FORTISNSENovember 18, 2022

Fortis Healthcare Limited

7,762words
96turns
10analyst exchanges
6executives
Management on call
Ashutosh Raghuvanshi
MANAGING
Vivek Goyal
CHIEF FINANCIAL OFFICER – FORTIS HEALTHCARE LIMITED
Anand K
CHIEF EXECUTIVE OFFICER, SRL LIMITED
Mangesh Shirodkar
CHIEF FINANCIAL OFFICER, SRL LIMITED
Anurag Kalra
SENIOR VICE PRESIDENT –
Gaurav Chugh
FORTIS HEALTHCARE LIMITED
Key numbers — 40 extracted
10%
have witnessed a strong set of earnings for the quarter, our consolidated revenues have increased 10% versus Q2 of financial year '22 to INR 1,607 crores. I'm very pleased with the way our hospital b
INR 1,607 crore
for the quarter, our consolidated revenues have increased 10% versus Q2 of financial year '22 to INR 1,607 crores. I'm very pleased with the way our hospital business has performed. Our hospital business revenu
18%
eased with the way our hospital business has performed. Our hospital business revenues have grown 18% versus Q2 of financial year '22 and 9% versus Q1 of financial year '23. Our diagnostic business,
9%
has performed. Our hospital business revenues have grown 18% versus Q2 of financial year '22 and 9% versus Q1 of financial year '23. Our diagnostic business, on the other hand, witnessed a revenue
6%
However, it is pertinent to note that compared to the trailing quarter, the business witnessed a 6% revenue growth reflecting early but encouraging signs of pickup post the COVID impact seen previo
22%
t the COVID impact seen previously. Just to recall, the diagnostics business had an approximately 22% revenue contribution from COVID and COVID allied tests in Q2 of financial year '22, which stood a
5%
contribution from COVID and COVID allied tests in Q2 of financial year '22, which stood at a near 5% in Q2 of financial year '23. If we adjust the COVID revenues on a like-to-like basis, the diagnos
5.3%
adjust the COVID revenues on a like-to-like basis, the diagnostic business revenues actually grew 5.3% versus Q2 of financial year '22. On the profitability metrics, our hospital business EBITDA stand
INR 246 crore
us Q2 of financial year '22. On the profitability metrics, our hospital business EBITDA stands at INR 246 crores, an increase of 30% and reflecting margins of 18.9% versus 17.2% in Q2 of financial year '22 and
30%
the profitability metrics, our hospital business EBITDA stands at INR 246 crores, an increase of 30% and reflecting margins of 18.9% versus 17.2% in Q2 of financial year '22 and 17.4% in the Q1 of f
18.9%
r hospital business EBITDA stands at INR 246 crores, an increase of 30% and reflecting margins of 18.9% versus 17.2% in Q2 of financial year '22 and 17.4% in the Q1 of financial year '23.
17.2%
siness EBITDA stands at INR 246 crores, an increase of 30% and reflecting margins of 18.9% versus 17.2% in Q2 of financial year '22 and 17.4% in the Q1 of financial year '23.
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Guidance — 20 items
Ashutosh Raghuvanshi
opening
“We are quite excited with the EMR project specifically, as it would further strengthen our core belief of, Care For Good, for all our patients, enabling quicker access to health care records and faster diagnosis and treatment.”
Kunal Randeria
qa
“I still see that 20% of revenue come from CGHS, government, PSUs and ECHS, so I assume the bed contribution will be even higher than this.”
Kunal Randeria
qa
“So now that you have a good 70% type occupancy going forward, do you see this number coming down quite a bit and what we should expect in the coming years.”
Vivek Goyal
qa
“There is opportunity here to change the payer mix in our favor in some of our hospitals where the potency level is quite high, but it will be very selective.”
Kunal Randeria
qa
“Sure, but your TPA plus, I think, cash is around 70%, 72%-odd, so should we expect it should remain at these levels going forward?”
Kunal Randeria
qa
“So just wondering the kind of growth momentum that you expect, especially considering the kind of competition that you are seeing in this industry.”
Kunal Randeria
qa
“And the testing momentum also increased at that time, so maybe it will not be the right comparison between Q2 and Q2 of this year in terms of non-COVID as well, but at the same time, we internally for us we also have a situation where we had Himachal Pradesh PPP project which we were running last year.”
Kunal Randeria
qa
“If you adjust for that, our growth will be close to about 9%.”
Nitin Agarwal
qa
“And in terms of the expansion that we're undertaking, is it fair to assume that bulk of it will be coming in what you call Tier 1 town and metros?”
Nitin Agarwal
qa
“And sir, I mean, it's fair to expect that, of the six hospital which are there in this 10 lower than 15% bracket, all goes to plan.”
Risks & concerns — 7 flagged
Our diagnostic business, on the other hand, witnessed a revenue decline versus Q2 of financial year '22, which was primarily on account of the significantly lower COVID contribution.
— Ashutosh Raghuvanshi
On the diagnostics segment, commensurate with the decline in COVID and COVID allied revenues, EBITDA for the quarter stood at INR 73 crores versus INR 103 crores in Q2 of financial year '22.
— Ashutosh Raghuvanshi
On the diagnostics side, though the business was impacted due to decline in COVID volumes, adjusting for the COVID revenues, non-COVID revenues have grown 5.3% versus Q2 of financial year '22 and 5.6% versus quarter 1 of financial year '23.
— Ashutosh Raghuvanshi
And that is not of concern because there is a little bit of demand-supply gap in this season.
— Ashutosh Raghuvanshi
You are right that brand change always carries a certain amount of risk and expense as well, but there are certain constraints around the brand which is owned by the ex-promoters.
— Ashutosh Raghuvanshi
The large hospital in this category is the Vashi hospital, a sizable hospital in this category, which is, again, having its own challenge because of a specific area where there will be some hospital being operated, and there are infrastructure related issue also and it is a government hospital and we are operating it.
— Vivek Goyal
I mean these deals are very difficult to predict, but yes, our aspiration will be to close that in during this period.
— Vivek Goyal
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Q&A — 10 exchanges
Q
Just on the hospital business. I still see that 20% of revenue come from CGHS, government, PSUs and ECHS, so I assume the bed contribution will be even higher than this. So now that you have a good 70% type occupancy going forward, do you see this number coming down quite a bit and what we should expect in the coming years.
Vivek Goyal
Yes, I will take this question. Vivek this side. So you are absolutely right. There is opportunity here to change the payer mix in our favor in some of our hospitals where the potency level is quite high, but it will be very selective. It will not be like across the board. Sure, but your TPA plus, I think, cash is around 70%, 72%-odd, so should we expect it should remain at these levels going forward? So the payer will go for TPA care and the international business. And the other business will scheme business will come down. And one just quick one on diagnostics: The 5% non-COVID year-on-year
Q
Dr. Raghuvanshi, on the hospital network expansion, we've talked about 300- to 400-bed per- annum addition over the next two to four years. Now two things, one is, a, this entire expansion is going to be brownfield or are we looking at is there any element of greenfields in this expansion?
Ashutosh Raghuvanshi
This entire expansion is brownfield. It is within the given hospitals, but at some places we have to construct a fresh tower. And in certain places, we already have the civil construction done and only the interior work needs to be done. So it's a mix of both, but essentially this is all in the category of brownfield. And this will typically, what, a 50 lakh, 60 lakh per bed sort of expansion cost for further expansion? Yes. So on a blended basis, the entire thing would come to about 80 lakhs per bed. Despite it being like a brownfield sort of expansion. Yes. But because you see, we will also
Q
Just first, on the guidance for occupancy. Dr. Raghuvanshi, you said that we have touched 70% and we would like to progress toward 75%, so despite some seasonal Q3 may be slower, but just what are the drivers of this, Dr. Raghuvanshi, in terms of is it that you are seeing more and more speciality? Is it international patients? Is it market share gains? If you could help us understand. And NCR, clearly at least one of the key reasons for you. There is quite a lot of supply also coming, so how do you kind of embed that into your outlook as well?
Ashutosh Raghuvanshi
Yes. Shyam, as I have said many times before that as far as the additional capacity which is coming across in the region and NCR, that will get very easily absorbed. And that is not of concern because there is a little bit of demand-supply gap in this season. It's of a huge internal. So the main driver for us will be volumes coming because of the addition of clinical talents. As I mentioned, we have added quite a bit of talent in last quarter, and as they start getting stabilized, that would be one of the drivers. And international definitely have been showing continuous improvement. It has co
Q
My second question was just on the speciality mix. So if I were to just do simple math on using numbers of the speciality mix, onco revenues have grown 50% roughly. And when I look at overall growth, it's 18%, so I just want to understand how we are achieving this. And it can this kind of sustain the kind of growth we are seeing in some of the higher-growing specialities?
Ashutosh Raghuvanshi
Yes. So onco growth specifically. As we had stated about two years back, that onco is a area where we are focusing. And we had acquired some talent. Plus, we had created some facilities. Like, for example, in BG Road, we did not have oncology earlier. We added there two years back and many other infrastructure things we have done in the oncology segment, so we expect that oncology will continue to show higher growth for at least another one year or so. And that would be sort of then stabilized to a much, yes, more regular rate of growth. Other than that, the other core specialities which we ha
Q
Sorry if this may be a repeat question, but I'm just going through your hospital margin metric. So if I look at the category of EBITDA margin for your hospital which falls in the 10% to 20% bracket, I mean, and occupancy has surged to around 70%, 72%, but I mean it's still remain in this margin bracket itself, so apart from occupancy, we wanted to know. What will be the other factors which you guys are working upon to improve the margin in these hospital beds?
Vivek Goyal
Yes. So it is a good question. So apart from the occupancy, we are very well working in improving our payer mix, which I have covered in my earlier comments, where we are trying to reduce the scheme business to the extent possible and increase the share of TPA, cash and international business which are high-margin business for us. Secondly, we are also trying to improve the speciality mix also in our favor by adding more speciality by investing in infrastructure, in the form of equipment and things like that. So those are the state ones. And thirdly, we are also working on the margins. So we d
Q
Dr. Raghuvanshi, my question is regarding our brand that is our parent's strength. That is IHH worldwide. They are into personalized care ranging from primary to ordinary and even some ancillary offerings. So how in India we compare ourselves with the par treatment to our patients. And is there any scope to add more to our offerings and profiles?
Ashutosh Raghuvanshi
Yes. So Sanjay, we are getting a lot of support, and we are using our, a lot of synergies with IHH, especially regarding the quality. So we participate in that global quality program. Quality benchmarks and metrics are followed on regular monthly basis across the entire IHH network, so the best practices of, on clinical quality and other innovative initiatives is shared across the network, including with Fortis, so that is one big advantage. Another thing which I had briefly mentioned during my statement is about the electronic medical record which we are working along with the IHH folks to im
Q
Sorry. I joined a little later, so this question, if you just answered, can you repeat, please? Sir, like in diagnostics, we have some government business, so do we have any kind of such obligation in our hospital business where we have to provide them at concessional rate and which, over a period, we may reduce so it can help us to improve the profitability?
Vivek Goyal
No. Except, in FEHI, we have 25 beds dedicated for EWS. I don't know, I don't think there is any of this facility where, no. Apart from FEHI, we don't have any obligation at any of our facilities to take government business, government patient provide free service or concession- grade service. And second question, sir, on these hub-and-spoke several-tier institution. I mean companies are going in hub and spoke more, say, for Tier 2 and Tier 3 cities. So do we have any kind of such aspiration, or is that clearly a profitable business or make a business case? Yes. So we have stayed away from tha
Q
So I'm not sure if you already answered, but you were explaining the downstream, a potential immediately of 1,300 beds. Have you been searching a patient like Bangalore, Mumbai and Calcutta, but is there a more granular breakup that you have given, like what would be the capex slated in the next few years and which cluster the beds will be?
Vivek Goyal
Yes. So as mentioned earlier, so this bed extension is on our existing hospital only and all are in metro. So major expansion is happening in the NCR region, yes, but followed by Bombay and Calcutta and Bangalore also. Bangalore... Can you give numbers also, sir, if possible? Like how many beds in NCR? How many in Bombay? And how many in Calcutta? Yes. So 50% of the bed expansion is coming in the NCR region. And Bangalore, we are expanding around 200 beds, and Calcutta around another 200 beds. And Mumbai, we have already completed the construction. We are waiting for the OC. We have partly ope
Q
So your press release mentioned, talked about portfolio rationalization and inorganic expansion going to be drivers of operational performance. Could you elaborate a little bit on both these aspects, especially in light of the supreme court judgment? Are we ready to press ahead on both these levers?
Vivek Goyal
Yes. So we are moving ahead on both these levers. Brownfield expansion, anyway, the capex requirement is quite less. And as you have seen, the cash flow generation from the business is quite handsome to take care of this brownfield expansion of its own, and as mentioned in Dr. Raghuvanshi's speech also, the leverage ratio is quite comfortable. Our debt level, net debt level, is INR 500 crores-plus level. It is less than half of the one-year EBITDA, so that gives us confidence that we can very well fund it by a little bit leveraging our balance sheet, so we are actively pursuing the acquisition
Q
Thank you, Inba. Ladies and gentlemen, thank you very much for joining us on the call today. Gaurav and myself are available, in case you have any further clarification or queries, please feel free to reach out to us or e-mail us. Thank you very much. And have a good day.
Management
Speaking time
Ashutosh Raghuvanshi
16
Vivek Goyal
16
Moderator
12
Nitin Agarwal
9
Shyam Srinivasan
9
Dheeresh Pathak
8
Anand K
5
Anurag Kalra
4
Bharat Sheth
4
Kunal Randeria
3
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Opening remarks
Anurag Kalra
Thank you, Inba. A very good afternoon and good morning, ladies and gentlemen, and thank you for taking the time to be with us on our quarter 2 FY '23 earnings call. The call is being led by our MD and CEO, Dr. Ashutosh Raghuvanshi. With him, we have our Chief Financial Officer, Mr. Vivek Goyal; from SRL, Mr. Anand, who is the CEO there; and Mangesh Shirodkar, the CFO of SRL. Along with me, I also have Gaurav. I hope all of you have got a chance to go through the results deck and the press release that we had circulated on Friday evening. We will begin with some opening comments by Dr. Raghuvanshi, following which Anand will take you through certain key highlights of the diagnostics business. And then we can open the floor for questions and answers. I now hand over to Dr. Raghuvanshi.
Ashutosh Raghuvanshi
Thank you, Anurag. Good morning and good afternoon, everyone. Thank you for joining us on our Q2 financial year '23 earnings call. I hope all of you have had a great time with your family and friends during the festival season. I would like to straightaway talk on the performance of company for the quarter. And then Anand will take you through the highlights for the diagnostic business. We have witnessed a strong set of earnings for the quarter, our consolidated revenues have increased 10% versus Q2 of financial year '22 to INR 1,607 crores. I'm very pleased with the way our hospital business has performed. Our hospital business revenues have grown 18% versus Q2 of financial year '22 and 9% versus Q1 of financial year '23. Our diagnostic business, on the other hand, witnessed a revenue decline versus Q2 of financial year '22, which was primarily on account of the significantly lower COVID contribution. However, it is pertinent to note that compared to the trailing quarter, the business
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 for our Q2 FY '23 Results Conference Call. I hope all of you and your families are safe and in good health. During the quarter, we reported a revenue of INR 351 crores, with 95% of our revenues coming from non-COVID testing. Our EBITDA stands at INR 73 crores with a margin of 21% for Q2 FY '23. We conducted 10 million tests in the quarter and serviced over 4.3 million patients. While COVID-related testing and volumes have slumped as predicted, we are witnessing an uptick in non-COVID volumes across our network. SRL's B2C-B2B revenue mix stands at 55 to 45, consistent with our Q1 ratio. Our non-COVID revenue growth stands at 5% in Q2 FY '23 versus Q2 of FY '22 and at 6% versus the trailing quarter Q1 FY '23. Non-COVID revenue grew by 16%, approximately, in H1 FY '23 compared to H1 of FY '22. In a post-pandemic setting, we are wit
Anurag Kalra
Thank you, Anand. Ladies and gentlemen, we shall now open the floor for question-and- answers. Inba, please moderate that.
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