ASTERDM — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Mr. Balachander R · ___________________________________________________________________________

Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, This is further to our earlier letter dated February 15, 2023, regarding Video/ Audio recordings of Earnings call of the Company for the quarter ended December 31, 2022, held on February 15, 2023, please find enclosed herewith the transcript of the said Earnings call.

The same is also made available on the website of the Company at https://www.asterdmhealthcare.com/investors/financial-information/earning-call-transcripts .

Kindly take the above said information on record as per the requirement of SEBI Listing Regulations.

Thank you For Aster DM Healthcare Limited Hemish Purushottam Company Secretary and Compliance Officer Aster DM Healthcare Limited

Moderator · Conference Operator

Mr. Balachander R ___________________________________________________________________________

Mr. Balachander R · ___________________________________________________________________________

Good morning, everyone.

I welcome you to Aster DM Healthcare's earnings conference call for the third quarter of Financial Year 23.

The company declared the Q3 FY23 results last evening.

I hope you've got a chance to review them, along with other materials, which were posted on the stock exchanges and the company website.

Today, to discuss the quarterly business performance and the future business outlook, we have the senior management team at Aster DM Healthcare available with us.

It includes Dr. Azad Moopen, Chairman and Managing Director; Ms. Alisha Moopen, Deputy Managing Director; Mr. T.J.

Wilson, Non-Executive Director; Mr. Amitabh Johri, Chief Financial Officer for GCC Operations and Mr. Sunil Kumar, Chief Financial Officer for India Operations I would like to inform everyone about how we will conduct this call.

All external attendees will be in the listen-only mode for the duration of the entire call.

We will start the call with opening remarks by management, followed by an interactive Q&A session.

During the Q&A session, you will get a chance to ask a question by raising your hand by clicking on the ‘raise hand’ icon in the Zoom application at the bottom of the window.

We will call out your name, after which your line will be unmuted, and you will be able to ask your question.

We request you to please limit your questions to 2 but not more than 3 per participant at a time.

Post the completion of your query being answered, we will lower your hand.

I would like to inform that certain statements that may be discussed in this meeting that are not historical facts and might be forward-looking statements.

Such forward-looking statements are subject to certain risks and uncertainties like government actions, local, political, or economic developments, technological risks and many other factors that could cause actual results to differ materially from those contemplated by the relevant forward-looking statements.

Aster DM Healthcare Limited will not be in any way responsible for any action taken based on such statements and undertakes no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.

Thank you, Mr. Sunil.

We have now opened the question and answer session.

So, any of you who would like to ask a question, please press the ‘raise hand’ icon and we will unmute you in order.

Please go ahead.

I think the first question is from Mr. Nikhil Mathur.

Please go ahead, Mr. Nikhil.

Hi.

Good Morning Everyone.

Yes, 2, 3 questions I had.

The first question is on the losses currently sitting in the 0- to 3-year maturity profile hospitals.

If I look at GCC and India combined, this loss in 9 months at EBITDA level is around INR 66 crores.

Given the planned bed additions in FY '24, do you expect these losses to further go up?

Or are you now reaching a stage where some of the losses are still start getting absorbed with incremental revenue.

So we might be entering a phase of flattish losses from these maturity profile hospitals

Azad Moopen

Yes.

So Amitabh, do you would like to take it up for GCC and Sunil for India?

Mr. Balachander R · ___________________________________________________________________________

Sure, Mr. Chairman.

Nikhil, thank you for the question.

So if you look at from a GCC perspective, as we called out, there are 3 hospitals that have been opened recently.

We're having operating losses at least for quarter 3.

Alisha had alluded to some of the empanelment that are open, which we expect to come sometime between quarter 4 of this financial year and quarter 1 of next financial year, so FY '24.

Assuming that happens, it will allow us to start reducing the losses, and we expect that by at least quarter 3 or quarter 4 of next financial year, we should start seeing neutrality coming in, in terms of initial losses reducing significantly.

That is on the profile of these 3 hospitals that are at course.

Yes, just one follow-up here.

What is the planned bed addition in GCC in FY '24?

So we are looking at incremental beds of almost 150 -- close to 220 beds right now.

When I say that 220 beds, this is between the Annex building that is coming up in Saudi.

That's around 59 beds that are here.

And incrementally, we are looking at another facility coming up in Dubai, where we have taken a fully fitted out facility for creating a multispecialty hospital.

Alisha Moopen

So, Nikhil, just to add to what Amitabh said, the 2 new hospitals, which would be coming up in FY '24.

One of them will not have this insurance issues because it's already an extension -- it's an extension of existing facility.

So, there is no empanelment that is required for that.

The other hospitals will only be commissioned by Q4 of '24, around January time next year.

So we again do not see losses of that unit for this coming year.

So as Amitabh mentioned, we expect the losses of these 3 hospitals to flatten out with increasing revenue and increasing occupancy by Q3 this year.

Mr. Balachander R · ___________________________________________________________________________

India, bit of it, see, 0 to 3 years, we have 2 hospitals specifically Aster Mother Hospital Areekode and Whitefield Hospital.

In the Whitefield Hospital, we've got 3 blocks, A, B and C.

Only the currently operational one is the women & children block where there are hardly any losses.

So whatever the losses which you are seeing is majorly contributed by Mother Hospital Areekode.

And this being an O&M model, we don't expect that loss to continue in the next year.

So that is one bit of it.

From the next year point of view, the major hospital, which is going to get operational is only Aster Whitefield’s new block with 275 beds, and as you know, that's a bigger capacity with a full-fledged multi-specialty, including oncology, which we are commencing.

So loss is going to be a good number.

But at the same time, that is the only hospital which is coming up immediately.

And what we see is other additional beds is going to come up only in the O&M projects, where we don't expect any major losses.

So with that being in the picture, we don't expect huge losses in the coming years.

That's going to be very minimal, whatever you're seeing there.

Sure.

The second question I had was on your initiatives on the pharmacy side in India.

How many stores are you planning in India in the next 12 months to 24 months?

And a question tied to that is that we have seen a couple of

Yes.

Thank you, Chairman.

Adding on to that, Nikhil, number-wise, we already had 239 pharmacies, and we are expecting to close the year with around 260 to 270 pharmacies.

And the next 1 year, we are looking in a range of 125 to 150 pharmacies is what we look at, at least in every year, we want to add up.

That's a number bit of it.

Sure.

And then one more question, if I may just squeeze in.

The O&M model, I understand it is more for India that we're talking about 300, 350 bed additions.

Can you give some sense on what's the EBITDA per bed that you are targeting from this O&M model?

I mean I think in India, you are at INR 24 lakhs, INR 25 lakhs EBITDA per bed basis last quarter number.

So any sense on how the EBITDA per bed can look like in this O&M model?

Dr. Azad Moopen

Sunil, do you want to answer that?

Mr. Balachander R · ___________________________________________________________________________

Thank you, Nikhil.

More than EBITDA per bed, I would like to give you on the margin bit of it.

See, in this O&M model, right, we are -- you know that we are putting in Tier 2, Tier 3 cities.

That means ARPOB’s are going to be lower.

Second is that we are going to treat the scheme patients also because volume is the key there.

So considering all those things and also the Capex investment is very low.

That means to say we're getting the existing hospital with the most of the equipment being there and our investment in equipment, will be less.

I'm talking about INR 5 lakh to INR 10 lakh per bed.

So keeping that in mind, my revenue share will be on a higher end.

And here, we look at a margin somewhere between around 15%.

So that's the number we're looking.

We're not looking at what we are in other hospitals wherein we are 20% above, 25% above.

So that margins we are not looking at.

It will be lower margin, but a higher ROCE.

That's what we expect there.

So in terms of accounting, you will book proportionate revenues or it would be a management fee, what would you be looking at?

No, it's not a management fee, it's just like the other O&M models, we book the complete revenue and complete profitability.

The whole accounts will be running by us.

And instead of us charging a management fee, we give a revenue share to the landlord.

Okay.

And where is that expensed out, the revenue share to the landlord?

That will come as your normal rent basically on the EBITDA

Okay.

Like a lease, right?

Right.

Exactly.

Thank you Nikhil.

The next question is from Amrish Kacker.

Please go ahead.

My first question is just a follow-up on the O&M question.

So I think the strategic rationale has been explained quite clearly.

We also understand for our own brownfield and greenfield, what the future expansion looks like.

Could you help me to understand how should I think about what the additions on beds could be looking out 2, 3, 4 years into this -- into the O&M model?

Dr. Azad Moopen

No. What was that question, last part of it, I didn’t catch that.

Mr. Balachander R · ___________________________________________________________________________

How do I think about what is the capacity -- incremental capacity for O&M hospitals going forward?

Dr. Azad Moopen

So we think that we'll be able to add around 500 beds in a year through this model.

This year, we already have reached 390 beds or so.

And we have one hospital, which is in closure stage.

So what we do is that we do a thorough DD.

And we want to have all the requirements like the legal as well as other statutory requirements being met.

Then only we enter into that.

We have at least 15, 20 in consideration, but we make it very, very clear that we will enter

Mr. Balachander R · ___________________________________________________________________________

And this is the medium term, I mean we can think about this 500 beds a year for medium term, not just next year.

The second question is just trying to understand a little bit more on the pharmacy and lab profitability.

So we do now show the numbers, EBITDA and revenue numbers split out.

And if my understanding is correct, the pharmacy business should -- because it's run by a third party, we should not be having a lot of losses in that.

So is it mainly the labs that has a negative EBITDA.

Could you help to understand -- explain that a little bit?

What you said is exactly right.

So whatever we've given the segmental portion that covers only the labs and wholesale pharmacy.

And as you know, our pharmacies are managed by another company called ARPPL.

So we don't consolidate that numbers, but capture the wholesale revenue out of it.

And as rightly said, 80% to 90% of the losses which are sitting there, that is contributed by Aster labs.

You're right.

Dr. Azad Moopen

Just to extend that, I also wanted to just -- Amrish, I wanted to add that.

The labs we have done a restructuring earlier this was being run as a vertical across all the geographies.

Now we have aligned it with our individual hospital clusters.

So this has produced a significant impact because now that ecosystem has started working, and that is producing one increased awareness as well as sales.

Second, the cost also has come down.

So we hope that by -- maybe in 6 months to 9 months, we'll be able to go into a breakeven on the lab side.

That is our hope that at least by next year, we'll be able to -- towards the third quarter, we'll be able to go into a, I mean, breakeven state in the lab.

Mr. Balachander R · ___________________________________________________________________________

If I may just slip a quick question in on the debt.

How should we think about the debt evolution in India -- net debt?

Amrish, on net debt, excluding the lease liabilities, right, we should be in the range of which 2:1 ratio in our own Net Debt to EBITDA ratio would be around 2.

That's why we are looking at.

Even now also, we are at just I think 1.6 or 1.7.

So considering that the Capex, what we already communicated around INR 190 crores are spent under the current financial year, we are -- because Whitefield is going to be operational and major medical equipment are going to be purchased in the last quarter.

So we see that Capex growing to more than INR 250 crores, INR 300 crores.

As per the previous guidance we've given, we expect to incur around INR 250 crores to INR 300 crores going forward, also considering we have got almost 1,800 beds in pipeline.

So keeping all this in mind, we will be able to keep that ratio, net debt to EBITDA, excluding lease liabilities below around 2 is what we see.

The next question is from Shyam Srinivasan

Just a question, just like from last quarter, I think the Andhra, Telangana region, if there is an update because that seems to be the one underperforming cluster in the India business.

So do you think that fiscal '23, it's going to be difficult and maybe we rebase and look at '24 as the earliest when this business can grow?

Dr. Azad Moopen

Exactly.

So that's what we are also trying, while this quarter may see some improvement in the margins as well as overall profitability.

But we hope that with the changes that we have brought in, including bringing some of the Aarogyashree related hospitals, which we were losing out.

That was a strategic failure, which happened 2, 3 years back, but the COVID revenues filled it up.

But now we are thinking that with that also coming into the picture, we'll be able to go to that pre-COVID levels of profitability.

So you are absolutely right.

With this, I mean, changes, we hope that it will go into -- I mean, the earlier levels as well as to the EBITDA as well as revenues going up.

Mr. Balachander R · ___________________________________________________________________________

Dr. Moopen, just probing here.

When you look at the historical, let's assume fiscal '22 or '21 margins may be COVID.

I'm looking only Andhra, Telangana cluster.

It's margin 16% or 19%, right?

Do you think that can be achieved, right?

Or should we look at the fiscal '20 where 15% is the right number to go by?

Dr. Azad Moopen

Yes.

So I will rather go for that 15% in the near future, next financial year, and then we hope that we'll be able to go beyond that in the -- as we go forward.

Yes, what you said is right.

Shyam Srinivasan Got it, sir, helpful.

The second question is on the GCC pharmacy.

I think pretty solid numbers for this quarter.

I think there's an acceleration even when I look at Y-o-Y growth Q2 versus Q3 also.

So what's driving that acceleration?

Is it additions of a new pharmacy and rollout?

Or is it just the same store also growth seem pretty strong?

Dr. Azad Moopen Alisha, you would like to answer that?

Alisha Moopen So it's a combination of what we haven't added too many new stores.

So there is a lot of focus on same-store growth itself.

I think we have been changing the assortments.

We believe we think for like what Chairman was saying, our own product sale of our own products.

We've been working on pharmacy and distribution business, where our products are now in the supermarkets and the duty free.

So there's been a whole range of effort to sort of make sure there's a more balance between prescription and nonprescription dispensation.

And so it's not really just new store additional growth.

I think we added around 30 pharmacies last year.

Amitabh, you want to add?

Amitabh Johri We’ve added 12 pharmacies in this quarter.

So that’s around 24 pharmacies from last year.

So, it's not that much, in fact, just to add in to what Alisha said.

In the initial months, we don't see too much of our sales boost coming from the new pharmacies.

So it's more around operational efficiencies and the whole dispensation on the cataloging that we have done, that has allowed us to gather more sales revenues.

Mr. Balachander R · ___________________________________________________________________________

Thank you Shyam.

I think the next question is from Nikhil Chandak.

Please go ahead

Nikhil Chandak

So I had just one question, and this was on the GCC restructuring.

I did see the comment in the notes to the account that you were expecting certain

Mr. Balachander R · ___________________________________________________________________________

Thank you Nikhil.

The next question is from Rahul.

Please go-ahead Rahul.

Just -- my question was just in regards to any outlook or guidance for the next financial year for the business as a whole in terms of revenue or EBITDA margins?

What are you expecting, what are your targets?

Dr. Azad Moopen

So Rahul, we don't give any guidance regarding the revenue and profits.

That's -- as you know, we can't do that.

And while we have some internal projections and all, we can't tell the market what it is.

But we see significant opportunities in India as well as in GCC, like what has been mentioned in the initial part of this, we are seeing the growth is very good in India.

We hope that this will

Mr. Balachander R · ___________________________________________________________________________

Thank you Rahul.

The next question is from Naman Bhansali.

Please go-ahead Naman.

Naman Bhansali

My first question relates to the India business.

So currently, we have some 4,000 capacity beds, and we are looking to add another 1,800 beds by FY '25 or '26 as per our latest presentation.

So I just wanted to know the strategy here that are we looking to pause at any some point of time and realize the full potential of our business in terms of margins and leverage on the India side.

So this is my first question.

And second is on the GCC clinic side.

So the overall revenue has a 4% growth on a Y-o-Y basis.

And I see the revenue per outpatient if I tried to calculate, it has risen significantly versus a Y-o-Y number.

So as on a Y-o-Y basis, the revenue is largely flat and the outpatient seems largely at a decent growth at 7%, 8%, but the revenue per outpatient seems a big inflated number.

So can you just put some picture on that?

Dr. Azad Moopen

Yes.

So the first part, I will answer.

And the second part, Alisha or Amitabh will answer that.

So it's not that we are going to grow, I mean, just for adding beds.

These are all strategic decisions which have been taken.

Some of these are expansion of our hospitals where we know that immediately, that will get filled up and we will have significant benefit coming out of that.

For example, what we are doing in our Kannur Hospital or Aster Medcity.

And as well as what we have seen is that in our own geography and our main geography,

Mr. Balachander R · ___________________________________________________________________________

Naman, so if you see currently right on the overall, as you said, we are at 68% occupancy at the India level, but Kerala is around 80% currently.

And Karnataka at 60% and Andhra clusters at around 50%.

When you look at what is the peak occupancy, we can go up to 80%, 85% easily.

There are certain hospitals were in, for example, in the Kerala, they reach even 90% because they create certain holding period by holding beds and then manage the occupancy.

So comfortably without any impact on the service excellence, easily, we can look at 85% occupancy.

Naman Bhansali

Okay.

And as you mentioned, Andhra and Telangana, which are some lower occupancy region for us.

So what initiatives or what are the things that we are going to reach those segments at a higher occupancy rate?

Sunil Kumar M R Naman, there, see, currently, one of the reasons as Chairman told in the initial call, we have stopped the scheme patients, right.

So we are only currently treating the insurance and certain corporates and walk-in patients.

So that is one of the reason why we have 50% occupancy.

But now already, we are restarting the schemes.

And also, there is a certain outreach clinics which we have started, that is trying to be getting more referrals.

Then we're also trying to create certain implant centers with respect to certain specialties.

So that will have -- considering that will have an impact to create more occupancy

Mr. Balachander R · ___________________________________________________________________________

Thank you, Naman.

If there is anyone else who would like to ask a question, please raise your hand.

Since there are no more questions, this concludes the earnings call for today.

I thank you all and the management for joining us today.

If you have any further questions or queries, please do get in touch with us.

Thank you all.

Dr. Azad Moopen

Thank you, Bala.

Thank you very much.

Thank you, everyone. <End> The contents of this transcript may contain modifications for accuracy and improved readability