Given the update that we saw from the approval for SEBI for open offer, how should we think about Fortis eventually at some point of time looking to take over, converting this O&M into, let's say, acquiring these assets. Does these assets interest Fortis, particularly given they have assets in Hyderabad and Chennai?
Yes. So we are sort of integrating it into our operation. But we expect that in future, we would be evaluating and seeing how we can integrate this and merge this Fortis operation. IHH has stated that they want to operate as a still platform, which is Fortis.
At the moment, the O&M -- we just have a share in revenue, right? So there's nothing that we capture from an improvement in profitability?
At the moment, that is the arrangement, but we expect that to change in the future.
My second question is related to CGHS revised rate. Are you seeing any traction from the CGHS patient or any competitive pressure from other private hospitals trying to panel with the CGHS?
Yes. So our contribution in CGHS is there, and there is a positive -- I will say not positive mix impact because of this rate change because on one side, there are many procedures which has been -- where the price has gone up. But at the same time, there is a lot of clarity required in the way the circular has come. So we are still evaluating that. However, looking like overall, there will be a positive impact. There is drug price impact on the onco drugs, then there is very little clarity on the super specialty things, how it will be working and things like that. So all those clarity we are seeking. And once we have a full clarity, we will be able to give you more precise thing. But at present, it is looking like positive. As regarding -- we are almost operating at 70% occupancy, and there is very little room for accommodate further patient actually. So we are actually focusing more on building new capacities and accommodate more patient in our network.
Any color as to how we move into next year, what is the targeted volume growth we may have for the business?
We'll not be able to comment on this at this point of time, but I feel that we are going in a positive direction in terms of both margins as well as growth compared to where we were earlier.
Are you planning to increase it to 100%? Or are you okay with this 89%?
So we are comfortable with this stake. But if the opportunity come -- as I said, we have a priority for investment in the hospital business. But if opportunity comes, this stake can also be absorbed with the current balance sheet and maybe our fundraising plan in future.
On the hospital margins -- we've indicated that we wanted to get to the 25% EBITDA margin. Now that we are probably closer to maybe 23%, do you think there's a chance for us to do that a bit faster or could we be above 25% as well in the hospital business in the next few years?
Yes, the pace at which our facility is ramping up, I think the target is not very far away. I will put that way. I will not like to give any definitive time line. But yes, next couple of years, it is definitely looking like we are reaching there.
The EMR and the HOS rollouts have always been an important part of Fortis' modernization journey. Beyond the clinical documentation benefits, have the digital systems started showing measurable productivity improvements? How far are we from having a unified digital backbone across the network?
Yes. So our rollout of EMR is still ongoing. There was -- there are about 4 hospitals where the IP modules have already been implemented, but it is still work in progress. I think we will take till the end of this year financial year to implement the entire EMR. Of course, we are seeing differences in patient satisfaction and service levels are definitely improving. But it's currently not really measurable. Once we have the entire implementation, then we would look at that. We are also in the process of improving our patient app, which is -- which also has a component of a doctor's app as well, which makes the patient journey seamless. So we are coming up with a new version of that as well using the latest technology.
On CGHS again -- you said there is some price increase. Is there some quantum like an average number? And there was some euphoria around CGHS after a long time, 10, 15 years. And now you seem a little more cautious. What are these additional requirements that is still keeping you on the sidelines?
So there is always a sort of hesitancy, Shyam, because of the non-predictability about the payment. okay? So it is always a question mark when the money will be coming, the deductions and all those stuff and suddenly some circulars come, which change the entire equation completely. So obviously, that's why it makes this payer less attractive. But having said that, in almost all our hospitals, we are maintaining a decent mix of payers. And our government payer where this particular CGHS also come is generally contributing 18% to 20% of our total overall revenue. And I think with the expansion, which we are doing and with the new hospitals and things like that, I think this ratio will maintain. And this is a welcome step where CGHS has grown some -- increased after a long period of time. As I mentioned earlier, we are just evaluating because a lot of new things have come into this. And there is certain restrictions also in the form of drug use and things like that. So we are trying to absorb this and trying to understand more engaging with the CGHS official, how it will be impacting us. Looking like it will be a positive impact, that much I can tell you.
There is no quantification, right? 10% higher, 12% higher, 15% higher, anything like an average number of what the rates are higher?
Give us some time -- Shyam, give us some time. Till date, whatever calculation I have seen, there are a lot of questions more than the answers. So that's why I am not giving you.
During the quarter, we had some extreme weather conditions in some part of the Northern India. I just want to understand whether Fortis -- any of the hospital was impacted during the quarter?
Yes. So in Punjab, there was a lot of flooding, as you are aware. So that did cause some disruption in our Ludhiana as well as in Mohali and Amritsar facility. However, there was no immediate problem in the surrounding areas. So the hospital kept on functioning normally. However, the patient flow was impacted for a week or so. But overall, as you can see, the results are quite satisfactory.
On the recent long-term lease agreement, which you have signed for Greater Noida facility and earlier it was O&M. Can you help us understand the impact on P&L?
So there is a P&L charge of rental, which will be below EBITDA actually. It will be around INR23.5 crores -- sorry, INR2.3 crores per month. So it will be like yearly charge will be around that number, INR2.3 crores per month, multiply by 12 will be the annual charge. As regard the profitability, this unit is doing around revenue of around INR10 crores per month now. And this has a 200-bedded capacity and which can further be extended to 250 bedded. It is earlier managed by -- it is a sort of plug and play for us. It is all the IT systems, our HI system is working there, Oracle Fusion, the ERP system is working there. So that way, it will be a sort of plug-and-play model. And we hope that we will be able to ramp up it quite fast. Right now, this unit is generating EBITDA of around 2%, 3%. Okay. Yes, it is a relatively new unit, as you might be knowing, it has opened around 1.5 years back.
This quarter, we have seen a significant ramp-up in the margin profile. What kind of trajectory one should see for -- going ahead for Diagnostics business?
As we have guided earlier also, it was -- the margins for -- if you see the half year, we are around 24%. So I think we'll be somewhere around the 23%, 24% for the whole year is what we are expecting.
My first question is on the Gleneagles O&M. Currently, does this include Mumbai also? Or is it just for the facilities except Mumbai?
Yes. So it is -- Mumbai is not included in the current arrangement. However, we are looking forward to have that play in the future.
The 2 hospitals that have moved to the over 20% margins. So this would be Shalimar Bagh and which other hospital would it be?
One is Mulund and another is Jalandhar. Jalandhar of course. Jalandhar is a new unit.
For the other hospitals, particularly Noida, when should we expect Noida to get to, let's say, the mid-teen profitability? Does it require some investment for us to scale up that unit? Would it take us 2, 3 years to probably improve profitability?
Yes. So, Noida, as I mentioned, there is a lot of potential in that. That's why we have gotten to this arrangement. In our view, it will take maybe 6 months -- or more months' time when it starts generating around 15% EBITDA and then it can be ramped up further in line with our other big units in the NCR. So I will say 6 months' time definitely will be required to put things in line. There is some investment required, which we'll be doing in the medical equipment and enhancing the clinical tenet and all those work will be requiring 3 to 6 months' time and then we can see some improvement. Already, we are seeing after Fortis taking over, the revenue is already showing some sign of improvement as compared to the earlier period.
If I were to strip out the Noida and Jalandhar acquisitions or O&M get converting to lease, the organic bed addition has been about 100, 150 beds. Would that be a right number?
For quarter 2, yes, approximately about 150. That's right. No, Neha. In the first half, when we mentioned that we've added an operational bed capacity of close to 550 beds, Jalandhar the current operational status is about 190 beds. Greater Noida is about 170. So that means we've added close to about 200 beds from an operational perspective in H1 of FY '26.
We still maintain the full year addition of about 400, 500 beds?
That's correct. Yes, that's right.
On hospitals top line growth -- we have done like 18%, 19% for the first half. So how should we look at second half? Can we maintain some of this momentum into second half as well?
Yes. Typically, Shyam, we have seen that H1, H2 remains almost at similar level. So there is no reason for us to believe that it is going to be inferior in any way. However, having said that, quarter 3, you could expect a little bit of dip because of the seasonal impact of festivals and holidays. But the fourth quarter is typically better. So though the base is enhanced, but we still expect that we could see a similar trend going in H2 as well.
If you could break it down into volume growth, like maybe even occupied beds growth -- large part of our growth is coming from volumes, right? Given that we have higher beds versus last year, that is what is giving us the comfort that this run rate can sustain?
Yes. So Shyam, we are expecting around 5%, 6% ARPOB growth even in the second half and balance is all the volume growth. It is primarily coming from the bed addition as we have witnessed. And apart from bed addition, there is a lot of day care procedures and these robotic surgeries and those things are also factored into while calculating the ARPOB. ARPOB increase is not like price increase, which I'm saying in all the calls. Price increase will be around 1%, 1.5%. Balance is all because of the mix change, the robotic surgeries because of the day care and those type of things are contributing to the ARPOB increase.
On the margin profile -- we had our margin guidance going from 20.5% to 22.5%. Any change to that given that in the first half, we have probably done better on hospital margins?
Yes. So in first half, definitely, we have beaten our own estimates on the margin improvement. And we expect we will continue to do better on the margin expansion side as our units are becoming mature, there will be further improvement in the margin like Manesar has already become EBITDA positive. Then we are having a lot of upside in the Greater Noida facility. And plus the ramp-up of the capacities where we have just installed like Noida, Faridabad there are some capacity which we will be adding in the second half. So all those things will -- should add to the margin improvement thing. So I think there is a possibility we can see higher margin improvement than what we have guided at the beginning of the year. To quantify it will be a bit higher.
My first question is related to Manesar facility. So what is the current revenue for this quarter for Manesar and ARPOB and occupancy trend? And are we seeing patient inflow from the catchment area or it's just Fortis network referral?
So it is a mix of all. I think Manesar is doing quite okay in terms of revenue ramp-up and the profitability side also. So -- as I mentioned earlier, this unit has achieved the EBITDA positive thing, and it is less than 1 year, we're able to achieve it. So that is a good part about this. There is a lot of empanelment which was pending earlier, we could have completed. So we expect the ramp-up should be quite smooth, and we expect to open more beds in the second half and ramp up quite fast. So I think Manesar, we should see some further improvement in the revenue, and that will lead to higher EBITDA margin contribution to the overall company.
What is the quarter run rate for Manesar this quarter?
It is around INR40 crores per quarter, and we expect it to grow around 20%.
With our occupancy now inching up consistently about 70%. So where should we see this occupancy on the existing setup in the next couple of years? And what are our plans to retire this debt? By when should we see FY '25 levels coming back?
Yes. So occupancy, first on the occupancy side. So we are at 70%, 71%. And most of the hospitals, we are operating at a very optimal occupancy level. And there are a couple of hospitals where there is scope for improvement in the occupancy and there we are concentrating more. So I will say there is a little bit improvement. But having said that, there is more capacity coming in the second half. So I will say occupancy will remain in this range, above 70% but below 75% type of number. As regard to your other question on debt, we are very comfortable at the current debt level. It is less than 1x, and company is generating healthy cash flow with the current operations. And we are plugging that cash flow back into the system for the capex, for the growth and for the quality equipment. So I think our -- we are not very much worried currently on the debt level. But if we are unable to do certain growth thing through acquisition, I think this debt level will be -- come down in 2 years' time to zero level, which is not a desirable for me actually. We want to have more growth with this type of leverage.
If you look at this quarter, our number of tests has grown only 2%. Any broad color on how should we see the Diagnostics business revenue growth moving into second half and next year?
So this quarter, there has been a slight dip in the volume mainly because of -- we had the Aam Aadmi Mohalla Clinics business, which was there until June 30. So this is not there in this quarter. So that is why there is a dip in the volumes because, as you know, that business was very high on volumes. So that's the major change that you see. Also, in this quarter, the usual surge in vector-borne diseases has been not very significant, considering the elongated monsoon season. So that also has some impact on the overall volumes.
What's your current stake in Agilus post the recent acquisition?
89%, Raman.
With respect to your Diagnostic business, your average realization per patient and average realization per test has increased year-on-year and quarter-on-quarter despite very low volume growth. Can you comment on that? Did you take any price hike?
No, we have not taken any price hike during this year. So what has actually happened is, one is our increased focus on wellness portfolio, where there are a lot of packages. So because of the higher ticket size, you're seeing a higher average revenue per acquisition or average revenue per patient. And also you -- as I was discussing earlier, we had the Aam Aadmi Mohalla Clinics business in earlier quarters as well as the previous year, which was high on volume but lower in ticket size. So that has an impact overall on both the volumes as well as the average revenue per patient. That's the only difference.
So this Aam Aadmi Mohalla Clinic will be there in the subsequent quarter? Or have you discontinued the business?
We have discontinued, discontinued from 30th of June.
Is there any delay on FMRI capacity addition in terms of the project execution? Earlier, it was -- the capacity addition was coming in the last quarter of this year, but I think it has moved. So I just want to get some understanding around that?
Yes. So we had originally planned it for the operationalization by the third quarter, end of third quarter. So there is a delay of about 3 months. Now we expect to commission it by March end. So obviously, it will go into the next financial year.
With respect to this international patient flow. How is it like shaping up in terms of the capabilities which we are building?
So it has increased by 26% year-on-year. And it is -- overall, the international business constitutes about 8% of our business. We expect it to remain more or less at the same level. But in absolute terms, it will continue to grow in double digits.
On our bed addition plan -- this year, I think you said we can add about 400-plus beds organically. Given the brownfield pipeline we have, what could that addition look like in FY '27 and which facilities will be commissioned in the next fiscal?
So next fiscal, as Dr. Raghuvanshi mentioned in the earlier question, major bed addition will be coming from the FMRI bed addition, where we'll be adding 225 beds. There will be another, say, 70 beds we may add at one of our facility in Kolkata. And then there will be ramp-up where we will be opening more bed in Manesar and maybe Bangalore where some bed capacity is there. So that will be the major capacity addition in the next financial year.
Next year as well, we could be closer to about 400-plus beds in terms of addition, organically?
Yes, it will be around 300, 400 range.
The FMRI facility for us, it's currently running at what occupancy?
Around 85% occupancy.
In terms of inorganic opportunities, are we looking at more such opportunities like the Jalandhar bolt-on that we did earlier this year?
Yes, we are always keen to look for such facilities and such opportunities. As Vivek was saying earlier, that with the healthy balance sheet, we have the capacity to absorb some more. So we do keep looking at it. However, we are very disciplined about the valuation as well as the geographical synergy with our existing clusters and our focused geography.
I wanted to understand the bridge between top line and profitability -- revenue grew 5% sequentially and EBITDA was nearly 50%, which implies a sharp improvement in the operational leverage. Could you elaborate on what specifically drove this? Was it better efficiency mix, higher ARPOB, improved utilization or stronger cost discipline?
Yes, it is mainly to do with the operational efficiency, which naturally come if we're able to achieve higher occupancy and we ramp up our existing hospital in a better way. So as I mentioned earlier, there are two, three hospitals where still there is a scope for better occupancy and there is a ramp-up possibility in our Greater Noida and Manesar facility. So all these are further opportunities that will be giving us better margin and overall EBITDA margin may go up.
Currently, it only impacts 4% of your revenues, right? So the government PCU 8%, ECHS 7.5%, that is a subsequent step. Is it usually coincidental in the sense after CGHS 3 months later, you get to negotiate the others?
Generally, this government panel move in tandem. So I think we may expect some similar type of things from the ECHS and some of the PSUs, which also follow CGHS rate. And sometimes it's automatic also because the agreement is linked to CGHS rate. So that way, it will be having a positive impact. The impact will be similar for almost all the governments. ECHS yet to come out with a similar, but we are expecting that also.
There is an open offer. December is probably the time line. What are some of the other legal things that have now opened up following the SEBI approval? Is there anything that is stopping us now? Some of the legal expenses that was there for us in our P&L -- is that now going to 0?
Yes. The open offer is closed as of yesterday. We have -- IHH has already made the announcements regarding that. So open offer is behind us now. Legal fees is definitely going to reduce, but it will certainly not become 0 because we still have the high court case, and we also have certain proceedings which the company has initiated against the ex promoters for recovery of the which they owe to the company. So those proceedings will continue to go on for some time. But other than that, most of other legal issues are behind us. As you are aware, that brand issue is also resolved. We have owned the brand and registered with us. We own the SRL brand as well now and the Fortis brand as well. Other than that, we also have done the scheme of sort of restructuring, which I would request Vivek to share a little bit about.
Any quantification on any of the legal expenses? I know it is not going to zero, but that will be helpful?
It will not be zero. Like earlier, we were incurring around INR30 crores, INR40 crores annually. Now I expect it will come down to 50% of that amount, maybe lower. It all depends on the number of hearing we have to do and things like that. It all will be depending on that. But it has come down substantially.
What are your government receivable days? Just wanted to continue on the question of CGHS and ECHS?
Yes. Generally, it is around 180 days, we are getting the money.
In our portfolio, we got around 33 hospitals. In these 33 hospitals, FMRI, Mohali and Ludhiana are greenfield hospitals. All other hospitals have been acquired, and now we are doing brownfield expansion. Do we have any plan for new greenfield hospitals?
Yes. So we are open to doing greenfield hospitals as well. In our portfolio, Noida, Shalimar Bagh are also greenfield hospitals actually. They were not acquired. But we are open to doing Greenfields. And as and when some appropriate opportunity comes, we will certainly look at that.