FORTISNSEQ1 FY23August 11, 2022

Fortis Healthcare Limited

7,148words
95turns
9analyst exchanges
5executives
Management on call
Ashutosh Raghuvanshi
MANAGING DIRECTOR FORTIS EXECUTIVE OFFICER, AND CHIEF HEALTHCARE LIMITED
Vivek Goyal
CHIEF FINANCIAL OFFICER, FORTIS LIMITED HEALTHCARE
Anand K
CHIEF EXECUTIVE OFFICER, SRL LIMITED
Mangesh Shirodkar
CHIEF FINANCIAL OFFICER, SRL LIMITED
Anurag Kalra
SENIOR VICE PRESIDENT, INVESTOR RELATIONS, FORTIS HEALTHCARE LIMITED
Key numbers — 40 extracted
5.5%
agnostic business. We've had a good start to the year. Our consolidated revenues have increased 5.5% versus Q1 of financial year ‘22 to Rs. 1,488 crore. Within this, our hospital business has done e
Rs. 1,488 crore
art to the year. Our consolidated revenues have increased 5.5% versus Q1 of financial year ‘22 to Rs. 1,488 crore. Within this, our hospital business has done exceedingly well with a robust growth in revenue of
18.5%
. Within this, our hospital business has done exceedingly well with a robust growth in revenue of 18.5% versus Q1 of financial year ‘22 and 14.6% versus quarter 4 of financial year ‘22. The consolidate
14.6%
one exceedingly well with a robust growth in revenue of 18.5% versus Q1 of financial year ‘22 and 14.6% versus quarter 4 of financial year ‘22. The consolidated revenues were impacted by the diagnostic
25%
n our last earnings call, this business as expected, has seen a decline in gross revenue of about 25% versus the corresponding quarter and 11% versus the trailing quarter, led by a significant fall i
11%
s expected, has seen a decline in gross revenue of about 25% versus the corresponding quarter and 11% versus the trailing quarter, led by a significant fall in COVID test volumes. There was a sizable
Rs. 208 crore
pany's revenue has grown by 5.5%. On the profitability, our hospitals business EBITDA stands at Rs. 208 crore, an increase of 39% and reflecting margins of 17.4% versus 14.9% in Q1 of financial year ‘22 and
39%
5.5%. On the profitability, our hospitals business EBITDA stands at Rs. 208 crore, an increase of 39% and reflecting margins of 17.4% versus 14.9% in Q1 of financial year ‘22 and 13.8% in Q4 of
17.4%
r hospitals business EBITDA stands at Rs. 208 crore, an increase of 39% and reflecting margins of 17.4% versus 14.9% in Q1 of financial year ‘22 and 13.8% in Q4 of financial year ‘22. Adjusti
14.9%
usiness EBITDA stands at Rs. 208 crore, an increase of 39% and reflecting margins of 17.4% versus 14.9% in Q1 of financial year ‘22 and 13.8% in Q4 of financial year ‘22. Adjusting for the lo
13.8%
, an increase of 39% and reflecting margins of 17.4% versus 14.9% in Q1 of financial year ‘22 and 13.8% in Q4 of financial year ‘22. Adjusting for the losses with respect to the Arcot Road fa
18.3%
osses with respect to the Arcot Road facility in Chennai, EBITDA margins for the quarter stood at 18.3%. The improvement in margins has been led by a healthy performance on all the key hospital operati
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Guidance — 20 items
Ashutosh Raghuvanshi
opening
“This I believe will be funded through internal accruals and I have already chalked out plans to move rapidly on this.”
Anand K.
opening
“We are progressing well on our project with Microsoft to develop an AI algorithm for the diagnosis of breast pathologies.”
Anand K.
opening
“Over the years, we will be focused on improving our customer experience, strengthening our test portfolio and go deeper in our priority markets.”
Ashutosh Raghuvanshi
qa
“However, now that traction is happening, and we expect that it will take another 12 months before it becomes positive.”
Amit Goela
qa
“12 months, like so in the first quarter next year, it should be positive, sir?”
Vivek Goyal
qa
“So, there is some hospitals where the EBITDA margins are on the lower category and that is dragging overall EBITDA margin below 20%, which is the immediate target for us.”
Vivek Goyal
qa
“And hopefully, this list will narrow down and some of these hospitals will move towards the next category most probably in the next year.”
Amit Goela
qa
“And sir, you're looking at 20% margin in the medium term, so you're looking at this year or next year.”
Vivek Goyal
qa
“This year it will be difficult, but we are keeping a target for ourselves for next 2 years, we should be reaching there.”
Vivek Goyal
qa
“It will be over a period of for next 4 years because we have already identified the project, lands are available, we have applied for the approval for the building plan and all those stuff.”
Risks & concerns — 11 flagged
On the diagnostic segment, commensurate with the decline in revenues due to the COVID impact, margins were lower with EBITDA for the quarter at Rs.
— Ashutosh Raghuvanshi
It is pertinent to highlight that the contribution of hospital EBITDA increased to 76% in Q1 financial year ‘23 versus 53% in Q1 of financial year ‘22 and 63% in Q4 financial year ‘22, signifying the strength in hospital business earnings and largely balancing out the decline in earnings from the diagnostic business.
— Ashutosh Raghuvanshi
On the diagnostic side, like I had mentioned at the start, business was impacted due to decline in COVID volumes, non-COVID revenues however have grown 29% versus Q1 of financial year ‘22 and 8% versus quarter 4 of financial year ‘22.
— Ashutosh Raghuvanshi
I would like to highlight that competitive pressure in the diagnostic business remain and hence the operating environment would be challenging in short term.
— Ashutosh Raghuvanshi
During this quarter, SRL conducted approximately 9.96 million tests, a degrowth of 6% compared to Q1 FY22 and a decline of 7% versus the trailing quarter.
— Anand K.
This year it will be difficult, but we are keeping a target for ourselves for next 2 years, we should be reaching there.
— Vivek Goyal
Raghuvanshi has said, as you know, some of our payees, it is difficult to increase the price, but on cash payers, we are taking measures to increase the price to the extent possible depending upon competition and other things.
— Vivek Goyal
When I add the number of beds in the hospital metrics, it’s showing Q-o-Q decline.
— Shyam Srinivasan
It is difficult to quantify quarter-on-quarter because as you know legal costs generally depending upon when the hearing happen and when the things kick in.
— Vivek Goyal
Should we see a meaningful decline or how should we say it in this financial year?
— Naushad Chaudhary
As I said, it's very difficult to comment because a lot of cases are going on and how each case will pan out, it is very difficult to predict, but rationally we are coming down in legal costs.
— Vivek Goyal
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Q&A — 9 exchanges
Q
This is a very good performance, and congratulations to all of you. Sir, I've got a couple of questions on the hospital side. Sir, when do you think Arcot will breakeven?
Ashutosh Raghuvanshi
Amit ji, Arcot, the initial progress was a little slow. Normally, we would have expected in 18 months for it to mature. But the first year somehow was impacted greatly by the COVID wave. However, now that traction is happening, and we expect that it will take another 12 months before it becomes positive. 12 months, like so in the first quarter next year, it should be positive, sir? That is the hope. And sir, in that one particular slide where you've given the hospital margin metrics, almost 30% of your revenue is below 15%. EBITDA. And 22% of your revenue is below 10% EBITDA. So, when do you s
Q
Just the first one on the hospital business. ARPOB dynamics again remain robust. I'm looking at not necessarily Y-o-Y, but if I do even 3 years 1Q ’20, it's like 8% CAGR through the time. So, just Dr. Ashutosh, if you can help us understand, I think you talked about surgical, non- surgical mix. But what's driving this? Is there an element of price increase that is there? Or is it peer mix rationalization? And what's the prognosis or the outlook for this?
Ashutosh Raghuvanshi
Shyam, it's more of case mix rather than payer mix or any other pricing intervention. We have taken minimal price increase this year, so that there is not a significant component here or pricing that is very small. The main kick has come from the increase in the procedures and surgical revenue being higher. Now, our estimate is that the ratio will sort of become slightly tempered over some period of time, because some of this is driven by the pent-up demand is our feeling, but we will have to test that hypothesis over the next few quarters. But having said that, we have certain levers still av
Q
Sir, most of my questions have been answered. Just 2 versions. One is on the court case, if you can give us an update on what's happening. And secondly, are there any incremental thoughts with respect to the structuring of SRL stake that we have in terms of either demerger or sale of stake or acquisition of the remaining stake?
Ashutosh Raghuvanshi
Yes, Sarvesh. As far as the legal case is concerned, there was a mention made at the Supreme Court and the judges made a comment that within a couple of weeks, we should hear something. So, this comment was made about 10 days back. So, we expect very soon a resolution of the case. So, that should be within the month of August is our expectation and that's what we're hearing from our lawyers as well. As far as SRL, I will request Vivek to address that. So, SRL stake, as I mentioned in the last call also, we will be exploring the different options, probably this may not be the right time because
Q
Dr. Raghuvanshi, just going back to the slide on the margin matrix, which is there in the presentation, two things; one is in the bottom layer, which is the five hospitals which are below 10% EBITDA margins, can you just help us understand which are these hospitals which are there below 10%?
Vivek Goyal
So, there are hospitals like Jaipur, Vashi – Mumbai, Malar, Sacred Heart and Arcot Road. These are the hospitals which are in that category. In these hospitals, our occupancy is 50%, Arcot Road is understandable, because it's a new hospital, I presume the other hospitals are all reasonably mature hospitals. So, is there a structural problem in these other four hospitals that we have occupancy on an average for the group around 50%? Each hospital is having its unique problem, some are struggling for the occupancy, as you rightly mentioned, like Vashi hospital in Mumbai, that is struggling on oc
Q
Just extending on the hospital metrics, if I were to look at the hospitals below the 15% margin levels, is it fair to assume that some of this should see an improvement in margin, let's say in the next year or would it take longer for these hospitals to turn around and start contributing meaningfully to margin in a positive way I mean?
Vivek Goyal
I will not be able to give you exact timeline, but all the hospitals are showing very good improvement. And some of the plans which we are having is having a long-term plan, in the sense where we are trying to add some facility, for example, in Jaipur, suppose we want to add some biggest facility there just to get better margins as well as the patient flow. So, that may require some investment for equipment’s ordering time, doctor having. So, those type of things sometimes take time. But all hospitals shown move according to my view. Sir, the reason I'm asking this question is, given our margi
Q
First, I need one clarification. In your Q1 FY'22 presentation, the non-COVID revenue contribution in the diagnostics business was stated as 74%, in Q1 FY'23, it is stated as 55%. Where is the disconnect here?
Anand K
This is Anand here. So, the COVID revenue that we have talked about in the previous year same quarter was pure RT PCR tests alone. But this time, we have also included the COVID allied test, the CRP, D-dimer, because those steps were having a very significant contribution in Q1 of last year, because that was a second wave of COVID at that time. So, during that time, we have not looked at it that way. So, now, after the calculations, we have identified that it is about 19% of the revenue, so it is 26% plus 19%, so you have 45% is a total COVID contributions for Q1 of FY'22. Second thing on the
Q
Some clarifications I have. Firstly, on the legal cost, if you can quantify it, it will be better, how much it is quarterly, if not is it at the similar run rate which it was in last two, three years or has it gone down?
Vivek Goyal
Legal costs had started coming down. It is difficult to quantify quarter-on-quarter because as you know legal costs generally depending upon when the hearing happen and when the things kick in. But as our cases are coming down, like FEHI is more or less settled, and Supreme Court hearing also settled more or less, so our legal costs start seeing a declining trend. Should we see a meaningful decline or how should we say it in this financial year? As I said, it's very difficult to comment because a lot of cases are going on and how each case will pan out, it is very difficult to predict, but rat
Q
Sir, can you highlight upon the change in brand name, is there any update on that side? Dr. Ashutosh Raghuvanshi: That is subject to the legal case getting settled and whatever direction we get from the hon'ble Supreme Court. So, we have to wait for that.
Sanjay Shah
Sir, can you highlight upon the development on medical tourism side, is there any growth seen on that side? Dr. Ashutosh Raghuvanshi: So, those numbers are coming to almost normal, as we said that about 7.5% of the revenue came from international, and with an increase base, so that is almost near to the pre-pandemic levels. So, we would definitely look at it further.
Q
Thank you, Steven. Thank you very much, ladies and gentlemen. If there are any follow-up questions, Gaurav and myself are available to provide any further clarifications you might have. Thank you once again for joining us on the call and have a good day.
Management
Speaking time
Vivek Goyal
26
Moderator
11
Ashutosh Raghuvanshi
9
Shyam Srinivasan
7
Nitin Agarwal
7
Sabyasachi Mukerji
7
Naushad Chaudhary
7
Amit Goela
5
Neha Manpuria
4
Anurag Kalra
3
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Opening remarks
Anurag Kalra
Thank you Steven. A very good morning and good afternoon, ladies and gentlemen, and welcome to Fortis Healthcare’s quarter 1 FY23 Earnings Call. I hope all of you have got a chance to go through the Presentation and our Press Release on the earnings that we had circulated on Friday evening. The call today is being chaired by our Managing Director and CEO – Dr. Ashutosh Raghuvanshi. With him, we have our Chief Financial Officer – Mr. Vivek Goyal. On the SRL side, we have Mr. Anand – the CEO of SRL. And with him is Mangesh Shirodkar – our CFO of the SRL business. We will start the presentation with some opening comments by Dr. Raghuvanshi, on the earnings gone by post which Anand will take you through certain key highlights of the diagnostics business. And then we shall open the floor for question and answers. Thank you. Over to Dr. Raghuvanshi.
Ashutosh Raghuvanshi
Thank you, Anura. Very good day, everyone. And thank you for your time to join us on our Q1 financial year ‘23 Earnings Call. I hope all of you are safe and well. I shall come straight to the performance of the quarter. And then Anand will take you through the highlights of diagnostic business. We've had a good start to the year. Our consolidated revenues have increased 5.5% versus Q1 of financial year ‘22 to Rs. 1,488 crore. Within this, our hospital business has done exceedingly well with a robust growth in revenue of 18.5% versus Q1 of financial year ‘22 and 14.6% versus quarter 4 of financial year ‘22. The consolidated revenues were impacted by the diagnostic business. And if you recall, we had clearly articulated this in our last earnings call, this business as expected, has seen a decline in gross revenue of about 25% versus the corresponding quarter and 11% versus the trailing quarter, led by a significant fall in COVID test volumes. There was a sizable revenue contribution from
Anand K.
Thank you, Dr. Raghuvanshi. A very good morning to everyone on the call. Thank you for joining us today. On behalf of SRL Diagnostics, I warmly welcome you all to Q1 FY 2023 results conference call. I hope all of you and your families are safe and in good health. I want to start off by thanking our employees, customers and partners for the trust and loyalty during the testing time. During the quarter, we reported a revenue of Rs. 332 crore with 96% of our revenue coming from non-COVID testing. Our non-COVID revenue numbers for Q1 FY23, that is excluding COVID and COVID alike tests, stands at Rs. 312 crore against Rs. 242 crore in Q1 FY22, registering a growth of 29%. COVID testing revenues contribution in Q1 FY23 is 4% compared to 26% in Q1 of FY22. Revenue contribution from specialized non-COVID tests have gone to 36% in Q1 of FY23 compared to 20% in Q1 of FY22. Our EBITDA stands at Rs. 64 crore with a margin of 19.3% for Q1 FY23, compared to a margin of 13.6% in Q1 of FY22. We are co
Anurag Kalra
Thank you, Anan. Ladies and gentlemen, we will now open the floor for question answers. May I please the question the moderator.
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