Narayana Hrudayalaya Ltd

NH Conall Notes Q2 FY24

Revenue Performance:

• Consolidated revenue for Q2 FY24: INR 13,052 mn (YoY growth: 14.3%, QoQ growth: 5.8%).

EBITDA and Margin Improvement:

• Consolidated EBITDA: INR 3,265 mn, with a margin of 25.0% (up from 23.2% in Q1 FY24).
• Margin improvement attributed to higher revenues, cost efficiencies, and realisations.

Financial Position:

• Strong balance sheet with over INR 8.74 billion in cash and liquid investments.
• Net debt-to-equity ratio steady at 0.03, providing room for expansion through a mix of borrowing and internal accruals.

Accreditations and Achievements:

• JCI Enterprise Accreditation: 1st healthcare group in India and 6th globally.
• Guinness World Record: Highest number of ECGs in a single day at a single place.

Clinical Milestones:

• Successful robotic cardiac surgeries, limb re-attachments, and complex clinical procedures.
• Continuous focus on adopting the latest technology for superior patient care.

Digitization and Business Transformation:

• Significant improvements through NH app and Patient Kiosks, reducing administrative workload by 36%
• Doctor app “aadi” reduces response time by 45%, and new app for nurses, “Namah,” aimed at reducing paperwork.

Cayman Units Performance:

• Highlights

  • Highest-ever quarterly revenue: USD 31.5 mn.
  • Positive contribution from the recently commissioned Radiation Oncology Block in Camana Bay hospital.
  • Outpatients increased from 7,609 (Q2 FY23) to 9,615 (Q2 FY24).
  • New hospital in Cayman on track for Q1 commissioning (April-June).
  • ALOS in Cayman (8.9 to 9.1 days) explained by serving as the national hospital; focus on longer-term care for chronically ill patients.

• Market Dynamics & Competition:

  • Competitive healthcare market in Cayman Islands.
  • Over 400 registered medical practitioners and 100+ practices.
  • Presence of government and private hospitals; active and competitive environment.
  • Limited awareness of potential competition from other Indian hospitals.

• New Hospital Phased Implications:

  • New hospital in the same location.
  • Expect reasonably fast ramp-up; initial phase with fixed costs and margin dilution until incremental revenues.

• Staffing for New Hospital:

  • Existing doctors’ output to increase.
  • Hiring additional doctors based on increased volume.
  • Nurses correlated with patient volume; utilizing existing sourcing routes for staff recruitment.

• Staff Tenure and Attrition:

  • Senior staff on longer-term relocation.
  • Junior staff with variable tenure based on career and personal plans.
  • Nursing attrition lower compared to India; some attrition to the U.K. due to post-tax compensation and partner opportunities.

• Education and Retention:

  • Attrition reasons not related to education costs.
  • Challenges in long-term citizenship; opportunities for spouses in Cayman.
  • Holistic factors like family and personal considerations influence retention decisions.

• Insurance Coverage:

  • Most U.S. insurers cover treatment during visits or holidays in Cayman Islands, especially for emergency cases.

• Elective Treatment Consideration:

  • Patients can apply to insurers for elective treatments.
  • Approval likely due to cost advantages in Cayman Islands compared to the U.S.

• ARPP and Outpatient Volumes:

  • Significant ARPP increase in Cayman Islands from ~$1000 to ~$1300 YoY.
  • Explained as a result of classifying radiotherapy patients as outpatients, causing a spike.
  • Anticipated stabilization around $1300.

• Outpatient Volume Increase:

  • Noted a substantial increase in outpatient volumes from 7,609 in Q2 FY23 to 9,615 in Q2 FY24.
  • Contribution from oncology, but majorly from reporting ENT services post-acquisition.

• Inpatient ARPP Drop:

  • ARPP for inpatients in Cayman dropped from USD 39,000 to 34,000 YoY.
  • Attributed to a seasonably high number in the same quarter last year.

Narayana Health Integrated Care (NHIC):

• Healthy growth in Q2, crossing Rs 52 mn in revenue with over 45,000 patient transactions.
• Continued focus on growth and improving health outcomes for customers.
• Patient Addition and Billing Trends:
  • Healthy patient addition in the current quarter compared to the previous.
  • Average billing decreased from 1,538 to 1,158.
  • Losses increased from 5.8 crores to 6.4 crores.
• Early Days and Experimentation:
  • Acknowledged the early stage of NHIC operations.
  • Emphasized ongoing experimentation with value propositions and products.
  • Anticipated fluctuations in financial metrics during the experimentation phase.
• Future Contribution and Stability:
  • Directionally aimed at stabilizing financial metrics over time.
  • Focused on learning from customer needs and refining services accordingly.
  • Expected to play a role in patient health management through clinics and subscription plans.
• Role of NHIC:
  • NHIC currently operates as a standalone entity.
  • Focus on building clinics and offering subscription plans to keep patients healthy.
  • Potential referrals to the main hospital in case of future medical needs but not the primary goal.

Operational Upgrades:

• Ongoing efforts to upgrade clinical and non-clinical operations.
• Focus on increasing throughput, building capacity, and investing in digital patient outreach.

Future Growth Strategy:

• Pursuing both organic and inorganic growth opportunities in India and overseas.
• Synergy-driven approach for maximizing value for stakeholders, with a close eye on return on capital.

Brownfield Expansion:

• Focus on Brownfield expansion in flagship locations, mainly Bangalore and Kolkata.
• Land acquisition in advanced stages in Kolkata, construction to start next year.

Bed Capacity Expansion:

• Operationalizing 110 beds in Howrah unit, Kolkata, by end of Q4.
• Construction work to begin in Bangalore Health City, adding 700+ beds in the next 3-4 years.
• Land acquisition in Kolkata for further expansion, updates expected in the next quarter.

Margin Expansion Strategies:

• Continuous focus on improving high throughput through technology investments.
• Emphasis on faster discharges, lab results, and seamless appointments.
• Penetration in cardiac and robotic procedures for efficient bed utilization.
• Aiming to reduce Average Length of Stay (ALOS) from 4.8 to 4.1, currently at 4.4.
• Addressing capacity bottlenecks by adding ICUs, OTs, diagnostics, and labs.
• Technology investments to enhance communication between doctors and nurses.

Challenges and Caution:

• Acknowledgment of significant headwinds from inflation and government actions.

Future Outlook:

• Confidence in meeting demand and growth aspirations with current and upcoming bed capacities.
• Ongoing projects in flagship locations, both greenfield and brownfield, to support growth.
• Continuous focus on leveraging technology and operational efficiency for higher revenues.

India Business Expansion:

• Revenue near INR 1000 cr, operating margins 18-19%.
• Without further investment, potential high single-digit revenue and margin expansion for a decade.
• Minor bed additions, focus on throughput, and new infrastructure planned for significant growth.

Sustainable Margins:

• Commitment to extreme value-based care, fair pricing, and treating as many patients as possible.
• Sustainably delivering the best within these principles.

New Hospitals Breakup:

• SRCC, Gurugram, Dharamshila combined revenue at INR 119 cr in Q2.
• SRCC Mumbai on track to reach flat EBITDA by year-end.
• Confidence in growth and improving margins in Mumbai and Gurugram through specialties and initiatives.

India Level Occupancy:

• Consistently above 65%, improvements seen across all units.
• Double-digit revenue growth for two consecutive years without significant bed additions.

ARPP Perspective:

• Acknowledgment of ARPP being a better metric than ARPOB
• Pricing not the primary lever for improvement; focus on efficiency.
• Modest price increases shown year on year, ensuring affordability for patients.
• Fluctuations in numbers over a short period due to various factors.

Utilization and Flagships:

• Flagship units continue to perform well, running at high utilizations.
• Ongoing debottlenecking processes to enhance throughput until capacity additions are completed.

Capex and Funding:

• Mentioned a pending capex of INR 394 crore for the year, part of a total budget of INR 1,137 crore.
• Indicated the ability to fund 50% of pending capex (around 250 crore) through debt.
• Assured a comfortable net debt to EBITDA ratio even with additional debt.

Cash Flow and Working Capital:

• Affirmed healthy cash flows, indicating strong underlying business performance.
• Minimal change in working capital, operating at almost a neutral position.

Tax Rate and Future Projections:

• Stated an effective tax rate of around 10% for the current year due to the new tax regime in India.
• Estimated an effective tax rate of around 25% for the following year in India.