Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Operationalized Max Super Specialty Hospital, Dwarka, a 303-bed facility with advanced technology.
- Announced a build-to-suit transaction for a 250-bed hospital in Mohali, aligning with the asset-light strategy.
- Strong performance from recently acquired Lucknow and Nagpur hospitals, contributing significantly to revenue and EBITDA.
- 15th consecutive quarter of year-on-year growth, with network gross revenues at INR2,028 crore, up 18% year on year.
- Max@Home and Max Lab reported strong growth, with revenues increasing by 23% and 21% year on year, respectively.
Negative Points
- Network operating EBITDA saw a marginal decline of 1% quarter on quarter, impacted by prelaunch costs at Max Dwarka.
- Profit after tax showed a slight decrease compared to the previous quarter, standing at INR295 crore.
- Temporary impact on international patient revenue due to political situations and credit risk management actions.
- Operating EBITDA margin declined to 26.5%, affected by annual merit increases, GST on variable management fees, and reduced footfall for immigration health checks.
- Free cash flow from operations was partially offset by significant investments in ongoing capacity expansion projects.
Q & A Highlights
Q: The first question I have is on Lucknow Sahara Unit. What is the near-term action plan for the existing units of the 250-bed unit in terms of specialty addition, and how will ARPOB improve?
A: (Abhay Soi, Executive Chairman and Managing Director) Clinical programs and doctor recruitment are key. We plan to refurbish the existing infrastructure and add 140 beds by the end of the calendar year. Oncology, which currently represents less than 2% of revenue in Lucknow, will be a major driver for ARPOB improvement. We expect significant ramp-up in ARPOB and profitability in the coming quarters.
Q: Regarding the Dwarka unit, which has been recently commissioned, can you provide some timeline for the ramp-up and the specialty improvements?
A: (Abhay Soi, Executive Chairman and Managing Director) The infrastructure is at par with our other units, and we have seen good traction in the first month. We expect the unit to break even within six to eight months.
Q: On the Mohali hospital planned for four years out, is this an O&M agreement or an outright rental model?
A: (Abhay Soi, Executive Chairman and Managing Director) It is an outright rental/lease model with a 50-year lease agreement. The developer will construct the facility as per our specifications.
Q: Can you explain the margin contraction seen in the first quarter? Is it due to new facility costs or changes in the business mix?
A: (Abhay Soi, Executive Chairman and Managing Director) The clinical mix has shifted to higher-end surgeries, which have lower percentage margins but higher value margins. Additionally, there was a reduction in OPDs due to changes in visa regulations, impacting immigration health checks.
Q: What is the status of the international patient revenue, and how has it been affected by recent geopolitical issues?
A: (Yogesh Sareen, Chief Financial Officer) International patient revenue stood at INR158 crore. There was a temporary impact due to political situations in some countries and credit risk management actions taken by us. However, we expect growth to resume.
Q: How do you see the institutional bed share mix evolving over the next two to three years?
A: (Abhay Soi, Executive Chairman and Managing Director) While new capacity additions may initially take in more institutional patients to ramp up occupancy, the EBITDA per bed for these incremental beds is expected to be higher. We anticipate the institutional bed share mix to stabilize as new facilities mature.
Q: Regarding the tax rate, why has it increased this quarter, and what should we expect going forward?
A: (Yogesh Sareen, Chief Financial Officer) The overall tax rate is 22.8% this quarter due to losses in the new entities, mainly the Sahara hospital entity. We do not recognize deferred tax assets until the company is profitable. We expect the tax rate to stabilize around 22% going forward.
Q: Can you provide more details on the operational costs and breakeven timeline for the Dwarka unit?
A: (Yogesh Sareen, Chief Financial Officer) We incurred INR6 crore in prelaunch costs for Dwarka in Q1. We expect the unit to break even by Q4, with operational costs increasing as more beds are opened.
Q: How do you plan to manage senior management bandwidth with the expansion into new markets?
A: (Abhay Soi, Executive Chairman and Managing Director) We have augmented our project teams to handle the expansion. The majority of our growth is through brownfield expansions, which do not require significant additional management bandwidth. We do not foresee any issues with senior management bandwidth.
Q: How do you see the balance of power in negotiations with insurance companies evolving?
A: (Abhay Soi, Executive Chairman and Managing Director) We believe the market is democratic, with patients choosing hospitals based on value propositions. Our pricing is aligned with market rates, and we do not foresee significant changes in the balance of power with insurance companies.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
