Narayana Hrudayalaya Ltd
NSE:NH
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Narayana Hrudayalaya Ltd
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I guess we'll start now. It's beyond 2:30. We have waited for folks to join in. So we'll get -- start the session for today, I guess. So hello, everyone. myself, Debangshu, and as most of you are aware, I run the Investor Relations and mergers and acquisition practices at NH. On behalf of the company, I welcome you all to the quarter 3 FY '22 earnings call of [indiscernible]. To discuss our performance and address all your queries, today, we also have with us Dr. Rupert, our CEO; Dr. -- Mr. Viren Shetty, our COO; and Ms. Sandhya, our CFO, who has joined us a couple of months back. I'm sure you have gone through the investor collaterals, which have been uploaded on the stock exchanges as well as on our website. Before we proceed with this call, I would like to remind everyone that the call is being recorded, and the transcript of the same shall be made available on our website at a subsequent date. I would also like to 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 strictly 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 called a public offer in late 2015 and subsequent annual reports on our website. Post the call, in case you have any further queries, do feel free to get in touch with us and we will try to address it to the best of our abilities. With that now, I would like to hand over the call to Dr. Rupert.
Good evening. Good afternoon, everyone. With the effects of pandemic subsiding for most part of the last quarter, we are pleased to deliver a consolidated EBITDA of INR 1.82 billion at a margin of 19% and PAT of INR 1 billion at a margin of 10.2% for the period Q3 FY '22 despite this being a seasonally moderate period. Our strong business performance has resulted in a consolidated return on average equity employed of over 28%, annualizing the year-to-date 9 months PAT of over INR 2.7 billion despite the pandemic-induced severe disruptions faced earlier during this fiscal. Overall, our balance sheet and liquidity profile remains strong with INR 5.5 billion of gross borrowings as against consolidated cash and liquid investments of over INR 3.4 billion as on 31st December 2021, despite incurring a CapEx cash outflow of over INR 1.8 billion during the quarter gone. With COVID-19-related business contributing just over 1.5%, our India business adjusted for the vaccine revenues grew by over 3.5% on a quarter-on-quarter basis despite the seasonality impact. With the recovery in Narayana cardiac collective work, 34.9% of India business as well as international patient mix, 5.7% of India business, led by our flagship hospitals, we are pleased to deliver record profitability for our Indian operations during the quarter gone by, registering an EBITDA margin of 14% for the period. Sequentially, over the previous quarter, quarter 2 FY '22, our Indian operations registered an absolute increase in EBITDA of around INR 155 million in the quarter gone by, adjusted for the higher vaccine contribution in quarter 2 and onetime impact of incremental other income of INR 50 million in quarter 2 towards the write-back of deposits pertaining to our Whitefield unit. With the improving sentiments facilitating people's mobility across regions for most part of the last quarter, profitability of our flagship hospitals recovered significantly with these set of 3 centers of excellence registering an EBITDA margin adjusted for vaccine business of 27.8% in quarter 3 FY '22 as against 22.2% in the previous quarter. Separately, we remain encouraged by the performance of our other nonflagship hospitals, including the 3 newer hospitals as we continue to progress along their respective growth trajectories as witnessed over the previous few quarters, despite the pandemic-induced disruptions there. We have anchored recovery and revival of the business during the uncertain times. Moving on to our overseas operations. Our unit at Cayman Islands, continuing its sustained performance, grew by over 30% year-on-year basis, reporting operating revenues of USD 24.9 million in quarter 3 FY '22, resulting in an EBITDA of USD 10.2 million. This for the 9 months period ending 31st December 2021, the unit delivered a healthy EBITDA of USD 29.3 million with PAT of USD 24.5 million. Separately, we recently -- we did the groundbreaking ceremony for our previously announced expansion at the city center. While our marginal time lines have certainly been delayed a bit due to the global supply chain outages affected -- affecting a completely import-dependent nation like Cayman Islands for construction material and equipment, we look forward for commissioning the expanded operation in a phased manner, starting with the radiation oncology program within the next 10 to 12 months. Overall, we do remain confident in this regional business emerging as a strong pillar of our future growth. Separately, as part of our continuous evaluation of our portfolio of business units, we have decided to further rationalize the same by discontinuing operations at our ophthalmology focused in this center at Kolkata. That is the rotary Narayana Hospital as well as our pledging heart center operations at the Imperial Hospital, Chittagong, Bangladesh, to sustain the long-term interest of the business. As regards to our continuing focus on various digital initiatives, we have now extended our homegrown ATHMA HIS and other allied products like ATHMA application for Doctor Insight, which is AADI, lab information systems, electronic claim management systems to our overseas unit at Cayman Islands. Also, we have now improved the patient registration experience by integrating the Veri5digital's regulatory compliant, AADHAAR-based KYC database. On the ESG front, during the quarter gone by, we achieved the net carbon reduction equivalent of 3,913 tonne through various energy optimization activities like using alternate energy, upgrade or replacement of equipment across the network and also upgraded the critical fire detection systems across our hospitals at Howrah. On the clinical front, we continue to deliver advanced super specialty work as reflected in some of the highlights. We have continued to do advanced quarternary work in cardiac sciences, oncology sciences as well as GI sciences across the entire network. Mazumdar Shaw Medical Centre performed a unique Total Robotic Bariatric Procedure, the first ever case in Karnataka. The unit also published the largest series of robotic Whipple operation, which is done as a total robotic surgery for pancreatic cancers in the entire country. The SRCC Children's Hospital performed a complex case in perinatology to treat twin-to-twin transmission system through a fetoscopic laser ablation laser ablations. This is performed very rarely across the country. The unit in Raipur performed a complex onco surgery for a -- the cancer of the pelvic bone called chondrosarcoma, by doing what is called as the Internal Hemipelvictomy where they replaced the entire pelvic bone -- half of the pelvic bone, as these cancers generally do not respond to chemotherapy and radiation. The Guwahati unit also performed a complex Whipples operation for pancreatic cancers in a young 10-year-old child. And also the Ahmedabad unit has done a rare case of total elbow joint replacement for refractory inflammatory arthritis as well as doing very complex angioplasties where using intra vascular ultrasound guidance for chronic total occlusions. In the backdrop of the third wave of the pandemic prevailing in the country, while our Indian operations has been quite impacted in the month of January, we are hopeful that recovery would be faster this time around and remain well placed to sustain the business momentum, notwithstanding COVID-19-related uncertainties. Looking ahead, with lives and livelihoods of the community at the core, and standing in solidarity, we remain committed to deliver quality, affordable health care to all. Thank you.
Thanks, Dr. Rupert. I think we will open the question-and-answer floor with that.
[Operator Instructions] Yes, Shantanu?
I just wanted to know that as you have mentioned in the last 2 calls that there would be a refurbishment of Indian hospitals with more private and semi-private beds getting added. So have you started that? Have you started that as yet? Or will it take some more time? I know it's a 5-year plan, but have you started that?
Rupert, do you want to...
Viren, will you take that?
I'll start and then Rupert can take up. Yes, the work has started. We started with refurbishing a lot of the OPD and IPD areas. Given that these are all running hospitals, it is taking in a more gradual manner but it is on track. So for example, there are a lot of areas where the rooms are being reconfigured to deal with the COVID occupancy and the ICU work-related death. That freed up space that we have been using for more procedure rooms. But this is something like we said earlier, will take up over the next 5 years. Rupert?
Yes. We have been -- as Viren has been mentioning to you, we have been doing that and we are timing it along with the requirement of beds in the units. So we are trying to balance out the requirements as well as how much beds we can actually take out for the renovations purposes. But it's a fine balance and we will be able to cater to the time lines which we have in this.
Thanks, Shantanu. I think we can move on to [ Ahmed ].
My question is on the Cayman business. So if we understand the relationship between the revenue ARPOBs and the margins of Cayman business, the -- we are maintaining the ARPOBs of about $2 million even in Q3, and the revenue has grown about 25% sequentially. But still, the margins have come down about 4%. So what explains that margin blip? Is it the -- some mix change in the revenue? Or any specific component of cost structure? Can you please explain?
Sandhya, you want to take this?
Yes. A lot of our margins are dependent on the type of procedures we execute. So sometimes, we have more higher-end procedures, which give us a better revenue realization, but they also come at a higher cost. So some of that mix effect of the procedures is what is flowing into the year margins. So that, you would have seen across even in India business, we have that. Depending on the type of procedures we execute, there is a little bit of a range in which the margins -- and because Cayman is stand-alone, so it stands out in a more prominent manner. But in India, because of the balance between the hospitals, you don't see that as prominently as Cayman. Does that answer your question?
Yes, yes, yes. Definitely. And I understand that we are not currently operating in a steady-state world, but how sustainable -- what kind of margin do you see sustainable in the future for the Cayman business?
So we would -- so as we see today, we would be -- you are aware that we are coming up with an onco facility. So there would be some amount of investments we will make in the near term because of the hiring of consultants, infrastructure et cetera. So we will see some amount of dilution in the margin in the near term. And then we will pick back up. So if you ask me for an outlook, over the next few quarters, I think the current numbers are reasonably sustainable. Then maybe we will get into a little more balanced out numbers post that. Until our full facility comes up, full hospital comes up, and starts operating at full volumes. So that's the kind of estimation. But I don't want to give a forward-looking number at this time because, a, there are many variables; and b, also it depends on the scale-up speed and how each of the specialties perform and stuff like that. Does that answer your question, [ Ahmed ]?
Yes, yes. Very much. Very much. Just one question on the -- just a word on the tax rates. So is it fair to assume that Cayman business tax rate is obviously zero, and the India business tax rate will be -- steady state 25%?
So we haven't hit the -- we haven't -- we have certain brought forward losses which we have to set off. And therefore, we haven't opted for the 25% tax rate yet. So when we cross that period, then we will opt for the 25% tax rate.
That answered my question. And then just one question on the India business. So this quarter, we have about 5.7% from the international patients in the India business. And say it moves back to 8%, 10% kind of a number in upcoming quarters. So does that leave some room for the upside in margins and ARPOBs of matured hospitals in the upcoming quarters from the current base?
I'll answer this one. We have taken a call in the middle of the pandemic to not create any pricing differential between domestic patients and international. This was a practice that was normally done because of a huge amount of referral payout involved in international patients, which we don't want to do. And so from an international patient compared to a cash patient, they will be more or less on par. And given that the proportion of international patients occupying will fall in the same category as our private rooms, I would say that it would have an impact. Definitely, it would lead to higher-yielding patients, but not enough to materially change the numbers in a very short period of time.
We can move on to [ Ranvir Singh ] for the next set of questions.
Just on EBITDA front. What has been the EBITDA in [ HCCI ] during this quarter?
Yes. I think that was covered when Dr. Rupert gave us initial introduction. We have delivered an EBITDA of $10.2 million in Cayman in this quarter, quarter 3 of FY '22.
Just -- I wanted to reconcile the numbers. So consolidated is INR 181 crores, stand-alone is INR 89 crore and $10.2 million was some INR 75 crores is from Cayman. So what other subsidiary, which has contributed to [indiscernible]...
So there are other Indian legal entities like our Meridian business is in a separate legal entity. And there is also the specialties NH [ SHPL ] which anchors our Dharamshila and Mysore unit. So they are also in separate legal entities. That is the reason you are seeing the difference between stand-alone and consult not being equal to Cayman number.
Okay. Fine. And I see, despite in percent and out percent number has significantly improved. Yet I see on EBITDA front and most of cluster, we see the Q-on-Q decline. So any particular reason?
Actually, like Dr. Rupert had explained, there was a onetime in the Q2 EBITDA which we have now -- which is not repeating. And despite that, we have delivered the increase in terms of the EBITDA at another group level. Now obviously, some clusters -- this is, as you are aware, is a seasonal quarter. So some clusters have seen the impact of the seasonality, some clusters have not. So where we've seen the impact of the seasonality, you are seeing that little bit of difference in terms of the [indiscernible] rate. Does that answer your question, [ Ranvir ]?
Yes, yes. So just getting more detail on it. So like in Delhi cluster, so last year, we had some 0.9% of EBITDA margin. This time it's 0. So was it related to COVID last year? Or why this was a 0 this quarter?
I think there is an impact of seasonality in the Delhi cluster. If you see, a slight dip in the revenue profile as well. So that is what is causing that. Having said that, I think there is good revenue traction we have started seeing. And this trend will only improve from here.
Okay. Okay. And just you alluded that in [ HCCI ], there now EBITDA has improved in fact. So going forward, just I wanted to understand the growth aspect there. So what kind of growth we can expect in revenue or whether we have a scope to increase EBITDA from here onwards?
So the revenue will obviously be in addition to the organic growth we have been delivering in HCCI. The revenue increase will be also dependent on the commissioning of our new facility. And in line with that, you will see the next step change in terms of revenue. EBITDA would follow a similar trajectory. And as we make that mix step change, like I explained before, we may make some investments at that time, setting up the practices and creating the relevant occupancy. So there will be an investment in EBITDA for a while and then we will pick back up.
If I can just add to that. The construction period will be split into 2 phases. One is the oncology block, which has started right now. This is for radiation oncology that should take, very optimistically, maybe 9 to 10 months. But if you want to be realistic, we would say closer to 1 year, given the challenges of importing material in and out of the island. And 1 year after that will be the full block which is the ICU, the surgery room, the cath lab, the ER and trauma center. And so the ramp-up, what would happen in the man power and so on would follow more or less once the building construction is ready. And that would lead to, obviously, a temporary margin percentage dilution while the unit picks up, but eventually, it should return back to sustainable numbers.
But top line would be increased after the installation of this [indiscernible]...
Yes. The top line would increase because we're adding more specialties, more clinical departments. Parallelly, also, we're looking at adding more clinics. We've set up a clinic in this shopping area in the middle of Cayman, called Camana Bay, and started chemotherapy there also. It's being a clinic, its contribution is smaller, but that will keep growing. That will keep happening constantly.
Yes. What kind of investment we have made for this expansion?
These are small clinics that are in rented premises. So there anywhere from $500,000 to $900,000 clinics will be setting up in different parts of the island.
Okay. Okay. And just a last one on international percent has increased significantly in this quarter, but has still -- you mentioned that you have not increased the prices. So going forward, can we expect these prices going significantly up in coming quarters?
Sorry, the last part, what you said?
So in next few quarters, can we expect the pricing for international percent would be higher than the domestic one?
No, see. So on average, the average international patient ends up paying more than the average Indian patient because the average international patient is more likely to opt for a semiprivate or a private room. But on a like-to-like basis, we have not created any differential in pricing for international or domestic patients. For the same procedure, the same disease profile, in the same ward, they will both be paying the same amount. And so from that perspective, we want to create a parity between people coming from all over the world to our facilities and create a more value experience for them. But definitely, the more international picks up, it will increase the overall average ARPOB, but not to a very drastic extent.
[ Deepa ], you can go ahead with your question now.
This is [ Deepa's ] colleague, Amit. Just a couple of questions. So one is on the pricing change. I think in the last quarter, you talked about affecting a price increase probably in January. Has there been -- has that been done? And could you give some light -- could you share some numbers around average increase in prices that you have effected?
Sure. So we have taken prices very, very moderately, only to cover for some of the increasing costs that we have. And that is the -- we have not instituted any org-level price change. Therefore, this is very much at a unit level. And each unit have taken the call, depending on the -- their respective cost profiles and their respective operational profiles. So I am not sharing any specific number because it's very different for every unit. But you can just assume that it's a very small increase that we have effected in the pricing.
Understood. Understood. And second question would be around -- could you throw some light on your long-term growth strategy? Where is the long-term growth if I look at it from a 3- to 5-year perspective, coming from? is it going to be in -- outside of India? Is it -- are you adding more beds in existing facilities in India? Or will you be also looking at inorganic growth opportunities because, if I -- I don't see any new greenfield coming up. And if I compare you to some of your peers who are aggressively adding hospitals in India -- so are you less bullish on the outlook here in India? Or -- and if you're going to be adding, where are you going to be adding in terms of geography?
I'll answer this one. We're not less bullish on the outlook in India. It is no doubt a very challenging jurisdiction, and health care is one of the most regulated sectors, and it's very difficult to meet all the stakeholder requirements. But the long-term outlook is always one that trends towards more health care required for the country. So from that perspective, I would say that our stance has always been not to overspend, to not overbuild, not to overpay for any asset. And that's why we've been a little more cautious compared to the rest. Now if you ask where is the next set of growth going to come from, and you mentioned a couple of things. And the answer is a little bit of all of them. There is expansion in Cayman, which we are doing right now. There will be opportunities we'll be exploring in the surrounding countries also. Those will be slower and more measured. In India, it will be a combination of greenfield, brownfield and inorganic acquisitions. But all of them, as long as they adhere to certain core tenets, the most important being, one, is it is synergistic with the existing operations. So the most obvious thing is brownfield because if a hospital is full, it makes more sense to add capacity and they can augment an existing -- preexisting infrastructure at relatively little cost. The thing that will come after that is greenfield, but then the way we would look at that is greenfield in the same city. If, for example, opportunity comes for us in places we are best known, let's say, Bangalore and Kolkata, it will make more sense for us to go into that. But even in that, it would have to be very synergistic with our existing infrastructure. So something that is available closed by, something that is available in a very complementary fashion or a part of the town where we believe the market is growing. Those are the things we will take up. But again, that is always second fiddle to the brownfield expansion, which the opportunities are there and we will be adding capacity to our existing units as and when they start to fill up. The last part is on inorganic. Those come few and far between, and there are many kinds of inorganics. There are the ones which are privately held, trust-run nonprofit where we signed O&M agreements. There are some that are completely just management contract based, and there are some, of course, that you have to pay decent money to acquire. The first 3, the ones that are available to us at relatively low cost, we keep pursuing, and here and there, we sign up and they take their own time to do it. It's very hard to plan in advance that I'm exactly going to add 500 beds in Delhi over the next 3 years. That's completely inorganic. That's hard to do. The opportunities, no doubt exist, but you'll have to overpay for those beds if they have to meet your profitability criteria. So instead, we will take it up in a more opportunistic fashion. But for the last part in the inorganic acquisitions, they have to be close by. They have to add something very important to our units, and that's how we'd look at it. But yes, there is definitely, over the next 3 to 5 years, a combination of consolidation where in our existing network, we will be training some low-yielding departments and low-yielding beds and adding more high-yielding beds, improving infrastructure as well as for few, not all, but for few of the cities we operate, for adding more capacity to take care of our patients.
Sure, Viren. That's extremely helpful. Just a follow-up to that, are you looking at any other opportunities like outside of India, beyond Cayman?
Yes, in the Caribbean region, there are opportunities we are pursuing. For example, we currently have a contract in St. Lucia for running the government hospital. We are talking with them to see if they'd be interested in having us run the hospital for a longer period of time. There are other Caribbean islands we're looking at. But these things, it just takes a lot of time for us to do. And the North American region is something that's more of a long-term interest for us, which we will evaluate as and when these opportunities start to come about for us. We had this opportunity in Bangladesh for running the cardiac center, but there were a lot of challenges in running that. And so if you weight the time and profitability and the amount of management attention it would take against other opportunities that present themselves, it wasn't really working out for us. And that's why we decided not to renew our contract there.
If we can move to [ Jalak ].
Sir, firstly, yes, congrats on the good set of numbers. But my first question would be, what is your occupancy rate on the quarterly basis, like the quarter 3 of December '21?
Debangshu?
Yes, it would be around 53% at a consolidated basis, at an India level that is. And separately, Cayman was around 52 or 55-odd percentage, it was for the Cayman business.
Okay. So sir, this is basically on your operational beds, correct? Or the 6,000 [indiscernible]...
Yes -- no. No, this is on my census beds. All occupancies reported by the industry is on census bed.
I'll take it on the capacity is basically 6,800. Out of which your census beds were it is?
No. So census beds typically are the revenue-generating beds, as understood by the industry. In our parlance, we -- those are the beds, excluding beds like emergency, day care, post-op recovery and so on and so forth. So it's a subset of the operational beds. As a thumb rule basis, while the different hospitals, the basis how proficient and how important a daycare program they are running would have different numbers of census beds as a percentage of the operational beds. But at a very general guide -- I mean thumb rule basis, if I were to give you an indication, it would be like around 85% of your total operational beds is roughly your census beds.
Okay. So your 85% is census and your next, the 5% is your -- the next 15% is your noncensus bed, correct?
Yes, roughly. That is the split of the total operational beds.
Okay. And this occupancy is on my census bed. That is...
Yes.
My -- yes, okay. So I'll take 6,100 into 85% and induce 52%, which you gave me, the India basis. Correct?
At a very indicative level.
Yes, yes, yes. Sure. And sir, my next question was, on a quarterly basis, if you see a specialty profile, the [indiscernible] cardiac sciences have increased to 35%, which was 22% in quarter 1, correct?
Yes. [ Jalak ], go on.
Yes. So sir, as per my -- well like just a question on this. Is the margins high in your cardiac sciences as compared to other specialty profile?
Typically, yes. I mean it depends on what that cardiac specialty is replacing it with -- but on a very aggregate basis, if you see my other specialties, if it comes down -- when I say others, other than the top 6, you -- basis -- cardiology procedures, typically, we will see higher profitability in this particular modality.
Yes. So sir, if my cardiac science -- the profile mix has increased along with an increase with my international patient, so but -- sir, if you see your average revenue per patient, which was 1 lakh 25,000 in quarter and reduced to 1 lakh 9,000 in quarter 3. Sir, any specific reason to this?
That would be the COVID impact, right, Debangshu?
Yes.
Quarter 3?
No, Q1, we had a lot of coverage emissions. So these people come in and they have a huge amount of medical [indiscernible]...
Sorry to interrupt, but your COVID -- during your quarter 1, your -- the mix would be in others, right? Your mix is in cardiac science, the 35%, which has in 22% to 35%, that is increase in cardiac science. So your -- the -- as you said, your profitability and your number would also be high in cardiac science, correct? The chargeability to the patients?
I am a little. Debangshu, are you able to...
No, sorry, I didn't get the question. What is the question? [ Jalak ], if you could repeat.
Sir, my -- yes, I'll repeat my question is in your specialty profile, it -- which was in cardiac sciences there -- cardiac science was 22% in quarter 1, which has increased 35% in quarter 3. Correct?
Yes.
As mentioned by you, is -- it has a higher profitability margin. So -- and another thing, your international patients have also increased from quarter 1 to quarter 3. But if I see my average revenue per patient of the inpatient, that has come down to 1 lakh 9,000, which was 1 lakh [ 26,000 ] in quarter 1. So any specific reason of my ARPP coming down?
So first of all, I mean, this has got to do with the denominator part. So increasingly, we have done a lot of other procedures in medical procedures and other procedures which probably would -- I mean, other than the revenue part, it would have a dilutive impact on the ARPP workings. That is what -- yes. So you should look -- the discharges have gone up significantly for the period that you are comparing against.
Okay. So this -- number the number of increase in my IP, the denominator, that is the only reason, correct?
True.
Okay. And sir, last question. My -- the Cayman OP has decreased from quarter 1 to quarter 3. So it was...
OP would have -- OP -- ARPP would have gone up.
Yes, yes, ARPP would go up because my OP has reduced. My denominator is reduced and hence, my ARPP is going up. correct?
Okay. You're referring to footfalls, OP footfall when you say it has reduced.
Yes. So any specific reason to that?
That's the seasonality. This is -- Q3 is end of year. That includes Christmas time where most people are on vacation, including our doctors and the patients as well. The most people generally try not to schedule doctor's appointments around that time. That, and the impact of COVID on the islands. Early on, the island was in full lockdown. And over the past couple of months, they've been opening up slowly. And so it's -- because this is a population not been exposed to COVID at all. So it spread very quickly over there. And so people are more completely locked into their houses and not moving around a lot. So that led to reduced footfalls.
Yes. And sir, one more question. Sir, as you mentioned, your occupancy percentage is roughly around 52% right now. So what is like any target or any peak occupancy that you can guide? And in the times like in -- like 1 year or how much time would it take to reach the peak occupancy?
See, one of the things we've been trying very hard for the past 3 years is to move our industry away from occupancy because hospital occupancy is not like hotel occupancy, where you stay in the bed and then you leave the thing. For us, our constraints are the ICU, the OT, the doctor availability, all of those. So those are constraining factors. Even though we may show, for example, in our flagship center, 65% occupancy. Overall, that will be the availability of general ward and the large number of beds there. But in the OT capacity on the ICU, that will be completely full. And so what we would have to do is addressing the occupancy number more by reconfiguring the beds to put it more in line with the patient flow and the length of stay and so on. So that's it, we're trying to move towards ARPP and those are the metrics that give a more -- a better indication of forward momentum for our business rather than just blindly filling our beds.
Yes, an increase with the IP -- along with the increase in IP and OP, correct?
Yes.
We can proceed to Harith.
So my first question is on the new hospitals. Can you comment a bit about what is happening at the 3 new hospitals? Especially the Delhi NCR cluster? We've seen a lower EBITDA compared to the second quarter. And if you could also comment about the competitive intensity in this region, quite a few of your competitors have announced bed addition plans yet. So how do we see the improvement from here in the 2 hospitals in Delhi NCR?
So I'll take the question on the EBITDA, and then I'll hand over to Viren on the competitive intensity. So as far as there are 2 hospitals: Dharamshila and Gurugram, I think in Dharamshila, we have started generating positive EBITDA. We have seen a slight decline in Gurugram, but that's the effect of the Q2 to Q3 seasonality. We are confident that Gurugram is starting to turn around the negative EBITDA that we are having is a small number, and we can cross that. So I think in a matter of 6 to 9 months' time, I think we should be able to turn around Gurugram also into a positive EBITDA number. And from there, we can build on. I'll hand over to Viren.
Yes. It is a competitive market. And I would say Gurugram being some of the most contested real estate for health care in the country, we may not be able to match the quantum of investment that are made by some of the hospitals that have announced massive investments in Gurugram, but we can do the best we can with what we have while keeping a lot of the fundamentals in place. So in Gurugram, for example, our hospital has scaled up well, and we expect sometime next year for it to reach a full proper breakeven. It did breakeven for a few months during COVID and as the thing normalized, went back, but it's nearly there. The kind of investments we would look at for Delhi, given that, for us at least, it's still relatively new. Because anything less than 10 years is closer to being new. For them, the kind of investments we will make would be on bed additions to the existing infrastructure, something close by or reconfiguring their setup. Only when it is completely, completely full, like in Kolkata or Raipur, for example, would we then look at proper bed additions.
Okay. That's helpful. Just a clarification on the Cayman hospital-related question that was asked previously. The loss increase that we're seeing on a quarter-on-quarter basis is on account of higher volumes of -- from COVID. Is that understanding correct?
Debangshu?
Not necessarily, Harith. There has been generally an increase in long-stay patient in Cayman. It has got to do with our observation, particularly in a couple of cases like general medicine and neurologic department in particular as well as a few [ elevated ] cases in particular that we did a couple of them in the last quarter, which generally resulted in a higher length of stay across these select procedures, which ultimately, given the comparatively lower base of total discharges that we do, resulted in the higher loss for this quarter over previous months. We can go to Sameer Baisiwala.
Can you talk about the sort of a brownfield expansion that you are planning over the next 1 to 2 years for India?
The -- we'll be setting up oncology centers in -- radiation oncology centers in Ahmedabad and Jaipur, those we had announced. We will be adding some bed capacity in our Howrah Hospital in Ahmedabad. We have bought up some nearby buildings for our optics unit in Kolkata, and there's a small piece of land very close to the hospital. We're looking at that, which we'll be used to setting up radiation oncology. There is an opportunity for us to get a landlord to build an OPD plaza next door to our main Health City in Bangalore, that will be on a rental basis. So investment there will be less and we'll be using that to move a lot of the nonclinical admin and certain amount of registration OPD over there. Other than that, Dharamshila, were in discussions with the partner for adding a few beds in bone marrow and ICU. Gurugram if we get permission from the development -- the Haryana Development Authority, we can add 2 more floors there. That will come up. Mysore, we will be adding 30 beds on private and semi-private rooms. Shimoga, we'll be adding radiation oncology. Yes, I mean, basically, what you're looking at is the only every hospital we have, with the exception of Guwahati and Jamshedpur, we'll be doing some combination of capacity addition and oncology.
So that's quite a handful, Viren. So you think all of this will get done in the next, say, 2 years? And the sort of bed that get added is what 300, 400 bed capacity?
No, no, no, not even close. We are all -- most of these are 20-, 30-bed additions and they're just reconfiguring and onco -- radiation [ unit ] doesn't add any beds. The 300, 400 one that we're working on, and we'll present something more comprehensive in the next quarter.
Okay. Okay. We look forward to that. The second question is a quick clarification. The one-off EBITDA contribution that you talked about, Sandhya, was last -- in 2Q, not being here. Was it St. Lucia?
So there were 2 aspects. One was St. Lucia, which we spoke about in our previous earnings call. We also had a unit in Whitefield which got closed down and we were working on getting a refund of our deposits. So that came through as well. So that was another about INR 6 crores. So that was the other one-off in the last quarter results.
Okay. And St. Lucia, if I remember correct, was INR 21.5 crores or so. So what was its contribution in 3Q?
Correct. So St. Lucia, we have many moving parts in terms of the work that is happening there. So in quarter 3, we have not taken any revenue from St. Lucia. We take it as and when we have a greater certainty of how the revenue is getting accrued to us.
Okay. Got it. The other question is for ARPOB here in the India business. I think we see all the clusters, by and large, have seen a sequential 2Q to 3Q decline anywhere from 6% to 10%. So what's really driving this?
Debangshu, you want to answer that?
Yes. This is a -- Sameer, in line with the general seasonality impact that we have talked about in -- right from our opening remarks. So as we see across the board, there has been a general dip in revenues and a lot of the high-end procedures are typically deferred within -- I mean and people do not feel comfortable planning those in this elective -- I mean the festival season. That's the reason you would see Q3 over Q2 every year, our revenue dip are accompanied by an ARPOB dip, accompanied by a margin and the profitability dip. That's true of almost all our units this time around, but for Health City, which actually picked up the momentum given a relatively underperformance in the previous quarter, unlike all our other hospitals. So that's the reason. It has -- the other hospitals, Q3 over Q2 sequentially is in line with what you would expect of any Q3 over Q2 across the board that you would see even previously with our hospitals.
Okay. No, that's very clear.
And Sameer, sorry to clarify just one point on your previous thing itself. On an overall basis, if you are looking at a sequential comparison, and I thought I will just clarify that. So the net movement in St. Lucia has been INR 21.5 crores positive gain recognized in last quarter with additional INR 2 crores of loss that -- I mean for the expense and since Sandhya mentioned, we have not decided to accrue any revenue this quarter. So the net impact was INR 23-odd crores.And additional impact of, as Sandhya mentioned, around INR 6 crores for the Whitefield write-back of provision and there is an incremental INR 2.5 crores towards the vaccine contribution that was there in the previous quarter, which related to this quarter is not there. So on a net basis, if you see at an aggregate basis, while I have reported almost similar kind of an EBITDA at aggregate number of around INR 181 crores, but actually, net of this, there has been a INR 30.5-odd crore of increase across my [indiscernible] Cayman operations sequentially speaking, which is almost equally split between India and the Cayman [indiscernible]...
Very helpful and shows a very solid performance. So good work done there. Just when -- in line with [ Jalak's ] earlier line of questioning on the occupancy, et cetera. So I guess the question that's there in our mind is how much volume growth can the current network of operating beds support going forward? I just want some qualitative color. Is it good enough to take you next 2, 3 years? Longer? Shorter? Before you really are tight with capacity?
If I do nothing without investing in the infrastructure, I would say, still about 2, 3 years, we can manage. Just through a little bit of efficiency optimization by scheduling surgeries more intelligently, by getting more people in the ICU and converting a few beds with the -- so doing nothing, I think we are still 2, 3 years we can sustain. But that's a little bit unsustainable because then the infrastructure really starts to degrade, and doctors get a little demoralized when they're not seeing enough beds being added to take care of the demand or not enough refurbishment being put into the private patients who they want to convert. So the one -- and there's 3 kinds. One is the sort of bare minimum thing, what we have been doing during this pandemic, where we really haven't spent much and just reconfiguring a few places; the next part is this brownfield thing, what I said, 20, 30 beds per hospital, adding certain clinical departments; and the last part is adding properly. Like an additional wing, adding 100 beds at a go, adding a new annex or a building block what so on. So those are the things we have to do in a staggered manner to keep driving for optimal utilization of our facilities and increasing both the yields, the ARPOB and EBITDA, obviously.
Okay. This is very helpful. One final question, if I may. I see the -- you have detailed pretty high-end surgeries in sort of a Tier 2 markets like Raipur, Guwahati and Ahmedabad. Is there anything to read into this? Or do you think it's business as usual? Read into it as in, much high-end stuff is moving from metros to even smaller cities and towns and what it means for your business?
I'll ask Dr. Rupert to address this one.
Yes. So we have been putting together a clinical team, which have the capability for doing this along with the support structures in both chemical and infrastructure. And we have seen with the pandemic, people tend to -- wanting to get everything done in the same places. They don't generally go, unless it is a very quarternary kind of a work. So a lot of tertiary work is becoming routine even in these kinds of cities. So we have been constantly working on that. And going forward also, we will be seeing a lot of these procedures happening in these places.
Okay. That's great. And is it the doctors traveling from metros to these? Or are these the doctor talent, which is already there in the smaller cities?
No -- yes. So we have -- in certain places where we've seen that we need to augment the talent, we have augmented them. And where we need to have doctors upgrading their skills, we have done that over the period of last 2, 3 years. And we also have this hub-and-spoke model. So for very high-end work, we do have people from the folks went from the spokes -- I mean from the hubs willing to support them and they can go there and work with them. So it is a combination of multiple things which will constantly see the spectrum of clinical work increasing in all our cities.
I do see a reraised hand from [ Ranvir ] as well. I'm not sure, [ Ranvir ] you want to ask another question. Anyone else? [ Ranvir ], do you want to ask any other questions?I also see a raised hand from [ Jalak ]. Anyone else? I'm not sure. [ Jalak ], do you want -- do you have any follow-up questions?
Yes. Yes, sir. Sir, I just want one clarity, just understanding -- as you said that your -- this OT occupiers at full capacity. Correct? So sir, I just wanted to know that current reasons that is occupied at full capacity? So how can we debottleneck like in the current hospitals that you have? Because if your capacity is fully occupied, then how can we increase the surgeries in the year or in the quarter? Hello?
Yes. No, so I'll try and answer this and Dr. Rupert can pitch in.
Yes.
This is, see, an OT operate generally 18 hours a day. But you can operate for longer, and in some places, they do. But then the constraint for the OT is the ICU, right? And again, depending on the time of year, depending on -- especially during COVID with people staying much longer, that tends to be a constraint as well as there's a reverse feedback also in that, which is when the ICU is full, the OTs will actually start to reduce their throughput. Because the doctor sees that oh, if I operate, then there may not be a bed for the patient to be managed. So a lot of work that we're doing in increasing the capacity utilization is reducing the number of very large format general at beds, reconfirming them as semi-private rooms, that's freeing up other areas that can be converted into ICU areas. And so that will -- not by a lot, but in few places shrink a number of beds, but make the -- it will increase the throughput because then people are able to get processed in and out much faster because the interest rate comes down in that [indiscernible]...
There is one more thing which we have been talking to you about the technology part of the apps called the AADI, the Aatma Insights -- Doctor Insights. So these are all tools which the doctors will be able to use to constantly keep a watch on patients wherever they are with respect to whether they're in the ICUs or a step-down ICU or in the wards. So these are some of the things which we -- in addition to all the things which Viren has explained, these are some of the tools which we use to increase the throughput in various areas and move patients from one area to another. And thereby, enabling us to do more procedures wherever we have this infrastructure. Wherever we are not able to increase the efficiencies and move things further, that is when we keep adding more infrastructure, and we've added a couple of OTs in our flagship in our [indiscernible] and things like that. But then -- and wherever we have a shell like in the Health City, we are recouping them and increasing the capacity for us to do more.
Okay. Understood. And sir, just last thing, you -- as mentioned by you that you're adding 500 beds in the next 3 years. So this will be in your current hospitals or new areas? And second thing, are -- these would be more towards your ICU? Or your general?
No. So we haven't -- we're still working on a plan that will allow us to get to capacity addition, and this will be over the next 5 years. And it will be a combination of all of the above. So that's why I said, once we get a lot more clarity from -- internally wants to discuss with our Board and get approval and phase it all out, then we'll be able to more accurately explain what is going where.
I see a question from [ Prashant ].
So just a couple of questions. I missed the early part of the call. So just apologies in cases has been addressed already. So at your Bangaluru facility where you've seen significant Q-o-Q growth, how far would you say you are from normalization? Are you already now at normal levels? Or do you think there is some more room here to get to where you were, say, prepandemic? And both in terms of revenue margins, but also in terms of patient profile. So say, the out-of-city patients, international patients, et cetera?
Rupert?
Yes. We have been constantly working on the patients coming into our flagship hospital in Health City, Bangalore by trying and mobilize -- I mean trying and getting patients within a 30-kilometer -- 30, 35-kilometer radius. So we've seen a lot of traction in these in certain specialties. But then in the cardiac hospital, it's always at a pan-India kind of network of people coming from all across the country for very high-end work. And with the COVID easing out in quarter 3, we have seen a lot of this moment of patients coming from regions of the country. That has got impacted in January, but as and when -- so this all depends. It's directly proportional to the COVID in various other regions, in addition to the actual -- the COVID effect in Bangalore. So when we see that -- when we have a little bit of an ease on that, we will see all the patients coming back because there's a lot of pent-up demand of people for very high-end tertiary and quarternary work, which they've been postponing, and they will keep coming back to us for all this kind of work. And also in other specialties also, we've seen a lot of movement in the vicinity of 30, 35 kilometers. We have seen a lot of patients moving into the hospital for various procedures. In addition to the people coming in from other regions.
Right. And just one more question. Just wanted your thoughts on your -- so how should we think about your effective tax rate for this year and say the next 2 years?
So for India, it will be 35% because we have still not moved to 25% tax regime. And Cayman, as you know, we do not pay tax. So that will be the -- depending on the mix, how we finish. That will be our tax rate for the current year. We still have some carryforward losses, as I explained earlier. So therefore, until we are able to complete that cycle, we will not be able to move to the 25% tax regime. And so I think this is what will be the outlook for now. As we go forward and we are able to move on this, we can share more information.
Just to clarify on that, Prashant. I mean effective tax rate will be lower than this because we do have the benefit of the carryforward loss that Sandhya just mentioned. And a good portion of our consolidated PBT now is tax-free coming from Cayman. So effective tax rate will broadly be in line with what you are seeing. But yes, as India business picks up further, the taxability possibly as a percentage of the book PBT over book PAT will also increase slightly. [ Ranvir ], do you have any follow-up question? I see a raised hand from your side.
Yes, sir. I can -- partially, my question has been answered. Just again, the question was related to sustainability of the growth we have seen in this quarter. So basically, in Bangalore cluster, pre-COVID level we used to see some 40% contributions from this center. Currently, we have 35%. So that 35% can we expect going to again to 40% in the next few quarters?
Say that there's been an impact because of this January Omicron wave. So Q4, the last quarter was generally the strongest quarter. Unfortunately, got impacted because a lot of our doctors, a lot of our nurses had got infected, despite being vaccinated and some of them had boosters also. So it led to a lot of cancellations as well as because of the Omicron, a lot of patients also voluntarily postponed their elective procedures. We are hoping that a lot of that will recover soon and we're seeing very strong recovery in February. Hopefully, that momentum is able to sustain in February and March as well, in which case, we should be getting back. But this is one quarter, unfortunately, that we'll be looking a little moderated like the rest. And once -- let's hope that the COVID is faster -- or even if there are further with that it won't be as deadly as what it was in the Delta wave. In which case, then I think we should be -- we have a lot of the fundamentals to keep growing, and a lot of the things that we have done in terms of our bed mix, in terms of putting the technology and in terms of our surgery and ICU work, we should be able to keep delivering decent amount of growth combined with a lot of the capacity addition and the oncology practice we'll be doing.
Yes. So the context was that in first quarter -- in this quarter, initial part of the quarter, there might have some pent-up demand also in elective surgery basically into the third quarter, Omicron might have affected. So net to net, I wanted to understand that this is a sustainable base currently in most of segment? Or we can see either a specialty mix changing going forward significantly? Or footfall in any of these clusters are going to increase or decrease? That's what I wanted to understand.
Sure. The only big swing you'll notice will be because of the January effect because of Omicron, but I'm assuming that this is the last major wave, in which case, it should reach to historical numbers in terms of the case mix percentages and the ALOS. The ARPOB would -- because of a lot of work we've done has increased from the historic norms, and we believe it should sustain in that side.
I think we can take one last question from Nitin Agarwal.
I think we alluded to that a little earlier. So what should we assume would be roughly your ICU occupancy right now in the system? And with the measure that you're taking to increase ICU capacity across various hospitals, roughly by what percentage do we think our ICU capacity will increase over the next 2, 3 years with the -- as a consequence of a brownfield expansion that you are taking?
Rupert, do you want to take this, the percentage occupancy and...
Yes. Percentage, see the ICUs is just clumped together as a broad category called ICU. But they are actually split across things like surgical ICUs and neurosurgical ICUs and cardiac ICUs and the pediatric ICUs and the medical ICUs. So if you really look at it, the cardiac -- the procedure-related ICUs is directly proportional to the procedures that we do. The occupancy will be directly proportional to that. The more the procedures you do, the more the occupancies that will happen in those things, and we work on significantly in the efficiency to -- so that the -- it doesn't become a bottleneck in the number of procedures that we took. While the medical ICUs are all generally a little longer stay patients, because these are all very chronically ill and very elderly people, and these are all -- they stay for a longer time. And this is also -- this is more or less a steady state throughout the year, irrespective of what happens. That kind of an ICU will always remain and have an occupancy which is high. So depending upon the hospital to hospital and the kind of community that we serve, generally, these guys use -- have occupancies in excess of 80%, 85% occupancies. While the procedural ICUs have very high occupancies in different days of the week, depending upon the kind of procedures that we do.
And sir, are there any particular hospitals in the network where this -- the procedural ICU availability has been a constraint for you to grow or to for these procedures?
No. I mean that is something which the leadership and the clinical leadership constantly monitor on a day-to-day basis, and that is when we plan much ahead of time and see the requirement and keep moving it ahead of time and do that. And for things like 100% of our beds have oxygen beds. And so technically, we can convert any area into an ICU if need be. So in the peak of the COVID an doing Delta, we were just able to convert many of our beds into so that we can cater to the critically ill. So it's just a matter of conversion of that. But procedural ICUs, you can't just put the patient after procedure in any area because you can't subject them to the risk of infections and things like that. So that is something which we scale up in a very carefully manner. And we keep monitoring the kind of procedures that are being done and the scale of that and we keep opening up new areas as -- wherever it is possible. So that is where we took. And we increased the efficiency in run so that we are able to move patients from one area to another in a very timely manner.
Okay. And Debangshu, from the CapEx perspective, I think you put out a pretty large number at the start of the year for the next couple of years. I mean how are we progressing on that? And any rethink on the CapEx number for the domestic business?
Sandhya? Do you want to just...
So I think we put out about INR 250 crores at the beginning of the year. Maybe we will be -- maybe we lend slightly over INR 200 for the current year. As far as the next couple of years is concerned, like Viren explained a lot of brownfield opportunities. And the way these opportunities get timed so that will consume a significant chunk of the CapEx. The second is the -- some of the work that we had started in terms of redesigning remodeling that's underway, and those are approved CapExs the spends are in progress. So those will continue. So.Some of the flow over that has not got consumed in the current year will get consumed. And thirdly, because we are opportunistically looking at greenfield opportunities, and if some good greenfield opportunity comes up, then that will be a big CapEx number. So that's why I'm not putting out like a number out there saying this INR 100 crores we will do because that depends on the -- some of it is opportunistic in nature. But we will continue to look for expansion on the brownfields basis as we can time them and we will continue on our existing CapEx part and complete the projects that we are currently under -- have undertaken.
If I can just a last one. Viren, you talked about other opportunities in the Caymans. In your assessment, in the whole region for us, barring what you've got going in the Cayman Islands. At what point in time do we -- will we able to create another strong sort of business geography in that region?
There are very -- unfortunately, the Caribbean area is pretty large, but there are very few places that have the same characteristics as the Cayman Islands, which is the combination of a very high income population, very business-friendly enabling environment. And there are not being many providers of health care available as well as their openness to allowing us to come in with our doctors. So we are in touch with a lot of the major countries over there, and there are different opportunities at different places. So for some, we are running information centers. In other places, we're running an outreach center, where our doctors come see patients and go back. For others, we have partnerships with other hospitals where our doctors will go do surgeries and come back, but all with the idea that eventually we want to create a presence in that space. But it won't be the same. It won't be as relatively straightforward is what we did in Cayman. And that's why we are trying to do it in a more measured pace, smaller investments, seeing how it goes and then taking a much larger plan [indiscernible]. So St. Lucia, for example, could have either been an opportunity for us to do what we're doing now, which is a consultancy contract, or one in which you take the plunge and invest $1,800 million in investment, and maybe it works out, maybe it doesn't. We're trying to be a little more careful with all these things, and so that's why we opted for the more conservative one. Once we're confident, then we may look at investing some more money there. But for right now, this is how we're looking at this.
Thanks, Nitin. I guess with that, we will end up or wrap up today's session. Thanks again, everyone, for your active participation in today's session. We look forward to such interactions in the future as well. Thank you.
Thank you.