Q3 FY24 Concall notes
Financial Performance:
- Consolidated Revenue: INR 12,036 million (+6.7% YoY, -7.8% QoQ).
- Consolidated EBITDA: INR 3,968 million (24.7% margin in Q3 FY24).
Cayman Units Business:
- HCCI and EICL Quarterly Revenue: USD 30.6 million (+8.5% YoY).
- Confidence in Caribbean business growth through strategic initiatives.
Financial Position:
- Strong balance sheet with INR 10.39 billion cash.
- Net cash position: INR 0.25 billion as of December 31, 2023.
Capital Expenditure:
- Outlay close to INR 5 billion till December 2023.
Clinical Achievements:
- Successful organ and bone marrow transplants, robotic procedures.
- Rare renal transplants and critical case recovery in Mumbai.
Digitization and Transformation:
- 8% QoQ throughput increase, 3.3% NH Labs turnaround time reduction.
- AADI app saves 2500 surgeon hours, NAMAH app saves 83 nursing hours monthly.
Narayana Health Integrated Care:
- Revenue crosses INR 53 million with 42,000+ patient transactions.
Q3 Domestic Business Performance
- Low Growth:
- Seasonality impact, notably in North and West regions.
- Higher impact in Gurugram; underperformance in Jaipur due to unviable RGHS reimbursements.
- Payor Mix Rationalization:
- Focus on improving payor mix (cash and insurance up by 2%, schemes down by 2%).
- Positive impact on margin despite challenges.
- Exit from M S Ramaiah and Bellary contracts for strategic focus.
- Impact of Jaipur Hospital:
- Unquantified but significant underperformance, particularly in North.
- Jaipur unit majorly contributes to the overall underperformance.
Capex Timeline:
- Cayman unit’s Capex almost complete; hospital commissioning expected in the first half of the next year.
- Bangalore and Kolkata units take 2-3 years for completion.
- Acquired land in Kolkata; permissions applied for building in Bangalore.
- Exploring additional capacity options in Bangalore and Kolkata.
New Hospitals Performance:
- Faced seasonality impact more than flagship units.
- Combined EBITDA around 4%, down from 7% in Q2.
- Dharamshila performed the best.
- Expecting a strong recovery in the last quarter to approach the target for the next two quarters.
Insurance Business Update:
- Received license in early January.
- Planning to go live next year, starting in Karnataka (Mysore) and gradually expanding to other geographies.
India Business Discharges:
- Single-digit growth observed in full-year discharges.
- Explanation: efforts to improve payor mix, focus on efficiency, and digital initiatives.
- ARPOBS growth noted despite lower discharges, attributed to throughput improvement.
Other Expenses Decrease:
- YoY decrease noted in other expenses.
- One-time factors impacting Q3, anticipation of saved expenses not necessarily deferred.
Lease Modification in Other Income:
- INR 159 million related to lease modification in other income.
- Explanation: periodic lease renegotiations with third-party partners, affecting non-owned hospitals.
Manpower Cost Increase:
- Double-digit YoY growth observed in manpower costs.
- Emphasis on challenges due to government actions on minimum wages.
- Solutions: operational efficiency, digitization, and NAMAH app implementation.
Wage Inflation History:
- 10-12% wage inflation observed for FY24, similar expectations for FY25.
- Explanation: post-COVID, increased inflation, recovery expected through efficiency and price adjustments.
Longer-Term Capital Allocation:
- Key Priorities:
- Focus on winning greater market share in Bangalore and Kolkata.
- Bulk of investment for the next decade directed to these geographies.
- Expansion Strategies:
- Strengthening existing hospital set through:
- Adding more beds.
- Adjacent capacity expansion.
- Combination of Brownfield and Greenfield investments in hospitals, clinics, and pharmacies.
- Strengthening existing hospital set through:
Assessment of Supply Side:
- Current Market Dynamics:
- Mature cities in India have an adequate supply of hospital beds.
- Shift in patient preference from unorganized to accredited hospitals.
- Majority of corporate healthcare groups concentrated in large cities.
- Demand Dynamics:
- Demographics favor growth with rising incomes and aging population.
- Opportunity set deemed tremendous despite existing competition.
Anticipating Insured Mix vs. Out-of-Pocket:
- Current Scenario:
- Organized payors constitute 20%-22% of the mix.
- Aspiration to reach industry peers’ numbers (40%-50%).
- Evolution Timeline:
- Acknowledgment that achieving peer numbers may take longer.
- Aspiration to transition from a legacy of providing low-cost, subsidized services.
Overall Strategy:
- Long-Term Focus:
- Commitment to long-term growth in key markets.
- Balancing expansion between existing and new facilities.
- Quality Over Quantity:
- Emphasis on high-quality beds rather than sheer quantity.
- Recognition of a shifting preference towards accredited healthcare providers.
- Demographic Advantage:
- Leveraging favorable demographics for sustained demand.
- Viewing competition as a part of the overall growth narrative.
Changing Patient Demand:
- Shift towards seeking routine surgeries closer to home.
- Corporate hospitals adapting to advanced procedures like heart and cancer surgeries.
- Strategic investments to expand accessibility for diverse diseases.
Impact on ROCE:
- Short-term dilution due to expansion efforts and increased footprint.
- Balancing financial considerations with growth opportunities.
- Moderate acquisitions to manage financial impact.
Tech Initiatives:
- Patient-facing app, NH Care, centralizes hospital services for convenience.
- Features include appointment booking, test payment, results viewing, and doctor information.
- Integration into NH Integrated Care Plan and QR code system in progress.
Research and Publications:
- Robust medical research wing with a focus on clinical and basic science research.
- Incentives for staff engagement in research, resulting in 200+ publications last year.
- Leveraging electronic medical records for comprehensive data analysis and clinical trials.
Tax Rate:
- Similar tax rate expected next year.
- Moderated by the mix between India and Cayman operations.
Capex:
- Next year’s capex around INR 1000-1200 crores.
- Funding through bank borrowings, NCD raise, and internal accruals.
- Higher debt-to-EBITDA ratio expected in the medium term.
Capex Composition:
- General capex of approx. INR 450 crores. (India focused)
- Expansion-focused capex in Bangalore, Kolkata, and Raipur.
- Cayman-specific capex includes regular and new hospital expenses.
Sparsh Acquisition:
- Sparsh meeting projections, maintaining margins.
- Acquisition benefits include cost rationalization and additional capacity creation.
Cayman Expansion:
- New hospital in Cayman aiming to start by June.
- Frontloaded fixed costs mitigated by market familiarity.
- Anticipating swift climb over initial fixed costs due to high operating leverage.
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