Narayana Hrudayalaya Ltd
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Narayana Hrudayalaya Ltd
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Good afternoon, everyone. My name is Nishant Singh. I head the Investor Relations function at Narayana Hrudayalaya. I welcome you all to the quarter 4 FY '24 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; Mrs. Sandhya Jayaraman, our Group CFO; Mr. Venkatesh, our Group COO; Dr. Anesh Shetty, MD of our overseas subsidiary in Cayman; Mr. Ravi Vishwanath, CEO of NHIC and Vivek Agrawal, Senior Manager in the IR function.
We hope we have gone through the industry collaterals, which have been uploaded on the stock exchanges as well as on our website. As usual, before we proceed with the call, we would like to remind everyone that the call is being recorded, and the transcript of the same shall be made available on the website as well as on the stock exchange at the later 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.
Post the call, should you have any further queries, please do not hesitate to get in touch with us. We would like to address them to the best of our ability. With that now, I would like to hand over the call to Dr. Rupert.
Good evening, everyone. I warmly welcome you all to the quarter 4 FY '24 Earnings Call Conference of Narayana Hrudayalaya Limited. We are pleased to report the highest ever revenue and profitability margins for the financial year 2024. This was aided by improvements in realizations, payer mix and increased patient footfalls during the year. Consolidated revenue for the current quarter stood at INR 12,794 million, reflecting a growth of 4.7% year-on-year and 6.3% quarter-on-quarter.
Narayana Hrudayalaya Limited generated a consolidated EBITDA of INR 3,184 million for quarter 4 FY '24 at a margin of 24.9% against 23.8% in quarter 4 FY '23. Consolidated operating revenue for FY '24 stood at INR 50,183 million, reflecting a growth of 10.9% year-on-year with a consolidated EBITDA of INR 12,275 million at a margin of 24.5%. HCCI Cayman continues to deliver strong business performance with a quarterly revenue of USD 30.5 million, a year-on-year growth of 3.1% and a financial year revenue and EBITDA of USD 123.9 million and USD 58 million of EBITDA, respectively.
We are confident that our Caribbean business will continue to grow through strategic initiatives and investments in the coming year. The balance sheet and liquidity profile at the group level remained strong with group cash and liquid investments of over INR 12.58 billion, against gross borrowings of INR 14.41 billion, resulting in a net debt position of INR 1.84 billion as of 31st March 2024. Our net debt-to-equity ratio now stands at 0.06, giving us sufficient room to fund our expansion through a mix of borrowing and internal accruals.
We have incurred capital outlay of upwards of INR 9 billion directed towards transformation of existing hospitals, repairs and maintenance biomedical expenses and greenfield expansion projects. On the clinical front, we continue to do cutting-edge work and Health City, the cardiac hospital in Bangalore successfully performed 19 TAVIs, 19 robotic cardiac surgeries and 255 minimal invasive cardiac surgeries during the quarter and more than 1,000 minimal invasive cardiac surgeries during the year. The RN Tagore hospital in Kolkata performed a transaxillary perceval plus sutureless aortic valve replacement using central cannulation technique, one of the first in the country.
The Health City Bangalore has successfully performed more than 16 solid organ transplants and 89 robotic surgeries in the quarter. It has also performed a bone preservation surgery with a 3D printed model. It also performed ovary preservation surgery for a cancer of the ovaries. Our focus on digitization and business transformation continues to lead to significant benefits throughout the Narayana health system.
We launched a comprehensive purchase model in our Athma platform, which will streamline supply chain management operations across the group. Our nursing app called Namah was launched in India in February, resulting in savings of 5,000 person hours till date. More than 95,000 discharge summaries were certified by doctors on the AADI mobile app, helping us distance patients sooner. We have seen a 19.73% increase in lab throughput handled through our Athma LIS, the lab information system. We have also introduced patient kiosks in 3 of our hospitals in order to streamline the patient transactions. The monthly active users account for our Narayana Health app has crossed 200,000 while the app getting a rating of 4.8 on the Google Play store.
Narayana Health Integrated Care continues to perform as per our growth plan. Revenue for the quarter crossed 68 million, the highest so far with more than 43,250-patients transit. We will continue to grow this business and serve our customers with a clear focus on improving their health outcomes. We continue to upgrade our clinical and nonclinical operations across the group, transform their patient service levels, increase our throughput, build more capacity, invest in more digital patient outreach channels and improve our operational efficiencies.
We are reasonably on track on our ESG commitments and continue to focus on creating meaningful social impact in addition to pursuing our environmental goals and upholding higher standards of governance. We are simultaneously pursuing organic and inorganic growth opportunities, both in India and overseas that will derive synergies from our existing operations, maximize value for all our stakeholders while keeping a close watch on the return on capital. Thank you.
[Operator Instructions] [ Prithvi ], please go ahead.
Viren, obviously, if you look at the India business numbers for the last 2 quarters, ARPOB continues to increase at almost 10 percentage, whereas the number of discharges have been on a declining trend. And it's not -- I mean, it looks like across all the hospitals of your network, there has been a declining trend of discharges. So I just wanted to understand how do we see this? And how exactly management is thinking about this change that's happening?
I'll let Venkatesh start, and I'll add to it.
Yes. So if you look at Q4 of last year, FY '23, there was a significant upside due to post-COVID rush, which you've seen across all the sectors -- I mean, across the sector. So obviously, when we're comparing with this quarter and the quarter before, we are obviously comparing against a very high base. Plus, there are also issues in terms of our infrastructural transformations, which we are working on changing the rate contributions into private, semi-private rooms , which has reduced bed availability at peak admission types, but things will normalize once we are ready with this. And of course, even when we focus on payer segment, it has helped us improve our IP average revenue per patient to our highest level of 1.31 lakh. But we have seen some volume rationalization even there, but this will get corrected.
So while we are focusing on these 3 major areas, including the payer segments, we have seen the highest ARPP but resulted in some volume rationalization, in which it will definitely get corrected over a period of time.
So if you look at the India business revenues I mean you know earlier, it used to be at 14, 15 percentage per annum. Obviously, that's a high number, that's not sustainable. But the last 2 quarters, number of 4 to 5 percentage growth, how do we see this moving forward? I mean will it touch a high single digit or 10% kind of number? Or will it be lower at these levels?
See, I already told you when you're comparing this with this quarter, we are comparing it to the very high base of last year quarter 4. That's why it is 4.7% because it was at a higher base. But in spite of this, we have had good healthy bottom line. But of course, when it comes to the revenues, we would continue to work on our efficiencies and meaningfully utilize our existing capacities through a combination of throughput increased, payer mix, digital initiatives and try and work on double-digit revenues till our expansions kick in. We're pretty confident in terms of that.
Got it. Moving on to Cayman. It looks like even in this -- I mean, even Cayman had a weak revenue growth in this quarter, so just trying to understand, Anesh what's happening there?
Thanks for the question. So we -- as you know, we are very, very close to commissioning the new hospital, and this is perhaps the last quarter before we get started with the commissioning of the new hospital. So we will see that slowdown in the number of new services we can add or the capacity of the number of new patients we can attract given the existing challenges with the existing location with capacity and location more importantly.
But that's why we started the new expansion, and this is just a few months before commissioning the new hospital, which we are hopeful of seeing about 3 or 4 new service lines that we've never had before, and we will see the result in growth from that.
And when is the new hospital likely to get commissioned?
The inauguration will be in July. We will be treating patients soon after, hopefully, in early August, that's the goal. The inauguration is a set date because that's within our control. But when we can actually start seeing patients, there is a few weeks of uncertainty given certain inspections and compliance sign-offs that have to happen, but our aim is to start it in August.
So 1 last question on Cayman. I mean the average revenue per patient seems to have declined sharply in this quarter of from USD 35,300 to USD 29,100, any change in the case mix that happened in the quarter?
So like we suggested before, we prefer to look at longer-term trends in Cayman and not quarter-on-quarter because a few large cases can skew that. But if you see the longer-term trend, there is a slight slowdown in the average realization per patient. And this is because when we were at an annual revenue of around $70 million, $80 million, $90 million we were predominantly restricted to a few very high and high complex specialties.
But as we continue to grow, we will be getting into specialties and services where each patient yields lower, but there's decent volume and there's a viable business there. So the per patient realization will gradually come down. As we do more daycare and as we open the new hospital and we go more into short stay quick turnaround procedures this will continue. But this is not something -- this is not something we look at as a negative way. It's just a different case mix, so to say, as we grow our revenue.
Do you have any other question, please?
Good afternoon. I was looking for a little more detail on your bed expansion plans, especially in the lights from your PPT, I can see that the greenfield CapEx projection for FY '25 is pretty high at INR 1,000 crores. So where is this mostly getting invested? And if we could get a rough sense of how much -- how many beds are coming online over the next 2, 3 years and when, that would be great?
Yes. Expansion plans would be focused mainly on our centers in Bangalore and Kolkata, more so in Bangalore going ahead than Kolkata. When it comes to Bangalore plan, it includes your expansion of the existing Health City campus on the land, which is owned by us, where we will start construction of more than 3 lakh plus square feet.
And we will have a mix of rooms, ICUs, OTs, multilevel car park, state-of-the-art setup. We've also acquired land in Rajarhat. We've taken the position. We expect a 3 lakh plus square feet construction also to start up now in the next -- by the mid of the third quarter. We've also recently acquired one parcel of land in the upmarket Bangalore location for which construction should commence within the next 5 to 6 months.
We will also be -- we are also in the process of shortlisting a few more land parcels for greenfield projects in areas where we don't have presence in our focus cities. So all in all, we will have more than 8 to 10 lakh square feet of constructions coming up from the mid or to the end of third quarter. So these will be the major expansion, which will happen in the due course of time. And apart from this, there are plans for CapEx of around INR 300 crores plus in routine biomedical and maintenance, plus an additional INR 250 crores for our new Cayman facility, which is in the end stage.
So when you say 8 to 10 million square feet, do you mind translating into a number of beds?
We don't particularly want to do that equation yet because our...
The designs are still, at this point, very much being finalized right now in the split between the different departments. So it's not a final number on the total number of beds yet.
Understood. So just to get a context how many lakhs square feet is your thought of our facilities as of today?
We'd have to do a lot of math on that. The current -- no, we'd have to get back to you on that. I's hard for me to tally all of that.
I'm just trying to get -- put the size of the expansion in context. Just to extend this question. So you said the construction is set to start sometime mid to 3Q this year. So can I assume most of these beds will be coming online, say, about 2 to 3 years from now?
Closer to 3.
Yes. [ Sukanta ], can we have your question, please?
Am I audible?
Yes.
My first question is the companies have guided that the company is doing investment of INR 850 crores, so my question is does it include the investment in subsidiaries?
INR 850 crores number you've taken from the CapEx sheet in the IR deck, is it?
Not from the CapEx, it's the investment the company is doing.
See, the CapEx that we have guided was about INR 1,000 crores. We slightly understand on that. So that's probably the INR 850 crore number you're looking at. That does not include the investment in subsidiaries.
The investment in subsidiaries is the cash burn that we have shown in the P&L side. Between NHIC and NHIL, we have had a INR 12 crore of cash burn. So that's pretty much the investment if you want to look at so far.
If you're talking about this, there is a key balance sheet item of around INR 840 crores. Is that a number which you're talking about in the current investment?
Yes, I think it was INR 840 crores.
So that's the investments say, normal FDs and short-term liquid instruments, which is based out of both Cayman Islands and India. So that's our liquid investments. It's cash.
My second question is SHPL, specifically Samyat Healthcare Private Limited, a subsidiary of Narayana health care since it is applying only to the Narayana Group and please, can you help me understand what are the added benefit the company is getting by forming the subsidiaries that the company has otherwise not getting by procuring from the market?
This subsidiary helps us manage our supply chain better because we are able to optimize stock holdings between different legal entities in an effective way. So it helps us with better stock holding, and it also helps us in better tax planning between the entities because this is a full GST entity, we're able to take credit or as and when units are needing the stock, we can dispatch it on payment of tax. So that way, it also helps us manage the supply chain in a tax-efficient way.
My next set of questions are regarding the greenfield product you are coming up with [indiscernible] Kolkata. So my first question is land acquisition was for the setup. What is the land acquisition is my question.
Nishant, do you want to take it?
Yes. So for the Kolkata, we have paid upwards of INR 170 crores, INR 180 crores. So that's a number plus, say, registration cost for the Rajarhat plant which we have purchased in quarter 4.
And by what time are you expecting the breakeven for the setup?
See the construction will finish by, say, 3 years FY '28. And as for the working which we have done, we have an estimate of around third year -- between second and third year for the hospital to break even, EBITDA wise. These are set up in areas where we have a lot of confidence and the brand presence. So it won't take much time for a breakeven once we come into the facility.
And what is our capital employed for the project?
Sorry, could you repeat that?
Could you repeat the question, Sukanta, we didn't follow.
What is the capital employed for the project on the new town one?
Can we have your question again, we're not able to hear it properly.
He is saying capital employed for this project.
For Rajarhat?
Yes.
See, we have an estimate, which is for 1,000 beds, which is around maybe say, INR 1,000 crores for the next 10 years. So we don't have a split of how much it will costs in the first phase. I mean we can't give it, phase-wise.
That's the overall estimate of costs which will incur for the next 10 years.
The overall it will be 1,000 bedded project with a approx CapEx of INR 1,000 crores, which will be in phases. It may be in 2 to 3 phases at a max. But then, of course, we don't have the breakup of the total investments phase wise. We'll come back to you on that. But overall, it will be a INR 1,000 crore outlay per 1,000 bedded project.
And what is your expected capacity utilization from the first year?
We won't be able to disclose that at this time.
Okay. I understand. Can you please help me out your expected ARPU from this project? Will it be slightly better or you are expecting it to be in line with the average ARPU?
In line with our Calcutta business.
ARPU is also driven by market factors, Sukanta. So therefore, this project is going to come online after 3 years. So it will also be driven by the market realities at that point in time.
Yes. That's why I ask for your expected ARPU, it's okay but. I have another question.
Sure.
What time are you expecting it to be operational, the project?
The Rajarhat will commence by FY '28, the first phase.
We have some questions in the chat. We will address that first before we move on to the others. One is a question on Cayman, seeing a significant increase in outpatient from 7,000 to 10,000, does it translate into higher inpatient volume in the quarters to come? Anesh, if you could answer that?
Yes, sure. So increase in outpatient volumes will -- to an extent over the quarters result in higher inpatient services, but what we really are focusing on is increasing the daycare services. So endoscopies, colonoscopy, CTs, MRIs, pharma sales, all these daycare activities for us, which the new hospital is also very focused on.
And we currently classify all those kind of services, even daycare discharge surgeries under outpatient. So the increase from 7,000 to 10,000 in outpatient is something, it's very intentional, and it is on track and as per our plans, and we'll be seeing hopefully more of that with the new hospital.
Thanks. Nishant will answer the cost relating to the insurance business baked into the current quarter P&L.
Yes. See, we have mentioned in the footnote, the expenses incurred for this NHIC and NHIL businesses put together. So that's a number of around INR 11.5 crores for the 2 businesses put together. The majority of that goes towards the Cayman business.
Last question is about, we had some issues in Jaipur last quarter due to a change in the insurance procedures of the state. Venkatesh can answer. The question is, has it been solved?
So this is a work in progress, but what we have done is the unit has come a long way in replacing these medical management patients with a lot of procedure in surgical patients. The total surgical counts in this unit has gone up drastically in the last quarter. Of course, we still have regular discussions happening with the government in terms of overcoming these issues.
But when it comes to a drop of approximately INR 1.5 crores to INR 2 crores on medical management revenues, the unit has come a long way in recovering at least INR 1 crore out of that over and above the surge in the surgical specialties, the unit has shown a very good growth in top line of more than 12% and more than 40% jump in the EBITDA in the last quarter as compared to Q3.
Before we get to [ Parikshith ], just one more question that's there on the chat. The basis for calculating ARPP.
So IP ARPP is calculated by the IP revenue divided by IP discharges, and for OP, ARPP is similar, OP revenue derived by a number of OPD patients too. OP includes also includes daycare.
I see a lot of people are in the chat. We'll come back to the chat questions if we can get [ Parikshith ] because he had his hand up, if you could ask your question, please.
A few questions. You mentioned earlier in this conversation when the muted growth was brought up among various reasons, 1 of the reasons was the base comparison from last year same quarter. So how long should we assume this base -- high base impact should we continue? How many more quarters?
See, the base impact. So you're trying to ask if next year also, the numbers would be the same. And the answer for that is, it would be hard for us to project. We did have quite a lot of pent-up demand in the post-COVID years and a lot of catch-up growth that's happening.
Now the next 2, 3 years, we are in this little in between period where a lot of the infrastructure transformation, a lot of the processes have been able to deliver some of the results. There's still quite a few more that need to remain, but we're also in a massive infra ramp-up period, which means that some of our hospitals were adding more beds in the same campus.
Some of our hospitals we're adding it to the same building. And in some cities where we're fully built out, the infra will be coming in different parts of the city. So for that, we would be hiring people to match up to the same. We will be incurring a fair amount of expense in order to get those projects going. So the sort of post-COVID numbers that I think a lot of people got used to seeing from the health care industry, at least in the case of our business, we'll probably kick-in only post that.
For now, what we're trying to achieve the most is an adequate mix of payers of getting adequate utilization for the existing infrastructure and looking to see with the existing space that we have, which is quite constrained at this time, what best we can do with it. But we're always trying to prioritize sustainable profits over just plain in revenue numbers, just given that all these beds will come online in 3 years.
So hard for us to say that this sort of performance will be the new norm for the next 2, 3 years. There's still a lot more that we need to do and things that we're working on, on our entire digital transformation program. But this is the best that we can give.
Understood. So if I were to put it slightly more bluntly, we are basically currently our growth is getting bottled because of capacity constraints and not so much a demand constraint?
Well, it depends on what time period you're looking at. See, just generally, as a country, Indians are the least medicated, least likely to seek treatment, least able to afford the cost of surgery, and we're coming in with offerings that are able to cater to all price points. So in that, we don't see any shortfall of demand.
The question is the things that we need to do to attract patients, we have to do a lot more. And so hence, a huge investment from our side in outreach, in building clinics, in putting an insurance program, in building multiple points of presence across the city because while the previously -- even currently, sorry, most of our revenue comes from acute cases, people coming with really serious conditions, and that's what they end up in the hospital for.
But as we start to broad base our revenue, just what we're doing in Cayman, where we're doing a lot more day care, a lot more preventative, a lot more outpatient work. We will start reaching patients closer to where they are. So the sort of things that we have to do is different. So I wouldn't say that there is any demand slowdown. Actually there's the demand, the capacity bottleneck for the OTs that we have, for the cath lab that we have, for all the infra that's there.
But there's still a lot more we can do by coming closer to patients.
And sir, just a subsegment of that, there is also a general feeling that there is a slowdown in the consumption sector in India. I know, of course, health care is a lot more required service rather than a discretionary spend. But does that impact our industry as well?
Maybe a quarter, maybe -- we've seen so there is cyclicality during wedding season, during the rainy season, during a puja season, during any festivals. So yes, people will push out certain health care procedures by a quarter, 2 quarters at most, but not to the extent that you imagine.
And still, we are nowhere close to the saturation in demand for the population being exactly as it is. If everyone stayed the same age and Indian population never grew, still there's sufficient demand that we're seeing for the health care services. Now given the fact that we are getting older and the health care needs are constantly increasing and the population is growing. It's just 3 levers of growth that we have to risk.
At the price point that we offer. I think that will be the important caveat that we're putting out there. We're trying to be a lot more cost effective. We're trying to reach out to patients with price point they can afford.
Last question. I know that you have not been able to translate the future expansion into a number of beds. But the new Cayman Island facility, can you give us in terms of -- like currently, you have 110 beds, how much will that become?
Yes, we'll add another 60 beds to that. But I would also like to mention that bed is not the -- an appropriate indicator of growth or capacity or volume given that the focus is more on day care services and throughput. But to your question, it's about 60 beds, around about that.
[ Damayanthi ], can we have your question, please?
My first question is, can you update us on improving profitability at some of your lesser profitable units, SRCC, Gurugram, Dharamshila, et cetera? So if you can talk about progress in each of these hospitals where they have reached in terms of margin improvement?
Venkatesh?
Yes. See, when we talk about Q4, Q4 has been really good for these hospitals. Gurugram has gone from a breakeven to EBITDA positive. Mumbai has also shown positive in single digits, and Dharamshila has been very consistent quarter-on-quarter in double digits as usual. Combined EBITDA margin is around 9% with a revenue base of INR 115 crores for the quarter. When it comes to the NCR, we are very positive on NCR as this is one of our main focus markets. NCR has come to consistency in terms of steady performance, and it will remain as one of our focus markets for expansions.
And what are the main drivers for these improvements, which you have seen? And how confident you are about improving margins from this 9% to say corporate level?
We will not be able to give you a very clear and indicative picture, but Dharamshila has been very consistent at 15% plus, and we are confident of growing more and more than that. Gurugram was a question of stabilizing and consistency in that unit, which has actually happened over the last 2, 3 quarters. We have actually built in the clinical infrastructure, the clinical capabilities enhanced on it with all the specialties across.
So it's actually grown in volumes, grown in occupancy over the last 2 to 3 quarters and done very well on top line. And it was just a question of amortizing all the costs with the volumes coming in and that's what has happened precisely when the volumes on the top line have built. So we will continue to consolidate on this to make sure NCR remains positive and we keep focusing on it as one of the major areas for expansion.
And my second question, if you can update us on your insurance business, I guess, you launched pilot, right? So what has been progress in that?
I can take that. So I guess you're talking about integrated CapEx. The insurance business has not been -- We expect -- we're just in the kind of final stages of putting -- finalizing the product as well as the systems and everything else, and we expect to go live next quarter with the insurance business.
In terms of integrated care business, which is the one that we're piloting, that's going well. We've got 7 clinics in Bangalore at the moment growing as per our plan. We will add several more clinics in Bangalore this year. And then integrate the offerings with the clinic and insurance once the insurance business goes live.
Sure. And my last question is, did you mention in your opening remarks that you are looking at some newer markets where you are not present and if so which market or regions you are focusing apart from your existing markets?
No new markets as of this point. We are only in the Caribbean looking at anything that may come inorganically in certain markets. But at this point, it's still exploratory. In India, where our focus is on our core geographies.
Gagan, please go ahead.
So the first question is around the funding of the CapEx. I think all put together, it's a figure north of INR 1,600 crores that you budgeted for the coming year. How do you plan to fund it? I mean, debt equity mix?
Around 20% will be internal accruals and around 80% we'll fund through debt.
So gross debt, where does it stand currently? And where do you see that going ahead in the next year?
Currently, we are -- go ahead, Nishant.
Yes, the gross debt currently, India plus Cayman together will be around INR 1,400 crores. The borrowing plans, which we have out of that INR 1,500 crores, we'll borrow a another INR 1,200 crores so the gross debt we'll see be around INR 2,400 crores, if we do borrow or we have plan to borrow. And the cash in hand will also be roughly, say, half of it. So the net debt, in the worst case, if we were to do all expansion projects with all the debt we have planned for, will be around, say INR 1,200 crores for the group.
I'm just wondering, in the last 2 years, you had operating cash flows of INR 1,000 crores each, right? If I go by the numbers reported in Q4 of this year for the balance sheet and you have cash on book. So I would have thought that it would have been possible to fund a higher share of this CapEx through internal accruals than what you are indicating. So I just wanted your thoughts there.
Conservative indication we have given, Gagan. Obviously, we will logically first use cash accruals and then we will go to debt, but this is more a conservative estimate. Let's assume we find a good use for the cash we are able to deploy. So therefore, we have just taken a view which is the max we could borrow.
Also, Gagan, a lot of the cash is parked in Cayman Islands. So bringing that cash to India for an Indian expansion is not a good strategy because we have to pay taxes. And we are still exploring opportunities to invest the Cayman money outside of India. So that's a big reason why we're not able to spend that cash.
But if I got it correctly from your presentation, a large part of the CapEx that you have for next year is for Cayman. Is it not?
Not for next year. See, if we look at the next year plans, we have only INR 270 crores for Cayman, the rest all of that is towards India expansion. But even the INR 270 crores is outside of -- if we do come across some good opportunities outside of India, then we'll probably spend more from the Cayman money.
Because I mean -- if I look at your presentation Slide 16, FY '25 projected, perhaps I'm confusing the colors, INR 10,450 million is it for Cayman? Or is it for greenfield, organic?
It is for greenfield organic.
And in the last 2 years, you've done a fair amount of CapEx, right, INR 1,000 crores each in '23 and '24. And while this would not have been for bed addition you've been consistently pointing out that this is meant to increase throughput. So I can understand that Rajarhat and Bangalore, they get commissioned a while away from now.
But over the next 3 years, with whatever CapEx, it's almost INR 2,000 crores of CapEx that you've done in the last 2 years, what headroom for growth does that give you? It would help you could enumerate in growth band. I can understand a specific number guidance is not possible. But if you could enumerate to some degree of -- in growth band, perhaps what potential for growth is there over the next 2, 3 years?
Anesh, go ahead.
No, I didn't say anything.
No, actually, I had started it. So I'm just saying that, see, we will not be able to give you a clear cut guidance on that, but we have been able to grow meaningfully within our existing capacity, and we will continue to do it until this expanded capacity kicks in and give you through a combination of all our throughput increase, improvement in payer mix, technology guided through digital initiatives.
In the meantime, we've also added 2 floors in our Howrah unit with 5 OT wards, ICU beds. We also added LINAC in Shimoga, we plan to add LINAC in Ahmedabad. We keep doing these smaller additions as and when, and as and where it's feasible until the major expansions kick in. This is apart from our efficiency drive to create capacity. And with this, we will be confident of our growth year-on-year until these expansions materialize and we have actually demonstrated this in the last 2 years, and we are confident of repeating the same in the next 2 till we build up on the capacity and it starts materializing.
Sir, is it possible to...
Sorry, Gagan, just one second to clarify.
Significant chunk of the CapEx over the last 2 years also went into Cayman. So about -- that also you'll have to adjust. $70 million, $75 million has gone into Cayman in that CapEx number.
That's greenfield capacity with the headroom for growth for filling out all the departments that we don't have in our grade A location to ensure that in Cayman, we'll continue delivering strong performance. See, the reason we prioritized a lot of investment in throughput and capacity increase and things that are not necessarily adding beds is because greenfield capacity and adding new beds, one takes a very long time to break even and even longer time to generate a return on that capital.
The most immediate and best use of the capital that we have is in the existing hospitals, and that's why FY '22, FY '21, FY '20, all the money that we spent was on improving the performance of our existing hospitals, which turned quite a lot of them around and made them into quite profitable entities. So we -- there is a diminishing returns aspect to that, which is why now you're seeing us deploy a fairly large amount of money towards greenfield, while keeping some amount of money still towards the existing hospitals and refurbishing the rooms and taking it up, to do a balance between both. Now if you have -- we have kind of a focus on ROC and trying to generate healthy returns, but that's not the only thing.
The doctors, the patients, they don't care about our ROC. They care about being seen by the doctor on time. So for us, it won't be one or the other. There are times in which we want to do greenfield expansion. That time is now, and there are times in which we takes -- we take a step back and try and consolidate, which was the story of the past 8 years.
Fair point. I mean I understand that. I'm just sort of trying to perhaps crushing around a bit blindly here, but are we looking at a phase of perhaps high single-digit sort of growth and then you kick into double-digit when the new beds come in? Is that how one could broadly think of?
It's not fair for us to guide a number, Gagan, you have to...
You make us very sad if that were the case. We try not -- for that not to be the case.
All right. And from a tax rate perspective, this was a year where the tax rate was subdued. Q4 was higher than the balance 3 quarters of the year. Going ahead, what are we looking at in terms of tax rate?
Yes. So actually, this year, if you see Gagan for NH India, not just about NHL, but on a portfolio of NH India, we would have -- we've just finished the tax at about 15.5%. That's because we had the deferred tax credit which we got benefit given that we moved from the old rate to the new rate, and therefore, there was a reversal that came on the tax rate. So that onetime benefit is gone now. So next year, the India business, which is the main business plus the subsidiary, the average tax rate will be about 26%.
And Cayman business will come at 0 tax and the average of that will be our tax rate for next year.
Are we looking at perhaps higher growth in Cayman starting second half of this year once you commission the new hospital at Cayman? And are we therefore over the next 2, 3 years, seeing an increased salience or share of Cayman, in both revenue and profits?
So definitely, once we commission the new hospitals, we will see an expected amount of growth in revenue. But as we have said -- mentioned before, commissioning a new hospital brings online a very large amount of fixed cost. So there will be a very real amount of margin dilution until that hospital is able to break even over the next few quarters. And then we'll see where we end up on a long-term sustainable basis.
So there will be revenue growth, but there will certainly be margin dilution because a big chunk of fixed cost will be coming online. And in fact, it already has started as we speak right now because we are very close to commissioning now also.
I mean for analysts, is it reasonable to assume that if the bed capacity, the new hospital is proportionate to -- in a certain way to the old hospital. So would the OpEx be or would it be a around same amount?
No, that wouldn't be very accurate. So certain costs, which are just related to the size of the building would be pretty identical on a per square foot basis, but the building is staffed very differently when the building is operationally very different. So that wouldn't be an acute extrapolation.
Yes, [ Praveen ]. Can we have your question, please?
So I don't have any comments on your numbers, but I have feedback to provide to the management. Please tell me if I should go ahead and do that.
Go ahead, man.
Yes, sure. So the thing is that recently, I had to reach out to Narayana Hrudayalaya, Bangalore facility, okay? And I had to reach out to this cardiology department. I somehow felt a little demotivated when I went for -- when I took my parents for the appointments, okay? I observed a couple of things, which I want to bring it to notice because, look, I'm the owner of this business, and I want my business to be growing and serving more and more people efficiently in a peaceful way, at least from the patient perspective.
So what happened was, I reached out to cardiologist and he asked us to do echo, ECG, some of the normal things and then by the time I came back, it took me almost 3 and 4 hours, okay? And the person who manages the appointments to the doctor, right, she said, doctor is in OT, you can't meet him today, okay. And then I went to reception and then complained about this thing, madam, we waited for this many hours, please at least give us some supporting doctor so that we can show our documents, and we can leave the premises with a peace of mind, okay, if there are no issues.
And then I was connected to some junior doctors, okay? And then junior doctor came into the picture and he started looking at our documents and then he was a little confused there, and he couldn't...
[ Praveen ], sorry to interrupt. What -- you have our e-mail address and our contact details and we're really sorry for the experience you've had. I would just, to respect everyone else this time. It's just a service complaint on a separate thing, okay, but I truly sorry for the experience you've had. If there is any shareholder-related question?
Right. So I don't have it then. I'll roll back and I'll send out a mail there.
[indiscernible] can you have your question, please?
Sir, I just wanted to know if the surgical procedures that are offered in Cayman and the hospital services, are they reimbursable by insurance companies in the U.S.?
Yes. Thank you for your question. So most insurance companies in the U.S. will reimburse for overseas care. So there are 2 principal ways this happens. If you're a holder of a U.S. insurance policy and you have an emergency while traveling, almost all of them will reimburse. Electively, most of them will reimburse if somebody chooses to come.
Most of the large insurers will because the rate that they would reimburse that is much lower than what they would pay. But it depends on which insurance, et cetera.
We'll wait for the other hands to come up. I'll answer some questions that came in the chat. One was about, what is a better indicator of hospitals, ARPP or ARPOB, why?
Just for those who are not familiar, ARPP is average revenue per patient, average revenue per occupied bed is ARPOB. Since we've focused a lot on looking at the throughput and the utilization of our existing beds, what will happen is that we realized that ARPOB is an instrument that you can use to really manipulate numbers in a strong way. And so it doesn't give you a true picture of what your realization per patient would look like both in an outpatient and inpatient basis.
The other is that the medical field keeps changing. Things that require discharge over a couple of hours, things that require overnight admission are all moving to day care procedures. So they are physically occupying the bed for most of the day, but they don't count as an inpatient, they don't reimbursed by the insurance company as inpatient stays, done as day care. So in reflection of the way in which the entire field is moving, we decided to move towards ARPP model, which gives a more moderated less prone to manipulation way of thinking about what your realization per patient looks like.
Not to say that one is better than the other. I think that gives a better reflection of the state of our business and it gives you a more fair and honest assessment of how we are doing as a company when it comes to being able to price our services.
There are 2 more questions in the chat about how our services are differentiated from its peers? And how do we price our surgeries to the customers? Dr. Rupert, I'll respond to that.
Yes. So the Narayana services, how is it differentiated from the peers is in the geographies where we serve, we do give our patients and our customers, the cutting-edge work irrespective of what is the paying capacity and what is the class. For example, we -- in the 2 centers where we have the robotic knee replacement procedures, we have converted 100% of our procedures into robotics.
And we are one of the highest use of robotic work for noncancer surgeries as well. The numbers are very high. So we do differentiate quite a bit on the peers, and we do monitor the outcomes and other things in a much more stringent way and keep a very close watch on the outcomes and the way we go about with that.
So from that point of view, it is a value for money for the patient because we get the best of the class and the outcomes as well as the cutting-edge work, and that is what we've been doing. As far as the pricing goes, wherever it is, our predictable clinical pathways, we prefer to have package the procedure so that the patient knows there is a predictable amount that they know that they have to pay. But for the things where it's a little unpredictable, that's only where we go for the open billing kind of a system, and that is where we work towards.
The overall from a price perspective, it is lower than the -- what our competitors would be doing. And mainly because 80% to 90% of the procedures are all very predictable. So the patients also know exactly how much they need to pay as well.
[ Rajat ], we'll take your question, and I'll go back to the chat questions.
I had a couple of questions on the chat as well. So probably you could skip those. The first question is related again to the number of beds. While you shared the number of beds being added in Cayman, is it possible for you to share a minimum number of beds that are getting operationalized in this financial year in India?
None this financial year.
And the second question is related to the 2 subsidiaries, Medha and Samyat, are these being set up for captive purposes? Or is there a larger vision for them?
For Medha, yes, we will be commercializing our analytics engine. Samyat is for capital purposes.
Okay. And Medha will -- I mean, any guidance or any thoughts on how will this ramp up in the next couple of years?
This is our health care analytics arm and they have quite a few interesting AI applications that we are using. We have quite a few paying customers as well, but the amounts are very small, and nothing significant enough at this stage in time. But it is something we have an aspiration to build out because we do have very strong digital services and analytics capabilities and a lot of hospitals have expressed an interest in using these, both in India as well as overseas.
So when there's more to show in this, then we'll start putting that out separately. But as of now, it is just something we wanted to highlight.
So there's a question on INR 1,000 crores CapEx earmarked for 1,000 beds in Calcutta only include the land cost of INR 170 -- INR 180 crores, is that for building machine equipment.
Don't go by the INR 1,000 crores CapEx or the 1,000 beds in Calcutta. That was more of a, let's say, aspirational statement. The cost of the land was about INR 180 crores. That was the cost that we have to pay to West Bengal government. We're still finalizing the contractors and the price over there.
Once we have a better sense of how much the final cost will be, we will put it out. But what we have projected is how much we know we will be spending in this year for a combination of buying land and putting up the foundation and so on. But it's not specifically broken up into how much for Calcutta, how much for Bangalore.
There's a question about the economies of outpatient, SBU and inpatient SBU?
Outpatient is -- first of all, we don't break out our numbers into outpatient and inpatient. Within outpatient, you have day care and OPD. On OPD, a significant chunk of the fees -- the day care similar to OPD, depending on the cost -- recover. And inpatient is all our costs plus our margin. So it works in that typical and we are not giving the breakup on what is the margin of each of these SBUs, but you can work that out, that industry knowledge.
Next question on the chat, reason for the rise in other noncurrent assets going from INR 89 crores to INR 350 crores?
That is because we are doing a lot of capital projects, and we have -- there are various capital advances we have given for those projects. So that gets grouped as noncurrent assets. So that's why you are seeing that.
Next question. There was -- last quarter, we talked about wage inflation, but we see that employee costs have dropped in the current quarter.
Employee costs have -- see, actually, this quarter, we have been able to manage some efficiencies in the employee cost because we have been able to add revenue without adding people, but that will not continue because our increments have kicked in from 1st April and also, we have caught up on the employee backlog in terms of hiring, so therefore, you will see an increase in the employee costs going into the next quarter.
So another question on margin levers to leverage to improve the bottom line before the volume increase kicks in from a new hospital. That there are many but it is more of the same, which is discharging people faster, admitting them sooner, making sure they check out, rather they get discharged from the hospital at 12:00, and we get patients who get admitted at 1:00. These are a lot of system driven and a lot of digitizations involved.
We've had a lot of savings from moving towards paper. We are doing a lot more things paperless and moving to kiosk for admission that should improve the throughput a fair bit. It may not have that much of a swing as compared to pure volume increase would, but it does provide a very differentiated experience for patients, given that we're dealing with large volumes of them, and our pricing is not at a premium.
And so if we are able to reduce the waiting time and improve the convenience most of the time, we believe that we'll be able to improve the bottom line a little bit, not a lot.
There was a question on the insurance-related costs in the P&L.
It's already answered.
Okay. That's been answered. The current CapEx plan we conducted versus current buildup space. See the current buildup space, just the Health City in Bangalore will be around 9 lakh square feet; in Calcutta it will be around 5 to 6 lakh square feet; Delhi another 6 lakh square feet; Bombay 2 lakhs square feet, Raipur 2.5, Jaipur 2 so it does add up to a fair bit.
I would say that the number of square feet of space we plan to add eventually would be in the short term, about half of our current buildup area. That's what we aim for. Now we don't have all of them in the pipeline yet. That's what we're looking to add, but it won't correspond necessarily to the same number of beds as before because the users of space in these new setups is very different from what it was in the past. Prior, we never had much day care work. We had a lot of space dedicated for inpatient beds, but now we're doing a lot more procedure rooms. And so the actual bed count would not be significant.
There is a question on the occupancy numbers for Bangalore and Calcutta, if Venkatesh could share the rough occupancy percentages.
Viren, somebody else has their hand up.
Occupancy levels are stable at 60% plus at the group levels, flagships have higher occupancies. This occupancy may obviously vary between hospitals, but the flagships obviously are higher than this average occupancy. But again, as Viren said, we continue to reiterate that this is not necessarily the right measure given that our day care volume has gone up significantly, and we are doing more and more work in day care fashion.
So obviously, the occupancy numbers may look very artificially low, though so much of our work is actually happening. We do the largest number of cardiac procedures in the country. Cardiology procedures like angiogram and angioplasty are like morning-evening discharges, robotic procedures for morning-evening discharges. So this means that the bed is occupied during the day, but at the midnight, it shows vacant. That's why it should -- looks artificially low.
But then we are more -- working more on throughput to -- through technology-driven initiatives to create more capacity and do more with what we have.
The bottlenecks that we talk about, and that's part of the question as well, we have bottleneck in our OPD areas, we have bottleneck in our billing counters, in the parking space, in the number of doctor's chambers, in our operating theaters, in the cath labs, in the ICU and the emergency rooms, those are places we have the most some of the bottleneck. And so we have -- a lot of our infrastructure is built for a time when most work was long stay inpatient work.
So we probably have too much space dedicated for that. And we're trying to change the layout so that we're able to cater to a lot more very fast volume in and out. And so that's what you're seeing the bottlenecking show up. It won't necessarily translate to occupancy, but it does translate to the service experience and our ability to see more patients in the same space.
Anyone else? Rajat, you still have your hand up?
Viren, there's a question on this. How do you read the Supreme Court observations on standardizing the cost procedures?
So the -- this was a straight comment made by a judge that, look and see if the Clinical Establishment Act has actually been implemented in all the states. Otherwise, we will force you to implement the CGHS rate or some rate. Now it was -- if you actually rated, it's taken as more of a threat. What has happened since then is that the government has spoken to all the stakeholders, all the state health ministers and a lot of industry associations have gotten together and spoken about how it is impractical to come up to a common pricing standard as the petitioners in this case, certain public care activist and brought about.
It doesn't make sense for a country like India for the richest person in the country and the poorest person in the country to pay the same price. Then they're both getting -- the rich person should pay more for the service they're getting and the poor person should pay less. When you go to standardized pricing, that does not happen. And so the observations haven't been made. We're trying to work with them to say that the spirit of what they want, which is being able to provide different price points, being able to provide more clear and transparent billing is something all organized hospitals do.
Certain hospitals that are in unorganized sector are not able to do it as well, but more transparency is required. So nothing that we're overall concerned of. Outside of the larger concern that health care is this massive societal issue. There is a very large private sector that is catering to it. And we need to be very cognizant about being able to meet patient needs and expectations at all price points.
There's one more question on the chat. Our day care procedure revenues captured an outpatient or inpatient revenues for domestic business.
Outpatient at the moment.
But starting from next year, I think we should start splitting up day care separately, which from FY '25, Q1, we'll start doing that way. So it will give you a much clearer picture.
Any other questions?
If there are no more of questions, we'd like to -- Gagan yes.
You indicated occupancy at around 60% and obviously, it's a blended of higher occupancy in your mainstay hospitals and so on. But where is the theoretical limit of occupancy on the current capacity from 60%?
Maybe we've seen the highest occupancy in our hospitals, hover around 75%, 78%. That is -- but again, it's pretty much a moving target. Real numbers that we're trying to go after is having more people, more inpatients, more outpatients, more day care procedures for all the square footage of space that we have built up. The occupancy itself assumes a stagnant book of business like a hotel. In a hotel, there's only so much you can do spending on a per night basis. Whereas for us, we have a range of services that can be provided in our infrastructure.
I understand what you're saying when it's sort of difficult for us to distill it down to some numerical, I get what you're trying to say, on margins, I mean, what I can surmise is that in India, as Delhi, Dharamshila and Mumbai improve. And also you draw further cost efficiencies. There's perhaps some scope for margin improvement to a degree, it may be offset by the new hospital from -- in Cayman coming on board. Therefore, on a blended basis, are we looking at future where you can maintain the exit margins of FY '24? Is that a reasonable surmise?
So in the short term Cayman will be diluted, Gagan. I don't think India will be able to step up to offset the dilution that will come. But in the medium term, Cayman will catch up once the capacity start filling up. So that is one aspect. The second aspect is that, as you know, we don't pass on the complete cost inflationary -- cost inflation to price. And therefore, we absorb a lot of our cost inflation within our efficiencies. So therefore, all our efficiency and scale doesn't flow through into margins. Some of it goes into offsetting the cost escalations that we see.
And we have seen a very high impact of inflation across all the lines, whether it is manpower, whether it is consumption, CapEx. So because of that, it's difficult to say that the -- even with the benefits that we are foreseeing from improved throughputs and improved performance of some of our non-flagship hospitals. Some of them can flow through to the bottom line, but a lot of it will go to offset the cost structure -- cost increases that we are seeing. So it will be a mixed bag for -- at least for the near term. In the medium term, I think we'll be able to bring it back.
Right. When you say medium term, is it possible to enumerate that? Again, growth band and not...
18 months to 24 months' time period.
Yes, [ Parikshith ]?
I'm really appreciating the management's effort to educate us how it is -- your strategy is about being outpatient and you're delivering more value through that. But my issue is that even with the outpatient numbers, if you look on year-on-year for this quarter, we have not grown by much, right? That has also been about 6% and 7%. So question one is that, do you guys have any way of quantifying outpatient capacity? If so, that would be lovely to hear.
And two is that, why the outpatient hasn't grown more than 6% in that case?
Outpatient capacity, so all we can say is that in the space that is dedicated to them, they are bottlenecked and there are only so many hours in a day. So our doctors are not able to put in more hours. Now with a simple fact is we need more doctors, but we need more doctors. They're not all going to sit in the same place because there's no space. There's no parking. There's no waiting area. There are not enough billing counters there.
And so we create an entire new subsidiary around building clinics and outpatient centers all over the city, starting in Bangalore, then we move to Calcutta and all the other places. So those are things we would have to do to increase the outpatient numbers. Those are essentially the two things. So in terms of what is the theoretical maximum outpatients we can see in any hospital. That would just be a function of 20 minutes per consultation multiplied by the number of hours in a day patients will keep coming.
But again, it's a moving target because we are adding more outpatient chambers and most places in the existing hospitals. So we are trying to address this both ways by adding infra as well as doing more efficiencies.
Our annualized revenue growth on outpatient is about 14%. And a lot of it is a day care. And so while there are two aspects to the volume, one is the count and another is the value of services that we are able to flow through. So because we are debottlenecking capacity across, we are able to move through high-value services through day care. And that's also helping us, for example, a lot of procedures we are able to do morning, evening and discharge the patient before end of the day. So that also helps us deliver better throughput.
I understand. So did I hear it correctly in terms of your plans to increase your outpatient and day care capacity was to set up smaller clinics around Bangalore and other regions? Did I understand that correctly?
Yes.
So this is not part of your CapEx plans that we have discussed so far, the 8 lakhs and 10 lakhs, so you're doing massive land acquisition and creating hospitals. This is a different plan.
This is the entity called as NHIC, Narayana Hrudayalaya Integrated Care. So this is -- the CapEx isn't much. each clinic is only between INR 1 crore to INR 2 crores, and we're putting about 20 to 30 clinics per year. So it's not a huge investment.
Back to the questions in the chat. Is there any margin cap on the pharmacy? There isn't a margin cap on the medicines. Certain payers, I believe certain state governments, for example, will cap it at the price at which you are able to procure the medicine. Most of the medicines are actually capped on the MRP. So either they come under DPCO, that's a drug price control or the payer themselves will decide that, I will pay this fixed amount. It doesn't matter what sort of medicine you use. So a margin cap system of any consumer the medicine does not exist in India like it does in other geographies.
What is the impact we see on the revenue per patient? The DPCO and when every time the price capping happens on medicines, the impact is mostly on medical admissions. So these are patients who come into the ICU and get medical care or for item the chemotherapy or so on, that definitely does see an impact on revenue per patient.
The next question is, how do negotiations with the insurance companies change for medical packages and nonmedical packages.
So insurance companies are obviously very hard negotiators. They will negotiate in fixed rate packages for knee replacement for -- a lot of these, but medical packages, it's very hard to quantify how much on the medicine side. So those are usually paid on actuals, whereas surgeries are paid on a fixed basis so angioplasty or knee replacements are on a fixed rate.
There's a question on the cash accrual in Cayman. Are they plan to bring it back? And what is the status of opportunities to deploy cash. I think we answered this a little earlier. Right now, we're trying to find overseas opportunities. In the absence of that, we will definitely bring it back to India. But to do so involves a 20-odd percent hit that we would take. So that would be, I would say, the last possible opportunity. But definitely, there are places to deploy in India. There's a lot of opportunity here as well as abroad. So we want to build a diversified revenue base. And so that's why we're trying so hard to try and find something overseas.
There's a question on the insurance business. Can you give a road map on the insurance business in terms of breakeven, long-term plans of hiring it off as a separate arm listing, et cetera. I'll just say -- I mean, it's too early for us to declare on the breakeven time frame. The long-term plan is that, yes, it is a separate company by design insurance company, the IRD norm say that it has to be listed as a separate entity and so on.
There's no time limit per se, but it is something that is on the eventual road map. So the insurance is something we are very bullish on. We are billing it to be a very differentiated sort of product, and we'll have more to tell you about this in the coming quarters.
Ravi, any -- have we given any projection how much we spent on the insurance company in this quarter?
No, we've not. I mean the main thing is, of course, the IRDAI capital of INR 100 crores, which has been infused into the company.
Yes. So we won't be able to give guidance on the cash front and so on because we had to start the insurance operations, but it will not be as big as the amount that we'd be otherwise spending if we set up 400, 500 bed hospitals. So it's quite moderated since we're starting in just 1 city. Based on the response we get in Bangalore and Mysore then we look to ramp it up. That is a call we will take at the future point.
Last question, I guess, on the chat. Any plans on the growth in your ancillary services? If by ancillary services, I would guess it means all the subsidiaries that we have. So Samyat is an in-house distribution now. So that will mostly be catering to our in-house programs with our Athma and Medha. There -- again, these were set up as in-house units, but they're offering services to other hospitals, clinics, nursing homes and so on. But the revenue potential there at the short term is very limited.
So it's nothing much to write about at this stage. Other than that, NHIC and NHIL are still very nascent businesses that we're incubating. And over time, they will start showing the numbers. But whatever they've done so far, has given us a lot of confidence that this is a business worth investing in.
Yes. So I think we don't have any more questions either in the chat note and this forum. So with that, we'd like to conclude our session. Thanks, everyone, for the active participation as usual. In case if you have any further questions, please feel free to reach out to us.
Thank you.