Rainbow Children's Medicare Ltd
NSE:RAINBOW
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Earnings Call Analysis
Q1-2025 Analysis
Rainbow Children's Medicare Ltd
In the first quarter of FY '25, Rainbow Children's Medical Limited showcased resilient growth, marking a 15% increase in revenue, totaling INR 330.2 crores. This performance is noteworthy as it occurred during a traditionally weaker season. The company's commitment to operational excellence is reflected in its substantial expansion efforts, including the launch of three new hospitals, adding 280 beds and increasing total capacity to over 2,000 beds across its network.
Despite the challenges posed by newly opened facilities, Rainbow has seen promising improvements in key operational metrics. Outpatient visits and inpatient admissions both grew by 12% and 10%, respectively. Specifically, the outpatient footfalls, inpatient admissions, and delivery numbers all demonstrated significant year-on-year growth—a positive indicator of patient demand and operational efficacy. The overall occupancy rate across hospitals stood at 42.4%, with established hospitals achieving an occupancy rate of 50%, while new facilities recorded 27.6%. This suggests ample room for growth as they become more established.
The EBITDA for the quarter showed a modest increase of 7% to INR 93.7 crores, leading to an EBITDA margin of approximately 28.4%. However, profit after tax (PAT) decreased by 4.2% to INR 39.7 crores due to rising depreciation and finance costs linked to new hospital operations. Notably, the mature hospitals continue to perform robustly, projecting around 7-8% year-on-year revenue growth, with expectations for a surge into double-digit growth in the upcoming quarters as seasonal demand picks up.
Management provided insights into the breakeven timelines for new hospital setups. The hospitals in Hyderabad are anticipated to break even within the first year, with projected occupancy rates of around 30-35%. In contrast, facilities in Bangalore and Chennai are expected to achieve breakeven in approximately 12–18 months, respectively. This strategic metric is crucial for investors to consider the operational efficiencies and expected returns from new investments.
Looking ahead, Rainbow Children's Medical expresses confidence in maintaining a growth trajectory, potentially achieving a late-teens growth rate for FY '25. The management's focus on enhancing service offerings, such as the launched adult vaccination outreach program, demonstrates a proactive approach towards patient care and operational innovation. The company is also exploring further expansions in the South and potentially beyond, while carefully examining acquisition opportunities aligned with their strategic vision.
With a strong net cash position of INR 518 crores, Rainbow is well-equipped to fund ongoing capital expenditures without resorting to debt financing. During Q1, the company invested roughly INR 56.7 crores in capital projects, indicating a commitment to growth while maintaining a healthy balance sheet. This robust financial foundation provides a safety net and growth fuel for further expansion, both in hospital services and technology investments.
In conclusion, Rainbow Children's Medical Limited demonstrates a solid financial and operational foundation for potential investors. The combination of robust revenue growth, strategic expansion efforts, and a strong balance sheet presents a favorable outlook. The company's seasoned leadership is focused on the long-term value creation, navigating the competitive landscape with confidence. Investors may find the trajectory of both revenue and operational metrics promising as the company advances through FY '25.
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Ladies and gentlemen, good day, and welcome to Rainbow Children's Medical Limited Q1 FY '25 Earnings Conference Call, hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jeewani from IIFL Securities Limited. Thank you, and over to you, sir.
Yes. Hi. Good morning, everyone. I welcome you all to the first quarter earnings conference call of Rainbow Hospitals hosted by IIFL Institutional Equities. From Rainbow, we have with us Dr. Ramesh Kancharla, our Chairman and Managing Director; Mr. Sanjeev Sukumaran, Group Chief Operating Officer; Mr. Vikas Maheshwari Group CFO; and Mr. Saurabh Bhandari, Head Investor Relations and Group Business Analyst.
Over to you, sir, for your opening comments.
Thank you, Rahul. So good morning, everyone. So I'm delighted to extend a warm welcome to the earnings call for the first quarter of financial year FY '25. Our quarterly performance reflects our commitment to expanding footprint, operational excellence and our continued investment in technologies that enhance patient care and drive efficiency.
This quarter, we have delivered a robust financial and operational performance. We have remained focus on optimizing our processes, ensuring that our service is run seamlessly and efficiently to enhance the network effect of our hub-and-spoke model.
In the last quarter, we marked a significant milestone by commissioning 3 new hospitals, one each in Hyderabad, Bangalore and Chennai, adding a total of 280 beds. This brings our total capacity to over 2,000 beds, including managed beds in New Delhi.
We delivered [ incredible ] 15% revenue growth in a seasonally weak quarter. So we have seen progressive growth across all the operational metrics compared to the previous year. Our outpatient footfalls, inpatient admissions and deliveries are all showing significant improvement. We are optimistic about maintaining and surpassing this growth in the coming quarters.
Our EBITDA growth has been slightly muted, primarily due to the costs associated with our newly opened hospitals. The trajectory of the operations at our new hospitals is as per our expectations and showing growth month-on-month.
For the Q1 FY '25, our revenue registered a growth of 15% amounting to INR 330.2 crores. Similarly, our EBITDA increased by 7%, reaching to INR 93.7 crores, while the PAT was down by 4.2% to INR 39.7 crores due to the higher depreciation finance costs mainly in [ days ] effect.
Our overall occupancy rate for the quarter was 42.4%, with the [ matured ] hospitals achieving 50% occupancy, and the new hospitals, including the recently commissioned hospitals, recording a 27.6% occupancy rate. So these figures indicate that we have a sufficient headroom for growth in the coming quarters.
During the quarter, we have launched a pilot project in adult vaccination outreach program, which we named it as AVON, with the top 5 vaccine manufacturing companies to cater to the immunization needs of the families. AVON initiative will cover vaccines including influenza, HPV, pneumococcal vaccines and the shingles.
The progress on IVF has been promising and has garnered good traction. We expect to keep up the momentum IVF side to -- and grow in the coming quarters.
Our ongoing investments in the technology has achieved tangible results. By leveraging advanced digital tools we have been able to significantly impact the patient experience from streamlining the appointments to the faster and more accurate diagnostics. These innovations not only enhance the patient satisfaction, but also contribute to the operational efficiencies.
In addition to this enhancing our operational capabilities, we have made a significant stride in data and cybersecurity. Recognizing the critical importance of the -- safeguarding patient data, we have invested in robust security measures that keep us ahead of potential threats. This proactive approach ensures that our patients' information is secure and reinforcing their trust in our services.
Highlighting the project's status. The development of our new regional spoke, which is in Rajahmundry, of 100 beds, the work is in progress. And also, the Hennur, Bangalore, 60 beds spoke is progressing well. Both are expected to commence operations in Q4 FY '25. The project work for the regional hub hospital in Coimbatore of 130 beds has just started and is expected to complete in 24 months' time.
We have registered the land parcels in [ Gurugram ] at sector 44 and 56. For sector 44, we have submitted the drawings to HSVP for building sanction approvals. Further, for the sector 56, we will be submitting the drawings to HSVP in the coming weeks.
Beyond our growth plans, I would like to highlight some significant achievements that underscore our dedication to pediatric and maternal health care excellence.
A 15-year-old child was actually been treated elsewhere for seizure disorder for the last 12 years with a normal neuro imaging and also EEG on several occasions by various doctors, including neurologists. When the child finally reached Rainbow, our pediatric [ neurologist ] carefully evaluated and discovered that the child is having a very low heart rate and also has a partial hearing loss.
So he then kind of referred the child to our pediatric cardiologist, suspecting some genetic disorder, there may be heart involvement. The cardiologist performed the ECG and an echocardiogram and detected there is a long QT interval on ECG, which is known to cause bradycardias and arrhythmias. The genetic test confirmed it has -- confirmed the long QT intervals as a part of Jervell and Lange-Nielsen Syndrome, which is a very, very rare condition. And in this particular condition, these children will have a long QT on ECG.
They are prone to have to have bradycardias and sometimes arrhythmias and death. So in this case, the child was actually been treated, unfortunately, for 12 long years with the antiepileptics without diagnosis. I think the great clinical achievement of our pediatric neurologists and [ cardiologists was correct ] diagnosis. And the child was treated with a very simple medicines called beta-blockers and mexiletine to treat for on a long-term basis.
In another case, we had 32-year lady with a complex medical history of ischemic heart disease and a stent in place with a chronic renal failure and diabetes, was advised not to become pregnant because of her multiple comorbidities. However, the lady accidentally became a pregnant and seeked our help to continue the pregnancy.
Our perinatal team responded very positively and included an adult [ cardiologist ] and the real physicians team and followed up pregnancy very closely and optimized her care time to time and ensured the pregnancy sails as smooth as possible. And eventually, an elective Caesarean section was planned and delivered a healthy baby, and mother was so happy with that to become a mother.
So these cases emphasize that importance of the multidisciplinary approach for tertiary and quaternary care patients to achieve better outcomes. As we celebrate silver jubilee of Rainbow in providing world-class children's health care in India, I extend my heartfelt gratitude to our doctors, nurses and the entire Rainbow family, along with our valued stakeholders and [ end ] parents, who have contributed to this incredible journey.
As we look ahead, we remain committed to maintaining our leadership in the pediatric and perinatal health care to continuous innovation, leadership development, operational excellence and an unwavering focus on patient care. We are confident that our strategic investments will continue to drive our growth and deliver long-term value to our stakeholders.
With this, I will now pass the mic to our Group CFO, Mr. Vikas Maheshwari to take you through the financial update. Thank you once again for joining us today. We look forward to your questions and insights as we move forward.
Thank you. A very good morning to all of you, and thank you for attending this teleconference. I am pleased to brief you on the financial performance and the key developments of the rainbow hospitals for the first quarter of FY '25.
Our operating revenue for the quarter stood at INR 330 crores, reflecting a 15% growth compared to the corresponding quarter of the previous financial year. Our EBITDA for the first quarter amounted to INR 93.7 crores marking a 6.9% growth compared to the same period last year, with an EBITDA margin of 28.4%.
The profit after tax for the quarter is INR 39.7 crores representing a 4.2% decline compared to the corresponding quarter of the last financial year, mainly due to increased depreciation and interest expenses related to our new units.
In terms of operational performance, outpatient and inpatient growth was very healthy at 12% and 10%, respectively, for the quarter compared to the last year. Delivery volume also showed impressive growth of 10% year-on-year growth.
For the quarter, our non-annualized [ ROC ] is at 5.2% and are expected to rise as the new units ramp up their operations. Our payer mix continues to be robust and balanced, with 52% of the revenue coming from the insurance segment and the remaining 48% from the cash patients. Additionally, our international business accounted for 2.9% of our total revenue for the first quarter, amounting to INR 9.4 crores.
Our balance sheet remains strong, with net cash position of INR 518 crores as of June 30, 2024, which will support our ongoing capital expenditure plans. Given our current cash flow and anticipated internal accruals in the coming years, we are confident in our ability to complete all [ planned ] capital expenditure through internal accruals without acquiring debt financing.
During the quarter, the company invested roughly INR 56.7 crores in ongoing capital expenditures. I'm happy to share that we successfully conducted our AGM on July 30, 2024, with all the resolutions passed by the shareholders, and the company has paid the dividend on the same day.
With these insights, I conclude my financial update. I now invite questions and suggestions from the participants. Thank you.
[Operator Instructions] The first question is from the line of Pritesh Chheda from Lucky Investment.
Yes. Sir, on the existing hospitals, what was the revenue growth and the margin profile on a Y-o-Y basis, if you could share that? Because I'm looking at the presentation, you've given all the other data points, except the like-to-like comparison.
Look, I think -- sorry. So on the mature units, the revenue growth has been healthy. It has been at around 7% to 8% growth year-on-year basis. And we expect this growth to go further up as we enter into the season. Typically, the quarter 1 remains very muted. Still, we could show some growth of 7.3% year-on-year basis. And as we enter into the season, which is September and December, you'll see more healthy growth in the double digits going forward.
But when we are comparing on a Y-o-Y basis, which is a like-for-like quarter, why shouldn't the growth be -- why is the growth single digit?
Your point is correct. We have no points on this. The last quarter has been a very heated -- heat and [ apocalyptic ] and -- and the elections was there, where many people have gone the different places, et cetera. There may be [ other ] reasons where we have seen this slightly less growth in terms of revenue growth.
Okay. And at the 7% growth, what is the margin profile there? Is there any erosion in margin?
We are not seeing any margin innovation. In fact, in the matured hospitals, we operate on the operating leverage. So any incremental revenue growth will always improve the EBITDA or EBITDA margins.
But at 7% growth, will the margin be a similar number only, is that fair question?
It should be same. It's not [ changed ]. It has slightly improved only. So we are not seeing any sign of the EBITDA margin impact year-on-year basis.
And my second question is, sir, on the newer hospitals. Usually, what is the trajectory of occupancy that year 1, year 2, year 3, usually you budget at while making these investments? And at what level of occupancy usually these hospitals breakeven?
It depends on where these hospitals are. Usually in Hyderabad, we expect it to be kind of a breakeven within the first year itself.
And at what occupancy, sir?
Usually about 35% occupancy we breakeven. Yes, 30%, 35% of occupancy is breakeven. And at a place like Bangalore, yes, it will take about 12 to 15 months' time. Chennai might take about 15 to 18 months' time. That's how we look at it. Based on the maturity of the hub-and-spoke model, we tend to kind of clock that way.
So your prime market, Hyderabad, has year 1 of breakeven and everywhere else is less than 2 years, basically, anywhere between 1.5, 2. And at the same [ hover ] of 35% or less?
I think, more or less 35% occupancy.
[Operator Instructions] The next question is from the line of Damayanti Kerai from HSBC.
My first question is on costs related to new units. So just want to understand whether the first quarter numbers reflect most of the costs which you have incurred or like you expect to incur on an ongoing basis for the new units? Or like do you have a plan to add on more doctors, more people, et cetera, there? Some color on that would be helpful.
Damayanti, I think the quarter 1, whatever the cost structure we have seen for our new units, which we have started, I think more or less has settled there. Obviously, we started these units in the fag-end of the March quarter, right? So the doctors have started joining April, May and June. So you will see some incremental cost may come for the new units. But more or less, I think, 90%, 95% is settled there.
As we grow these units and new clinical sites join, there may be some impact, but not major. So it's more or less -- what you are seeing is more or less settled there.
Understood. So in terms of margin, we understand your September and December quarter are very healthy. But on an annual basis, how should we think about improvement or change from the FY '24 level?
I think, Damayanti, just to anticipate that our growth is probably -- for this year, will be kind of late teens. When you do a late-teens growth, I think overall, most of the operating metrics and financial metrics will be pretty healthy.
Understood. And my next question is, in Hyderabad market, your competitors are getting more aggressive in mother and child care segment. So what are your thoughts on the competitive scenario? And have you seen any impact in terms of loss of clinical talent, et cetera?
I mean Rainbow has very, very large and strong forte. I mean I don't think -- we will not be kind of impacted directly through the loss of clinical talent because the brand drives the business here and not the individuals.
Second important things is, of course, when there's a lot of doctors, hospitals have started coming in the similar space, certainly, there -- definitely, some competition will come. But I mean, with our kind of credibility in Hyderabad city, we may not kind of impact on the long-term basis. It's not something new to us. We have been seeing this competition almost like more than a decade.
Sure. And my last question is, you mentioned your IVF program is picking up momentum. So if you can just update us on like how you plan to take it up? And very broadly, like over next 2 to 3 years, how do you want to grow this business? And how critical this is for your existing offerings?
Well, we had 3 in the past, one in Bangalore, Vijayawada and Hyderabad. Now we've got about 11 total. So now, I think all of them are commissioned, all the embryology services has started, the doctors have been recruited, the business plan is laid out.
And I think the -- whatever the early footfall what we are seeing and -- which are pretty impressive, which are pretty -- what we are seeing is what we expected is that kind of Rainbow to drive the organic footfalls, I mean direct footfalls, which is happening, and they are quite impressive numbers.
And as we -- I think we'll have to see that how this number is going to translate to the cycles. And it will take about probably at least a couple of quarters for us to kind of have a better comprehension on that.
Sir, how much you have invested so far?
The investment is not too much because we have expanded into our own hospitals only. It is the equipment and the fee [ furniture, fixtures ] that is not very significant. It's a very small, minimal.
They're not stand-alone. They're all within the existing hospital, either new hospitals or existing hospitals. We have included them under the birthright [ perinatal ] services.
The next question is from the line of Mr. Mahesh from Atal Investment Managers.
So just wanted to know, the new hospitals that we have just added, like I could see that last few quarters, we are still at that occupancy levels of 27%, 28% there. So what are we doing? I mean the ARPOB in the new hospitals is somewhere around 52,000 something. Is it because of high cost that these hospitals are not showing the occupancy on this area?
Or you are -- I mean, it is going as per your plan. How exactly do you see these new hospitals? Because the earlier guy, you told that 35%, it will be breakeven. So we are still at 27% for the new hospitals. So when do you see this breakeven levels reaching, if you can please throw some light?
Mahesh, I've already earlier stated about the timelines of the breakeven. So I think we are in a children's health care space and also the maternal services. These are organic businesses. These are not aggregation businesses like multi-facilities, like a lot of sales driven, those things. It will take its own time because we do recruit doctors on a full-time basis. I mean medical teams have settled and people have to recognize, and then I think kind of it starts growing organically.
Why we say about -- in Hyderabad, we probably are kind of doing the first year breakeven within the first year? That's because of the redistribution of the patients and also the huge brand reputation momenta. You say there is a Rainbow, then people automatically go there. So to an extent, that also happens in Bangalore. And Chennai is just kind of -- the traction will take a little longer time.
This is how we work. So generally, that acquisition of the practices are much less in pediatric side and is more of an organic drive. So the timeline what we see, what we're kind of -- we're quite happy with what -- our timeline is about 12 to 18 months' time for the spoke hospitals to breakeven at 35% occupancy.
And one other thing is that we will take at least about 6 months' time to get all the insurance sorted out. They're not going to give you the insurance -- the TPA as recognized as soon as we start the hospitals, is always challenging. So we are kind of still waiting for some more permissions, some more insurance tie-ups and those things. They'll all happen kind of -- 6 to 9 months' time it takes. So these are all things which actually takes its own time to kind of settle.
All right. Sir, just for my [ general ] knowledge, just wanted to know, what do we do to attract this polyclinic that you have in the Hyderabad region? The spread of polyclinics is huge. I mean the clinics, where they don't have this bed and all, but they are doing it on a very lower scale.
How are you reaching out to those people? And I mean in terms of working from their side, how do you see that thing coping up? Because I see Hyderabad is -- I mean, currently in [ Hyderabad ], there are a lot of polyclinics operating. So how do you see that particular thing?
I mean you see the polyclinics for the children's health care, we can do that, since we are already there almost 7 hospitals in Hyderabad. And we are envisaging to do one more. I think almost, we are very close to kind of most of the geographies. In addition, being polyclinic. Now recently, we're just kind of contemplating to do one more polyclinic in Attapur area.
So I think the polyclinics are important, but at the same time, they have to be driven by our own doctors. We can't recruit doctors of -- nonaligned doctors to do policy that want to kind of convert patients to you. This is our experience when we look at the other hospitals, multi-specialty hospitals when they are polyclinics. Now whatever we do, it has to be in our control, it has to be kind of within the network.
I was asking more about the polyclinics which are not in the Rainbow's umbrella. Polyclinics which are operating independently, how you are reaching out to them? How do you are getting referrals from their side?
[ Of course, we have sales teams ], they will coordinate with them. They have a lot of doctors network who refer patients to us. And the patient reference happens only when there's a complexity and when they require them to send it to Rainbow hospital for particular intensive care or specialty. I mean, we have, that way, a huge connectivity with our doctors across Hyderabad, Telangana and Andhra Pradesh.
All's right. My last question would be on this Haryana thing. I mean it's been like taking us a very long time because it's almost more than a year that we kind of -- I mean we went ahead with that project. And it's taking a long time.
Can you please throw some light on what exactly is happening on ground there and why it's taking so much time? Is it because of bureaucracy or some change of government or something like that? I man, what exactly?
I think it's just a phase of government, nothing else actually. So we know the CEO. Despite knowing the CEO of HSVP, it still takes that much of time because this is just kind of how the systems work. And also Haryana, it's got two, one is in [ Gurugram ] and other is in Panchkula. So between those 2 offices, it takes its own time. And yes, finally, I think we got the permissions. we got land registered, which is more important.
Now, we have applied for the permissions. Hopefully, they won't take much longer. There's some more clearances need to be done. Then post that is our -- post that is kind -- it will be our project's team, how aggressive we're going to do that. Once you have all the permissions onboard, I think it shouldn't take more than 2 years, plus or minus a few months.
Okay. So [ '26, '27 ] as we reported in your presentation, that's when we are going to get back?
Yes, maybe 6 months. We have to give additional time.
The next question is from the line of Harsh Bhatia from Bandhan AMC.
So just one clarification. Apologies if this is repetitive, but on this ARPOB move on a year-on-year basis, I understand the ALOS has also moved up and -- which is why there could be a case of ARPOB moving down. But this has been the case for both the new hospitals as well as the old hospitals. So if you could help us understand like what exactly is happening across both units.
Yes, yes. See, even I was wondering what's kind of dynamics of this, actually. I was trying to look at it. What I could actually look into and conclude myself is that our ARPOB guidance, whatever we have given the last -- if you roll the last 3, 4 earnings calls, our ARPOB guidance is always in 55,000 to 60,000. This Is probably a right ARPOB for our business. And sometimes, it goes up because of the change in the case mix.
When you have a lot of season, do a lot of pediatric business, then ARPOBs tends to go down, and you do -- then you clock higher revenues and better profitability also.
So now with the current -- when you look at the ARPOBs today, which is slightly lower, which under ALOS is slightly higher; I think compared to a kind of a year-to-year the change of the business, that's what is actually -- it is only about -- if you look at an average of per ALOS, it's only 4 hours has increased, and that could be a kind of a little change in the case mix than anything else.
And there is a -- the last year dominantly, we kind of -- business was obstetrics and lots of pediatric surgeries, that took the lead. Therefore, the ARPOBs are lower and the -- ARPOBs are higher and the ALOS have running lower. If you go back and see the last 4 quarters, our ALOS was about 2.65 to 2.7, somewhere around that is usually the ALOS.
I'm not very sure that ALOS of less than 2.5 is -- may happen occasionally, but not on regular. Our ALOS will probably stand at 2.6 to 2.8. This is actually of a proper business mix resulting in our ALOS. This is how we look at it.
So if I can add. So since sir has explained about the ARPOB and ALOS, so if you just multiply with this, you will get the average revenue per patient, right, irrespective of their ALOS, et cetera. If you see that, that has gone up. So that shows that we are getting the high complex cases at our hospital, and that has gone up on year-on-year basis by 6% and quarter-on-quarter basis also.
So I think 107,000 is [ ARPP ], which has gone up by 7%, which is a healthy sign. ALOS loss is the factor which depends on critical cases which you get, whether you're getting quaternary cases more or tertiary care. Based on that, the ALOS keeps changing. But being an industry, we feel that what is more important is the ARPP, what type of cases we are getting. So we are happy with the ARPP growth of 6%, 7%, which we have seen in our case, both year-on-year and quarter-on-quarter.
Okay. So simply, it is just about the cases -- overall case mix becoming more and more complex to a certain extent?
Correct. So the more complex case is, the patients intend to stay longer period at the hospital. So that may impact the ARPOB. But what is more important is ARPP. Obviously, ARPOB is very important because it's a key metric how we drive our occupancy and then revenue. But that is also one of the key metrics which we should look at.
And just in terms of the volume growth, the double-digit volume growth that you have delivered, again, my understanding might be very limited and might be inaccurate in a certain way. But would we continue to see this double-digit volume growth going for the next few quarters on a year-on-year basis?
FY '24 was also the year where we saw first quarter doing a double-digit growth on a year-on-year basis, but then the volume growth was a very mixed picture for the next 9 months of FY '24. So would that be the case this year as well? Or would we expect to see FY '25 remaining quarters to be a double-digit volume growth?
This year, kind of largely, many things remain very positive because we are looking at overall -- there's nothing major. All the other have been over, and the monsoons are kind of right on time.
Things are going on right on track. I think the overall -- even the first quarter itself, we sensed that there is a positive trajectory for the year. So I would expect to see a kind of -- be a kind of a late-teens growth for [ Rainbow ].
Sure. And you would continue to feel that, that would entirely flow-through at the bottom line as well, given the incremental cost that we have seen in the first quarter?
Yes. Let's see how the other case mix is and what's kind of pathology, how we're going to deal with that. So revenues are derivative. It depends on how, what we're going to do in the next 9 months' time in terms of -- as a hospital, that results in a kind of revenue generation. And I'm sure when you do about late-teens growth, you will definitely do a imperative show also as well on the financial side.
[Operator Instructions] The next question is from the line of Bansi Desai from JPMorgan.
Sir, just philosophically checking, is demand in this industry is sensitive to pricing? So I assume that probably for our newer units, we would have competitive pricing and probably that also could have had some bearing on ARPOBs. So maybe just your thoughts on these.
You're absolutely right, Bansi. I think in the newer units, it's always, there are two, three things which play up in the newer units. One is that now -- so you want to be attractive for the patients. Generally, any new hospital, people see how expensive it is, first thing -- reaction is. We don't want to get that, a major name. So that's -- you will definitely price it up attractively in the beginning.
Second important thing is you may not have the insurances, all those things, so that some of the patients kind of may not come into the hospital because there's no cash flow, which will take about 6 to 8 months, 9 months' time to kind of settle down all the [ insurances ] coming. So this factor certainly will play in. You're absolutely right.
Okay. That's helpful, sir. And from a longer-term perspective, when we think about expansion, besides whatever you have shared, where do you think you have opportunities if you think from slightly longer-term perspective? Would it be these existing cities, locations? Or you think there is promise probably newer markets, newer cities? And if at all, you want to call out where you probably see that opportunity for us?
Yes, Bansi, the -- one is we have actually absolute clarity about what Rainbow's plan is for the next 4, 5 years' time -- 3, 4 years' time. So the -- what we have done in Hyderabad, think's we're a little bit closer to 1,000 beds. And definitely, we are in the business with an expansion in Bangalore to kind of becoming a kind of the largest player in Bangalore, we are already there.
And Chennai is the same way and also regional spokes in Andhra Pradesh and Tamil Nadu. This will continue. I think this is a where the Rainbow is a household name, this is where the demand continues to be there. This is what kind of patronage of the brand is very significant. We'll continue to play our dominance in the South, which we're -- within the cities and also connecting regional spokes. That will continue to expand.
And while we do that -- and also, we are exploring other opportunities. Of course, Delhi is up -- NCR is a larger play. And also the opportunities we're looking at seriously of acquisitions, which I think we are quite optimistic. If something comes which is philosophically aligned to us, we'll definitely go for it. I think this is how we look at it.
I mean, there is a constant research going on in one of the new cities, how do we enter. See, one thing we are not very -- we are not going to do is that do about 50 beds or 100 beds into one large city, ongoing around, putting a dots in multiple places. I don't think that's the efficient way.
If we get into the city, we will address the city needs of children's health care in a larger -- on a long-term basis. And also, we do a kind of hub-and-spoke model to include the larger part of the city into our network. This is our game plan.
So that's very clear. And Vikas, just one clarification. On the cost side for this quarter, the other expenses have declined sequentially. So anything to read there? I see increase in professional fees, and you highlighted that's probably because of the newer units coming in. But why would have other expenses decline? And should we see this as a sustainable trend?
So even there is accounting standard, this ECL provisions, which keeps coming. So based on that, the other expenditure, which is the one part there, gets a little bit adjusted. So I think whatever the numbers we have shown, should be stand there right now. Because it's a clean quarter, there is no ECL impact, et cetera, in this quarter.
So if you look at the quarter 3 and the quarter 2, the [ model ] is in the same range, but the quarter 4 was slightly got impacted because of the ECL. I think the numbers that we are showing for the quarter one is a clean quarter. That is the number which we should see there.
The next question is from the line of Rahul Jeewani from IIFL Securities Limited.
Sir, you indicated in terms of the breakeven timelines for our new hospitals in Hyderabad being within 12 months and for other hospitals being 18 to 24 months. So can you please also talk about the timelines for breakeven for these 4 new hospitals, which we commissioned in fourth quarter of last year?
Because one of those was a brownfield expansion at Hydernagar, and I'm assuming that the brownfield hospital would achieve EBITDA breakeven faster than some of your other newer hospitals.
That is actually -- Rahul, is expand -- is an additional block, which we built to adjacent to the Hydernagar hospital. Earlier, it used to be about 85 80-plus beds. Now that's become kind of 110, 120 beds now. It's a new block. Actually, we dedicated it more to the perinatal services because we do a large number of deliveries in that hospital.
We just made it completely kind of the women's block. So that is additional beds, which is for demand we have done it. That unit does very well anyway. And it deserves that expansion. We have done it. We are very happy with that. The doctors are happy. Business also is actually going very well.
The next one is that we have done in Himayatnagar in Hyderabad city, which is actually a central part of Hyderabad city, which is a competitive area of Hyderabad city. So I think now [Technical Difficulty] about 5 months ago, so 5, 6 months -- 5 months ago. I think it's tracking pretty well.
And it's got a new team completely, and they are doing well. It's growing -- it is written first year itself that we'll breakeven. In Bangalore, [ Sarjapura ], it's also going very well. It takes probably about 12 to 15 months to breakeven. That, I think we are quite happy with the way it's going.
And Chennai is a large facility, a new area, with a very new set of doctors. It will take about 15, 18 months' time for its breakeven because it's a little high-cost unit because we have put a lot of money into that because -- it is one of the areas that is a difficult area to get a land or building anything, which is called Anna Nagar area. So we managed to get it and run the hospital. And it will take -- in the long term, that is a great area to be in.
Sure, sir. So then potentially, the Hydernagar, Himayatnagar and the [ Sarjapura ] hospital should achieve EBITDA breakeven by end of this year? And Chennai, you are possibly targeting breakeven in first half of next year?
Yes, exactly. Possible next-year season, right? For next-year season, we should be fine.
Sure, sir. And given that this year, obviously, with the drag from these 4 new units, which would impact our margins this year, by end of this year, we would again be commissioning, let's say, 160 incremental beds across Rajahmundry and Hennur.
So next year, do you think that given that this year already, we would have seen the impact of these new hospitals, FY '26 should see a margin improvement for us despite incremental capacity addition in fourth quarter of FY '25?
You're right. You're right. That's what actually our strategy is.
Sure, sir. Sure, sure. That's it from my side.
Rahul, to add one more point, it shows the resilience of our business model. We have opened 3 new hospitals and 1 expansion. Still, we have been able to deliver a very healthy EBITDA margin. And the trajectory of the breakeven as [indiscernible] has explained, I think, is well poised for the next leg of the growth.
And by the year end, once these hospital gets opened, I think 2.5 of our hospitals, including this expansion of -- expansion which we did, I think this is doing very well. So I think we are well poised for the next leg of the growth in terms of both margins and the revenue growth and the EBITDA.
The next question is from the line of Alankar Garude from Kotak Institutional Equities.
First question, we have 8 hospitals in Hyderabad now, with 110 new beds commencing operations in the past few months alone. You also spoke about possibly adding another hospital in the coming years. So just wanted to understand, how are you thinking about the impact of cannibalization in Hyderabad?
Yes, it's interesting. We always see some degree of cannibalization because the net book -- the patients which are on the kind of a border between the 2 hospitals will settle down to the new side -- new hospital. But we have always seen that the growth opportunity is much larger. This cannibalization would not be really significant because the other hospitals have always kind of have been in demand for the beds and those things.
So in a way, that works better when you have a kind of the new hospital network. Some degree of adjustments between both the units of the occupancies would help us in the long term to create more beds for that geography.
Understood, sir. The second question was, any color on the performance of the Madhukar Hospital in this quarter? You had mentioned about a pickup in performance in this fiscal. So any thoughts on how has the performance been in the first quarter?
Madhukar, definitely, there's an uptick in the performance. And the overall shape of the Madhukar Hospital, and traction seems to be well. Perinatal services are pretty good, and the [ intensive care ] services are picking up.
There, I think a number of footfalls have increased significantly. These are all very positive signs. And also that the cost structure is also -- we've been constantly working on the cost structure, which is also kind of -- we are seeing some tangible results of our operation teams working on the cost side.
And I think by towards end this year, we'll probably have a much better opportunity to post a good EBITDA for Madhukar as well as Rosewalk.
So I think FY '24, we were at high-single digit EBITDA margins in Madhukar. So would it be fair to assume maybe a mid-teens kind of a -- low to mid-teens kind of a number in FY '25 and possibly higher going forward in FY '26?
I think what we are looking at, Alankar, is the EBITDA. I think it's a double-digit EBITDA, that's what I'm aiming at. I'm not sure where I would end up. Whether it's early teens or just teens or mid-teens, I'm not very sure at the moment. So definitely, I think achieving double-digit EBITDA in that kind of a structure is quite satisfying, to be honest with you.
Understood. And maybe a quick follow-up there. What's the outstanding amount from the trust?
It has remained same from the March, whatever we have seen. It is the same. So as the year progresses, we expect that INR 3 crore to INR 4 crore to further come down, Alankar. So more or less same status.
Okay. Understood. And one final question from my side. When it comes to [ Gurugram ], construction has not started yet at both the hub as well as the spoke hospitals. Just wanted to get a sense, are we seeing any delays in both these hospitals?
I'm not saying -- I mean, we have still said about '27, right, mid of '27, we are in the middle of. So I think there may be a kind of 4 to 6 months delay likely because we didn't expect about a year long to get to the register, the land parcels and also now we applied for the permissions. Hopefully, this phase of the permission space, if we can kind of cut short 2 to 3 months' time with all the permissions, then we should be [ right ] on the track, maybe with a 3, 4 months leeway.
We've already kind of boarded the head of the project, and we are actually working in that on the drawing, various other things. So I think we are also trying to see that some innovative ways of -- to cut short the timelines in terms of [ core ] construction, in terms of going a hybrid way, the multiple things we are exploring it.
And I think from our side, we are gearing up to try to bridge some gaps.
Sir, if you assume, say, you get an approval in the next, say, couple of months, how much time do you think would it need to construct the spoke as well as the hub hospital?
Once you start groundbreaking, it will probably take about 2 years' time. It's in the modern way of construction, if you have got everything else finalized and go on the turnkey basis or if you try to work with great executive teams.
Thank you very much. The next question is from the line of Anand Mishra from Philip.
So I have just a couple of questions on your Gurugram expansion. So do we have any broad CapEx number for the whole project?
I think we do have broadly. But once we have are at kind of [ BOQ ] stages and those things, we'll have a lot more clarity about it.
Okay. And just quickly, so I mean, on the competitive side, right, so I think the Gurugram market is fairly competitive, given the density of hospitals there. So I mean what is our go-to-market strategy there? So are we looking at maybe being a premium player? Or are we looking at being a mid-market player? If you could give us some color on that?
I think our Gurugram flagship hospital is going to be a national [ referral ] hospital for entire North India. So that's the positioning what we're going to [ base ] it -- the hospital. The spoke hospital of 100-plus beds is going to be kind of a local Gurugram high-end hospital. And these hospitals actually are going to be probably a very, very well built and very futuristic.
But is it fair to assume a CapEx per bed in the range of INR 1.5 crores to INR 2 crores? I mean that'd would that be on the other end or...
I think it will be around INR [ 1.5 ] crores. Yes, for sure.
Thank you very much. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
Yes. Thanks. We would like to thank you all for joining today's conference call. Your participation and insightful questions are invaluable as we continue to navigate our strategic path forward. Support and engagement are crucial as we appreciate the time and efforts you have invested in understanding our business and the future plans.
We look forward to our continued partnership and are excited about opportunities ahead. For any queries, please reach out to investors@rainbowhospitals.in or Mr. Saurabh Bhandari.
Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.