Narayana Hrudayalaya Ltd
NSE:NH
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Narayana Hrudayalaya Ltd
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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 4 as well as the annual FY '22 earnings call of the company.
To discuss our performance and address all your queries, today, we also have with us Mr. Viren Shetty, our Vice Chairman; Dr. Emmanuel Rupert, our CEO and MD; Ms. Sandhya, our CFO; and Durga Prasad from the team. 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 further 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 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 before our initial public offer in late 2015 and subsequent annual reports on our website. Post the call, in case you have any further queries, please do feel free to get in touch with us.
With that, I would now like to hand over the call to Dr. Rupert.
Thank you, Debangshu, and good afternoon to everyone. Having surpassed the pre-COVID highs of profitability for the first time post the onset of the pandemic, in the previous quarter, after the gradual recovery witnessed post the second wave, our Indian operations were significantly impacted during quarter 4 FY '22 due to the third wave brought about by Omicron-induced disruptions. While this result in a quarter-on-quarter sequential decline in our Indian operations, we are pleased to have ended the year on a strong footing with the recovery witnessed in the month of March 2022.
On a consolidated basis, we delivered an EBITDA of INR 1,848 million at margins of 19.6% growing at 23.3% on a year-on-year basis, with a PAT of INR 690 million in quarter 4 FY '22. With this for the fiscal 2022, we have reported reconsolidated EBITDA of INR 6,881 million at margins of 18.6%, while the PAT was INR 3,421 million at a margin of 9.2%. Thus, we are pleased to have delivered our highest ever consolidated revenues and EBITDA.
Overall, despite the severe challenges faced during the year gone by, we are pleased to have made a strong comeback post bearing the severe impact of COVID in the previous fiscal and having further fortified our balance sheet and continued to maintain a strong liquidity profile with INR 5.4 billion of gross borrowings as against consolidated cash and liquid investments of over INR 3.0 billion as on 31st March 2022, along with the consolidated return on average equity employed of over 26% for the period FY '22.
With COVID-19 business contributing increasingly from 1.5% to 4.7% in quarter 4 over quarter 3 of FY '22, our Indian business adjusted for vaccine revenue grew at 6.1% on a year-on-year basis, though we registered a drop of 3.3% on the quarter-to-quarter basis for quarter 4 over quarter 3 period for the first time, as quarter 4 is seasonally the strongest for domestic operations.
As expected for the quarter -- quarter 4 FY '22, there was a sequential drop in the contribution of cardiac sciences domain to 34.3%. That is -- stood at 30.7% for FY '22, and the international patient group to 4.6% and 3.7% for FY '22 of the total operating revenues. The set of 3 flagship hospitals registered an EBITDA margin adjusted for vaccine business of 26.9% in quarter 4 FY '22, thus closing the fiscal FY '22 at 23.1% despite the significant impact of the second wave in the first quarter, followed by the gradual recovery thereafter. Separately, the other hospitals, excluding the 3 new hospitals in Jammu closed the fiscal 2022, delivering an EBITDA margin of 17.1% adjusted for vaccine business, despite the sequential drop to 15.4% in the quarter 4 FY '22, having anchored the business recovery and revival for most parts of last couple of years having delivered an EBITDA margin of 19%, adjusted for vaccine business in quarter 2 FY '22, surpassing the pre-COVID highs of 18% in quarter 2 FY '20.
Separately, despite the effects of the multiple disruptions witnessed during the last couple of years, progressing well on the growth trajectory, our 3 new hospitals as a group reduced the EBITDA loss to INR 167 million in FY '22 as compared to INR 424 million in the previous year and INR 574 million in the pre-COVID FY '20 period. Our hospital in Cayman Islands continued to deliver strong, consistent performance and closed the FY '22 a USD 91.9 million in operating revenues, with quarter 4 FY '22 being USD 24.4 million and thereby, USD 39.7 million EBITDA for the fiscal 2022 and having delivered USD 10.4 million EBITDA in quarter 4 FY '22.
Separately, our hospital management project in St. Lucia contributed to INR 132 million to the group's EBITDA during the quarter, and thus for the fiscal '22, reported an EBITDA of INR 374 million, thus reinforcing our confidence in this regional business emerging as a strong pillar of our future growth with the ongoing expansion at Cayman Islands.
Keeping all our financial numbers aside, what we are very proud of is our continued dominance in advanced quaternary care in the country. In our cardiac hospital in Bangalore, we performed 754 cardiac surgeries in the month of March 2022. Just to put this in the perspective, even in the Western nations, unit is considered a very busy unit if they do approximately 250 cases in a year. And even in our own country, most busy units rarely do more than 500 to 600 cases in a year. And we are doing approximately 754 cases in a single month. So this is the scale to which the cardiac hospital in Bangalore performs the kind of the quaternary work in this region.
We also performed 63 bone marrow transplants in the last quarter in Bangalore alone in the flagship hospital. Our Dharamshila unit was the first unit globally to implement what is called as the total body irradiation technique on a new kind of a linear accelerator machine, which is a low energy kind of a machine called the Halcyon. Our hospitals in Jammu and Kashmir was the first in the union territory to perform the leadless pacemaker implant, which is a new technology and a flagship hospital in Kolkata, the Rabindranath Tagore Hospital performed very cutting-edge image guiding therapies in Interventional Radiology and Interventional Neurology by utilizing a new technology called the cryoablation for many cancers -- small-sized cancer in very difficult to reach areas.
Being able to successfully deliver on our promise of health for all with superlative clinical outlets is what gives us immense satisfaction. One area where we have done a lot of work, but we have reported very little is on the ESG front during the quarter gone by. We achieved a net carbon reduction equivalent of 4,406 tonne through various energy optimization activities like using alternative energy, upgrade or replace -- replacement of equipment adopted across the network.
This year, you will see us bringing to your attention all the work we are doing in the ESG space. Overall, as you are aware, the fiscal 2022 started out building upon the slow recovery of the business post the onset of the pandemic-induced disruptions in March 2020. But the momentum generated in our Indian operations in the fiscal quarter of FY '21 got significantly derailed with the second wave induced massive disruptions as was witnessed in quarter 1 FY '22. Subsequently, with the effects of the second wave with the pandemic subsiding, there was a gradual -- again, a gradual recovery of business over the next few months with our Indian operations reporting record profitability during the third quarter of the fiscal surpassing the pre-COVID highs for the first time, despite that being historically a seasonally moderate period.
Unfortunately, the third Omicron wave of the pandemic, again, did impact our Indian operations during the fourth quarter. Though having recovered in the month of March '22, post the third wave, we remain hopeful that our Indian operations is well placed to sustain the business momentum notwithstanding further COVID-19-related uncertainties.
To conclude, I would like to take this opportunity to acknowledge the hard work and sacrifices of our entire workforce, particularly during this particular distressing period that all of us went through during the last 2 fiscals. A special word of appreciation for the frontline workers who demonstrated tremendous valor and selflessness by risking their lives to safeguard all of us. We shall forever be grateful for their commitment and support, which is a cornerstone of the institution and is legacy at NH that we are all proud of.
At this stage, I would like to hand over to Mr. Viren Shetty, who has now been elevated as Vice Chairman. And he has been very instrumental in leading our strong recovery post-COVID as Chief Operating Officer. Viren has been the whole-time director on the Board. And in addition, oversaw the operations as group COO since 2019 and has been leading the business operations, transformation agenda, service transformation, new initiatives, international growth and technology agenda. And is now transitioning to a larger and globally strategic role, while continuing to provide a leadership direction and strategic guidance to the allied new businesses spanning across the health care ecosystem, including all the technology initiatives of the company. Over to you, Viren.
Thanks, Dr. Rupert. So I'll take a step back and talk about the core philosophy of NH, what guides everything we've done is that we have to build a socially-responsible enterprise that makes a difference to the lives of millions of people. Everyone always tells us in health care, you should either do full charity or you should maximize your profit. But we always believe that neither option is sustainable over the long run.
Narayana Hrudayalaya has always proven that it's possible to simultaneously run a sustainable health care business, while contributing to society. These values guide our company. During the drought in 2004, Dr. Shetty realized farmers wouldn't be able to afford surgeries even at a low cost factor. He partnered with the Karnataka government to roll out the visionary Yeshasvini micro health insurance program, which laid the foundations of private sector participation in public health care, and that was a precursor to today's Ayushman program.
When we realized that private hospital participation of COVID vaccine rollout would lead to massive exploitation of desperate patients, we were the only private hospital to give vaccines at our cost price. Going forward, we'll work on many avenues of health care delivery, but our values will remain constant. We spent the past 20 years in the relentless pursuit of making high-quality health care accessible to patients from all walks of life. We've grown all over the country, being laser focused on reducing costs, increasing efficiencies in all parts of the system. And we survived the worst crisis in my living memory and it's brought us to do even more.
And one of the biggest lessons we've got is that we have to build a much larger and much more resilient business. We're going to try many different things. Some will be more successful than others, but they're all necessary for realizing Dr. Shetty's vision of building an institution that transforms the way health care is delivered across the world.
First, we'll be investing significant CapEx into our best-performing hospitals. Our largest hospitals don't even have enough capacity to handle the current patient volume. They need refurbishment and expansion. For a city like Kolkata, we don't have space to grow an existing campus, so we want to build a large greenfield hospital to handle our massive patient volumes. In other places like Bangalore and Raipur, we have space in the campus, we have space nearby, so we can expand our capacity to treat more patients. These hospitals will be massive health city that will have the best and the latest equipment that will conduct a huge number of training programs and will be the site for cutting-edge clinical research.
Second, we have to become available for patients who can't physically visit our hospitals. Today, inpatient stay in complex surgeries are a very small fraction of a normal person's health care needs. We generate 80% of our revenue from inpatient care. That percentage has to come down to 50% in the future. We'll be investing in patient care facilities -- patient-facing facilities by clinics, daycare surgery centers, online consultations and get into managed health care. The quantum of investment in this will be less but will ramp up as we scale.
Third, we'll be making large investments in our software analytics and shared services. Without exaggeration, I can confidently state that our hospital information system, ATHMA is the best in the country. Our other AADI app allows our doctors and nurses to coordinate care and monitor our patients from anywhere, 24/7. Our NH Care app is a single point of access for our patients to book appointments, view test results, store medical records, speak to doctors, get e-prescriptions. And our data analytics gives all our managers and clinicians every single bit of information they need at their fingertips. Our shared services center will enable us to remotely manage nearly all nonclinical departments from one shared location.
Finally, we will continue to invest in the international markets. We run the best hospital in the Caribbean, and we're going to build on that advantage by increasing the specialty mix in Cayman as well as growing our presence across the Caribbean and North American region. Dr. Shetty always told us that Indian companies which become world-class multinational, combine the efficiency of operating in India with a customer base in the Western world.
This is a summary of the next phase of growth for us. There are many moving parts and lots of money that needs to be invested. I'm lucky. I'm blessed with the phenomenal team of people who are committed to carrying out this vision. We will continue to build on our strength as well as build new capabilities to create more value for our stakeholders, patients and their families.
22 years ago, NH started out as a dream of hungry and passionate doctors. 14 years ago, the first set of investors believed in the dream enough to give us $100 million to scale. 6 years ago, we listed our company and allowed all of you to join us in that journey. Since listing, we've doubled our revenue expanded our EBITDA 3.5x, expanded the PAT by 17x. We're very grateful to the investor and analyst community for standing with us through this difficult journey, and we look forward to your continued support and encouragement as we begin the next phase. Now on to the questions.
[Operator Instructions] Yes, Anuj, you can go ahead with your question.
So my question is broadly on the lines of the Cayman hospital that we are running. So if you could just break up the revenue into two parts, saying what is the international revenue that comes in? And what's the local revenue from the Cayman Islands?
Anuj, we have disclosed that information on Slide 9 of our investor deck that we have uploaded. If you refer to that for FY '22, 98% of the revenues were domestic.
No, in general, like pre-COVID, how was it? And how do you see it going forward?
I think if you have noticed our annual decks on the same, we provide this information. So historically, this went up to as high as 15% to 20% international traffic, which has obviously because of COVID come down to as low as it is now.
And going forward, what -- if you could just give a guidance on the same?
I can take this one.
Viren, you want to take that? Yes. Yes.
Yes. See, right now, Cayman -- not just Cayman, the whole western world is going through another wave of some BA.4 variant of Omicron. So again, it looks like the international travel will be severely impacted. So we're not very clear how long it will take to subside, but it's been quite impacted. So not just for international patients coming in, we're finding it extremely impossible to bring our doctors and nurses into Cayman because they all need to transit to the U.S., they're not able to get the visas. There's massive backlog of visa applications. I'm sure all of you that have tried to travel will understand how difficult it's been to just do any international travel nowadays.
So for this next year also, we expect certain set of disruptions, which would mean it would be domestically focused in the near term. Hereon, the patients do come and as and when people start to normalize this sort of behavior, dial-in will start opening up and international patients [indiscernible], but it's going to take time.
Okay. And given that the population of Cayman is about 70,000-odd people, and the recent -- in the recent years and the last 5 years have already done about 4,000 surgeries. How do you see the local population and the local operations expanding? Are you -- don't you think you're a little overdependent on the local population there?
We are dependent on the local population, that's right. Because when we started out this business, we had come up with the plan that this would expand to a 2,000-bed health city dealing with patients from all over the Caribbean. Well, that never happened in the time frame that we had planned out, what we've realized that the current bed capacity that we have needs to be reconfigured to deal with the domestic patients.
While we are capturing significant market share in a lot of the major procedures that we have, there are many specialties we don't have, specifically cancer, neonatal care, obstetric delivery, a lot of the primary care specialties, E&D and so on. And those we will have to start adding to be able to capture the domestic market share on that.
Yes, you are dependent on the domestic market, but they're on an island, and this is the best option they have for getting the treatment. And now preferring us to any of their options previously, which you are going to the U.S.
Got it. So we would be expanding in all the multi specialties going forward, right?
There's just one expansion we announced, which is our expansion in the city, which is the Health City in Camana Bay. The rest of that will be more on the line clinics and primary health care centers.
Thanks, Anuj. I think we can take the next question from [ Ahmed ]. Ahmed, you can go ahead.
My question was with regards to your new hospital, our impression was that we'll end this quarter with breakeven for new hospitals, but I think it would have been impacted by Omicron wave. So do you see next quarter or next full year of breaking even in the new hospitals?
Yes. This is Sandhya here. So if you look at 2 out of our 3 hospitals, they are almost impact Q4, they had seen breakeven numbers. Only the third hospital has -- is yet to break even, but we have significantly come down on our loss profile in those hospitals. So therefore, we are optimistic that it is just a matter of a few quarters that we will be able to break even in all of these hospitals.
The other aspect that I want to bring to your attention is that these hospitals are in markets which are high ARPOB market. And therefore, it's just the volumes that have to pick up and come to that level that we will be able to break even. So I -- we don't see a big challenge in these hospitals. It may take a few quarters, but we will get there.
Okay. Got it. Just one question on the tax rate. So this quarter the tax rate was very high, but I understand the full year it will be odd 35% for the domestic business and 0 for Cayman business. So is this a right understanding for the next year, we will have India business, 35% tax rate?
Yes. So this quarter, the tax rates were higher because we repatriated the dividend from Cayman and therefore, we paid tax on that dividend. Our tax rate is 35%, but we also have carryforward losses that we continue to set off. So therefore, if you actually calculate the cash tax that we pay, our effective rates be lower.
We still have some carryforward losses to set off next year. Therefore, we will continue on the 35% regime. Obviously, the effective number will be lower. But we will continue on the 35% regime at least for another year until all our losses are set off. And then after that, we have to move to new regime.
So just one thing on the exchange filing regarding results, doesn't include the detailed cash flow statement. So I just wanted a number, what was the cash tax we paid this year?
It will be -- yes, go ahead, Debangshu.
Yes. Sorry Sandhya, the number is around INR 67 crores consolidated basis for the whole year. Thanks, Ahmed. I think we can take the next question from Sameer Baisiwala. Sameer, you can go ahead.
Viren, just following up on your opening remarks. I think it was quite heartening. You highlighted four key focus areas. So can you give us some more granularity, some more details on item #1, which is greenfield, brownfield, large CapEx expansion plan? And item #4, which is expansion into the international markets?
Yes. Sameer, the expansion now -- right now, our best-performing hospitals are also our oldest performing -- oldest hospital, namely Bangalore and Kolkata. And they are maxed out in ICU beds, in cap lab capacity, in OPD rooms, if you visit any of them, there's barely any space to breathe during the peak hours. What we've been trying here and there are these little efficiencies that you can get by moving to online appointment by reconfiguring the bed mix, by making small minor changes here and there, but it's no longer enough to sustain the momentum of our revenue growth. We simply need to add more beds to be able to capitalize on the existing patient base as well as build up on that momentum to keep increasing the number of patients who come there. So that's the simple math repeats that you need space there.
Bangalore has space. So in the Health City, we would add new infrastructure, our cardiac building. We are planning to add an expansion there, both for the OPD as well as for inpatient cap lab procedure rooms. It may not add too many beds to this. It will be a lot more on procedural rooms, on outpatient rooms in those sorts of areas. We're also looking at acquiring one space nearby, which we'll then use for getting into other multi-specialty work. That's for Bangalore.
For Kolkata, we've been trying for many, many years to -- we managed to buy tiny, tiny plots of land from shopkeepers and areas just around the hospital. But at best, we're able to do certain OPD and radiology rooms there. It's simply not enough to contain our ambitions for a city like Kolkata, where we are the market leader. So for that, we simply have to do what the normal course of businesses by land and put up a large number of beds there. So we've identified several parts of the plan around the city. We are negotiating with them. We'll put it up. And eventually, this will be built in phases, get to about 1,000 beds in one of the up and coming areas of the city.
But that, again, is to solidify our position in that space, and we have a huge number of patients to fill the hospital right now. We're not -- we're actually postponing cases and turning people away. In fact, there are hospitals around the periphery of our Rabindranath Tagore Hospital, whose entire business model is predicated on dealing with the excess patients that we're not able to take care of.
Raipur is the other one where again, we are doing quite well, running out of space and there in conjunction with the trustees, getting some land next door. And over there, we will be expanding where the trust will put up the building, and we will take over. We'll negotiate them on the terms of that arrangement, and we look for space nearby. The other smaller hospitals that we have all over the place, [indiscernible] the other Kolkata hospital there, there's enough sufficient brownfield capacity over there and expansions over there are more along the lines of adding departments like oncology services, adding a larger ER, changing the whole fees and those will be on the normal course of doing. So that is how we're looking at the near term.
There are certain inorganics that we're looking at, certain hospitals under liquidation zone, but those come with relatively low probability of success. So I can speak about them with a lot less confidence. The overseas one Cayman always what we have indicated, what we are adding. In addition to that, there are certain other countries in the Caribbean that's not as good as Cayman, but match Cayman, in terms of the earnings capacity and potential for us to go there and make a difference. We're in talks with all those countries, it obviously has taken a huge back step during the pandemic, and those will continue.
We did have surgical programs in 3 islands, where our doctors were going there, conducting surgeries and so on. We do have a management contract for 1 island in St. Lucia, where we're hoping we can discuss with the government about expanding that into a full-scale management agreement. Again, those are things in discussion. And at some point in the future, we would look at North America as a region, the North U.S. as a market because, one, it is the largest market of health care in the world. And we have a large number of capabilities in running hospital in that part of the world.
It would be a shame if I retire and not have at least tried out to run a hospital there using our really low-cost efficient techniques and be able to make a significant difference. The timeline for that is unclear. At this point, we are focused a lot on the Caribbean, but it's something we always have at the back of our mind.
Yes. Viren, but if you were to summarize for India, in next 3, 4 -- 3 to 4 years, what's the sort of outlay in your bed count goes up by, what, 2,000 beds? So any sort of broad framework, if you can provide for India?
Debangshu, you want to go -- you take this one?
Yes. So Sameer, it's difficult to give you a clear guidance on the number of beds or outlay over that longer time for horizon. Given what Viren said, a lot of these things, while it will be spread out over the next 3 or 4 years as you probably rightly estimated. But to give you a clear guidance, possibly for the year FY '23, we wouldn't be adding a lot many beds or when I say adding, I mean, commissioning a lot many beds because as you have understood, a lot of it will be greenfield and thereby, will take its own time in coming up in terms being constructed and thereafter being commissioned.
So for the fiscal year FY '23, there will be outlays towards the land parcel that Viren mentioned, across places that we'll be doing, as well as the acquisitions that we are eying if they were to go through successfully. But they may not be as meaningful and significant in terms of an overall bed accretion as you might think at this point of time. A lot of it will be in terms of reorienting our service orientation in terms of the offerings that we are doing and thereby transforming the business in the lines of what Viren has been guiding for some period now.
So while the outlay for this, again, possibly for this year, including the other things that we mentioned, possibly could be at north of INR 1,000 crores that we are looking at for FY '23. If you were to necessarily pin me down on a number guidance for FY '23, and that includes the CapEx guidance that we have already given for Cayman Islands for the year, [indiscernible] would be around another [ INR 50-odd million ]. So for this year, if all the things go through that we are thinking on currently, that number would possibly have an upward bias north of INR 1,000 crores for FY '23.
Okay, Debangshu. That's very helpful. And I presume this would largely be funded by internal accruals and whatever spillways through debt?
Yes.
Yes.
A combination of both. You're right.
Okay. One final question from my side, if I may. What the -- for India business, what's the outlook for fiscal '23? Just a general sense what would be the growth in the margin outlook for this year?
So Sameer, we don't guide numbers as you are aware. So we are not in a position to share a revenue or a margin outlook. But as we mentioned at the beginning of the call, there is the momentum, and we are very sure that this momentum will translate into healthy numbers. We cannot give a guidance as such.
Thanks, Sameer. I see someone called Krishna. Krishna, please, if you can go ahead with your question.
Sir, is there any -- can we expect your expansion to AP/Telangana region?
Not at this time. Our current focus is restricted to the areas where we currently operate and a lot of our capital is tied up in that. But AP and Talangana is a very competitive market. We did use to run a hospital in an asset-light model in partnership with medical college called Malla Reddy Hospital, but we exited that. But at least for the next 5 years, I can say it with confidence that the only part of this country we will be looking at are the areas we already are.
Thanks, Krishna. Anyone else? I still see only Sameer's hand being raised. No, now I see [ Kapil Marwa ]. Yes, if you could go ahead.
Sorry about that. I forgot to unmute the mic. Okay. I would just like to make a brief comment before I come to my question. And that is it was very gratifying to learn about the high volume of 750 surgeries done in a single month in your flagship hospital. Heartiest congratulations for that.
Now I will come to my question. Dr. Rupert had mentioned in the press release that you have ended the year on a strong footing with the recovery witnessed in the month of March '22. Can you please give us some indication on the trends in April and March '22?
Kapil -- yes, go ahead, Debangshu.
No, Sandhya, you please go ahead.
Kapil, thank you for that acknowledgment. And regarding our numbers in April, we are trending positive. March was -- there was a lot of pent-up demand that came into March, and it was our highest ever number. Having said that, overall, I think from a quarter point of view, we're trending positive. We are hopeful that the quarter will be like the way we are expecting. However, since we do not guide, so therefore, I'm not able to give you a definitive number.
Any other questions, Kapil?
No, I'll just remove that.
Okay. Okay. Okay. Thank you. Thanks, Kapil. Next question is from Nitin Agarwal. Nitin, you can go ahead.
Sorry if I'm just repeating the question. On the 3 new hospitals on Gurgaon, Mumbai and the Noida hospital, I mean how are we looking at these? Where are these 3 hospitals individually in their sort of the journey to becoming maybe closer -- getting closer to profitability? And how do you see this thing playing out from here on?
All at the verge of that. The Dharamshila Hospital was profitable, except during COVID. The Gurugram Hospital nearly there, maybe a couple of months more. The Bombay Hospital, though, that's the one that has been taking a little longer, given our focus only on children surgery. They're doing a couple of things there to get into delivery high-end birthing and that should help the numbers a little bit. But I think knowing more about the whole business on children's care and the way in which we operate, I don't believe that the performance of the Children's Hospital will be comparable to our best-performing flagship anytime soon.
We are in discussions with the trust to raise more funding to expand the hospital building because there's a lot of interest for doing high-end work and for donors to build real sense of excellence. So when that happens, you will see again given the ramp-up in our spend in advance of the surgery happening will again depress that. So Bombay, again, it's not losing a tonne of money for us. It's something we do as a flagship and it's something that is a good hospital to have. I mean everyone wants to be the one to say we run the best children's hospital in the country.
But in terms of the financial outlook, it's not a model that we would seek to replicate in any of our other setups. So, I would say, Delhi is on track a couple of months more, Bombay will struggle for a little bit longer.
And when you say Delhi is on track, how much -- I mean where do you see these EBITDA margins? I mean we're getting to like -- so what is the peak profitability or steady state profitability possible for these 2 hospitals? And by when do you think we can get there?
Again, usual disclosure around guidance and so on at play. They would be compatible with in terms of occupancy and the EBITDA number they could compare with the average hospital that we have. These are in the flagship size hospitals nor do they have that vintage. It will take time for them to get there. So on the margin profitability, it will be more to the same, but the thing is these guys in Delhi, you have a much higher ARPOB base. So pricing is a lot higher, the realization per patient is a lot higher, given that these are in very key markets.
So you will be able to achieve the revenue target of the middle run of our hospital that we have with a much lower occupancy numbers. So that's what we can project at least for the near term. Long run, of course, as and when these guys also perform and the hospital gets full, there is space in both hospitals, we'll add more beds. We will get more clinicians and be able to take it up to at least 400, 500 beds for both of them. But the time frame for that will not be as high a priority as it is for Bangalore and Kolkata, which we are pursuing right now, and that is the highest priority for us.
Secondly, on the new hospitals that you're putting out of the investments that we're making, typically, what sort of breakeven period typically [indiscernible] for the threshold are we working with when we are going for starting new projects? What -- how are you visualizing your CapEx?
Yes. It used to be when we started this company, we were breakeven within the first year, but more time goes, and we've noticed when we start new hospitals in new cities, it takes a lot of time for you to build up your market share, there's a lot of competition. Your costs are extremely high, patient base takes a while to materialize, so it keeps getting pushed out. 1 year became 2, became 3, became 4. Some hospitals like Ahmedabad took some 7, 8 years to breakeven. But it doesn't matter so much for these expansions. We're not treating these as greenfield. They will all be in the vicinity of an existing hospital with a very strong brand and the first batch of patients.
The way you will phase it out is that your first set of beds caters exclusively for demand that you know already exists, which is demand that we're not able to fulfill right now. So there will be a very -- a much reduced breakeven time. It may not take 3 years, it may not take 1 year either. That will be too optimistic, but it won't take as long as the Delhi and Bombay hospitals would have.
One also in -- on the Jammu Hospital, there's been a change in profitability sharp -- I mean, a number which is a INR 5 crores or number we posted for EBITDA for the quarter. Is there any change in the business? And how should we look at it going forward?
Rupert, do you want to take this one?
Yes. Viren, can I answer that question?
Yes.
Okay. So as far as the Jammu Hospital is concerned, we have indicated to the trust that we would want to not take any profitability out of the hospital. And we'd want to reinvest. We are still waiting for conformation from the Shrine Board to allow us to reinvest. And therefore, the profit has accrued. On an ongoing basis, you should treat that as a breakeven hospital. It is our intent to serve the community and that is how we look at that hospital from our point of view. So this is -- you can, for your purposes, regard this number as a onetime only.
Essentially assume, continue to assume this is a breakeven hospital?
It will continue to be a breakeven hospital. Yes.
Thanks, Nitin. Sameer, you can go on.
Yes. So the first question is on the pay mix. We have about 22% coming from scheme patients. So I mean, what part of this is contractual that's something that will stay? And which part is discretionary in the sense that if you're turning away patients in a flagship hospitals, then why not have more of high-paying patients and less of scheme patients?
Okay. Just want to make quickly clarify. I may have misspoke. We don't turn away anyone. In the end, these are all elective procedures. There's a question of scheduling. There are patients that we will schedule, which have higher priority, those who have much more pressing clinical needs. And those are the things that we used to prioritize when a person needs to come or not.
But what happens is sometimes, if you don't schedule them right now, you may lose them. And in that case, they get picked up by some other hospitals. The -- I won't -- I'll get to the thing you asked earlier, but in terms of the scheme mix and why it seems to have increased during the pandemic, that is because there just wasn't enough volume to fill up the hospital. There's a lot of uncertainty from people. We needed to keep the show going and we have to keep the hospitals busy.
And so we, as part of our commitment to society as well as that a large number of patients do come from that category, take a large number of patients under government program. But there is no sort of obligation or compulsion that you have to do. We do it because that's the kind of hospital we are. Now the mix of patients, the way in which we reconfigure the infrastructure, the things that we do when we plan out our new hospitals and the refurbishment that we do and the bed mix going to drive in semi-private. That is all done, keeping the business needs in mind, which is every hospital needs a certain level of profitability to be sustainable. And you need a certain kind of margin profile from the procedures to run very well-functioning departments.
And those changes we make based on the realities of that place. So place like Bangalore, where you get a certain profile, you'll do that. Jamshedpur, where there's a very different profile of patients, you will be taking a much larger percentage of scheme patient. So what you're seeing is the average number. There's a lot of variance in between the multiple hospitals.
Yes. Viren, if I understood you correctly, so therefore, the current 22% is not contractual. B, but however, given the business mix is likely to continue in this manner?
We -- I mean, these are -- when you average it out, roughly, yes. But then what we will do is as the year goes by, as stations come from different payer categories, as international thing opens up, we will start seeing more of those patients start to come in.
Okay. Got it. Got it. Okay. So this will change? Okay, got it.
Just to add to, Sameer, it's not a number that we actively manage, that we have to restrict schemes to this number or we have to do schemes at this number. It's not a number that we manage. We believe that we have to deliver high-quality health care to all patients who come to us. And depending on the -- the mix is sometimes also variable off, like Viren was saying, a, the location as well as the -- that particular trend or during COVID, we were taking a lot of patients -- all patients who were coming in, we were taking in. So it depends on the situation as well. So it's not a number we'll guide on, and it's not a number we manage.
The second question is on Cayman Islands. So I think you roughly made about $40 million EBITDA in fiscal '22. So roughly how much was the free cash generation over here? And I think Sandhya, you mentioned earlier that there was some dividend repatriation. So just near term, midterm, how do we see this cash that's been generated in Cayman? What would be the usage what would stay over there? What would be back to India, if you can just share some of -- some on that?
I'll let Debangshu answer the free cash flow, but I will take a minute on the strategy. We are expanding in Cayman as we have already indicated. And therefore, in the near term, the free cash flows we will generate in payment will be reinvested in Cayman.
Having said that, we will bring -- we bought a $10 million dividend this year. And at the end of every year, depending on the cash flows left, we will take the decision on how we want to repatriate. In the near term, because Cayman is an investment priority for us, so therefore, in the order of priority will be the growth in Cayman, investments in Cayman and thereafter, dividends. Debangshu, over to you on the cash flow.
Yes. Sameer, so from the $40-odd million of EBITDA that you rightly said, there is some amount of working capital that has accrued in that business. So there is a receivable that has accrued. But overall, if you look at it, I mean, even after the net working capital change before transferring of the dividend that Cayman repatriated to India, it's a good $35-odd million that has accrued to us over there before doing the CapEx and the repayment of the borrowing side, that particular entity level that we have done. So out of that $35-odd million, Cayman has transferred around $10-odd million to India and repaid the borrowings and interest of around $6.7 million and incurred a cash CapEx of around $7 million during the year-over-year.
Very clear. And just one final question from my side. And what sort of inflationary trends are you seeing in the business? And any thoughts on the price changes that you want to do or you have done both for cash patients, insurance patients? Just your thoughts on that.
So there is some pressure which we are seeing on the cost side. Having said that, we have always looked at -- first, when we have cost pressures, we look at internal efficiencies. So therefore, a significant part of our inflationary pressure, we will meet from our internal efficiencies, which are enabled by a couple of areas. One, of course, is that in scale and with our efficiency in operations and buying, we are able to deliver certain level of efficiency. Pardon me?
The second is that we are investing -- we have invested in technology in a big way. And with the best-in-class technology enablement that we have, it also helps us manage our costs more effectively and in a more efficient manner. So that is our first go-to port for countering inflation and other cost hikes and we do take price increases, but they're very small and at a local level. And we, of course, want to keep that healthy mix of delivering a good margin and at the same time, be able to keep the costs affordable for our patients.
I have no time beating around the bush. There is a lot of inflation, has been, a lot of the consumables, the salaries, all of that and as part of the price increases that we have to take will have to account for a lot of that. But more than price increase, the larger way in which we would address this is to our efficiencies and moving into high-end surgery.
Thank you, Viren. And also congratulations to you and all the very best in your new role.
Thanks, Sameer.
Thanks, Sameer. Anyone else? Any questions? Yes, Anuj, you can go ahead.
So I have another question on the ARPOB trends that have been recently. So recently, ARPOB trends in the past 3, 4 quarters have gone up. What's the management take on the sustainability of these ARPOBs? And given that we are not seeing international business, should we expect a further increase in ARPOBs going forward?
Anuj, one of the reasons why you're seeing ARPOB trend changes because of the mix change between COVID revenues and now with more non-COVID revenues and coming back to normalcy, as well as the pickup in some of our newer hospitals, which have come in at a higher ARPOB. We can say that these numbers are sustainable.
And one fact we have to be acknowledging of that, that ARPOB is not really a complete representative of the underlying price growth in the business. A lot of the volumes may not be bed dependent. So average revenue per patient, which we report out in our investor deck, is a little more representative of the underlying price trends that you can see.
Okay. And secondly, on the Gurgaon and the Delhi NCR cluster, are we -- like what's the plan of action given that other players are expanding a lot in that segment?
In fact, Viren already answered that question earlier.
Okay. I'll just go through it.
I'll just let me recap, we won't expand to the same extent that the ones who have talked about adding 2,000 beds in Delhi, 1,000 beds in Gurgaon and so on. Our priority markets are Bangalore and Kolkata. We will continue to grow this in a more moderated fashion to meet with the demands that the hospital currently has, and we'll take it in a more moderated fashion.
Thanks, Anuj. Anyone else with any query? I don't see any hands raised out here. Anyone? Yes, Gagan, you can go ahead.
Apologies if this question has already been answered. I was very late in joining the call because of other calls. What's the reason behind the tax rate in the current quarter?
Gagan, we repatriate the dividend from Cayman and because of which the tax rate has come in slightly higher.
And how should we budget for tax rate going ahead in '23?
So our average rate of tax continues to be 35% because we still have brought forward losses, which we have to set off. Now having said that, our cash tax outgo is lower because of, obviously, the brought forward losses. So you can budget at 35%.
And just to clarify, that's for the India business that Sandhya is referring to, a very good proportion of our PBT is now being contributed by our overseas business. So that obviously is not -- the Cayman business is not taxable.
Right. Thank you, Debangshu.
Second question on Cayman, what's your take on the sustainability of the Cayman ARPOB or the Cayman occupancy that we saw this year? There would have been an element of COVID there. How should we think of Cayman going ahead?
I will take this one. I had mentioned earlier this quarter, it will be a little challenged because for the past couple of months, Cayman has been going through Omicron outbreak as well as in that entire region. So there's been a lot of difficulty for us, a lot of our doctors and nurses are falling sick. And because the consulates are not processing, visa applications in time, it's been very difficult for us to get additional staff to augment the current capacity.
So near term, I would say, challenged, but not dramatically lower. But we would say that for the next couple of months will be a little challenging from an operations perspective, but it will be made up by other departments that perform. So it will just average itself out. Once the oncology thing sets up, then yes, then we expect that there will be the short-term pressure because you're getting all these new doctors in a new department. But over time, it should pick up because we already have started enrolling people for the oncology services. And as when they rolled out, this department will take off. So again, once the onco thing starts, there will be a short dip but followed by a recovery of the debt.
In the year gone by, apart from Q1 all 3 quarters, your operating margins being north of 18% and on an improving trajectory. The exit operating margin of Q4 is probably north of 18.5%. Do you see this as a sustainable trend going ahead with operating leverage helping you?
So like we -- I don't want to guide on a number, but that is the aspiration. There are -- we spoke earlier in the call about there being some one-timer effects in Q4. So Q4 is a slightly inflated performance. But then we are looking to operate in that range as we move forward as well.
And the final question from my side, occupancy for you, I mean, if you could give me the figure for the year. And over a 3-, 4-year time frame, how should we think of occupancy on your Indian and Cayman hospitals? What's optimal in India and what's optimal in Cayman? And when can you see achieving that optimal number?
Okay. Our occupancy for the year is between 50% to 55%, but I would like you to take that number with a little bit of color, which is that occupancy is the way we measure is midnight occupancy. It is not a true representative of the underlying volumes. A lot of procedures are daycare. Viren was explaining earlier that how we would expand capacity without actually expanding the number of beds necessarily. So therefore, we would look to more and more create value for patients, whether with a midnight occupying bed or through a daycare procedure.
So while I'm not guiding on occupancy, we are largely hitting our capacity in many of our flagship hospitals. So we have to debottleneck capacity, which is what we will work on. And that will create -- that will also reflect in the occupancy numbers.
I mean, I'm still not very clear because, I mean, if you look at your peer group occupancy is peak at around 75% to 80%. I don't know how occupancy is calculated. Is there any difference in how it's normally done in other hospitals? Because you're saying you're hitting your peak utilization at 50% to 55% occupancy.
Viren, you want to take that?
There is no commonly accepted standards for what constitutes a bed. We all calculate it the same as it all functionally looks the same way. But a bed in the dialysis area is different from bed in the chemotherapy area, which is different from a bed in the regular ward areas. So over the years, based on the win which we calculate this, based on NABH audits and all these things that keep coming up, we may have ended up with a lot of beds. They all treat patients, all our beds end up treating patients, but whether they get occupied in the middle of the night or whether it leads to a sort of peak time confusion in the morning, where people who are supposed to be discharged at 10:00 in the morning, they get discharged at 4:00 in the evening and people who want to get admitted come in and there are no beds available. So those are the challenges we have.
But I think all these points -- so we're just quibbling about near numbers here. It points to a larger question that you are asking, which is what room is there to grow in your existing infrastructure? While I may have beds, if I just look at the space that is available, not all beds are the same, and not all beds are the ones that I want. I have a large number of general ward beds. It may not be as necessary if we are trying to cater to patients who want to pay for a much better experience in a private room. So now we have to start refurbishing the setup to cater to that and so the bed count will go down. Similarly, a lot of the beds that we have will be in these large ICUs and so on, which you need to keep adding. And those, again, have the most amount of demand with [indiscernible] areas it would be a lot less.
So we're trying to move away from looking purely at occupancy as a metric, but the thing is it's not easy to find something good enough because the hotel industry has trained all of us to think in terms of keys and occupancy, and that's how it's easier to understand that but for our business, it's quite difficult. So when you say other hospitals are at 85%, I would say that a hospital like Bangalore, which roughly would be around 65%, 70%, it's functionally like 85% occupied hospitals because although there is space, there is no space in the sense that the bed is there, but there's no surgery capacity.
The bed may be there, but there's no ability for the patient to see the doctor on time. So that's why we'll have to start doing a lot more things to add, not bed capacity, the expansion that we're looking at over the next couple of years will not all be bed driven. A lot of it will be procedure driven, which will end up thus improving the percentage occupancy, what you see of going from 55% to 85%, let's say. But it's not a costless sort of expansion. It doesn't mean that I have beds, I can just shove people in there. And without spending any money, it goes from 85% to 55%. We do need to spend money doing other things.
Just a clarification on that, in which metric or line item will these efforts that you're making, show up frankly, if not in occupancy, if you could [indiscernible]...
Yes. On realization -- on the per person realization on the absolute number of bed days, we call out a number of base people in an ICU. We give the IPD numbers, OPD numbers. We give the realization increases if the margin, those are absolute numbers, which will give you a much better sense of how much growth is have. And then you'll have, in the end, we do disclose the number of beds that are there. So then you'll just get to see that based on that, we are able to still with the same number of beds, nearly since we listed the same number of beds that we've had, we've been able to grow our revenue by so many times.
Thanks, Gagan. With that, I guess, I would conclude our session today. Thanks, once again, all of you for your active participation just like all previous times. I had mentioned at the outset, should you guys have any follow-up queries, you do please feel free to reach out to us. We will try to address them to the best of our ability. Thanks once again.