Shalby Ltd
NSE:SHALBY
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Ladies and gentlemen, good day, and welcome to the Q1 FY '23 Earnings Conference Call of Shalby hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Abdulkader Puranwala, from Elara Securities Private Limited. Thank you, and over to you, sir.
Yes. Thank you, Steven. Good afternoon, everyone, and we welcome all the participants to the Shalby Limited Q1 FY '23 Earnings Call hosted by Elara Securities.
Today, we have with us the senior management representatives from Shalby. And we will start the call with opening remarks from Mr. Sushobhan Dasgupta, Vice Chairman and Global President; and Mr. Shanay Shah, President; and followed by a discussion on the financial performance by Mr. Venkat Parasuraman, Chief Financial Officer. After that, we will open the floor for Q&A for all the participants.
I now hand over the call to Mr. Puneet Maheshwari for important disclaimers regarding any forward-looking statements that may be made in today's call. Over to you, Puneet.
Thanks, Abdul. Good afternoon, everyone. Our earnings presentation is uploaded on the stock exchange website and our company website, shalby.org. We do hope you have already had the opportunity to go through the presentation. Please note that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. Kindly refer to Slide #40 of the investor presentation for a detailed disclaimer.
Now I would like to hand over the call to Mr. Sushobhan Dasgupta, Vice Chairman and Global President, for his opening remarks. Thank you, and over to you, sir.
Thank you, Puneet, and good afternoon, everyone, and a very warm welcome to all of you on our Shalby first quarter full year 2023 earnings call. We at Shalby sincerely hope that you, your families and your friends are staying safe and healthy.
During this call, we will refer to our results on a quarter-on-quarter comparison and a year-on-year comparison. This is due to the fact that last year's same quarter results were primarily driven by COVID footfalls. Hence, for a like-to-like comparison, it is better to use the quarter-on-quarter lens.
We are happy to communicate that in the first 3 months of April to June 2022, we continue to see robust recovery in surgical procedures at a record of over 7,200 surgeries, and our inpatient count clocked at over 11,000, thereby delivering our quarter-on-quarter growth rates of 30% on surgeries and 15% on inpatient count, respectively. These achievements are a clear reflection of our continuous efforts in our marketing and business development initiatives taken by Shalby across the various states, thereby improving our occupancy levels at just over 45% from the 40% that we achieved in the previous quarter.
With this improved performance on occupancy, our top priority will continue to remain accelerating our outpatient and inpatient levels at each of our hospitals quarter-on-quarter from here. Our senior management teams are closely evaluating the performances at unit levels across critical metrics of success and taking the necessary steps to drive increased footfalls across our units.
We have been hearing about quite a large number of COVID cases during the quarter, but the infection rates fortunately haven't been at that level that needed hospitalization. Therefore, we did not see much COVID-related admissions in our hospitals. Hence, we can state that this quarter's performance is purely driven by our core specialties. However, this quarter saw a lot of COVID-related vaccinations happening in our hospitals to the tune of around 38,000 patients primarily coming in for their second and booster doses.
I would like to reiterate that our excellent hospital infrastructure, our ever smiling and carrying paramedics and our supremely efficient doctors are always ready to cope up with any COVID situation that might arise in the future. At Shalby, we are always committed in standing firmly besides our patients and provide high-quality health care services. So it was very encouraging for us at Shalby to see numerous words of praise and positive testimonial flowing in every day from our patients on how we are making a positive impact in the lives that make us feel elated and humbled at the same time.
We have added 7 more OPDs at different locations across India, like Ajmer, Pune, Gurgaon, Imphal, Gwalior, Ranchi and Agra, which will help to increase patient footfalls and augment our hospital business further in the coming quarters. We have also conducted several health care camps across various locations and consulted more than 3,700 patients in this quarter.
Shalby continued to show its clinical excellence by performing critical surgeries across units. And a few noteworthy examples are the sixth time failed hip replacement surgery of an international patient done successfully at our Krishna Shalby Hospital, 13 transplants, both kidney and liver at SG and Indore units, 12 revision knee replacement and 1 hip replacement surgery and saving the life of a very critical patient with autoimmune neurological disease and very severe comorbidities by a team of very efficient doctors in our Surat unit. All these quality health care services that have been provided by Shalby helped to boost our confidence in strengthening our position as a true multi-specialty hospital serving thousands of patients across India.
I'm very happy to inform you that our Jaipur Hospital has now completed 5 years of operation. It is the biggest joint replacement center in that state and also one of the leading hospitals in cardiac treatment in Rajasthan state with state-of-the-art facilities. As an organization, it gives us immense pride that Javahir Pachore, Director and Head of our hip surgery in Shalby Hospitals played a key role in curating India's first joint implants museum opened by the Indian Society of Hip and Knee Surgeons in Ahmedabad last month.
Our asset-light franchise model continues to witness encouraging responses and is evincing a lot of interest across various stakeholders. While we are getting a lot of inquiries, we have a standard protocol and strict guidelines in place to select the right partner so as not to dilute our strong brand equity in any way.
In this quarter, we have signed an MOU with a hospital under our franchise-owned Shalby operated franchise arrangement at Lucknow, which brings us to a cumulative count of 6 franchises so far. Our first franchise-owned, franchise-operated hospital at Udaipur has performed in line with our expectations for this quarter as well. We are doing 20 orthopedic surgeries every month at present versus an average of 10 surgeries in the previous quarter and with the business there growing by over 50% on a month-to-month basis.
We are in receipt of several inquiries for our franchise business and expect to sign around 5 MOUs in the coming quarters. We remain on course, we capitalize on our expertise and excellence in orthopedics to have over 50 Shalby franchise hospitals across India over the next 3 years and accelerate the process of taking over the operations in the majority of the hospitals under our brand name.
Now a quick update on our U.S. implant business. During this quarter, our implant business under Shalby Advanced Technologies performed very well during the first quarter of this financial year. The performance reflects our efforts in building a strong team and culture with the right mindset, shifting our focus in the U.S. market to get a better mix of retail customers versus wholesale customers, launching new products while driving our total knee and hip sales and continuously improving our manufacturing capacity to over 60%.
Our orthopedic implant business has recorded total revenues of USD 3.4 million or around INR 26 crores in the first quarter of '23. It depicts a growth of 149% quarter-on-quarter, including USD 1.5 million sales to India and an EBITDA margin of positive 2%, driven by continuous focused approach in profitable product mix, better price realization through changing customer mix and also liquidation of some low-value refurbished inventory.
We continue to hire and train shop floor personnel in our Eldorado factory in California for our U.S. -- for our implants business to support the acceleration in manufacturing of components in this plant. And today, we are a 60-plus people organization in the U.S. Our core leadership team is dedicated to continuously working on reengineering the manufacturing process so as to bleed our assets even better, improve shop productivity and bring down cost of goods further through smarter procurement, our great existing products with new variants, better design of our instrumentation to make it simpler, establish a robust end-to-end supply chain and acquire new customers, surgeons, hospitals and channel partners through new product introductions and regular field meetings in the U.S.
Our new product called Tahoe Unicompartmental Knee System, or TUKS was launched this quarter in the U.S. and this is expected to be a blockbuster product in the near and long term. We have also imported our Shalby Consensus implants into India during quarter 1 of full year '23 for our hospital consumption, and I'm very pleased to inform that the initial responses on the usage of the product have been extremely promising.
Our plan to launch our Shalby Consensus implants pan-India for other surgeons and hospital groups is on track with a lot of hospitals reaching out to us showing a high degree of positive intent to use our implants. We have started building our team on the ground by hiring highly experienced orthopedic salespeople, led by a very capable assistant vice president in India and South Asia. And we expect to go for a full launch during the third and fourth quarter of this financial year in India. We have also a very sales -- experienced sales leader based in Malaysia, responsible for our Southeast Asia business and our discussion for regulatory and distributor partners in Indonesia is in very advanced commercial stages. We are also in active search for distribution partners in other Southeast Asian countries mainly in Vietnam, Malaysia and Thailand and expect to close these out soon.
So with a clear direction and Shalby's well-established presence in Indian health care infrastructure, we are supremely confident of continuing to deliver double-digit growth in our hospital business with consistent continued high profitability, increase our footprint further in India by adding many more orthopedic units under a franchisee model and surpass INR 100 crores and the EBITDA positive in our implant business in this fiscal year. All these in turn will drive immense value creation for all our stakeholders at Shalby Limited.
Now it is my pleasure to hand over the call to Shanay Shah, President of Shalby Limited to discuss Shalby's performance in detail during the quarter. Over to Shanay.
Thank you. Good afternoon, everyone, and thank you for joining in. In our previous interactions, we have emphasized that over the next 5 years, Shalby as a group will build on 3 major verticals of growth, which are the hospitals business, the implant business and the franchisee business.
To focus on these strategic growth drivers, we have also strengthened our management bandwidth, which will remain committed to reinforce and grow the Shalby brand globally. Post COVID subsided and travel resumed post January last quarter, we continue to see a good pickup in the medical tourism, wherein the international revenue has grown by 47% quarter-on-quarter with majority of the patients flying in from Kenya, Tanzania, Uganda, Sudan, UAE, Nepal and Bangladesh, among other countries.
We strongly believe that medical tourism will be a growth driver in the coming years for the health care sector due to the India advantage as we call it. This will be further boosted by the government's thrust and support by introducing various campaigns. I strongly believe that such initiatives will create an ecosystem, which will help India to become a hub of medical tourism globally.
Shalby also takes pride in nurturing the young talent and in parts training in health care through Shalby Academy. During the year, we have trained more than 445 students on various disciplines of physiotherapy, nursing, lab technicians, diabetics, nutrition, clinical, paramedics, hospital management and pharmacy among many other courses for the academic outreach. Over 150 students have undergone our certification program on various paramedical courses in affiliation with the National Council of Paramedical and various other universities.
I'm very happy to state that we have received the pending backlog of interest subvention from the government of Gujarat amounting to INR 4.75 crores during the quarter 1 of FY '23 and are expecting to receive the recurring interest subsidies and electricity duty subventions regularly hence forth. Also, we have cleared the demand dispute with regards to income tax amounting to INR 14.36 crores during the quarter. The liability that remains is a [ very user amount ], and this will help augment our creditworthiness from the credit rating perspective.
We shall remain committed to adopt sustainable best practices at all levels of the organization, keeping environment, social and governance framework in mind, which will ultimately grow stakeholders' value. Furthermore, we are conscious of our social responsibilities as a health care providers, trying to improve health outcomes while reducing the cost effectiveness of the therapy.
Now coming back to the performance numbers, I'm very happy to report that Shalby has registered the highest ever revenue in the first quarter of FY '23 with high double-digit growth of elective surgeries. During the quarter, a total of 7,211 elective surgeries were performed and which grew by 30% quarter-on-quarter compared to quarter 4. We saw a jump of 15% quarter-on-quarter for the inpatient count compared to -- in quarter 1 of FY '23. The occupied beds increased to 557, which was up by 12% in quarter 1 FY '23.
The ARPOB and ALOS were also recorded at INR 35,304 and 4.08, respectively, which have also done better than Q4 of last year. Our core specialties such as Arthroplasty, Oncology, Cardiac Science, Orthopedics, Critical Care & General Medicine and Neurology have contributed 84% aggregate to the revenues in Q1 FY '23.
The international revenue was recorded at INR 24 million, which grew by 47%, as mentioned earlier. The Home Care business revenue of INR 21.5 million grew by 13% quarter-on-quarter, with patient served count of 5,868 in quarter 1 of FY '23. We continue to be net cash positive as a group with about INR 44 crores of cash -- of net cash at group level. Our realized return on capital employed from the hospital business has increased to 17% in this quarter.
I now hand over the call to Mr. Venkat, CFO, to present the company's detailed financial performance for the quarter and year.
Thank you, Shanay, and good afternoon, everyone. I will walk you through the financial performance for the current quarter. Firstly, I'll be presenting about the stand-alone hospital performance and then follow it up with the consolidated group performance.
On a stand-alone basis, we saw revenues at INR 1,810 million, an increase of 19%. [indiscernible] COVID, we saw a sharp 30% jump in surgeries from approximately 5,600 surgeries in Q4 '22 to 7,300 plus surgeries in Q1 2023. The company EBITDA increased to INR 428 million from INR 328 million for the previous quarter, an increase of 32%. Our EBITDA margin continued to be a standout in industry at 24%, meeting our continued commitment of 20%-plus margins year-on-year.
Profit before tax stood at INR 328 million, and the PAT stood at a strong INR 21.5 million -- INR 214 million, a strong 45% increase quarter-on-quarter.
Coming to the consolidated financial performance. In Q1 FY '23, we recorded revenues of INR 2,057 million, an excellent 32% increase quarter-on-quarter. EBITDA was at INR 440 million, an increase of 56%. Adjusted net profit was at INR 249 million, 116% increase from the same quarter from the previous quarter.
Coming to our implant business, SAT recorded revenues of INR 262 million for the first quarter with a positive EBITDA of INR 4 million and the margin at 2%. With significant ramping up of operations, we are expecting a strong -- much stronger turnaround in FY '23. We have closed the year with a net cash balance of INR 1,255 million on a stand-alone basis and INR 439 million at a group level.
Thank you for your time, and now we can open up the call to any other questions we have.
[Operator Instructions] The first question is from the line of Dixit Doshi from Whitestone Financial Advisors.
On Page #18, we have given the performance of different hospitals, 10-year plus 5 to 10 years and 0 to 5 years. Can you give the occupancy level of these 3 segments?
Yes, sure. So the occupancy level of all the 3 segments is something that we have not shared in our presentation. But as aggregate it is 45% and it is mentioned. So this is something that we can kind of share with you offline, and we can make it part of the presentation from next time onwards.
Okay. Okay. But is it fair to assume that 10-year plus would be having much higher occupancy and 0 to 5-year would be lower compared to the average?
Yes. So 10-plus years would have the highest occupancy levels followed by 5 to 10 years and then followed by 0 to 5 years.
Okay. Okay. Now my second question is on the consensus business, so in the presentation, you have given the last 5, 6 quarters revenue and also the number of components manufactured. So if I see -- so obviously, this might not be the sales number, maybe it is a production number. But if I see the average realization, it varies a lot from almost INR 10,000, INR 12,000 to INR 30,000. So what could be -- we can consider as average realization? And why it has changed so drastically in current quarter?
Yes. I'll answer. The reason is, obviously, when you look at where the balance of sales are happening. So when you look at the average realization of what we get in the U.S., it's at least 3x more than what we get in India. So whenever you see that your mix of sales where there is a bit of India business coming in, that's where average realization drops.
On an average, I can tell you our realization for a business in the U.S. is close to around $2,500 whereas when you look at it, it depends because it is a wholesale and a retail mix. When you get into a retail mix, the realization is more. When you get into a wholesale mix, the realization is less. And when you look at India, it's almost around 2.5 to 3x lower. So when you look at the average realization as a total, it depends upon the balance of mix that is happening in the business between India versus the U.S.
Okay. And we have a 1 lakh component capacity, right? So currently, we are running at 30%, 35% utilization only.
Yes. We are -- if you ask me, we are running actually at around close to 50% utilization capacity. Today, on an average, we are producing 3,000 components a month, which would be around -- we are planning to do it by the end of this year or maybe the end of this calendar year, close to 5,000 or around 5,000 components a month, which is around 60,000 components about it. So if you look at it, we will be getting at 60% at that point of time. And to get to the 100,000 components, we are looking at several other aspects of increasing.
One of the critical areas that we look at is how we can get, the machines are all there. It's all about the trained personnel, trained number of people of machinists coming in and getting trained. It takes an average of 5 to 6 months to train a machinist or a finisher to be able to perform to their full productivity. So we have to get in machines and products. And one of the good things that is happening is we have a good sticking factor in our corporation, especially people who come into the shop floor because we have very senior leaders who are working on the shop floor, they have a very sticky and attractive caution for keeping people on the job.
So we are pretty positive that we will be able to hit the 100,000 components in the next fiscal year. But right now, we are aiming at 60,000 as the first step, which will happen pretty soon.
Okay. And once we, let's say, reach 80%, 90% utilization in this business, what kind of sustainable EBITDA margin this business can generate?
We are looking at overall -- our goal of this business is to get to an EBITDA between 25% to 30%. And that to happen, there are several factors on the EBITDA works, right? For example, the more we produce our fixed cost gets equally distributed for the cost of goods come down. So we are doing several other things. One is, obviously, for increasing our manufacturing. When we increase our manufacturing to a certain level we bring down the cost of goods or our cost spend out.
Secondly, we are looking at vendors. We are looking at some very, very good quality vendors at a very reasonable price, and that would help us reduce our raw material cost a lot going forward.
And third thing is a mix of sales. We are slowly ramping our sales in the U.S. And as you can understand, the more we sell in the U.S., the more profitable it becomes. And at present, we are expecting this year to be landing at 75% of U.S. sales and 25% of India sales. So that -- all these factors would help us to reach that 25% to 30% EBITDA margin that we are aiming for.
Okay. And last question on the -- our franchise business. So on the Page #28, we have given, so I think 2 franchises have already started. And 4 we have done the MOU. So by when these other 4 will start the operation?
Definitely by the end of this calendar year where you -- when you look at, say, Gwalior and Kanpur, these are getting operational pretty soon. Even Lucknow will be coming in pretty soon. We already have Udaipur and Vijay -- and Rajkot is a greenfield project. We expect this to be completed by the end of this fiscal year and start.
Okay. And on the same page, we have given the total revenue of INR 10 million for Udaipur in this quarter. So Udaipur is FOFO model. So this INR 10 million is that centers revenue or our management fee?
Venkat, can you answer the question?
INR 10 million -- yes, this INR 10 million will be the revenue of the unit.
Revenue of that unit. Okay. Okay. And just last one question from my side. So in the FOSO model, we generally have a revenue share percentage. And in FOFO, we get a management fee percentage. So what would be the broad percentage in both the models?
So in terms of the FOSO model, where kind of we share the fee to the partner, the fee ranges between 6% to 8%. And when we do a FOFO, where we are entitled to a management fee for the partner being able to use the brand of Shalby, the range there is between 3% to 5%.
[Operator Instructions] The next question is from the line of Avinash Bala, an individual investor.
I think part of my question has already been answered regarding the EBITDA of the consensus. So basically, what -- if I'm given to understand is that as the company moves closer towards, say, 60,000 phases to 100,000 phases, the company would kind of have an EBITDA of about 25% to 30%. Is that correct?
Yes. What we have done is we have created a road map for consensus. We call it now the Shalby Advanced Technologies. We have created a road map. And when we look at the road map we have seen in phases. So we plan to do $100 million worth of sales in 5 years' time. So when we reach $100 million, which means the ratio would be around 70% of the sales will come out of the U.S. Between 65% to 70% comes out of the U.S. and the rest will come out of the rest of the world, which means India, Southeast Asia, part of Middle East and Africa and Japan and Latin America as well. So these are the 5 areas that we are focusing on.
What would happen is with that mix coming in and with $100 million worth of sales, we expect the EBITDA to be getting to between 25% to 30% at that point of time.
And also about the realization in India, basically, you're saying that your gross margins are 1/3 of what it is in the U.S. because your cost is in the U.S., our cost is there, but your realizations are much lower than what you can get in the U.S., right?
Yes. So basically, what happens is when you look at the prices, so India, especially the knee market, as you know, is a highly regulated market in terms of the price, right? So there has been our DPCO ruling that came up in, I think, 2018 or 2017, which regulates the price of knees and that's the reason the prices of knees are regulated and controlled to a certain level. Whereas when you look at the U.S., that has a certain price -- average selling price in the marketplace. When you look at the Southeast Asian markets today, it's around a couple of hundred dollars more versus what you see in India. When I go to Middle East, we will be generating another $200 or $300 more than what we see in the Southeast Asian market.
So that's the reason if you see every market has different dynamics. India will give us volumes. So when I produce 100,000 components, a year, and then I move into other aspects as well. We have also -- the 100,000 components in the future will not help us to get to that $100 million. We will need much more than the 100 million -- 100,000 components. So we have space. We have production. We have almost 10,000 square feet of space in the plant that we currently have in El Dorado Hills, which we can use, which we have not used it yet. We will be expanding our capacity there. We will -- we are also looking at partnership in other places. We also have plans to look at how can we get in some manufacturing into this part of the world, especially our country.
So all these things are plans in place in a strategic playbook that we have. But we have all in phases. And so when you talk about the end game, the end game is $100 million, 5 years with an EBITDA of 25% to 30% with a much more manufacturing components that we are going to manufacture not only in the El Dorado Hills, but in some other parts that we are looking at.
Just one last question, sir. I just want to know, is the U.S. market not deep enough to take 100,000 components because straightaway, you get a $200 million top line, if you are only focusing on U.S., right?
Yes, it's a great question. But what happens is -- it's a market which has a large number of players. When you look at the U.S. market, U.S. is very profitable, right? When you have profitable, what happens, the biggest of biggest players play in that area. You have Johnson & Johnson, you have Zimmer Biomet, you're Stryker, you have Smith & Nephew. They are 10,000x bigger than us, right, as a company. So they are well entrenched in that market. So what you just said is perfect. If I had the wish, I would have $1 billion from U.S. alone straight away. But it takes time because converting a customer in orthopedics takes time. They require resilience, it requests patients, it requires a lot of chasing in terms of providing service, providing the right intent and also waiting for mistakes to happen from the other side who the surgeon is doing because an orthopedic implant is not only about just taking a medicine or a device and just putting it into the body of a patient. It involves a lot of instrumentation.
So for implanting a hip and knee, which has 4 components, you require close to 125 instruments on a sterile tray kept next to the surgeon. And the surgeon has that sense of ownership on that instrumentation by using it constantly. And that's the reason I'm saying I wish you could have sold all the 100,000 components and $100 million in the U.S. and generated the maximum profit. But it takes time to do it. But in the meantime, if it takes time, I have to also ensure that my cost of goods in the corporation comes down and how will it come down? By manufacturing more and more components. And if I manufacture more and more components and when I'm not being able to sell everything in the U.S. at the same time, where do I do it? I sell it in India so that I have better cash flow through managing my inventory correctly.
So if I just -- what would be the -- like the EBITDA was for U.S. versus non-U.S.? I mean, just like a kind of a ballpark kind of.
Right now, it's too early to comment at this moment. When you look at -- because the company is still evolving, right? So we are still not in a situation that we would be saying that EBITDA for U.S. is this and EBITDA because just the first tranche of product has just come into India. We have not even started using, if there's inventory lying in the hospital. We have started using it and so on. Similarly, we have inventory lying in the U.S. We are generating -- building our inventory because orthopedic business is such that you need to have a minimum of 6 months of inventory to be on the shelf before the surgeon is comfortable to use it. And this is an industry-wide practice. And I don't believe it will be changing in the near future.
So it's very difficult for me to really tell you at this moment. Maybe in a couple of next quarterly calls, I would be able to bifurcate and give you a better understanding of the differences between EBITDA in the U.S. in India. But having said this, it is pretty clear because, as I said, your average realization of the prices are much more in the U.S. versus in India. The EBITDA would certainly be much higher.
The next question is from the line of Girish Bakhru from OrbiMed.
So just a question again on the implant business. What would be the cost per component today? And where are you aiming to reduce it? If you could give some color on that?
Right now, the cost has been reduced. So whatever we -- when we took over, we have been able to reduce the cost by almost 30%, 3-0. We aim to reduce the cost by another 35% to 40%. So basically, when you look at -- our aim is to bring down the cost, say, to around $500 a component. So when I get into a $500 a component, that gives me the scalability to be able to go further. Right now, it is, I think -- as I said, we started with a huge number. We brought it down to 30%. We aim to get it down to another 35% to 40% to get to the $500 mark.
And like you said before, the big component here is especially in the training. So that's -- is that the main cost that is there in the component or?
No. Actually, the big component is the raw material costs. If you look at the raw material, so you have cobalt chrome, you have titanium, you have ceramic. And these are the 3 big components that come out. And with the current situation, first, the COVID and then now the Ukraine war, along with the energy prices going up, there's a lot of supply chain expertise that is needed. We have a great supply chain leader who is working for us since the last 6 months, who has been able to actually tie up a lot of our supply chain goals earlier on by getting into fixed pricing that is helping us. But many companies in the orthopedic industry because of the raw material things is a problem.
So to your -- coming to your question, raw material is the biggest cost. Obviously, the labor comes in, definitely is a big cost, especially the variable overheads in terms of the wages that comes up for every person, whether it's a machinist or a finisher. Also, you have costs in quality control. We have a quality control robust process. We have labeling, finishing and packaging in that factory as well. We also have sterilization done in the factory. All these have required people that's a significant amount of cost. So it's people and raw materials. These are the 2 big costs at this time.
Right. And these input cost pressures, particularly on the raw material side, I mean you did say that there is a lot of supply chain expertise that required there. But in an event when these input prices are very high, I'm assuming that there would be some lag in which you can pass to customers? Or is there any ability to do that?
No, it's basically what you said is right. It's very difficult in this sort of a situation at stage of our business that we pass on the price to the customer. The customers are not willing. And even all big companies, I am in touch because I used to work for Johnson & Johnson for a long time. So I have -- I get feelers of what's going on in the marketplace. No company has been able to pass on the price increases of supply chain to the customer. They're absorbing it.
So what we are doing, and we are doing much more smarter procurement than what we used to do before. We were spread thin across maybe very many vendors. We have renegotiated with larger vendors more closer to our plant. So some of the tactics that have been taken place to ensure that we can keep our raw material costs under check.
Right, right. The second, on the surgery count, I mean, this is a sharp jump, of course, given the recoveries happening. This surgery count jumped 30% includes franchisees results when we reported.
No -- it's not...
No, no, go ahead. You go ahead.
Sure. So I was just saying that it doesn't include the franchisee business. The franchisee business, both put together have done about 100 surgeries. So that is separate. And then there's another 7,200 which are done across the 11 hospitals. So that's completely separate. And the mix, as we have shown is about 50% arthroplasty and the other 50% coming from the other top specialties.
So no, my question actually is that if surgery count of, let's say, up to 30%, but your revenue is up, I think, 16%, 17% quarter-on-quarter, I mean, is this because the payer mix is different because payer mix also seems to actually be favorable. How do you relate these two?
No. So payer mix has not changed very significantly. It is the specialty mix, which has changed. And you see that the arthroplasty business has kind of gone up significantly. And what happened is also in the quarter of January to March this year, about 15 to 20 days were affected in terms of surgeries because of the Omicron wave. So that is the reason why the number of -- the growth in the number of surgeries is a lot higher in this quarter. So you see that the total revenue has grown by about 20%, but the surgery count has grown by 30%.
So to your question, I think it's -- it's a mix of surgery because if you look at the realization for surgery is highest in arthroplasty and maybe lower in some of the other places. So when you look at the mix itself, the mix will give you a clear indication of why there is that 10% differential between the volume of surgery growth versus the revenue dollar growth or the rupee growth. As Shanay was saying, is the mix -- specialty mix is the change.
Yes. So the -- if you divide it between surgical work and the medical work, the surgical work has grown faster than the medical work in this particular quarter.
Yes. But my understanding was that should have increased revenue in -- I mean, how much higher than that? I mean anyway, maybe I'll take that offline later. On the occupancy side, any visibility if we will go to 60% or higher next year?
Sorry, can you repeat your question?
Occupancy side, like right now, we are hovering around 45% number. When do you see 60% occupancy is coming on average?
See, so in this year, we are looking at an average of between 50% to 55% kind of number. So we can assume that in FY '24, we will be looking at the 60% level sometime early in that year. So we believe that we are -- we have the potential. So in this year, we are projecting sales of about INR 800 crores in the hospital business with a healthy 25% kind of EBITDA number -- EBITDA percentage. And we believe that this number will continue to grow at 15% to 20% year-on-year. And if that happens, you're looking at the 60% number of occupancy coming in FY '24.
Okay. Okay. That's helpful. And finally, on ARPOB, any significant movement that one can expect there? Or is it something that 35,000 odd range?
So we have seen an ARPOB of more than 35,000 in this year -- in this quarter largely because arthroplasty work has been at a record high for us. We've clocked more than 3,500 arthroplasty surgeries in this quarter. But in the history, we've largely seen that number be between 30,000 and 35,000. So we believe it will continue to stabilize at that level. As we continue to focus and emphasize on growing our other specialties, we believe that this number might come down a little bit, but it will definitely be over 30,000 at any point in time.
[Operator Instructions] The next question is from the line of Rikesh Parikh from Absolute Advisors.
Congratulations on the good set of numbers. The question was on the consensus. I want to understand almost 40% of the sales are coming from India. So it was sales only to Shalby or we have been selling to other partners in India also?
No. Right now, we are selling to Shalby. The reason what we decided as a phase is that we would first use in Shalby because we will try and understand how is the instrumentation in the hands of the surgeon, what is the way to market the product and so on.
So the plan is to first use in Shalby. We will be going out to the rest of the surgeons, as I said, in my earlier delivery that we would be launching it in the quarter 3 of this year to the other surgeons. There's a lot of interest being shown by other surgeons to use our products. And the 2 reasons that we are not going outside of Shalby is one, is we would like to use it in Shalby and be comfortable with the product and the instruments and have a good learning so that we can pass on to the customers who would be outside of Shalby, that's number one.
And the second reason is that we would be able to then build sufficient inventory of implants and instrumentation to be able to service our customers outside. Because when I go out of Shalby, I cannot be selective. I cannot say, "hey, Dr. X, I can give you, but door Y, I will not be able to give you. I need to go full-fledged. If I have to go for full-fledged, I have to service with a lot of inventory and instrumentation, which will take time to build up. These are the 2 main reasons we would go out in the third quarter of this fiscal year outside of Shalby.
Okay. And in terms of manufacturing facility in mix by the end of the year, where do you see will end up in terms of the number of components or we target to reach?
We will be -- right now, if you look at, say, for example, from -- at the start of this quarter. So if you do what I would say, say around 30,000, we will be ending close to around 40,000 to 45,000 components by the end of this year. 45,000 components means it is around close to 11,000 constructs of knee or hip. So every construct, which is used in a surgery, it has 4 components. So if you see if I can produce 45,000 components in this year, in this fiscal year, which will yield around 11,000 to 12,000 constructs or 12,000 surgeries for us. That is our plan. And next year, we plan to cross over 60,000 components in the next fiscal year and the following year, we would be certainly touching 100,000 components.
Okay. And one just bookkeeping question on this franchisee business at first. So how do we account the revenue there were first 2 franchise, which has been operational, so we take our share as a part of sales or it is part of the other income what we are looking?
So our share of the revenue forms part of the revenue. It is part of the revenue, not in the other income.
Okay. So by the end of the year, will be having around 8 to 10 based on the pipeline, around 5 to 6 operational as such. So probably as the revenue from the franchisee increases our margins will start to increase since this is directly coming from the top line to bottom line. Is my understanding right?
Absolutely.
[Operator Instructions] The next question is from the line of Ron from Maribor Stocks.
Congratulations on great set of numbers. I was listening to your media interview and it is very heartening to see that you are projecting a INR 400 crore per quarter in the future. So I just wanted to understand, tentatively, when do we see this quarter coming? And will the EBITDA margins of around 25% be sustainable during those levels also? That's my first question.
Yes. Ron. So I think what I think was -- I'll clarify what I was talking. I was basically trying to say that we have the potential in the existing capacity of hospitals to do between INR 350 crores to INR 400 crores of revenue in a quarter. So that is at the peak. Now we -- as I earlier mentioned in this call that we are looking at a 15% to 20% kind of annual growth in the hospital business. So we do believe that it will take between 3 to 4 years to get to those levels. So that is the answer to your first question.
Second question, you mentioned somewhere that the plan to enter into the Kolkata and Delhi market. So is there any change in strategy where earlier the focus was on Tier 2 and Tier 3 cities, now the move to move into the Tier 1 cities. So your thoughts on that?
See, Ron, I think if you look at the geography mix of Shalby right now, we are largely present in Tier 1 cities and state capital. So that would include Mohali, would include Jaipur, Indore, Ahmedabad, Surat. So we are largely present in Tier 1 cities. Yes, we are also present in some Tier 2 and 3 cities, which include Jabalpur and Vapi. And a couple of years back, we also signed up for the Asha Parekh Hospital in Mumbai, which is again going to be more of a metro kind of a presence for Shalby.
So we are not -- we are kind of agnostic to whether it is a metro or Tier 1. At the end of the day, it has to be a good investment for the group, and it has to make sense from the return on capital employed perspective. So as long as we are able to look at and identify opportunities in Delhi and Calcutta whereby we are able to justify the investment to the shareholders and to the Board, we would be okay to do that.
Delhi and Calcutta, Shalby has a great brand recall. This is number one. It brings a lot of patients from within India. So for Calcutta within the Northeastern states, there is a huge drainage into Calcutta. From the international medical tourism perspective, a large part of Bangladesh and Nepal and Myanmar, they all fly into Calcutta for treatment. So that opens up that opportunity as well.
Delhi, as you know, is very well connected internationally as well. So that would also make a lot of sense from the perspective of Shalby because we have been pioneers in terms of medical tourism in this part of the country. And we would like to leverage on these geographies as well, whereby we can capitalize fully in terms of our potential.
Great. Great. Can I squeeze in another question?
Sure. Go ahead.
Okay. So this Home Care, which relatively looks like a very small part of the revenue scheme present here, registering about INR 2 crores. But with the demographic dividend changing for India and it's expected that around 19 crore people will be there in the elderly category by 2030. So do you see this Home Care business of Shalby like doing an exponential growth in the coming years?
Yes, absolutely. So we believe that the potential for Home Care is huge. At the moment, we are providing services like pharmacy, diagnostics, physiotherapy, nursing, also doctors on call. These are the different kind of services we are providing. We are largely today present in only the cities where we have our hospitals. Although as you said, the revenue today is small, it's a little over INR 2 crores. What we are not accounting for is the indirect benefit of patient loyalty and brand loyalty that comes in when something happens with the patient. So if we are connected to the patient through Home Care, what happens is that if something happens to anyone in the family, they rush straight to our hospital. So all of that underlying benefit is not even accounted for in that revenue that we see.
But yes, we see Home Care as a big potential. We are also working on how we can use technology to reach out to more people and enable this growth to be much faster over the next few years for Home Care.
So it seems like we lost the connection for the current participant. [Operator Instructions]
Hello?
Yes, we can hear you.
My question regarding the hospital business. There are 3 hospitals, which are less than 5 years old. They have 337 operational beds, which represent 337 of total operating with capacity. However the revenue contribution is only 18%, and EBITDA contribution is only 3% to 4% of the total revenue. So when management is expecting their EBITDA contribution to reach to 10% or more?
So basically, as you mentioned, I think we are striving to increase and ramp up these newer facilities. So the 3 hospitals here would be Mohali Naroda, Surat, which are 0 to 5 years old. And the revenue today is about INR 332 million over there. And the EBITDA margins are lower. But as we talked today as well, the numbers have ramped up. So the numbers are going up, and we are working on kind of introducing newer specialties, adding more doctors and creating more brand awareness in those towns to kind of increase the capacity utilization of those hospitals.
Naroda and Surat both are kind of hospitals and areas where it's a very doctor-centric market. And essentially, we have been able to strike some good deals over the last few months. So in the coming 2 to 3 quarters, you will be able to see the results in terms of higher EBITDA margins in these hospitals.
Okay. And all 3 hospitals are EBITDA positive?
Mohali is not EBITDA positive as we talk today.
[Operator Instructions]
I think there are no more questions.
Sir, no questions in the queue as of now, sir?
That's okay. I think we had a lot of deliberations, which is great, very productive interactions.
Sir, over to you for closing comments.
Yes. Thank you again for all the support and your interest on Shalby. As you have heard from Shanay and me and Venkat that we have in the right track. Our first quarter results have been stupendous. And we are on a trajectory of improving further from here. We have our core flagship hospital business doing well. And you have seen some of our growth areas of the franchisee, the home care as well as the U.S. implant business get gathering a lot of teams. So we have a great value creation for the Shalby stakeholders. And we wish you, and thank you for all your support, and we I would like to come back to you again with an even improved performance in the next quarter. Thank you.
Ladies and gentlemen, on behalf of Elara Securities Private Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.