HCGNSEQ2 FY23November 17, 2022

Healthcare Global Enterprises Limited

8,123words

102turns

11analyst exchanges

3executives

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Management on call

B.S. Ajaikumar

EXECUTIVE CHAIRMAN, HEALTHCARE GLOBAL ENTERPRISES LIMITED

Raj Gore

CEO, HEALTHCARE GLOBAL ENTERPRISES LIMITED

Srinivasa Raghavan

CFO, HEALTHCARE GLOBAL ENTERPRISES LIMITED

Key numbers — 40 extracted

420 crore

inancial performance for quarter ended September, 2022. Our consolidated revenues for Q2 stood at 420 crores a growth of 19% on YOY basis. This strong revenue growth coupled with our focused efforts on cos

19%

r quarter ended September, 2022. Our consolidated revenues for Q2 stood at 420 crores a growth of 19% on YOY basis. This strong revenue growth coupled with our focused efforts on cost rationalization

130 bps

with our focused efforts on cost rationalization has resulted in year-on-year margin expansion of 130 bps leading to adjusted EBITDA margin of 19.3%. Our adjusted EBITDA for Q2 FY23 stood strong at Rs. 8

19.3%

ion has resulted in year-on-year margin expansion of 130 bps leading to adjusted EBITDA margin of 19.3%. Our adjusted EBITDA for Q2 FY23 stood strong at Rs. 81 crores a growth of 28% over Q2 FY22. As

Rs. 81 crore

0 bps leading to adjusted EBITDA margin of 19.3%. Our adjusted EBITDA for Q2 FY23 stood strong at Rs. 81 crores a growth of 28% over Q2 FY22. As a result, our Q2 FY23 profit after tax on a pre-Ind-AS basis st

28%

EBITDA margin of 19.3%. Our adjusted EBITDA for Q2 FY23 stood strong at Rs. 81 crores a growth of 28% over Q2 FY22. As a result, our Q2 FY23 profit after tax on a pre-Ind-AS basis stood at Rs. 10.54

Rs. 10.54 crore

wth of 28% over Q2 FY22. As a result, our Q2 FY23 profit after tax on a pre-Ind-AS basis stood at Rs. 10.54 crores, up by 137% on Y-o-Y basis. Over the last few quarters, we've been regularly informing you about

137%

As a result, our Q2 FY23 profit after tax on a pre-Ind-AS basis stood at Rs. 10.54 crores, up by 137% on Y-o-Y basis. Over the last few quarters, we've been regularly informing you about our efforts

rs,

a pre-Ind-AS basis stood at Rs. 10.54 crores, up by 137% on Y-o-Y basis. Over the last few quarters, we've been regularly informing you about our efforts to drive growth on several fronts like enhanc

40%

emerging centers has started showing promising results. Kolkata and Mumbai centers have grown by 40% and 30% respectively on year-on-year basis in current quarter. I am happy to highlight here that

30%

g centers has started showing promising results. Kolkata and Mumbai centers have grown by 40% and 30% respectively on year-on-year basis in current quarter. I am happy to highlight here that our Jaip

25%

here that our Jaipur center has more than doubled revenue on a year-on-year basis with more than 25% EBITDA margin, our two linear accelerators there are nearing full capacity utilization and we wil

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Guidance — 20 items

B.S. Ajaikumar

opening

“This is just of our achievement in academic and research and going forward we will continue to ensure a seamless integration of clinical services, academics and research such that all our - breakthroughs to serve the large purpose in the form of better treatment outcomes and improving the quality of life for our patients.”

Raj Gore

opening

“I am happy to highlight here that our Jaipur center has more than doubled revenue on a year-on-year basis with more than 25% EBITDA margin, our two linear accelerators there are nearing full capacity utilization and we will be commissioning one more linear accelerator early next year.”

Raj Gore

opening

“Going forward we will continue to invest in HCG brand to make it the most preferred choice for cancer patients across India.”

Raj Gore

opening

“We are very optimistic of improving our market share and strengthening our leadership position going forward.”

Srinivasa Raghavan

opening

“Total planned CAPEX for Ahmedabad is 85 crores, expected date of operations being Q1 FY25 and for Bangalore COE is 25 crores, expected date of operations being Q4 FY24.”

Srinivasa Raghavan

“In terms of your question in terms of what kind of benefit this would kind of entail or result in , we expect this should result in the next year a profit overall EBITDA improvement of about 100 to 150 bps basically on the EBIDTA Margin.”

Raj Gore

“We think it's a one-off and it will get back on track going forward.”

Raj Gore

“So, it will start coming down, by end of this financial year we expect it to go away.”

B.S. Ajaikumar

“That impact is to be seen in the last quarter at the beginning of the next year.”

Dhara Patwa

“Like when can we expect East India hospitals to deliver margin of (+15%)?”

Risks & concerns — 5 flagged

As we all know in the past it is very difficult to ensure high end training in Tier-2, Tier-3 cities and also to find personnel who are willing to relocate and practice there.

— B.S. Ajaikumar

My question number two is that we see some sequential decline in our emerging centers revenue and some decline in ARPOB as well.

— Karan

I think one of the things is we have not seen the full impact of our other initiatives like what Raj or Srini mentioned.

— B.S. Ajaikumar

If we exclude the impact of that my PAT should look better.

— Srinivasa Raghavan

The point I want to understand here is I believe the major drag in the emerging centers; margin is Kolkata where you are kind of seeing a 50,000 kind of ARPOB levels and eventually the emerging center’s occupancy has almost touched 70% this quarter.

— Sabyasachi Mukerji

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Q&A — 11 exchanges

My first question would be on the 5 crores consulting cost that we booked in Q2. Can you just give us some color on where this 5 crores consulting cost has been spent and what kind of benefits are we going to see from this? That's my question number one. My question number two is that we see some sequential decline in our emerging centers revenue and some decline in ARPOB as well. Can you just give us some more color on how do we see this shaping up for us and what exactly are we doing in our Bombay and Kolkata center? We said that we are going to get new talent in and a new surgical head over

Srinivasa Raghavan

Thanks for the question. I'll take the first question; regarding this 5 crores that we are talking about, this is regarding the value creation activities that HCG has embarked upon. We are working on two things. One is how do we drive productivity and efficiency across the system? That is one line of activity. The second area that we are working on is on the digital front as to how we can use technology platform and digital platform to drive revenue. These are the two activities that we have embarked on and as we see the progress is happening and the cost of 5 crores is towards these activitie

My question is on margin front. Of the total material, medical equipment how much is the imported equipment because what I'm trying to understand is because of this rupee depreciation will it have any impact on your cost element and that might result in margins coming lower in the coming quarters?

Raj Gore

No, as far as rupee depreciation is concerned there are two things. We don't see any margin impact because the agreement we have with some major suppliers or as we have already indicated in the past or the pay per use model. Also, we do earn lot of foreign exchange which is a natural hedge. So because of these two things we don't see any margin impact from the procurement of the equipment. Secondly, we do not have any dollar exposure. Just to understand the question previous participant asked about the ARPOB remaining flat. This is like a one quarter impact, you might see ARPOB coming in bette

I just wanted to understand how much time does the emerging centers take to become mature? Like when can we expect East India hospitals to deliver margin of (+15%)?

Raj Gore

Thank you Dhara. Sorry if I got the name wrong. If you see the different hospitals are at a different maturity stage. I gave an example of Jaipur. Now Jaipur is already double the revenue has started delivering EBITDA margin (+25%). So Borivali similarly in Mumbai is delivering in mid-20s EBITDA margins. Kolkata is our newest center; we expect it to start breaking even early next year and then we will continue to grow that margin. 15% is probably the subsequent year, following the next year because that's our newest center. Wanted to understand like 88% of our revenues comes from oncology. Do

This is Shyam Srinivasan. Just one on slide #11. Maybe I have not seen the slide before but it seems very interesting. Doctor can you just explain the non-metro versus metro? I think many of the other healthcare companies now are talking about going into non-metro locations but you seem to have made a pretty decent job of it. Just if you could explain this slide please.

Raj Gore

So, Shyam, that slide what we are trying to say is look healthcare opportunity in India, demand supply gap, accessibility, availability. We all know about it. But I think the bigger problem we have in this country is disparity. Most of our health care supply is in metro, big cities, state capitals. The real need to provide quality health care, bigger need to provide quality health care is outside big city. I think this is where HCG has a unique business model. What this slide basically says that we have 13 locations which are Tier-2, Tier-3, Tier-4 places like Angul like 2 to 3 lakh population

Could you please elaborate on the status of our expansion plans at Whitefield and Ahmedabad because if I see sequentially the CAPEX incurred this quarter, it's flattish. So just some color on that?

B.S. Ajaikumar

In Ahmedabad we have started the new project. The work is going on. We expect the transition to happen by October of ‘23. So that is going as planned. As you know there are also certain transfer of technology, linear accelerator all of these developments. So, we hope that by October it will all be completed. It will be fully operational. Regarding the Whitefield, we have just got the approval from the local authorities, the BBMP so for the plans have been approved. We expect the project to be completed in about maximum 2 years that is by the 18 to 24 months once the construction work starts.

You previously talked about some diversified revenue from various modalities. Could you please help me understand the margin dynamics in that region? That is the margin dynamics in the medical oncology, surgical oncology, in that part? That's my first question.

B.S. Ajaikumar

We do not give margin dynamics by service lines. Because unlike other specialities oncology services are integrated and majority of patient undergoes multi-modality treatment. So, that is why margin at consolidated level are more meaningful. My second question was on the unit economics. So, you talked about 20% lower cost. What is the CAPEX per bed or CAPEX per center which you incur versus the industry? CAPEX per bed, let me put it this, as far as the you're looking at Tier-II centers, right? Yes. Again, I would like to differentiate here. Bed capacity is not necessarily the main driver for o

My first question was that we have been increasing in terms of revenues and margins, have also expanded over the last six to eight quarters. However, we are still not a high PAT generating company. What is your sense on PAT going forward?

Srinivasa Raghavan

If you go back to my earlier part of the thing, you know I talked about PAT before Ind-AS impact. So let me set the context here. If you look at it my PAT at a pre Ind-AS level is close to 10.5 crores and if adjust for the one-time impact that we talked about on value creation, overall, PAT at a pre Ind-AS level is 14 crores. Let me explain couple of nuances in this. Point number one, basically because of the Ind-AS impact the long-term lease rental model that we have. Because of that my post Ind-AS PAT is getting depressed because of the initial year of the lease rentals, given the equalizati

Ironically my question is exactly the opposite of the previous participant. I see we have a lot of intangibles and obviously we do acquisitions and alliances that creates intangible. But I don't see a lot of amortization of that intangibles as in we are amortizing either not amortizing or if we are amortizing, we are amortizing at a very slow pace and I understand the higher the amortization the more depressed the PAT will be. But as an investor we don't really care about PAT. We care about cash flows and the cash flows has actually been really healthy for the past 4-5 years and they continue

Srinivasa Raghavan

Yes, I understand. It's a good point that you are bringing up and it's quite interesting that you call it that. I also appreciate the fact that you talked about positive cash flow in the last few quarters which is a good thing. Yes, it's getting the right balance. Getting the right balance in terms of amortizing the intangibles. We are not aggressive, at the same time we are not very slow as well; we are doing it as per the law, as per the procedures. And intangible comes only in the case of new acquisitions. In the last few quarters, we had seen we had this Lab acquisition, we had this Suchir

I have two questions. First is if I look at your matured center's revenue profile and EBITDA margin pre-corporate expenses. The EBITDA margin pre-corporate expenses have been stable over the last six quarters at close to 25%. But if I look at your YoY change in occupancy that has moved from 57.6% to 65% Q2 FY23 and you have also I think there is an improvement in ARPOB as well of 5% YoY. Why the margin has not improved, what is the reason behind this?

Raj Gore

As we've been saying since last quarter the value creation plan that we have rolled out, we are incurring a one-time cost. Now that cost is largely allocated to mature centers in proportion of their revenue contribution to the total revenue. You will have to take that away to see the impact. That's one explanation. If you look at if I'm correct the graph you are referring to the quarter-on- quarter trend, you have a 19% growth on revenue but only 20% growth on EBITDA. But if you look at, if I take away that one-time cost that 20% will become 26%. So, 19% revenue growth is contributing to 26% E

I was just a little late in joining the call. On the 5 crores one-time expense, if you could just elaborate who has just been, who is the consultant and I think you mentioned it will continue in the balance two quarters, is that right?

Raj Gore

Just to recap. End of last year we engaged one of the Big Fours to start driving operational efficiencies. Operational efficiencies on multiple levers. One was strategic pricing based on our market positioning in terms of market share, competitive strength, our internal economics, utilization rates etc. So that's one component. This is more over and above the inflationary price increase that one takes every year. Second is staffing productivity, staffing norms, dynamic staffing based on variability and utilization rates in different hospitals across different seasons. Third is the fixed cost t

Once again I take this opportunity to thank everyone for joining the call. We will keep updating the investor community on regular basis for incrementing updates on our company. I hope we have been able to address all your queries. For any further information kindly get in touch with us or Strategic Growth Advisors our Investor Relations Advisors. Thank you once again. Have a good day.

Management

Speaking time

Raj Gore

Moderator

B.S. Ajaikumar

Srinivasa Raghavan

Aditya Khemka

Sabyasachi Mukerji

Pallavi Deshpande

Shyam Srinivasan

Karan

Kaustubh Pawaskar

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Opening remarks

B.S. Ajaikumar

Thank you very much. I'm sorry about this disturbance. As I was saying I’d like to take few minutes to elaborate on new technology we have launched at our Center of Excellence, Bangalore. The technology is called ETHOS Varian and it helps perform adaptive radiotherapy and it's one of the first few in the world we have established here now at our Center of Excellence. Adaptive radiotherapy is something which continuously probes deep into the tumor and intelligently adopts the treatment to the tumor configuration using an AI platform. We can use the actionable information generated from it in the treatment of subsequent patients. Our area of interest is to collect proper data and see how a tumor responds to the treatment. This technology will finally help us answer some critical questions like when do we get a complete remission, how long should the treatment’s span be, questions that have challenged radiation oncologists for several decades. Being a leading cancer care provider, we are

Raj Gore

Thank you so much Dr. Ajai. A very warm welcome to all the participants on the call. We are delighted to share yet another quarter of good performance. We've been delivering growth on year-on-year basis as well as sequentially for the last eight consecutive quarters now and this quarter is no different. We are happy to report another strong financial performance for quarter ended September, 2022. Our consolidated revenues for Q2 stood at 420 crores a growth of 19% on YOY basis. This strong revenue growth coupled with our focused efforts on cost rationalization has resulted in year-on-year margin expansion of 130 bps leading to adjusted EBITDA margin of 19.3%. Our adjusted EBITDA for Q2 FY23 stood strong at Rs. 81 crores a growth of 28% over Q2 FY22. As a result, our Q2 FY23 profit after tax on a pre-Ind-AS basis stood at Rs. 10.54 crores, up by 137% on Y-o-Y basis. Over the last few quarters, we've been regularly informing you about our efforts to drive growth on several fronts like en

Srinivasa Raghavan

Thank you Raj and very good morning to everyone. We have uploaded our Q2 FY23 financial results and updated investors presentation on the stock exchanges and company’s website and I hope everybody has an opportunity to go through the same. We are delighted to share that we have been able to grow our revenues ahead of the industry growth due to the trust and brand created for HCG. On the revenue front, our consolidated revenues for Q2 FY23 stood at Rs. 420 crores as compared to 350 crores in Q2 FY22, a growth of 19%. Our revenues for H1 FY23 stood at 828 crores, a growth of 23% year-on-year. Revenue split between HCG and Milann stood at 96% and 4% respectively for Q2 FY23. Revenue growth for HCG stood at 21% year- on-year and for Milann excluding for covid revenues in Q2 FY22 stood at 15% year-on-year. As mentioned in slide #25 revenue from the mature centers stood at 309 crores, a growth of 19% year-on-year basis for Q2 FY23. Revenue from emerging stood at centers 95 crores, a growth o

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