Narayana Hrudayalaya Ltd
NSE:NH
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Narayana Hrudayalaya Ltd
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On behalf of the company, I welcome you all to our Q4 FY '19 earnings call. To discuss our performance outlook and to address your queries today, we have with us Dr. Emmanuel Rupert, our Group CEO; Mr. Viren Shetty, our Group COO; Mr. Kesavan Venugopalan, our Group CFO; and Ashish Sukhija alongside myself from the team. I'm sure you have gone through our investor collateral which have been uploaded on our website as well as on the stock exchanges. 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 that is being said on this call that reflects any outlook for the future, or which can be construed as a forward-looking statement, must be viewed in conjunction with the uncertainties and the risks that they face. 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, in case you have any further questions, please do feel free to get in touch with us.With that, I would now like to hand over the call to Dr. Rupert.
Good afternoon, everybody. In the fiscal year 2019, we continue to deploy significant efforts and resources to overcome the regulatory concerns that have affected this industry for the last few years. Our current emphasis has been on consolidating the existing hospital operations as well as upgrading our services to offer advanced quaternary care. Adding in a strong performance from our overseas facilities, we are pleased to deliver over 25% growth in our consolidated revenues, resulting in over 30% increase in our consolidated EBITDA for the last year. Our Indian operations registered over 14% increase year-on-year during the quarter. This was led by our flagship Narayana Institute of Cardiac Sciences and the Mazumdar Shaw multispecialty hospital in Health City Bangalore, which grew at around 12% in the same period. Our new units at Mumbai and NCR Delhi continued to witness healthy patient footfall and will set the stage for your company's growth trajectory in the years to come. The NH SRCC Children's Hospital in Mumbai now runs the second largest pediatric cardiac surgical program in Maharashtra. The Narayana Superspeciality Hospital at Gurugram performed over 900 surgeries, including 1 liver and 1 kidney transplant in the first full year of operation. Dharamshila Narayana Superspeciality Hospital in Delhi performed 22 bone marrow transplants, 21 renal transplants in the fiscal year 2019.Moving on to profitability. Adjusting for the losses for -- of the 3 new units across NCR and Mumbai, our Indian operations posted an EBITDA margin of 14.4% during the quarter 4 of FY '19, as against 11.6% in quarter 4 of FY '18. This translated -- translates to an adjusted EBITDA margin of 13.4% for the FY '19. From 31st March 2019, our units at HSR Bangalore, Whitefield Bangalore and Guwahati have also joined the mature bucket, which has delivered healthy EBITDA margins of over [ 21% ] for the last fiscal. Together with the 3 flagship facilities, they have registered an impressive 29% EBITDA margin for the same period. We're also happy to note that our facilities at Ahmedabad, Jamshedpur and Guwahati combined have turned from red to green in the last fiscal and achieved a cumulative EBITDA movement of INR 8.4 crores in FY '19 over the FY '18. One of the highlights of the year was the performance of our Health City Cayman Islands unit, which recently celebrated its fifth anniversary. The Cayman Islands unit revenues grew by over 35% in the fourth quarter, resulting in over 22% increase year-on-year for FY '19. This led to the unit reporting more than 100% year-on-year growth in adjusted EBITDA for the Q4 in FY '19, translating in over 58% year-on-year growth in adjusted EBITDA for the whole year. Our Caribbean operations benefit from tremendous operating leverage, and we remain confident about their potential to significantly deliver profitability and cash flows over the long term.On to the operations. Patient discharges across Indian units went up by over 9% year-on-year to 2.6 lakhs in 2019 while the average length of stay came down from 4.2 days last year to 3.9 days in FY '19. Our focus on shifting the case mix to advanced quaternary care, along with focus on the specialities such as oncology, with increased footfall from international patients, has resulted in over 12% year-on-year increase in ARPOB for the Indian operations. The clinical highlights. We completed the first year of our new liver transplant program and we performed 18 liver transplants across our hospitals in Bangalore, Gurugram and Kolkata. NH has now emerged as the leading player in organ transplant space, having completed 19 heart transplants, 198 bone marrow transplants and 604 kidney transplants during the year. Mazumdar Shaw Medical Centre in Bangalore completed 1,000 bone marrow transplants since its inception. This is the first facility in Karnataka to attain such a distinction. The NH SRCC Children's Hospital Mumbai recently commissioned a state-of-the-art pediatric bone marrow transplant department and successfully performed over 10 bone marrow transplants during the last 6 months. They also successfully performed endoscopic [ data setting ] of the spinal cord and is 1 of the 7 surgeries reported in the world, and this was one of the first ones performed in India. The Narayana Institute of Cardiac Sciences in Bangalore performed a double lung transplant, and with novel techniques like this, the cardiac center has become a leading center for heart and lung transplants. The cardiac center also performed the first Interventional Fontan Completion, a very hybrid technique of -- which has reduced number of stage procedures for this condition, from 3 to 1, to treat this complex congenital heart disease. Looking ahead, the management of NH will focus on further optimization of our operations across the network to maximize value for its stakeholders. With patient well-being at our core, we are committed to driving excellence across the clinical spectrum, and we will strive to make high-quality health care accessible to all.Thank you.
The floor is now open for any questions that you guys might have.
[Operator Instructions] We have our first question from the line of Ashish Kumar from Infinity Alternatives.
Congratulations to all of you for a good set of numbers. What I was interested to understand was the outlook for the going -- for the coming year. Is it a fair way to assume that the current numbers -- last quarter run rate can be used as a base for the next year? Or do you expect anything -- and any negative surprises on the numbers from this year?
Ashish, thanks for the question. It's tough for us to -- obviously, we don't give the forecast. But it's also very difficult to take a quarter's results and extrapolate that to the future. Now this has been a very good quarter for us, and we have seen strong growth in the past month. And from whatever numbers we're seeing, we remain very confident in doing well. But having said that, there is a lot that is yet to be accounted for. One is that we're still in the process of doing -- making a lot of changes to cope with a couple of the regulatory things that have been happening recently. One of the key activities we're being involved with currently is a price restructuring. There is a chance that the government may cap the trade margins on all consumables and all drugs, and in response to that, we will have to start shifting that to our pricing for services. Now this thing cannot happen overnight. It's not easy for us to immediately transfer whatever margin you have from one bucket and move it to the other. There will always be payers who will negotiate with one at a time, and certain cash categories, let's say, general ward, may not want to absorb the full cost upfront. So this is a sort of thing that we transmitted gradually over the year, and so that, definitely will-- we expect may have some margin impact as and when that starts to happen.The other things that -- the units that do well. Of course, there's a lot of fluctuation over the year. As you know, there's a seasonality in our numbers, some months with giving a lot of -- since we have a lot of international patients, months that have Ramzan in it are much worse than months that don't have festive season. So yes. While we do remain confident that the growth will be good this year, we cannot comment that you can just take this quarter and multiply it by 4 and come to an annual EBITDA.
And then -- so I was trying to figure out if there are any specific one-timers which were there in this quarter, other than the fact that the business momentum was good. Was there any specific one-time [ strap ] which happened this quarter historically?
It's not one-time. I mean, we just -- a lot of the units that were loss-making moved into black, and so we have a lot less impact from those. We had a good quarter in Cayman, but then, again, Cayman has been doing very well quarter-on-quarter. Yes, I don't -- I wouldn't say that anything in particular. We also do a lot -- sorry, a huge number of transplant procedures, and that's something we have highlighted in the investor call from earlier -- and Dr. Rupert's notes from earlier. So those are very high-value procedures. But then, again, is to be expected because we built up a large team and these are the cases that were lined up, and we have a lot of cases lined up in future also. But yes, nothing that's a one-off.
[Operator Instructions] The next question is from the line of [ Chirag Patel ] From [ Bowish Investments ].
Congratulations for the good set of numbers.
Thanks, [ Chirag. ]
Sir, I have a few questions. First one is on ordinary debt that we see as of this 31st March, and we mentioned that the net debt is around [ 7 1 3 ] this year, right? And...
Yes, that's the net debt. Yes.
Yes, net debt. So going forward, how we will going to pay this debt, a plan with respect to that? And any further guidance on borrowing because in [indiscernible] permission at all? So is there any specific plan for borrowing upcoming financial, let's say, in FY '20 or in '21 or even in FY '22 also?
Yes. See, there is a guideline now that says that around 20% of your new borrowing should be in NCD. We -- while the, I would say, the evolution of this sort of requirement which will correspond to our maturity cycle is little difficult in the NCD market at this point of time. But however, based on the law, I think, we would possibly consider some of our borrowings this year in NCDs and we are in, possibly, talks with some of the institutions to get this done during the year. The quantum might be not a very material quantum. I think we should see something around anywhere between 30 crores to 50 crores on the NCD side. And the total borrowing, in my view, would not exceed around 100 crores, or 110 crores more than the current year.
Okay, sir. And any interest rate guidance on the stretch borrowing which you're going to take in this FY '20 or '21 might be?
I can only tell you the -- we have around $57 million of USD-denominated debt. Other than that, all of them are Indian rupee debt. The -- I'm not able to give you an interest rate guidance because, like every quarter, it is subject to RBA and other interventions by the government. But we -- I can only tell you that we enjoy a very good banking relationship with our Indian institutions and we command a very good rate [indiscernible].
Okay, sir. And any expansion plan going forward?
For the near term, no. Nothing that we have planned in this year or the next. The only expansion is what we've already disclosed, which is a new hospital that's coming up in Chittagong in Bangladesh, where we will be running the heart center. But this is the heart center model, there's not much CapEx from our side, we are just running it on an operation and management basis.
Again, not much, but how little will be that CapEx?
No CapEx in this. This is -- it's an existing hospital. It has a cardiac center. We will just be bringing on manpower. We'll be running it and we're going to be in it, and we'll pay the owner a percentage of the revenue.
Okay, so got it. And recently, we opened your subsidiary in the U.S., right?
Yes.
So what is planning with respect to U.S. market, whether it's same like you mentioned earlier that, in Bangladesh, you're just managing heart centers? Or there also, we are going to open a hospital, or this is similar to like Bangladesh what we're doing right now?
Yes. Not really similar to what the Bangladesh model, but something along those lines. Since we have this hospital in Cayman Islands, we've got a lot of interest from U.S. hospitals for us to come there and guide them and advise them on our management process, on our business intelligence dashboards, on things we can do to streamline their operations. So we set up this subsidiary more as a sort of consulting arm. And so on a chargeable basis, we will work with U.S. hospitals to offer a lot of the software and the BI tools we've created so that they can improve their efficiencies. We, at this point, are not looking at running or investing anything in the U.S. hospitals.
Okay. So any, internally, any, like, any assumptions should be based on revenue with respect to U.S. market or are there -- apart from Indian market like Bangladesh, Cayman and U.S.A.? Like, let's say, we want to earn like 20% or 30% annual revenue in the next 5 years from this overseas market or any such assumptions should be, internally.
Next 5 years is very difficult to build a model for that because we are also just exploring the market. And the size of these contracts what we take is not very material. It's in the range of a few hundred thousand dollars. So it's not -- once it becomes something, once we are sure that this is something that is sustainable and we'll keep doing, then, of course, we will inform the investors and make the appropriate guidance on the same. But for now, it's not something that you should put in your spreadsheets.
Okay. So like with -- we opened subsidiary before, 4 or 5 months in the U.S., right? So any tie-up have happened or any kind of agreement we entered with any local hospital over there?
Those terms are still under discussion, but nothing that's been finalized yet.
So any material finalization not yet happened, right?
No, no. Nothing that we have disclosed or nothing that's yet to be disclosed.
Okay, sir. And in which geography we are trying for in U.S.? I mean, which province we are trying to tie up with hospitals in U.S.A., particularly?
These are smaller hospitals in the Midwest, but it's not tough -- again, like it's still something that's been developed, not anything material yet.
No, I'm asking from area locality point of view, like, let's say, New York or any relationships.
No, there have been -- nothing else. But yes, it's not that. Nothing to disclose on that yet.
Okay, sir. And...
And [ Mr. Patel ], I'm trying to interrupt...
[ Chirag ], may we request you that you limit your follow-up questions so that others can ask their questions. And if there are any questions left, you can definitely come back and ask your questions at a later period.
Okay, sir. Thank you.
The next question is from the line of Tushar Sarda from Athena Investments.
What is your occupancy, please?
Occupancy for?
For the hospitals?
The overall group occupancy, around 58%.
Group occupancy and then cluster-wise also, if you can give me.
Tushar, as you have noticed that we have discontinued the practice of reporting occupancies for a very specific reason which we have elaborated in detail in our past interactions as well. What we have realized that with increasing or advancement in technologies and the clinical spectrum of work that we are focusing upon, occupancies as a metric to report in the manner and form that the industry used to is losing a lot of relevance. And that's the reason that you would have seen that across the board in our investor collateral, we have started out reporting discharges. Just so that you are not confused with the previous reporting, we are, for the moment, also reporting the [ e-loss ] figures that you are able to calculate the occupancies for a brief period of time. But increasingly -- I mean, going forward, we would -- we have discontinued the practice of reporting occupancies and our reporting of discharges, and that goes in line with our overall theme of decrease our focus in the [ e-loss ] of all the specialities resulting in occupancies becoming more and more irrelevant as a metric to track upon.
Okay. And can you also give a little color on profitability of these high-end procedures like transplant? How does it compare to your normal procedures?
We can't -- okay, so just to give you a sense...
Is it more profitable? How much -- you cannot give specific numbers, but just some little ideas to...
No, I'll tell you. So you take the example of a liver transplant, let's say. This is the price, depending on the complication and so on, can be anywhere from 20 lakhs to 40 lakhs. If you compare the average realization of the cardiac procedures, it's more like 1 lakhs to 2 lakhs. So it is orders of magnitude much higher. Now when you start out the program, it's not very profitable because your doctors and team is still new so the consumption is very high. But they spend a year going at it and they become quite proficient in doing these things very well. Similarly, kidney transplants can anywhere from 8 lakhs to 15 lakhs. So these are just very high ticket, high revenue items, and of course, high margins.
Okay. And what is this as percentage of your revenue?
Transplant, as a percentage of the revenue, is not that significant now. But what it does is when you combine a bunch of them in a quarter, it has a disproportionate effect on the numbers for the hospital that's doing them. The other problem, that is, there are only 4 hospitals we have in the network that are transplant-worthy because these things need a license to operate, they need to have the doctors who are trained, and you need to have the OTs that are equipped for it. So 4 out of the overall network hospitals. So the overall volume will be still small compared to the total number of surgeries we do.
Okay. And the other question, you mentioned that the government may cap the prices of consumables -- or the margins on the consumables, right? So what are the margins that we'll have on consumables? And what impact would it have on your operations?
Yes, just to clarify on that, we said the government might cap the margins on consumables and drugs. This is something that we read in Times of India or Economic Times or one of those papers. So it's something that we anticipate may happen. As for what the margins that we have right now, it's, obviously, it's more than that. As to how much more, these are the sort of things that come into fevered speculation. If you recall that during a lot of the [Foreign Language] around these cases in the hospitals in Delhi, where they said they were changing 1,000% margin on gloves, 800% margins on syringe and so on. Alternatively, you're talking about INR 2 items being sold at INR 5 or INR 10. So it's not -- just optically, these numbers look pretty high.
The next question is from the line of Nitin Agarwal from IDFC Securities.
Sir, on the performance of the existing hospitals, there has been a pretty marked improvement, even outside of the Cayman business. So if you can probably just take us through, a, on Cayman, what has been the major driver of profitability and revenue growth for the year? And for the India business also, while the new -- I mean, while the mature hospitals clearly seem to have done extremely well through the year, have there been any specific action steps that you've taken which are bearing fruit? And how should we look at incremental profitability growth from these businesses going -- in these hospitals going forward?
Sure. So the first part of your question was anything specific in Cayman. Nothing specific. This is basically a good quarter's worth. This was the postholiday season where a lot of the procedures were scheduled. This is a multi-elective driven hospital. We don't get a lot of emergency cases there. So a lot of cases were posted and the doctors were available to do all of them. So that essentially what has driven the Cayman business. The other part of your question, what are the actions and steps that we've take to sort of achieve this, it's -- I mean, I don't know if I'll be saying anything new. You've been part of all the investor conferences before. We spoke about how we're overhauling all the operations, how we're consolidating and streamlining, how we're investing in high-quality clinical talent. We're able to do bone marrow transplant, organ transplant, robotic surgery and so on. These are high-yielding, high ARPOB procedures. We've made some Investments in high-end medical equipment also to be able to do that. And yes, the other one is the Ahmedabad and Jamshedpur hospitals, in particular, which were historic cash guzzlers, have become very profitable, and -- not very profitable, but they've become profitable and it's not being a sort of drain anymore. Yes, I can't say that there's any sort of a magic button that we pushed to achieve this.
Okay. And then, going forward, would you see -- still scope to further enhance the profitability across the network especially in India? Or I mean -- and what would be the major -- I mean -- and then, the drivers essentially is still going to be still more profitability growth coming from a larger preexisting hospitals? Or is there incremental more profit contribution coming from the -- I mean, from some of these hospitals that you've turned around?
A bit of both. The larger hospitals, of course, because they are the ones who are able to do more of the higher-end procedure. More that we're able to fill up the bone marrow transplant in operating rooms. The higher increase that will come from there. So we see a lot of scope in RTIICS, Mazumdar Shaw and the cardiac hospital in Bangalore. As regards the rest of them, on Barasat, Mumbai, Jaipur -- oh, sorry. Raipur, for example, is one we're investing in a large cancer unit there. So Raipur, we see a lot of growth coming. That's something that will be inaugurated later this year, and that will unlock both radiation therapy as well as onco surgery. As regards Shimoga, Mysore, Jamshedpur, Ahmedabad and Jaipur, it's, I would say, just a normal course. They are -- they're getting new equipment, they're upgrading. Things should move in a positive direction for them. Only Ahmedabad is a bit capacity constrained. Their occupancy is pretty high right now. So over there, we may take a call to add more beds in the existing structure. So that may require a bit of investment, but that will come in the next FY, nothing this year.
And lastly, what is overall thoughts on incremental capacity expansion? We're not -- you said that there's nothing on the table right now. But I mean, how are we looking at, at what stage do we start evaluating capacity utilization incrementally now?
Yes, we wouldn't acquire new hospitals or go into new geographies or open up in the same city but a different location. But what we will do, for example, our Westbank Hospital in Calcutta, this is the one in Howrah, that has been doing extremely well and they are running out of capacity. So for that we will add a couple more floors which can add ICU beds, operating rooms, and that will deliver growth. So that is -- this it's just an add-on to the existing building. It doesn't come at too high a cost. Similarly, our Dharamshila building also has scope to go up higher. There, we may add -- this is done by the partners as they will make a lot of the investment. That will happen sometime next year. Raipur, as I said anyway, their trust that we're partnering with is adding the oncology unit. So we just put in the medical equipment and be good to go. So it's just sort of incremental CapEx through the existing network. It wouldn't add too much to bed count, nor would it be too much on the greenfield side.
[Operator Instructions] The next question is from Bhagwan Chaudhary from Sunidhi Securities.
Sir, can you please highlight something regarding this Mumbai, Delhi and Jammu hospitals? When do you think to break even these hospitals and how they are doing currently? What has been the performance over the period?
Yes, so on the Jammu hospital, breakeven is not the issue because we get viability gap funding for that. As per the report that we've made to the board, we don't see it breaking even in the next 1 or 2 years given the difficulties of operating in that state. But the trust has promised to keep supporting us for as long as we are there. And so for Jammu, it would not be too much of an issue. As regards the 2 Delhi hospitals, Gurgaon is still brand new. The growth has been phenomenal there. We're seeing a lot of traction from international patients, but it still has a long ways to go. It just launched last year. We're just putting up the radiation unit now. Normal trajectory that we expect for these hospitals, as we've indicated earlier, is around 30, 36 months or beyond. As regard to the Dharamshila Hospital, this is something that we have made a lot of changes upfront. It was a hospital that was just about breakeven. But when we came, we had made additional investments in manpower, infrastructure and so on, so it went a little into the negative, but it's something that should break even pretty soon because we're seeing a lot of growth there. SRCC, again, this is a greenfield hospital. A lot of the investment was made by the trust there, but again, this should follow the normal trajectory of the hospital, as we had indicated earlier.
So it may take another 1.5 years to break even?
It may take a little more given that it's on the pediatric side. So these -- it's a center of excellence. So what happens is that the cost that you incur on manpower, on your consumables is much higher, and your reimbursements are a little lower. So it may take a little longer but not significantly -- it won't take like twice as long as it normally is, but it should be a little more than the 3 years that we normally expect.
Got it. So the second question is on regulatory, if I heard, as you've mentioned, that government may cap certain consumables. So in your business, do you think the consumables contribute big to your top line or profitability which can impact [indiscernible]?
Not the profitability, but it's a huge component of our operating expenses. And so especially what happens is the way you provide the bill for the patient, let's say you take an IV bag, the cost of IV bag itself may not be much. We buy it in huge quantities. But the real effort in the IV bag is for the nurse to come pick it up from the box, hook it up to the stand, put it in the cannula and make sure it's monitored. Now you can't really get a cost header for that. So in the end, it's charged to the patient bill as IV charges. Now when the government says to just cap how much you are allowed to charge for IV fluid, then you just need to shift all of that into the next bucket which is nurse charges or infusion charge or something. These are things that were never there in the bill before. And so that's essentially how we think about the margin that were available on products. It's not that selling products was a source of great margin, I mean, in the inpatient setting. On the outpatient setting, that's a different question all together. But it's just to account for the effort it takes to deliver those services.
Got it. And sir, lastly, one of these drug prices cap particularly on this anti-cancer side, so do you think it will have an impact on that Mazumdar hospitals where we are into this onco business?
Yes. So what happened is -- you're right for -- onco is a large part of our business, but it's not more than 10%, which chemotherapy is a small portion of the overall onco business, which is mostly driven by radiation and surgery. So it -- when they change the prices on onco drugs, it definitely has an impact but not an outsized impact at that sense. And like I said earlier, we had anticipated that these sorts of things would have happened, and so we have changed the pricing mix to accommodate for that.
The next question is from the line of Aadesh Mehta from Ambit Capital.
Sir, congratulations on a good set of number. Sir, what we are seeing -- sir, are you planning to raise more debt?
Yes. I think apart from the necessary CapEx requirements which possibly, in some cases, need to be funded by borrowing, we don't look for any major -- any placement of debt.
Okay. But then I understand that you actually have no CapEx plan. So this would be for equipment or maintenance CapEx?
It will be a normal routine upgrade and, meaning, development CapEx what we need to spend to upgrade the current set of equipment. And second thing is then to replace certain, let's say, equipments which are near the end of the cycle.
So for example, in Jaipur, the building is being built by the trust that we are partnered with, but the linear accelerator, that's the investment we need to make. So while we may not have the building CapEx, we will have to invest in the medical equipment for that. We keep upgrading our operating rooms, keep upgrading MRIs and CT scans. That's part of the normal course of business.
Got it. Got it. The other thing I'm seeing is that for both SRCC and Dharamshila, our revenues are broadly -- they have stagnated over the last 3 quarters. So when can we see the next inflection point? And what is limiting the revenues from these hospitals to grow further?
I don't think there's been stagnation in Dharamshila. I mean by stagnation, you say it's not been sufficient?
It's broadly 25 crores, 26 crores for the last 3 quarters.
Debangshu will get back to you on that, but those are not the numbers we have. I mean the balance sheet has not been stagnating. I will take your point on SRCC, as best we can say that it's not grown to the extent that we had anticipated. Definitely, we had expected a lot more occupancy and to be a lot more -- the beds to be full by now. For SRCC, the challenge there is we -- a lot of the business that we get on pediatrics comes from these government schemes, which, in the past year, they've not really been paying. That's generally the case in the months before an election is that most of the government machinery just stops working. And so we've willfully stepped back on our -- on processing these patients who come from government payers. But now that the election's over, we should start going after this again.
Right. Right. And I see -- so I see year-on-year, your ARPOB has grown from INR 8 million to INR 9 million, which is around 12%, 13% kind of growth. On a quarter run, just 4Q-to-4Q, what could the growth have been? Because my numbers suggest it would be around 16%, 17%. Is that true?
We'll have to get back to you on that specific thing, but I think you are right on that. But I readily don't have the Q4 FY '18 number. I think you are right on that, but I'll get back to you with the specifics.
Okay, I'll take that offline.
[Operator Instructions] The next question is from the line of Sameer Baisiwala from Morgan Stanley.
A quick question on receivables. Is this any different for India versus Cayman business? I think it's around 30 days, if I'm not wrong.
So by -- you're right, Sameer. India business is around 30-odd days on a net receivables basis, while the Cayman business is around -- it's actually much higher than that. It's around 40 -- 50-odd days for Cayman business. I'll get back to you with the specifics around that. Just to -- I mean, if that helps you, it's around $8.5 million of receivables we have in Cayman, it's on a $54 million of top line.
Okay. No, this is very helpful. And do you think this is going to change materially going forward both for Cayman as well as the India operations or this is settled receivable days?
No. Sameer, I mean we would not expect any material deviations from this. You will appreciate that there has been a continuous focus on at least the Indian part that we have been trying hard to impress upon the governmental agencies from which there have been queues outstanding for blended periods of time. And there has been material improvement of -- on the receivables position over the last 12 to 18 months that you would have noticed on the Indian side. On the Cayman side, given that a lot of the logistics work out of the Indian supply chain based out of here, so I think this is pretty much settled now on both assets unless there is any material change in any of their category or their payment policies, which is not anticipated at this point of time.
Okay. Great. And just thinking about the cash flows, say for example, you have INR 300 crores of EBITDA -- consol EBITDA for this year, you back out the interest expense and taxes, so probably we'll have [ INR 300, INR 200 crores-odd. ] I don't know if this math is right. And so therefore, how much does it go into working capital versus CapEx -- versus maintenance CapEx? And therefore, any free cash flow generation that may happen going forward?
Yes, sure. So out of that -- your math is actually right on the INR 300 crores total EBITDA and INR 100 crores net -- almost INR 100 crores towards your interest and the tax servicing. So out of the INR 200-odd crores, there is net -- the increase in working capital is not very material. It's to the tune of around INR 20-odd crore. And the bulk of the other investment in CapEx is around 130-odd -- INR 150-odd crores actually, INR 140 crores to INR 150 crores. And the balance is our reduction in the net debt, which is getting reflected through the cash amount which is there on our books as of March '19 versus what we would have seen in March '18. So our net debt position has improved by INR 50-odd crores from FY '18 31st March to FY '19 31st March.
And tax deduction. How do you see this going forward?
That's a function of how the business -- the underlying businesses grow. Obviously, you would presume certain growth to the EBITDA in excess and that there should not be material change in the working capital, I think. Like Viren mentioned, we do have plans for extensive CapEx across our network, I mean, which is both in terms of our replacement and operation CapEx as well as expansion plans like what we are planning for the Westbank unit that Viren mentioned, where we are proposing to create few other flows. And then the CapEx that we are planning for coming out with a cancer unit at our Jaipur unit and so on and so forth. So a good part of this will obviously get utilized in that. Having said that, I mean, we should be in a decent position in terms of our overall cash flow management perspective as far as our budgeted expense and our budgeted earnings are concerned.
Okay. Great. One final question, with your permission, and that is on the potential price control, if any, government may bring about. So you mentioned about consumables, but are we also thinking of inpatient pharmacy?
Medicine, yes. Inpatient pharmacy, inpatient medicines are a huge portion of that. So if margin control is to be put, we expect that's where it would have the most impact. On the outpatient pharmacy, our margin is anyway in line with the market, and that is not too much of a -- that will not have too much of an impact.
And I don't know whether it's a very bad question to ask. But of the INR 300 crore EBITDA, how much consumable and medicines would probably be at risk? I would say INR 50 crores, INR 70 crores? Is that the order of magnitude we're talking about?
No, because like I said, what we're doing is we're just moving the cost buckets. So we are in the process of transferring that margin away from the medicine and towards the services.
So net-net neutral?
Yes.
It will not be neutral, Sameer, because to the extent of cash-paying patients, you are right, it might be neutral. But when you see agreements with TPAs and government institutions, it doesn't follow the cycle of price gaps, it follows the different renewal cycles of MOUs. So to that extent, you may go out on cost for some time, depending on the agreements being renewed and the -- let's say the government schemes, maybe when they are launched and when their renewals story has to come on that.
But yes, this is something we're just waiting to see what will happen. And we are preparing for it just in case it does.
[Operator Instructions] Mr. Sameer Baisiwala, you may go ahead with your question.
So just on the pricing, did you take any price increase in Q4 or even in the full year fiscal '19? And how do we think about it going forward?
We normally take the annual price increase. So in March, we have done one. What we'll be doing now going forward will be a bit of price revision. It wouldn't necessarily be an overall price increase but more of shifting from some buckets to the other. So it may go away from the pharmacy towards more of the lab or the bed charges or the ward charges and so on.
And the extent of price increase in March, can you quantify that?
It's more inflation-linked, Sameer.
Okay. And this was across all payer categories?
As I said, we have control over cash. As far as the TPA, insurance and the governments are concerned, we wait for the new revision of the schemes or the renewal of the MOUs.
So for example, government schemes, there is no refresh cycle. That has been going on steady since 2014 so that you either choose to do it or not. As regards your private insurers and the TPAs, that gets renewed every 2 years. So in Karnataka, we are renewing it; whereas in Delhi and Bombay, we just entered those agreements, so they won't be changed for the next 2 years.
Okay. And when you just renewed them, did you get a better pricing? Or...
In Karnataka, we're still in discussions. We're in the process of doing that right now.
But in others you mentioned that you just did.
In Delhi and Mumbai, yes, we got out our -- it goes as per the current rate. So whatever your rack rates are, you negotiate on the basis of that, and you give a discount to that, let's say, 5%, 8%, 10% on your list price.
Okay. But sorry to persist on this. So versus your earlier contracted rates 2 years back versus the latest renewable, what -- can we build in 2 years of inflation-linked growth? Is that the way to think about it?
In rack rates, we also move around it.
Sameer, not necessarily that you can factor in an increase because there are various factors. Government price cap announcement, the sentiment of the government to deal with, let us say, the health care pricing, all would become factors when a TPA negotiates with the health care operator. So we expect all the 3 factors when -- let's say, when we renew this agreement.
That's one part of it. But if you are using this to help you decide on the movement of ARPOB, the much bigger factor for ARPOB movement is the changing case mix. And since we are going towards more high-yielding, high-realization procedures, that again becomes a difficult thing to do because these procedures don't happen that often, but when they do, several orders of magnitude, it changes the average ARPOB in a month.
The next question is from Tanush Mehta from Dalal & Broacha.
Sir, what are the source of the other income in the current year -- current quarter?
It's primarily the write-back of our earlier provision, the liabilities that is no longer required.
Okay. Sir, secondly, in the previous quarters, [ quality ] and discounts and we'll be centralizing our inventory. And with that, there is some cost cutting in our expenses. So where have we reached so far in that?
Yes, I think from a [ placing ] perspective, I think this -- predominantly, we monitor this from a central business unit. And I think these initiatives are possibly consolidated over a period of last 4 to 5 years. And consistently, we have improved our, let's say, consumption in our -- as you would've seen the profit and loss. As far as the further, let us say, monitoring and operations are concerned, I think this is a very continuous process, and I think we deal with this on a day-to-day basis. With regard to, let us say, which unit should have what optimal level of stock control and what they should stock and depending on the patient flow and the doctors. This is a continuous process. This is not a -- meaning, it is a [ considerate process and lets it allow to continue and we will monitor. ]
Okay. And sir, my third question would be that this quarter, we had a share of profit. So it was mainly on account of the [indiscernible] Jaipur Hospital that now become profitable. And can we see that same going in the future quarter as well?
Are you referring to the associate share of profit?
Yes. Yes.
So see, this is predominantly on account of we have invested in a company which does some patient-related automation in terms of diagnosis and care. So I think the performance of this unit, we consider it as an associate share and [ loss ] of profit. All our hospitals are 100% owned by us, and hence, there is no -- this does not get reflected in our share of profit or loss.
Okay. And sir, my fourth question is that with the new lease accounting standard that's come effective from 1st April, sir, how do we see any changes in your books with that?
See, there will be, I would say, a little significant amount moving in some lease to, let's say, debt as per the -- meaning you'd have to possibly capitalize that [ fixed ] asset and deal with that as a liability. And this on an outset, meaning on an outright basis, you will -- you might have a lot of explanations to do with the banks and the credit rating agencies how we deal with it and how do we disclose it. So that business is being treated appropriately for our further borrowings and savings.
The next question is from the line of Harith Ahamed from Spark Capital.
Can you share your thinking on the M&A front? Are you evaluating other facilities aggressively? Or have you put on hold all M&A activities until you kind of break even at the new hospitals? And can you also comment a bit on the valuations that you're seeing out there on the M&A front? Have the valuations kind of cooled off in line with what's happening with the listed players?
As per our M&A strategy, we've definitely cooled off on that front. We have nothing planned both from an acquisitions side. The things that we would be considering are very small strategic plays, mostly around heart centers or, for example, in Cayman, our doctors are doing operations in other hospitals. And at some point, they may be asked to run the P&L of a heart center in another hospital. But these are not sort of lab -- acquisitions per se, and these don't require any use or deployment of capital from our side. To the second question you asked, what do we think about valuations. At least, from what we've been seeing, valuation in the private sector, a couple of deals that have happened are still, I would say, richly priced. On the public sector valuation, I'd say you guys are the best judges of that. And yes, so I mean this is essentially...
And the second question is on Cayman hospitals. So you've ended the year quite strongly at roughly 24% margins there. And so how should we think of a steady-state EBITDA margin at this asset? Do we see more scope for improvement from these levels?
Yes, there is scope for increase. Cayman is -- sorry, I forgot to mention, Cayman is the one other place that we are investing in radiation oncology center. So that is a project that we'll be starting construction this year. I think we've mentioned it in the last call also. So we are sort of stabilizing on the procedures that are done with the existing specialty mix, and investing on oncology will just take us to that next level. We have a large medical oncology practice in Cayman right now, but we've always missed out on onco surgery and radiation oncology. So with the investment in this LINAC, we will be able to see a lot more growth coming from that. So that is a 1.5 year project. And once it gets commissioned, you should expect that -- our next wave of growth coming from that. In the meantime, we are doing work on other islands, so some -- not very meaningful but some contribution would definitely be coming from there.
Thank you very much. That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.
Thank you all for taking your time out to participate in our investor call today. Like I mentioned at the outset, should you guys have any further queries, please feel free to touch base with us at any point of time, and we'll be very happy to address any and all of your queries going forward. Thanks once again for participating out here. Thank you.
Thank you very much.