My first question is on your oncology contribution. So during the quarter, obviously, we saw some softness, which you attributed to discontinuation of patented chemo drugs for institutional patients. So do you think you can go back to the prior level of contribution from oncology? And what could drive it back?
Well, when you say contribution, this is high-value drugs. So, the pricing was high in terms of the revenue, but the margins were not substantive, compared to the rest of the business. This impacts the institutional patients only. These are high-value drugs, which were low-margin, and were being used actually for the institutional patients. What they have asked now is to sell them below your purchase cost. So obviously, everybody has discontinued it.
Okay, sir. So we see this as like a one-time adjustment and then going ahead, the growth will be...
So we continue to talk to CGHS, right? There is a lot of noise among the institutional patients. For example, CGHS has their own dispensaries to supply these medicines. They said that they will supply these medicines directly to the patients. Secondly, they are saying otherwise, we will give it to you at 70% of the MRP, but our margins are less than 20% in these drugs. So, there is no question about supplying these drugs. We cannot be cashed out of these drugs while supplying these drugs. I think that is where the discussion is on and we are asking CGHS to give us some top-up on cost-plus basis.
Continuing from some of the question asked by the previous participant, possible to get the quantum of increment -- and like -- or at least can we compare like what kind of increment will be getting compared to the past year for insurance company?
Shaleen, tough to really give actual numbers. We got an increment, that is for sure. It is a moderate one, but then we will not be able to give you a number.
Sir one concern which we kind of - there is a debate this happened with these four companies, can it happen with others as well? So do you think that can happen? Second, do you think that this kind of mechanism can smoothen out?
I think clearly there are learnings when something like this happens, right? It has also led to a lot of noise both ways and inconvenience to patients, not only our patients, but also to insurance patients. By the end of the day, and I keep saying this, that medical inflation is in very low single digits. If your ARPOB growth has only been 8% or 9 historically, which has included growth in oncology by around 25%, growth in robotics by around 40%, growth in international patients, etc. and you actually back it all off, what is the real growth in medical cost, apples-to-apples?
I heard that you talked about the EBITDA contribution from new facilities in Nanavati and Saket has already accretive. So is it possible to understand that? Obviously, when you started these things there will be some incremental cost which would have hit you in the quarter? Is it possible to quantify that kind of cost?
I think what happens is that, and this is something we have guided to in the past as well when people have had concerns on capacity expansion, etc., essentially what you are doing is that you are moving cash from your balance sheet and you are creating an asset. Because of the operating leverage, you do not have any suppression of margins. In fact, the breakeven is almost immediate and is accretive very quickly. And we have had 39% and 30%, respectively, margins from both these units, where we have only started about 60 to 70 beds, right? Yes, there are pre-commissioning costs sitting, but it is not as if they are only sitting and not contributing.
And the last question is with respect to Gurgaon. Sorry, if I missed in the opening remarks, like do we expect it to commission like by Q4 end or Q1? And what would be the impact like maybe a quarter or 2 impact of losses from Gurgaon since it is like a large Greenfield?
I think towards the end of H1 FY '27 is when we should be able to sort of commission the first phase over there. We are not going to give you any guidance on the losses there, but you have the history in front of you. And I will tell you why we are not doing that. Because it is a function of the clinicians you are able to get and what sort of programs you are able to start. We are happy to make a bigger loss over a shorter period of time and to have a deeper trough.
And just one more question again on insurance side. It looks like that it has been targeted towards Max, while we are not seeing this kind of impact and for the other -- or some of your other peers, etc., in Delhi NCR. So, any specific reason for this, basically why it has been targeted towards Max? Separately, what kind of the safeguards that you have that the other insurance companies, let us say, does not do it again in future?
I think, hopefully, everybody has learned from it. Because I do not think the disruption is only for Max. I think the disruption would also be for other insurance companies. And there is a reason that other insurance companies did not join in. I think it just made some more media this time. And it has been disruptive to patients, and these patients are also customers of the insurance companies.
Understood. And last question on institutional patient share. So, it has gone up quite a bit, 36% and part of this disruption. So, any color how to look at this number, let us say, 1 year down the line or 2 years down the line?
Well, I think the important thing is that when you are coming up with capacity, the more capacity you come up with, you will have institutional, exactly to what extent is another matter. But the fact of the matter is still the EBITDA per bed is higher -- even with the lower rates for the brownfield capacity additions. That is what we are kind of demonstrating right now.
And secondly, when we look at our business for the next couple of years, the EBITDA per bed for us has been a pretty dramatic journey, which we have had over the years, around 7.5 million to 8 million is where we are at. I mean, does the network EBITDA stabilize around that? Or do you see opportunities for us to significantly increment it from these levels?
We may have a lower EBITDA per bed, but you have to focus on ROCE over there. I mean we are not focusing on making EBITDA per bed or ARPOB accretive or whatever. We are focusing on ROCE.
And in oncology, again, I guess, we heard about some doctors' team departure, etc. So has team fully back in strength? And what kind of further pickup we can see in the oncology space, leaving aside the CGHS issue, which will, I think, be cleared in some quarters to come?
Typically, what happens is that for organizations like us, if there is a departure of a certain clinician, then there are almost immediate replacements from equivalent institutions. In this particular case, while you may have heard the noise of departure, there has already been an addition and there were big advertisements in the papers about it. We hired a very large team who has just joined us from one of our peers, who sort of replaced that particular team that has gone to that peer. It has been a swap effectively.
My last question is on your regulation with the insurance partners. So have you like done renewing all the insurance contract for this cycle and you have nothing like pending on that part?
I mean, of course, this was disruptive in some manner to us in this quarter. But all of it has been restored. We have got an increment and a mechanism has also been put in place that there will be annual increments rather than having the sunset periods. Typically, your insurance contracts expire and those negotiations take time. So, now, a process has been put in place where at least with these insurance companies, there is automatic renewal on pre-agreed sort of increments.
Basically, the reason to ask you a lot of things have happened in the third quarter and that has kind of hurt our profitability. We understand that there is going to be a step jump from third quarter or fourth quarter in terms of profitability because a lot of things have been corrected. And even new facilities are coming, it will just help us to understand what kind of a step jump because one you are...
So, I think these are the smaller factors that have affected the profitability. If you ask me, the two big factors, perhaps, which have affected it would be, first and foremost, the seasonality. Last year, right up till Diwali, we had a very strong vector-borne season, and high occupancies because of dengue, which has happened historically as well. This year, the rainy period continued straight into winter. And the second was, of course, the insurance disruption. Now when the disruption happened with the SAHI companies, we replaced all of that with institutional patients because that is the easier part to replace it with.
Last question from my side if I can. And this is more on the industry level. So a lot of debate again on this as well, it is like too much capacities are coming, too many hospitals are coming, and in certain micro markets for example Gurgaon right? But what is your take on it, right? Do you think that a lot of hospitals coming in Gurgaon can impact Saket or customer types are different?
I think there are two or three things over here. If you look at it on a holistic level, I think over the next 4 to 5 years, there are about 20,000 beds, which are coming up across the country. It does not really move things. Over 5 years, the capacity increment CAGR is, I think, 5% per year. Let us look at Gurgaon specifically. Now if a couple of hospitals are coming out of Gurgaon and we happen to be actually one of them. So, I think we are less likely to take a hit at Saket or anywhere else because if any of our doctors want to move to Gurgaon, then they will choose our hospital, right?
The first question is with respect to insurance. So just wanted to get a sense what would be the rough share of, say, top 5 insurers for us as a percentage of hospitals revenue? And when we set up a new hospital, two ways. One is a greenfield and the other one is when we do a new tower in the existing setup, how easy or difficult is the empanelment?
So, on a brownfield, you do not need to negotiate because the same hospital license continues into the new. So, in case of brownfield, there is no re-discussion or re-empanelment. In case of a new hospital, that means a new hospital license, right? If you do not have the empanelment terms already agreed, then you need to empanel.
When you say we have categories determined so how long does it take? So when, say, for example, Gurgaon, whenever it comes online in the next 1 or 2 quarters, what is the expectation of the full empanelment across insurer? Like does it take 3 months, 6 months, 12 months?
Yes, because typically, you require NABH and to get NABH, you typically require 6 months of data. Even the institutional patients, take about 6 months to onboard. And you have different rates for NABH and non-NABH. So, I think the first gating item for a new hospital would be to get NABH.
My second question is with respect to -- I think, Abhay, you mentioned on the -- in the opening commentary that we should be back with respect to growth from Q4 onwards. So just wanted to get a sense. So do we foresee a step -- like a stepped or phased manner of recovery growth that Q4, you might be partially back and Q1, you should be fully back?
I think the big deterrent on our growth has been capacity. I mean, essentially, if we go beyond the seasonality of it and whatever one-time disruptions were, which are back to normal. I mean everything that we have acquired over the last couple of months or the new capacities that we set up have been ramping up very well. Two years back, the issue was where is growth going to come from because the fact is that we were operating at very high capacity and the growth was going to be coming in essentially from the capacity addition. And there has been a delay of a quarter or two. So now that it is online, then we should be back to trajectory.
So one question on CGHS, ECHS rate revision. So you earlier talked about approximately INR 200 crore kind of a positive impact on revenues, but that is including the impact of discontinuation of some patented drugs, etc., right? So is it possible for you to split it like what is the absolute impact of rate revision?
Vivek, we already said that the net impact is INR 200 crore. We have net off the onco impact, because onco is part of that MoU when the price got revised. So, I would say it will be probably INR 280 crore minus INR 80 crore. But I must also mention to you that the whole price increase has not happened in Q3. ECHS has revised the prices only in December. Also, the super specialty rates within that category will be available from 1st of April. So, to my mind, the full impact of this will start to come from Q1 FY27. But I think a large part will start to flow from Q4 FY26.
So, my first question is on the growth of our existing hospital beds. So traditionally, if we see barring any seasonality impact, you still managed to see good low teens kind of growth for our existing beds despite the fact that they have been operating at like 75% plus occupancy levels. But as we go forward, do you think theoretically, this has to normalize at some point in time?
Look, I think seasonality, if you look at the past 10 years has been a reality. The big difference is that last year we had big seasonality, and this year, we had actually no seasonality. So, it is a little bit of a double whammy. If you look at the numbers last year, we had some 30%-35% growth as a group year-on-year basis in Q3. So, it was a very high growth. Now having said that, the big jump in the current year was going to be coming through capacity additions. And clearly, there has been a quarter or two of delay as far as that is concerned.
And my second question is more clarificatory in nature. You mentioned that the GST rate has also had a bearing on our margin. So just wanted to understand this would have not impacted our absolute EBITDA, right? It was just impacted our margins because your realizations go down?
No, it does because when you bill to the patients, the bill is at MRP, but you do not pay the GST on the margin because these goods are used for delivery of medical services. So, there is an impact on the margin as well.
We have been doing roughly INR 400 crore -- INR 420 crore plus/minus sort of a capex per quarter. But FY '26, I guess, the target is up to INR 1,900 crore. So are we on track to do that kind capex?
Yes. Also, when you do a cash flow projection, you will always do a conservative projection, right? That is how we plan for it. We do not want the project to suffer because of financial closure, etc. So, you will always find that we will be spending less than what we are projecting because of the fact that we project a conservative number.
And given the current sort of cash flow, which is like roughly INR 300 crore +cash flow from operations, I am referring to. So does it mean that you still have some more debt coming on balance sheet? So, which means effectively INR 2,100 crore net debt is that the number in FY '27 as well?
I think the incremental beds that we are getting on stream now, they will start to give us operating margin. And we mentioned that all these beds are EBITDA as well as margin accretive. So, we obviously expect better cash flows from these operations now that the new beds are getting operationalized. I think last time also the question was asked, it will go up by around INR 500-600 crore in terms of net debt, but it will be still less than 1 unless we do any M&A, etc.
And just lastly, Smart, there has been like almost 5, 6 months delay. So -- and still like the regulatory approval is to come through, so February '26, is that sort of now largely certain or that might get pushed for this?
So as far as Max Smart is concerned, the original time given was FY '28. This project has taken us about 24 to 25 months, in its entirety. We expect approvals by end of Feb'25. It has just gotten ready now, and we have just applied for approval. So, there will be no delay in approvals. The project has been delivered now and approvals have been applied for and we are expecting it by end of Feb'25.
Abhay, you have talked a couple of times about the Dwarka hospital and the fact that we have seen encouraging progress on it to go in for expansion. If you can just give us some more colour on what's been the progress -- financial progress of the hospital in terms of where it is reached right now, which prompted you to go for expansion at this early stage?
We are already operating at close to 75% capacity, although almost half of the business continues to be institutional. So we are already doing 20% margins at Dwarka while 50% of the business is institutional. When we put up capacity going forward, it will take us at least 2 years to put up that capacity. We are already seeing month-on-month, there are more cash and insurance patients coming through and the institutional patients are reducing. And therefore, you will see the margins move up. That is the encouraging part.
And secondly, on the Jaypee Hospital, can you give us any update on the progress on that?
So Jaypee Hospital is doing well now. I think the occupancy has improved over the period in the hospital. So I think if I consider year-on-year, it will be more than 30% growth. We acquired this in same quarter last year. The revenue is up by 30%-35% and EBITDA has also improved. And when I say 30% increase in revenue, that obviously means that the revenue has come down first because when we acquired the hospital, we stopped all the referrals, etc., the revenue tanked a bit and then we brought it back. So, this 30% growth Y-o-Y same quarter is basically after that dip, which happened in the first quarter after acquisition and then we built it up. The real growth would actually be around 40%.
And in terms of profitability, is it now closer to your network profitability? How far is it from there?
No, it is not. It is less. So, I think the first endeavour was to stabilize the operations. We had a lot of complaints in that hospital, so we were working on that. I think the margin is probably 3-4% lower than the overall margin that we have in the Network.
Over the next 2 years, from where do we see our operational beds sort of fitting out, we are about 4600 operational beds right now. Where do we end up in the next 2 years?
We are around 4,800 right now. And we are adding another 1,200 beds, including Gurgaon. So that is around 6,000 and by FY '28, we should be hitting 8,000. It is available in the presentation.