ASTERDM — earnings call
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Prepared remarks
Aster DM Healthcare Limited
Moderator · Conference Operator
Mr. Balachander R ___________________________________________________________________________
Mr. Balachander R · ___________________________________________________________________________
Good evening, everyone.
I welcome you to Aster DM Healthcare's Earnings Conference Call for the First Quarter of Financial Year '24.
The company declared the Q1 FY24 results today.
To discuss the quarterly business performance and future business outlook, we have the senior management team at Aster DM Healthcare available with us.
Namely, Dr. Azad Moopen; Chairman and Managing Director at Aster DM Healthcare; Ms. Alisha Moopen, Deputy Managing Director; Mr. T.J.
Wilson, Non-Executive Director; Dr. Nitish Shetty, CEO of India, Aster India Business; Mr. Amitabh Johri; Joint CFO; Mr. Sunil Kumar, Joint CFO; and Mr. Hitesh Dhaddha, Chief of Investor Relations and M&A.
We'll begin 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 question to two but not more than three per participant at a time.
Certain forward-looking statements may be discussed in this meeting and such statements are subject to certain risks and uncertainties like government action, local, political or economic developments, technological risks and many other factors that could cause the actual results to differ materially.
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.
With this, I will ask Dr. Moopen to start with the opening remarks.
Over to you, sir.
The company has been periodically updating the stakeholders on ongoing restructuring process of its GCC business to help unlock value for the shareholders.
We are happy to report that significant progress on the restructuring of GCC business has been made, and the company continues to be engaged in discussion with shortlisted bidder, focused on the GCC region.
On the basis of requests received during the bid process from the bidders, for continued promoter participation in the GCC business, the company's promoters have expressed their interest in continuing to participate in the GCC business, and their intention to hold a stake in the buyer entity along with the shortlisted bidder.
Given that the promoters have decades of experience and goodwill in the GCC region, their involvement is core to the intrinsic value of the GCC business.
Being a complex transaction with sale and separation of a material overseas subsidiary, the process is taking longer than expected.
The transaction remains subject to finalization and execution of definitive documents and appropriate corporate approvals, including approval from the Board and shareholders of the company.
We continue to believe that separating the two businesses will maximize value for shareholders.
Requisite disclosures have been made in compliance with the SEBI regulations at the appropriate stage.
Thank you, Mr. Sunil.
Now, I would like all the participants to raise their hands, based on which you will be called in for your questions.
I will repeat just in case if there is a technical issue.
Please raise your hands so that I can unmute you to ask your questions.
I think the first question is from Ms Jaina.
Please go ahead with your question.
Jaina
Thank you so much for the presentation.
Just three short questions from me.
So first on Medcare Royal, that's going to commence operations.
Is that at the end of FY23 or calendar year '23?
Then on the digital initiatives in the GCC region, is it that non-prescription orders are making up 30% of revenue?
Did I get that right?
And lastly, it was mentioned that there were some restructuring costs.
Was that INR 6 crores?
And then the other one-off was on the GCC taxes.
Dr. Azad Moopen
Alisha, you would like to answer that.
Alisha Moopen
Sure, Thank you, Jaina.
So on the Medcare Royal Hospital, we're expecting it to, hopefully, be operational by Q4 of FY24. So, by between December and February of the upcoming year.
On the non-prescription orders, we were just saying that there is an increase of 30% year-on-year.
So it's not like it's contributing to 30% of the overall revenue for pharmacy.
On the cost, the INR 6 crores, Amitabh, do you want to comment?
Mr. Balachander R · ___________________________________________________________________________
Yeah Sure.
I shall do that.
So, Jaina, you're right, the INR 6 crores that we have accounted for in this quarter pertains to adviser cost, diligence cost, and legal costs that we have incurred till now.
As a principle, we are expensing them since these are period costs.
You had mentioned about GCC tax.
Would you like to elaborate on your question, [Jaina]?
Jaina
Just what is the loss that is coming from that?
What is the one-off?
I think in the statements, it look like about INR 50 crores or so?
Mr. Balachander R · ___________________________________________________________________________
Yeah, Okay.
I'll try and give you an answer to that.
It's INR 44 crores to be precise, and this is not in the nature of a loss.
It's in the nature of a deferred tax liability provision, it's a non-cash item put below the EBITDA line, and the reason for that is because as the new tax regime is coming up in GCC, the difference between the book profit, which is coming from after the amortization of goodwill, and under the tax loss, where the goodwill amortization is not permitted.
There is a timing difference.
To accommodate that timing difference, there's a deferred tax liability that has been created of INR 44 crores is for all the acquisitions made till date, this is a one-time cost and will not be repeated.
In fact, the full cost is being accounted for in one quarter.
That is why you see such a significant amount sitting there.
Jaina
Okay, I see.
Thank you so much for taking my questions.
Mr. Balachander R · ___________________________________________________________________________
Thank you Jaina.
The next question is from Mehul.
Mehul Sheth
Hi, So first question on your restructuring part.
Can you give some more detail, like, where the current process is like current status, any timeline for completion and also on what kind of valuation that you are getting from the bidder side.
So can you provide some more detail on that front?
Dr. Azad Moopen
Yes.
Mehul, as you know, it's not possible for us to disclose more than -- whatever we have to say, we have actually wrote in the statement.
I can repeat that.
We see this going in the direction that we wanted, which is for
Mr. Balachander R · ___________________________________________________________________________
Thank you, Mehul.
So India, Q1, if you saw the numbers said, year-on-year, we have done very well.
In the occupancy also, we have closed the quarter with 64% occupancy.
But again, that is blended with O&M asset-light hospitals, which got operational also in Q1. If you remove that O&M asset- light hospitals, apple to apple comparison, you will be at 67%.
That's almost a 3-4% or 400 basis points improvement year-on-year.
In terms of ARPOB, we've also seen that, we closed the quarter with almost INR 39,400 ARPOB for India.
And compared to last year same time it is INR 36,000, so almost 8% - 10% increase has happened.
Now margin-wise, we have closed at 14.7%.
And see, this is a quarter wherein you all know that there will be increments be happening.
At the same time, there are certain price increase also, we have taken.
Now to ensure that the bottom line improves, Q2 you will see further growth happening in here.
So, this is the quarter which has always got a pressure because from 1st April, we'll have the cost increasing, but at the same time, price increase will trickle down only slowly, right?
You can't take the complete price increase in one quarter.
So keeping that in mind, I think we have given a good number.
And in July, occupancy is doing well.
So we see that Q2 was always very good in India.
Considering the season, the medical specialties usually do very well.
So that way, I think we'll have a very good number.
So, We can't predict, Mehul, but occupancy numbers are quite good.
In the month of July, we're already at 68%.
So considering that we expect this quarter to do very well.
Mehul Sheth
And also, sir, like, just a last question on like ARPOB driver.
What factors are basically driving your ARPOB?
And what will be the sustainable ARPOB growth that you are expecting from here on?
Mr. Balachander R · ___________________________________________________________________________
So, there are multiple factors in India, Mehul, which is driving the ARPOB growth.
One is that we have a 58% to 60% cash payer mix, considering that we can take the price increase and we are doing that.
Second would be the geography where the occupancy grows.
Third would be the case mix, right?
We do a lot of high-end cases like DBS, cochlear implants, TAVI, a lot of transplants, liver, renal, BMT transplants.
All these like quaternary care specialties, the procedures which we do really add to ARPOB growth.
And if you've seen our trend year-on-year, we are adding almost 8% to 10% ARPOB growth, which is happening.
And I think that will continue to do so.
Mehul Sheth
Okay.
And just before I fall back in the queue.
So, sir, on the Aster Lab side, how do you see the business scaling-up like?
And what will be our EBITDA breakeven time period from here?
Dr. Azad Moopen
So the Aster Lab India, we hope that in the next, I mean, quarter -- by end of next quarter, on a month-wise, we should be going into a breakeven.
We are gone to that stage where we are seeing the profitability just starting.
So this year, we hope that we will go into an EBITDA breakeven, not as a whole the year, by end of the year, definitely, we'll be going into a breakeven.
Mehul Sheth
Thank you.
That’s done from my side right now.
Thank you.
Mr. Balachander R · ___________________________________________________________________________
Thank you Mehul.
The next question is from Amrish.
Thank you for the opportunity.
Congratulations again on a very good result, especially in India.
And bear with me for nitpicking on what is otherwise a fantastic set of numbers.
So again, the question is relating to the labs and pharmacy business.
Is there some color you can provide on whether we are still pushing forward?
I understand that the pharmacies and the role that they are playing is an ecosystem role.
But the numbers of pharmacies seem to have are flattish.
And I'm not sure whether is this deliberate, or is there something in the business model that we need to tweak?
Is there something you can share on this, please?
Yes.
So I'll start and then Dr. Nitish will join, the India CEO.
So like what you said exactly, we are not -- we were not looking at earlier while we started off, we thought that it has to be large rollout across many regions.
But later, as we mentioned, and you also mentioned now, we thought that we have to create an ecosystem around our hospitals.
So, that doesn't require a huge rollout of like what we mentioned earlier of 500 pharmacies in 3 years and all.
We think that we will be able to do that with 300 pharmacies is what we are now thinking.
That's why that rollout has come down.
And we were also burning some cash, whereas in the lab like what I mentioned, we hope that within the next 3, 4 months, we will be going into a breakeven.
We have started just 2, 2.5 years back.
Pharmacy, it may take a little more time.
So, we are people who would like to be very conservative and conserve money rather than burn it for getting business spread out.
Once we stabilize and we know that business model, we hope that by that time we will have a lot of our own products, which will give us better margins.
Then, maybe the possible to have larger numbers if we make sure that individual stores are becoming profitable.
So what you said is absolutely true.
We are not going for a large rollout, we have, in fact, reduced our numbers.
This year, we thought that we will stabilize the existing stores and go, whereas labs, it is slightly different.
We
Second question is a broader question, and I'm not sure how much you can share at this stage in a post-restructured scenario, whether we will lose some of these synergies.
So for example, we have done a lot of work in the GCC with -- in the pharmacies with our own health wellness kind of products.
Would we be able to bring these across to India?
Aster have been in any case is all the technology that's been built there, will it be migrated?
Is there anything we can share?
So what sort of synergies would we lose or will we be able to retain most of it?
Dr. Azad Moopen
So, while after this process, these will be two separate companies, the India company remaining public and the GCC becoming private.
It will be two companies.
So, whatever we do will have to be on the way, keeping that in mind.
So answering your question, yes, there are certain things that we have developed here, like myAster, which is the app, which is becoming very popular here, like Alisha mentioned.
We will definitely be looking at ways in
Mr. Balachander R · ___________________________________________________________________________
That’s it.
Thank you very much and all the best.
The next question is from Mohit.
Mohit
Thank you for this opportunity.
Okay.
So I had this question about last year, there was this note that we have recognized income of INR 23 crores for reversal of this contingent consideration provision.
So when you're comparing 1Q this year versus 1Q last year, is this excluded from the normalized numbers?
Mr. Balachander R · ___________________________________________________________________________
Yes, Mohit.
We have excluded that.
So, when we are looking at the growth and we are trying to a normalization, this INR 23 crores have been backed up from the INR 69 crores of what was the Q1 FY23 numbers.
Mohit
And one more thing.
So you said that the promoters will be participating in this GCC business after it's carved out.
So is it going to be transferred?
I'm worried about a big increase in pledge shares in the Indian listed business to finance promoters participating in the GCC carve out.
So is that going to happen?
How will it be financed?
Dr. Azad Moopen
No, no, no. It's not going to happen because the structure that we are looking at, we have brought this money from outside India as foreign direct investment.
So this money can be repatriated whatever comes in India when
Mr. Balachander R · ___________________________________________________________________________
That is, the Board has to decide.
Our desire is that as promoters, but the Board has to decide.
So we have seen that as one of the sources for getting the stake in GCC.
If it's not possible, we have other methods in GCC to raise our own funding.
Mohit
Okay.
Got it.
And this is like more of a minor concern, but for the last couple of quarters we've been saying that we would receive binding bids in 1Q FY24. And we've always known that this is a complex transaction, right?
So what happened?
Mr. Balachander R · ___________________________________________________________________________
Yes, yes.
So as you mentioned, it's a very complex transaction because of many reasons.
So, the Board wants to be 100% sure before it accepts the bid and sends it to the shareholders.
So that whole process, the rigor which we have put into this because of many reasons.
Because it's a transaction between GCC and India, outside of India, the promoters are involved.
So there has to be, again, hundreds of checkpoints where we make sure that it is beyond any doubt, there is no conflict of interest.
So a lot of things, a lot of lawyers and advisers involved, apart from our own; the resources we have.
But the independent directors are helping us, giving us direction, as well as helping the Board to go in that right direction.
So as you mentioned, it's a complex, but the good thing is that we all believe that this is going to significantly, I mean, sort of unlock value for the shareholders and that's why, we are doing this.
Otherwise, there is no point in doing this.
Mohit
Perfect.
So we have received some sort of bid because you said you are evaluating them?
Mr. Balachander R · ___________________________________________________________________________
Yes.
So, that is beyond the scope, it will be difficult for me to now to commit.
So, you know, there are certain restrictions, but what I can tell you is that it is going in the right direction, even though it's delayed, it's progressing well.
Hitesh Dhaddha
So Mohit, in some of these larger transactions, and you must have been tracking for various other companies as well.
There could be a few months of delays if the transaction of this kind of magnitude and size is happening.
Those things can always happen.
But I think as Chairman mentioned, so far, we are reasonably confident of moving forward on that transaction.
That's the limited point I would like to make for.
Thank you.
Mohit
Perfect Thank you.
Mr. Balachander R · ___________________________________________________________________________
The next question is from Harith.
Hi, Good evening.
Thank you for giving me the opportunity.
So there's INR 7 crore loss from associates that I'm seeing in the P&L.
It's not a big number, but just trying to understand which entity it's coming from?
Yes, I will try to answer that question.
It's a combination of entities across GCC and India.
There are certain entities in India, especially in the IV side, where the business had invested, and these are the cumulative losses that are coming from there.
This is largely that amount.
There’s around Rs.
4 Crs from GCC and Rs.
3 Crs from India, which has resulted in this loss.
Okay.
That helps.
On the O&M asset-light strategy, we've added, I can see another hospital getting added under this model, which is in Kollam.
So, some color on this particular hospital, as well as what your experience has been operating hospitals under this model because we've added some 3 to 4 over the last 12 months.
And then particularly when I look at this hospital, it's a slightly smaller hospital, very different from the other assets that we have in Kerala and in general, the O&M model, we are focused on Tier 3 and 4 locations.
Again, a deviation from our Tier 1 focused high-industry care, quaternary care focused model.
So thought process around this O&M asset- light strategy would be helpful.
Harith, thank you very much.
So this is something which is very close to our heart because of many reasons.
One, from the point of view of providing care in the areas where it is not there, where we are all mostly our assets are in city such as Bengaluru, Cochin and Calicut or where we would like to go to the interior.
That's why we have gone to these places.
The 4 hospitals, which we have started confirms to that.
The size are smaller like what you said, it's more than our other hospitals.
But this whole thing, apart from making us the healthcare providers, who can provide tertiary care, like an angioplasty or neurosurgery, in a place where it's not possible because of our connect with that hospital is something which is really lifesaving and being appreciated by the medical professionals, as well as the patients.
So that is from the point of view of taking this to the periphery.
From the point of view of an investment, as you know, this is a very asset-light model where already there is existing infrastructure.
What we do is we bring in some equipment, and sometimes, we have to give some deposit and all.
So, Sunil will tell further about this hospital in Kollam, which we are the latest one, which we have added, before that we started one in Tirupati also.
So, the advantage is that it is very asset-light.
So, while the EBITDA margins may be lower, and it may even dilute our overall EBITDA margin, we find an opportunity to have significant increase in our ROCE.
So that is the whole idea.
One, bringing care to places where it is not available.
And second, to get a very high ROCE, while there may be some dilution on our EBITDA margins.
So Sunil, if you can just tell him the experience of couple of these hospitals regarding the financials of that.
Sure, Chairman.
Thanks, Harith, for the question.
So, as you know, already, we have 3 assets live, one is Aster Mother Hospital in Areekode, with 140 beds, that's almost 1 year back we started that.
Aster Narayanadri in Tirupati, we started 2 quarters back, with again, 150 odd beds, and recently, this quarter, we started with 100 beds Aster G Madegowda Hospital in Mandya.
Out of the 3, we’ve already broken even in Narayanadri, there is something which we communicated in the last quarter itself, and doing very well.
It does
And then just one small clarification.
I see in your presentation as per KLE hospital, you've classified it as O&M.
And then, how is it different from this O&M asset-light set of hospitals?
Are there any differences in these two models?
Yes, Harith.
Only for Aster we qualify that, only O&M means, we usually go with the interiors plus medical equipment or will only go with medical equipment.
When we call O&M asset-light, not only just O&M, here we have an existing hospital already, we've already asked about equipment also.
So we go only with the small deposits and just refresh the medical equipment, which is required.
And to add wherever the specialties are lacking, trying to get a new doctor, a new specialty want to start, so only those CapEx we incur, nothing more than that.
Okay.
And these hospitals like this Kollam asset, they are already operational hospitals.
Yes.
It's the existing running hospital, we have taken it over.
Okay.
And one last question.
Looking at the ARPOB profile of mature hospitals in India, it's around 40,000 that we have for this quarter.
So how should we think of this number going forward in terms of further expansion from here?
We've seen a lot of peers reporting double-digit ARPOB growth in recent years.
But for us, how should we think about ARPOB growth, particularly for this mature hospital cohort.
So Harith, if you see the historical numbers, right, we were able to comfortably grow around 8% to 10% ARPOB year-on-year.
And considering that, our cash business is still 58% to 60% of our total revenue that comes from cash patients, that is at least the place where we have the capacity to do the price increase, right?
So keeping that, yes, we have that leverage available, at least, I'm not giving a long term, but this in a short term, yes, that percentage growth can really happen in the ARPOB.
And also in case of balance, also, we have got 20% to 30% of TPA.
We don't do a lot of schemes.
If you do a lot of schemes for state government patients, right, usually, you don't have the control over the increase in the pricing.
But at the same time, TPA also, you enter into a multiyear agreement.
So you really don't have a year-on-year comfortable.
But every 2 years or 3 years, you can see a jump in the ARPOB.
So that's a broad, I think, guideline we can give you.
Harith Ahmad Thank you for taking my questions.
Thank you Harith.
If there is anybody who wants to ask any question, please raise your hand
Since there are no more questions, we'll close the call with that.
Thank you all for attending.
And if there are any further questions, please do get in touch with us outside this call.
Thank you.
Thank you all.
Dr. Azad Moopen
Thank you, all.
Happy Independence Day in advance. <End>