Recently, we have seen exit of one of the CEO who has been with Aster for several years. How one should look at this exit - is it part of restructuring before the merger, and whether Aster is looking for the replacement of the CEO?
The end state organization is going to be a very significant and very large organization. We are looking at it very holistically on what would be the right structure and how we should be doing the cluster-wise CEOs. Once the NCLT approval comes, we do have some thoughts around what that structure will look like eventually. We are being very mindful and conscious of how we are hiring on account of that end state of the organization. We are definitely adding a lot of bandwidth across organization. The whole idea is to strengthen Aster as a whole for a combined strength of this 10,000 bed entity that we're going with.
On the Ramesh acquisition, the stake which we have increased - how should we look at this? Does increasing stake give us operating control?
Amey, we don't go into operating control with this as this was part of the initial agreement with the group and with Dr. Ramesh on having a put option over the course of the three four years. We are honoring that commitment. There is a larger discussion on how we want to look at Vijayawada, Guntur, and Ongole in the market. Those discussions are going along quite healthily. We hope that we'll have an update on how we think about the market in the next three to six months.
At a consolidated level, is there any debt on the QCIL books? If I could get the quantum, that would be great.
A debt is significantly lower than a current EBITDA, if that's a question. When we announced the merger, we on the combined level had almost a zero net debt for Aster + QCIL. I don't expect the numbers to materially move from that direction.
FY27 Aster additions of close to 1,000 beds, largely greenfield. What's the broader break-even timeline for these assets or the drag for the first 12 months?
It all depends on which micro market and whether this is the first entry or we've already been there. At Aster CMI, first hospital in Bangalore, it took almost 18 months to break even. At Aster RV, our 2nd hospital in Bangalore, we were able to break even within 12 months. For Whitefield, our 3rd hospital, the ramp up was so quick, we were able to break even in the 3rd month. It all depends on the micro market, feedback from the doctors and the patients.
Can you provide some quality of color on the Kerala business such as what are the changes we have seen on medical tourism on a QoQ basis and what's the directional trend for Q2?
Overall, the Kerala cluster has grown pretty well. Revenue growth has been around 5% year-on-year and volume growth from sequential quarter has been 6%. The change in leadership has made the whole difference there. The team is stabilized. We have hired good marketing team, leadership team there. They are able to deliver on the go-to-market strategy. We have focused back again on Oman business as well as Maldives cases. Overall, second quarter performance is going to be much better than compared to the Q1 FY26.
On margins, we have delivered a healthy 25% EBITDA margin for this quarter. Do we expect this trend to continue for the Kerala business?
Yes. So, this is definitely going to continue the way especially operational efficiency is brought in. There is manpower optimization which has happened and overall, there is even the as far as the cost of the admin costs are also being under control. So, I think overall this efficiency will continue the second quarter as well also.
During this quarter, the Karnataka volume seems to be on the lower side. There was some discontinuation of the contract. Is it the only reason for the lower volumes in the Karnataka or is something else?
In case of Karnataka, we had posted around 5% negative volume. That's basically driven by our Aster Aadhaar in Maharashtra, we discontinued the schemes. This is a 210 bedded hospital census beds, wherein the scheme business was occupying more than 20% of our beds. We had to cut down that to make space for the other patients. This has resulted in a good ARPOB growth in the unit. Once we discontinued sometime in April, we saw a dip of approximately a crore or so, but we were able to bring it back through walk-in and TPA patients in May and June.
This is the 5th hospital announced in Yeswanthpur. How are we going to think about Bangalore as a city considering Bangalore already has a good bed density?
This is one of the right localities to come up with a multi-specialty hospital of 500 bedded hospital. This is an affluent market and there is a requirement. The largest hospital competition is having is just a 200 bedded hospital. We would like to create a center of excellence for transplant program, a neurosciences center, and oncology would be a key strategy in this hospital. There is a huge potential there.
Considering we are going for a greenfield expansion in the next few years, how do you see occupancy numbers, ROIC, and margins shaping up? And what does the payback period look like for greenfield vs brownfield?
For a leased asset in a metro like Bangalore, the cost is around INR 1 to 1.1 crore per bed, only investing on interiors and medical equipment. On a lease basis on a cash basis, the payback period is approximately within 9 to 10 years. For brownfield, like we added 100 beds in Aster Medcity and 100 beds in Kannur, there is literally no drag in brownfield expansion. It is EBITDA accretive and margin accretive. We're looking at mid-teen growth at a 3-4 year horizon, with approximately volume driving 7-8% and balance 7-8% from ARPOB.
On the QCIL side, most of the growth seems to have come from the Kerala cluster. What is driving this growth, and what's holding back growth in Hyderabad?
Our mature units, which is the bulk of our business, grew 16% on the top and 27% on the bottom for this quarter. In fact, even in Hyderabad, we've seen double digit growth over the trailing quarter. Emerging units like Vizag, Chattogram, Nagarcoil grew 87.5% over last year. Nagarcoil has achieved EBITDA breakeven and the run rate of EBITDA seems to be double digit. Focus units like Banjara and Hi-tech showed 7% growth on top and 60% on the bottom quarter on quarter. Performance is quite blended across, not driven by only one cluster.
In Bangladesh operations, are you seeing any difficulty managing the operation given the geopolitical situation?
Even during the worst times at Bangladesh, our assets were not impacted at all. In fact, the patients around us ensured that we were working pretty fine and that's not changed. Bangladesh continues to grow, do exceptionally well. In fact, the Dhaka facility is continuing to get better every passing quarter.
The beds guided for commissioning in H1 FY26 - Kasargod greenfield and brownfield at Ongole and Whitefield. What's the status of these expansions?
Whitefield's tower D with 159 beds will be commissioned in another 2 months at the maximum 3 months' time, then moving women and children from tower C into tower D. Kasargod - we are already there, it's a matter of another 2 months' time to fully function the hospital, already we have onboarded the clinicians, the staff and everything. Ongole is getting ready, and we are yet to fix a timeline for that, maybe another 2 quarters down the line.
What does the QCIL expansion pipeline look like? And on ARPOB growth, what is the sustainable level to look at?
From a pipeline standpoint, we're looking at about 1,200 beds across various projects or expansions within the hospitals we've laid out earlier. At a group level, we expect at least 14,000 beds in the next 2-3 years - the combination of that 1,200 plus the 2,600 from Aster will get us to that. On ARPOB, we are nowhere close to what the benchmark today has been set. QCIL is at 3.9 ALOS and we have a significant enhancement that will continue to happen over the next 6-8 quarters.
On ARPOB growth, you've seen strong year-on-year growth. Is there likely to be moderation in ARPOB growth as seen with some peers?
The trends are likely to continue. On oncology, we're still only at 11%. We do think there is an opportunity to go further up and take it to higher teens, which will definitely help increase the ARPOB. When we look at specialty mix and equity mix, we don't see any moderation. When we talk about almost 1,000 beds coming in from Bangalore, that will actually be at a higher ARPOB. We feel confident that we should consistently be able to see growth on the ARPOBs.
On the QCIL INR 20 crore EBITDA uplift from procurement, what was happening incorrectly before? Why was procurement so inefficient and why is it so easy to change?
INR 20 crores in the quarter have not been easy. Three things we do for material cost optimization. One is scale - the 3 entities Care, KIMS and Evercare have come together with centralized procurement. When scale comes in and you're able to vendor optimize, you bring down the cost significantly. The second is formulary compliance - optimizing formulary brings down vendors from 10 to 2 for the same molecule. Third is margin optimization by moving to better-margin pharmaceutical companies. The good part about all of this is this is sustainable. You'll see it not only in this quarter, but quarter on quarter.
Can OPD volumes sustainably outgrow IP volumes and lead to ARPOB accretion?
ARPOB growth is happening on 4 factors. First, price - only a 2-3% increase in price can lead to double-digit ARPOB growth when combined with other factors. Second, we moved 200 basis points on Congo mix this quarter from 56% to 58%. Best in class is in excess of 70%, so can we get from 58% to 70%? Absolutely. Third, oncology plays a very significant role in ARPOB expansion. Fourth, cash and insurance mix is also moving northwards - we moved 210 basis points to 80%. The scheme business comes at 40% of cash tariff, so as we move the needle towards cash and insurance, ARPOB gets favorably impacted. ALOS improvement also contributes - we have a significant journey to grow.
How will the Yeswanthpur Bangalore hospital be funded? And can we expect the Karnataka cluster to contribute more to overall business over the next 2-3 years?
It will be a mix of internal and external funds. We have very good cash flow from operations conversion from Pre-IndAS running at more than 80-85%. We should be able to do with internal accruals itself. In Bangalore, quality beds market is approximately 8,000-9,000 beds. In the specific micro market we're targeting, there's a 4 million plus population with only 0.5 quality beds per thousand. Bangalore ARPOB is between INR 80,000 to 85,000 per bed and margins approximately 25-27%.
What are your thoughts on the diagnostic business post the completion of merger?
The diagnostic business for us is much more to make it a full ecosystem play in the markets that we operate. At this point in time, we're not talking about becoming a pan India player. For us, it is about an extension of what our patients in our key clusters will need. We'll continue to focus on building that in Kerala, Karnataka. If the business model is working well, we'll look at expanding to the other regions that we've now got as part of the merger. But at this point, it's more about stabilizing the model that we've built.
What information do we get from ARPP beyond ARPOB? And on the robotics front, is there something structural we need to be thinking about?
ARPP we are trying to give because in case of ARPOB, ARPOB growth always have a linkage to ALOS and whatever the plus or minus growth or degrowth which happens in the ALOS doesn't get reflected immediately. If you look at ARPP, that doesn't have the ALOS impact. So, it's very clear. On robotics - patients are coming in asking if specific surgeries have a robot available. There is a preference where patients are leaning towards this as options for specific modalities and specific procedures.
We are guiding for 7-8% volume and 7-8% ARPOB, but currently volumes are flat and ARPOB is growing at 14%. When do you expect this to transition to equal contribution?
Only in the last 3-4 quarters, very specifically from Q3 FY25, we've seen subdued performance in terms of volumes because of multiple reasons - leadership change which happened, in Q4 FY25 the Ramadan impact, and certain decisions in MVT like Maldives related payments where we had to intervene. From Q4 FY25 with 2% growth to Q1 FY26 with 8% growth. In a couple of quarters we'll start getting back into the double-digit growth.
What is the CAPEX number to look at for Aster and QCIL in the next 2-3 years?
For Aster, we are adding almost 2,600 beds. That entails approximately INR 2,500 crores of project capex. Out of 2,500, around INR 400 to 500 crores are what we already incurred as on 30th June. And balance INR 2,000 crores approximately will be spent over next 3-4 years. For QCIL, approximately 5% of the top line is the CAPEX required each year. Outside of project CAPEX, this year the cumulative CAPEX outlay including the projects is about INR 800 to 900 crores.
On the ARPOB side, was there anything linked to the insurance pricing and for FY26, could we see some incremental insurance benefit?
Out of 14% ARPOB growth, 4% from ALOS and price increase from cash patients and TPA should be between 2.5% to 3%. Specifically in case of TPA, approximately 31% contribution from insurance patients. In H2, there's a major contract getting renewed for GIPSA in Bangalore, which will give us considerable increase. As price increase guidance including cash patient increase and TPA renewals which happens once in two years, we're looking at somewhere between 3% to 3.5% contribution to the ARPOB.
Can you explain the EBITDA dip in the Andhra and Telangana cluster? Despite ALOS optimization and ARPOB improvement, margins declined.
Two reasons. One is the case mix changes resulted in material cost going up by at least 1%, taking away 100 bps in EBITDA margin. Second is both in our Hyderabad and Andhra region, we had certain attrition in the clinical talent. We have brought in new clinical talent to these hospitals, which has ensured revenue growth came in but cost was initially at a higher stage. But as we've always seen the A&T cluster was 8% EBITDA margin 2-3 years back, we have slowly optimized it to more than 12% to 13%. We expected it to go back to the similar numbers in the coming quarters.