slightly depressed quarter because of the holidays and all kinds of festivals. So that definitely is the case, yes.
And Sameer, just to add anecdotal evidence on that, I mean, if you have observed our quarter-on-quarter performance over the 3 last years since we are listed, you will typically see that third quarter inevitably is the weakest along with possibly the Q1s.
Okay, great. I was [ caught ] in the [indiscernible]. And second is on redemption again, do you have a full range of onco offering in terms of medicinal, surgical and radiational services?
We have the full range, but now we are going towards upgradation. So we have, for example, a unit accelerator wherein one technology, which is on the low-energy machine, we're moving towards a high-energy machine. We -- of onco surgery, we'll be offering a robotic onco surgery in the future. So the full range of that, it's just that in that range, we'll be offering a much higher quality of that going forward.
Okay. Is it possible to split the onco revenues at [indiscernible]? Is one more dominant than the other? Just general. I mean, you may not give the number obviously.
No, the onco business is definitely a growing business there. But the multispecialty has outpaced it and will continue to outpace it, given that we've launched multiple specialties in this unit. The other point is, a lot of the general surgery, even our software is not able to capture whether these are referrals from oncology and whether they're not, when they just come in as general surgery.
Fair enough. My question was within onco, the 3 different fields which is being medicinal, surgical and radiational. Is one dominant versus the other?
No. Typically, between these, a combination will be typically about 20% radiation, about 30% to 40% surgical and the rest comes from medical oncology. Medical oncology typically would be the largest piece simply because of the cost of the medication. So that's a typical split in any mature cancer facility and here also, it is almost same.
And your margin profile will just be the opposite, the radiation being the highest?
Radiation is the highest margin, yes. But chemotherapy also does have a pretty high margin.
[Operator Instructions] The next question is from the line of Charulata Gaidhani from Dalal & Broacha.
Are you seeing any changes in the regulatory environment in India?
I think I'd answered that earlier. It's tough to say, given that there's an election in the next couple of months. There possibly could be some action on the GST side, where from the in-patients, we'd have to split the billing into drug separately and services separately. This is difficult for a lot of hospitals because a lot of the service margin and drug margin, we don't distinguish between the 2. But once you start splitting the 2, then we just have to realign the thing that is, but this is more of an internal calibration exercise and more of a software exercise. So that's the only thing we expect to happen in the near term. Regulatory in terms of more price action or more things like Ayushman, I would say nothing in the short term, at least. At least until the elections, I don't expect anything.
Okay. What about [ fixed ] pricing?
I mean, whatever happened has happened. What happened is that [ entity ] has moved now towards [ NTIOs ] making the decisions. And they have indicated that they don't so much want to go towards price control as they do towards a margin control. And they've also exempted 1 Indian-made -- at least they're in the process of exempting 1 Indian-made drug-eluting stent. So once the exemptions start coming in, I expect that in a year's time at least, the stents will be, more or less, de-controlled on price. But again, this is just our assessment of the situation. There's nothing really official per se.
Charu, just to answer one of your previous questions, the PAT for the quarter at Cayman was around $1.8-odd million.
Okay. And how much for this in FY '18?
I'll have to get back to that, Charu. It's just you asked something that we thought we should.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for their closing comments.
Thanks, everyone, for your active participation on the call. We look forward to future interactions. Should you guys have any further queries or questions, please feel free to reach out to us at any of the forums or directly to us. Thanks again for your participation. Thank you.
Thank you. Ladies and gentlemen, on behalf of Narayana Health, that concludes today's conference. Thank you for joining us and you may now disconnect your lines. Thank you.