Narayana Hrudayalaya Ltd

Q2-FY23 con call key highlights

• Incurred Capex of 550cr in H2.Planning to incur 1000 cr CAPEX in FY24 as well
• Published 192 research papers this year and published over 1640 scientific papers over the last two decades.
• Significant CAPEX in Banglore and Kolkata
• Mumbai hospital may break even in 6 to 9 months
• Seasonally, Q3 is a weak quarter due to Diwali and Christmas. Expect the robust performance to continue otherwise.
• A mature centre’s growth can come from
  -Efficiency work
  -Reducing the length of stay
  -Changing payor profile (e.g. Govt. insurance or cash)
  -Focusing on high-end surgeries
• However, this can add low single-digit growth to mature centres. It won’t contribute meaningfully to growth. Capacity expansion is needed for meaningful growth [Hospitals are a capital-intensive business. Once a hospital reaches the mature stage, it does not contribute meaningfully to growth. The company can tweak various parameters, but it won’t contribute to growth. The company needs a new capacity addition to show growth.]
• International patients – 7.5%, much lower than pre covid levels.
• Improvements in gross margin due to cost structure. However, currency movements make costs very volatile as NH imports medical equipment. In addition, additional input material costs
  are also volatile. As a result, it cannot provide a strong forecast on gross margin.
• Received long pending dues from govt. Difficult to predict when they will be paid.
• Setting up Oncology facilities in many of the existing facilities
• There is a lot of demand for nurses and doctors in the US,UK, and Canada. It is very difficult to hold on to senior resources due to this.
• Gurugram- Most competitive market in the country.
• Ahmedabad- A site location is not so great a part of the city. Had challenges hiring full-time consultants as part-time consultants were taking a portion of patient pay.

Bangalore new acquisitions (Sparsh):
– Orthopaedic speciality.
– 300cr on Sparsh
– Adjacent to the existing facility.
– 100 beds + 110 beds can be added at a later stages
– Decongest existing facilities, as existing Ortho facilities can be transferred to the new hospital.
– 49 cr revenue last year (impacted due to Covid)
– This year could go around 55 cr. 20% margin.

Capex

• Two years – 2000cr
• Cayman – 800cr
• Fy23 CAPEX
  • approx $30 million
    • Greenfield assets take 24 months to build and six months to commissioning

Cayman Island

• Been here for 8/10 years
• EBITA of $12.7 million (approx 102 cr, which is 40% of Q2 EBITA)
• CAPEX (planned $100 million
  • 300 cr already spent on acquisitions
  • Cost escalation from $16 million to $40 million
  • $30 million pending for H2
    -$60 million will be in FY24
• It is for the single cancer-focused hospital with a radio theory block.
• Hospital commissioning is a two-step process.
  – The first step is radiotherapy. It will be commissioned in Q4-Fy23 and will start treating payment immediately.
  – The second phase will start 12 months after the first phase
• Due to the new CAPEX, the margin will be affected for a few years. However, in the medium to long term, it intended to protect 40-45 margin on a larger base
• $40 million of cash. If they decide to bring it to India, it will incur taxes. Intend to use that cash for further CAPEX, there
• Other than Cayman- not looking for asset-heavy investment other than Cayman in nearby region. – – Recently concluded contract with St Lucia for management of the asset.