Ladies and gentlemen, good day, and welcome to Q4 FY 2022 Earnings Conference Call of Max Healthcare. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir. Thank you. Good afternoon, everyone, and thank you for joining us on Max Healthcare Institute's Q4 and FY 2022 earnings conference call. We have with us Mr. Abhay Soi, Chairman and Managing Director, and Mr. Yogesh Sareen, Senior Director and Chief Financial Officer of the company. We will begin the call with opening remarks from the management, following which we have the forum open for an interactive question and answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Abhay to make his opening remarks. Good afternoon, everyone, or good evening. A very warm welcome to all joining us for the fourth quarter earnings of financial year 2022. Let me provide key highlights of the past quarter before opening up the forum for questions and answers. Q4 performance was in line with our expectations. You will recall in our previous quarter's earnings call, we had highlighted the impact of Omicron wave on bed occupancies in the first half of the fourth quarter FY 2022. Subsequently, the occupancies bounced back sharply. Moreover, aided by resumption of international travel, international medical tourism recovered back to 90% of pre-COVID levels in March 2022. The initial drop in occupancies was mainly due to the Omicron wave, this time characterized by high rate of infections but low hospitalizations. Nevertheless, non-COVID elective work was impacted, as has been the case in the past. COVID admissions remained poor this time. The strong recovery in the second half mitigated the initial dip in occupancies to some extent, and thus the average occupancy for the quarter stood at 68% as against 60% in January. Fourth quarter EBITDA was INR 304 crore, with operating EBITDA margins of around 25%. This is after one-time cost of INR 7 crore incurred in relation to the two inorganic transactions announced during the quarter. The highlights for the fourth quarter performance were network gross revenue of INR 1,298 crore, a growth of 12% year-on-year, but degrowth of 7% quarter-on-quarter. Due to widespread Omicron infections, a number of doctors were infected, leading to disruption of work in some of the specialties in the first half of the quarter. The digital channel contributed 13% of the revenue. Network operating EBITDA stood at INR 304 crores in Q4 of FY 2022, demonstrating a growth of 16% year-on-year and degrowth of 16% quarter-on-quarter. The EBITDA margin was 24.8%, leading to a profit after tax of INR 172 crores. Like I mentioned, this included a INR 7 crore one-time, you know, transaction cost for the two inorganic transactions that we did. The absolute number of beds used for the institutional patients were lower than quarter three. However, due to overall drop in occupancies and occupied beds, relative share of such patients shows an increase of 31%-33%. The ARPOB for this quarter was 63, 500. Sorry, 63,500, implying a growth of 13% year-on-year and 4% quarter-on-quarter. This was assisted by the growth in international revenue, as I mentioned. Cash generated from operations after interest, tax, and replacement CapEx was INR 179 crores during the fourth quarter. INR 328 crores was invested in growth initiatives, which includes acquisition of stake in Eqova Healthcare for 400-bedded hospital in East Delhi, operations and management agreement for the under construction 300-bedded hospital in Dwarka, purchase of transferable development rights for Gurgaon lands and other brownfield expansions at Shalimar Bagh, Saket, and Nanavati, Mumbai. Further, we onboarded 28 new senior clinicians in oncology, liver transplants, neuro and cardiac surgery. We also served 34,000 indigent patients in IPDs and OPDs free of charge. The notional value of this treatment was INR 44 crores. Coming to the strategic business units, Max Lab, which is our non-captive pathology business vertical, added 60 channel partners during the fourth quarter FY 2022, taking the overall active clients to 760 spread across 25 cities now. Revenue grew by 40% year-on-year and 11% quarter-on-quarter. We continue to invest in this business and have augmented the operations, marketing and IT teams and increased our commitment to brand building. Max@Home, our home healthcare vertical. We reported a gross revenue of INR 28 crore, similar to the third quarter levels and representing a growth of 21% year-on-year. We have added around 70 people in the team during this quarter. Coming to the overall fiscal FY 2022, it has been an eventful year to say the least, where despite numerous challenges, there was a massive improvement in the performance. We closed FY 2022 EBITDA at INR 1,390 crore, which is more than double of the INR 636 crore we achieved in the previous year. In addition, as part of our inorganic growth strategy, we have announced four transactions, including purchase of two prime land parcels in Gurugram. These will have a combined potential to add 2,200 beds in the coming years in addition to the ongoing brownfield expansions. The key highlights for the year have been network gross revenue stood at INR 5,509 crore as compared to INR 3,851 crore in FY 2021, a growth of 42% year-on-year. Network operating EBITDA stood at INR 1,390 crore as compared to INR 636 crore in FY 2021, a growth of 118% year-on-year. Our EBITDA margin was 26.6% and the PAT was INR 836 crore. In line with our strategy to improve the payer mix in FY 2022, the bed share of institutional patients has been reduced to 31% versus 34% in the previous year, FY 2021, by way of disempanelment of few institutional accounts at some of our network facilities. This process could have been accelerated if it wasn't for intervening periods of low occupancy during COVID to non-COVID switchovers. ARPOB improved by 17% year-on-year to INR 58,500 in FY 2022, and EBITDA per bed improved by 78% year-on-year to INR 53.9 lakh during the year, in spite of lower earnings from COVID beds. Cash generated from operations after interest, tax, and replacement CapEx was INR 770 crore. The routine CapEx spent during the year was higher due to catch up for FY 21 replacements. The investment of INR 671 crores in the inorganic growth initiative and brownfield expansion was totally funded by internal accruals. Overall, net debt including put option liability of INR 139 crores has come down by INR 103 crores to INR 441 crores as on March 31, 2022. To recall, the inorganic growth initiatives announced during the year were, one, acquisition of exclusive rights to aid development and provide medical services to an upcoming 500-bed hospital in Saket. Two, acquisition of two land parcels in Gurugram measuring 11 acres with the capacity to add over 1,000 beds. Three, asset-light expansion through a three hundred-bed under-construction hospital in Dwarka, Delhi. Four, acquisition of stake in Eqova Healthcare, having the potential to add 400 beds in East Delhi. These transactions, like as mentioned earlier, have a potential to add 2,200 beds to our network. Of these, we plan to operationalize 1,500 within the next four to five years. In addition, we have four ongoing projects for brownfield expansions, which put together will add 1,300 beds over the same period. Hence, collectively, we will be adding over 2,800 beds in the next five years, four to five years, with expected capital expenditure of INR 3,700 crores that is intended to be funded through internal accruals alone. During the year, we also served 126,000 indigent patients in IPDs and OPDs free of charge. The notional value of this treatment overall was INR 160 crores. This year, Max Lab added 370 new channel partners, taking the active clients to 760 spread across 25 cities. The revenue grew from INR 68 crores in FY 2021 to INR 104 crores in FY 2022, resulting in a 53% growth year-on-year. More importantly, non-COVID revenue grew by 85% in FY 2022 as compared to FY 2021. Max At Home reported gross revenue of INR 112 crores, representing a growth of 60% year-on-year. In addition, this team played a stellar role in COVID vaccinations during the year and took a lot of the load off the hospitals. Going forward, we see the following additional levers helping us in improving our performance in short to medium term. One, international medical tourism growth from both existing and new geographies. 2, improvement in payer mix. 3, impact of senior clinicians onboarded and continued strengthening of medical programs. 4, inorganic expansion in both hospital and diagnostic space. Finally, we are also working on the digital front, which will not only help us engage with more patients and widen our reach, but also serve our customers better and provide improved experience. On this note, I would like to open up the forum for question and answers. Thank you. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Anyone who would like to ask a question, you may press star and one at this time. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead. Yeah. Hi. Good evening. I hope I'm audible. Yes. Yeah, sure. Hi, Nikhil. My first question is on EBITDA per bed that the company has reported in Q4. Now, ARPOB has improved sequentially, that would have added on to EBITDA per bed, but obviously there's operating leverage because of occupancy going down substantially. Assuming, let's say, in 1H FY 2023, the mix remains stable and based on the April occupancy trends that have been shown in the investor presentation, would it be safe to assume that the annualized EBITDA per bed in 1H FY 2023 is looking much better than what you did in your best ever quarter in Q3 FY 2022? This is taking into account any recent inflationary trends that you might have been witnessing, which were not present, let's say a few months back. I think two things. I think immediately we have not had any significant inflationary pushes that were unanticipated at present, which may not be the case going forward, but it's hard to call right now. Having said that, you also know that we don't give forward-looking statements. If you were to sort of look at what the trend has been, and what the occupancies are, quarter four normally is a strong quarter, but the first half of the quarter had pulled down the average, and the second half of the quarter was significantly better. you know, at least on the, I mean, the second half, if that sort of continues into the first, this thing and, you know, from industry standpoint, there's no reason for that not to happen. you know, I think, things should continue in the manner that they are. As far as the EBITDA per bed is concerned, you know, if I look at last quarter three was INR 60 lakhs. This quarter is about INR 56 lakhs. if I was to sort of normalize for that, one-time expenditure on the two transaction, which is EBITDA, we will come to about closer to INR 58 lakhs. I think there's a reduction of about INR 2 lakhs in that. Some of it can also be or a lot of it can be attributed to the lower OpEx, which we had in the first half of the quarter. Okay. Got it. Also, if I look at the direct costs as a percentage of sales, they seem to have gone up quarter-over-quarter by around 140 basis points. I mean, mix would have been better, I believe, with more of international patients coming in. Any particular reasons why the direct costs would have gone up by 140 basis points on two basis? Nikhil, obviously, there are some beds being used for COVID patients, right? There's an average of 10%, you know, beds are used for COVID patients. That COVID ARPOB is lower, you know that. And also the consumption of material is high. Also, when the COVID comes in, there's a lot of PPEs that we have to use. Then the store consumption goes up. Also, relatively, I think Abhay mentioned this already in his speech that you know there are some because of the fact that the overall occupancy came down, the relative ratio of institutional business went up, right? And institutional business, you know, is a lower margin business for us, right? That obviously comes in and plays into the you know direct cost. You know, there's a fixed component of initial costs, right? That doesn't come down if there's a one-month aberration here or there. That all leads to a higher direct cost because of the fact that we couldn't do much on that side. No, I think you know what you need to also focus on is EBITDA per bed, okay? Because what happens is, you know, the more medical programs that you do, okay, versus surgicals, medical programs have lower direct cost while surgical programs will have higher typically. Okay, that's what you want to drive towards, the surgical because eventually you also have a higher sort of flow through in terms of absolute numbers. Got it. Okay. Sure. I just wanted to recheck on Nanavati here. The bed addition of 330 beds that has to be done and 160 beds have to be demolished to achieve that. Basically the 288 beds which are there currently operationalized, that number will go down to 120 or, and then obviously + 320 or +330 addition. That's. I'm just rechecking. Sorry, I might have forgotten from last earnings call. No, no. Let me sequentially take you through it. Yeah. We are doing it in two phases. When we do phase one, we add 350 beds. Okay? We don't demolish anything. I think the exact numbers, 329. Okay, we are 329. Okay? We are 329. Okay? We are 329. Okay? We are not demolishing anything at that stage. If when I do phase two, then I have to demolish a part of phase one. I mean, sorry, I have to demolish a part of the original structure. That's when I go down. Okay? In a year and a half, I add. I'm adding 650 and I'm demolishing about 150 on an overall basis, right? You're gonna end up with, you know, I guess 650 plus 340 minus 150 or whatever. Eventually. Okay. You don't. Exactly. It's not as if you reduce the number of beds and then you're doing phase one and phase two. Okay? First the phase one comes up, then if we are doing phase two, which we are doing, okay, but let's say for some reason you decide not to do phase two, right? You don't demolish phase one. You don't demolish the original structure. Oh. Oh. Nikhil, after both the phase completion we will be having 760 beds in Nanavati. After completion of both the phases. Okay. That's census-based, not total based. Yeah. Right. The IPD method. Okay. Another question on Nanavati. I don't know if you would be comfortable sharing this or not. Have all the cost structure restructuring initiatives taken place in Nanavati and EBITDA margins, whatever you wanted to achieve, whether at par with corporate or a few percentage points lower than the corporate, has that been achieved or it's still an ongoing process and lot more can be achieved in 2023 and 2024? I think there's only one line item, which is the personnel item. You know, the VRS you have to do in phases. You know, we brought down the cost of employees over there, but it's still closer to the 30% mark rather than the 20%-23%. There's definitely 6% elbow room over there. You know, we are hoping to bring it down over the course of the year to that, but like I mentioned earlier, in any case it gets normalized when your phase one comes, because then your people get spread over a larger sort of. You still need the people, you re-employing them. Sorry. Did I hear it correctly that we are targeting 30% mark and you are 6 percentage points lower than- No, no. Where it is off Nanavati is, it's close. The personnel cost is close to a 30% number. Okay. Rather than what we have everywhere else. Because it's, you know, you have to do VRS. These are old and elderly employees. Senior age employees, so you have to do VRS over there. We did the first round of VRS, and the cost had come down because of it. Now we're doing subsequent rounds. Okay. Thank you so much. I'll get back in. Thank you. Thank you. Anyone who would like to ask a question, you may press star and one. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead. Hi. Thank you for the opportunity. I just want to understand your thoughts on increased competition in diagnostic space due to some large players having strong financial muscles. In such scenario, how should we look at prospects for Max Lab? I think first and foremost, if you actually see the results of Max Lab versus a lot of the other standalone laboratories, et cetera, okay, we've had a healthier growth on the non-COVID businesses, relatively speaking. Obviously it's on a much, much smaller base. You know, I keep sort of relating to that ad, which used to be the tires we race are the tires you buy. This used to be a MRF tire ad. It's pretty much the same with Max Lab as well. All of what Max does, okay, is predicated on the efficacy and the efficiency of our laboratories within the. That's what all our senior clinicians and all everyone sort of rest their entire practice on. Right? You know, it's very, very high-end sort of work. The efficacy, the efficiencies of that are, you know. Eventually remember one thing: the arbitrator of a result, okay, is a doctor. Your doctor is gonna see a report. He's gonna see a biopsy and say, "Look, you know, so and so, company, this thing, et cetera, it's showing positive. Do you wanna get a second opinion?" Because you can't necessarily rely on the new entrants, et cetera. Okay, you can't discount or discard a Max Lab report. It's come from hospital, right? That is our modus operandi. That's our reason to survive in this business compared to everybody else. Therefore, you know, while you're gonna have competition and so on and so forth, the fact is it's not like pharma. You know, you're not gonna get yourself pricked twice. You're only gonna do it once, even if the first one is free. All of these players coming and using discounting tactics, et cetera, et cetera, you know, works for some, you know, perhaps, you know, lower end tests, et cetera. You know, I don't think it kind of applies to hospitals and hospital labs. Pricing will in the short term, of course, have some sort of pressure. You know, people who go to hospitals and hospitals still have a USP, okay, as far as this is concerned. Yes. I see that as a moat around our business. Right. Sorry. Right. I completely agree with still brand equity associated to brand like Max. Nonetheless, say if a new entrant is coming and offering this INR 100 test, definitely we'll be seeing some shift in volume. Okay, maybe it's lower end, but a part of volume can shift in there, right? I just wanted to understand that part, how you think there. Again, like I said, you know, the arbiter of the test is a doctor. Okay? Eventually he has to decide. You know, if somebody does you an INR 100 test, you take it to a doctor and the doctor looks at it and says, "You know, I'm not sure. Why don't you get a second opinion because this does not relate to your previous test." Right? Even if the first test was INR 100 or free for that matter, okay, you don't want to get yourself pricked a second time. I mean, this is invasive, right? Somebody is doing a blood test. It's not like a medicine. Okay. Having said that, which, you know, somebody else is purely playing on price with the same brand you're giving at a cheaper price. Having said that, I do completely agree with you, okay, that with all of these players coming, you will have a lot of volume moving towards that as well. Do remember 70%, okay, of the business is, you know, sort of disorganized. 30% of it is among some of the larger players. We still continue to be a very solid but small player. Okay? You're gonna see a lot of movement happening with the big players in my mind, okay, because, you know, I think the larger players are something to worry about. With all this discounting. This discounting is, you know, please understand, this discounting is the old strategy of discounting. If you do it for a few years, you take market share, then you raise prices, right? You see that in telecom, you see it in others. I'm not getting impacted right now. Perhaps we will to some degree, but not too much. We will stand the course. We'll stay the course because, look, eventually people will come for higher-end tests and so on and so forth. Even that market is increasing, and they will come, keep coming to Max Lab. By the end of the day, proof of the pudding is in the eating, right? You see our numbers and see everybody else's. Again, like I said, it's a very small base. Okay. Okay, that's helpful I think to understand the scenario. My second question is on ARPOB. We ended fourth quarter at INR 53,500. That's around 12% growth on previous year's base. Again, I think if you can just try to make us understand, like, how far we can go in terms of ARPOB growth and what will be the key drivers from here on? Because in this fiscal we definitely had some benefit from COVID-related tests, vaccination, et cetera. Excluding all these, what will be the key drivers for ARPOB going forward? No. If you don't look at it on an annualized basis, okay? Like this quarter we had no vaccinations and really hardly any COVID-related tests. Similarly in the previous quarter as well. I don't think that argument holds that the higher COVID sort of. Every quarter that you've seen, we have shown ARPOBs and we've shown EBITDA per bed minus the COVID vaccination and COVID-related tests in each one of our quarterly results. The ARPOB that we've been speaking about do not include vaccinations. Confirm that, Yogesh. That's right. It actually says it doesn't have anything, any vaccination does not have any Max Lab revenue impact. That's right. It doesn't have these two things. Like I said, that argument doesn't hold. That's one. I think, you know, again, I'll just go back to what I've been sort of saying and underline the same fact. The two drivers of ARPOB, okay, or the three drivers, one will be a clinical mix, which is incremental. It's not exponential. I see a major push coming from payer mix change because moving away from institutional business that you've seen. I called it even a year ago, and what you're seeing right now is the results of that. The third is, you know, the international business coming back. Again, this is something that I said that by the end of the financial year we should be getting close to 100% or we'll be 100%. We had the Omicron wave, so that got delayed a little bit. We got back to 90% by March. In my mind, you will get to that number very soon and, you know, you'll probably see that if you haven't already done that. All of that, you know, international business is high ARPOB business. The minute you're moving institutional beds down and replacing with CTIs, that gives me 40-45% more revenue. That means my ARPOB of those beds is 45% higher. It's a mathematical exercise. Okay. I won't get worried about or concerned about seeing higher ARPOBs over here. I mean, international ARPOBs are significantly higher than this. I mean, theoretically speaking, if you have a hospital only does international business, we'll have ARPOBs northwards of INR 90,000, 1 lakh. Okay. I'll take it. Thanks again. I'll get back in the queue. Thank you. Thank you. The next question is from the line of Praveen Sahay from Edelweiss Wealth. Please go ahead. Praveen Sahay from Edelweiss Wealth, your line has been unmuted. Please go ahead with your question. Yeah. Sorry, I was on mute. Thank you for taking my question. Just to, you know, question on the last participant's question. Is there a further room for improvement in clinical mix? Because, in the last couple of quarters we had observed that the clinical mix has improved significantly after COVID. Is there a further room for improvement there as well? No. Look, I think, you know, one is movement from COVID to non-COVID, right? I think, you know, in movement from COVID to non-COVID there is a exponential, there's a step change in clinical mix because the minute you're moving from medical programs which are capped in pricing, okay, to non-medical or surgical programs which are not capped, okay, they have higher ARPOBs, they have higher EBITDA per beds and so on and so forth. Having said that, the two big, like I said, on the clinical side, okay, if I look at business as usual, okay, let's say what I'm doing this month or what I was doing, you know, whatever, when there is no COVID. On normal high occupancy when I'm operating at 73%-74% occupancy levels, the sort of ARPOBs that I'm doing, what is gonna drive that? Okay? I'm talking about times when there isn't much COVID happening or any COVID happening. In those situations, our clinical mix, okay, is already superior. We already do a lot more of that. I'm not saying there won't be increase, there will be, but it'll be incremental increase. Relatively speaking, ARPOB is driven by three things and three things alone. Okay? It's driven by your pricing, okay, which every year you're gonna have that 2%-3% impact of pricing on your overall revenue, okay? It's impacted by your payer mix where we are going to see a step change or there's an opportunity for a step change simply because, you know, we've got 30-odd% beds which are still doing business at 45% lower rates or 40% lower rates. The third is the clinical mix. Now clinical mix we're already superior. It's not as if we are not. We're adding clinicians. We'll see further increase over here, but you're not gonna see a step change because of it. You'll see it because of other two things. I hope that answers the question. We lost his line. While we wait for him to join back the queue, we'll take the next question. Before that, we would like to remind our participants, ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Hemal Shah from NR Shah Associates. Please go ahead. Yeah. Sir, my question is running a hospital involves very high management of labor and is extremely service-oriented. Now, we have grown very nicely in past and also planning to grow very nicely in future. Does it act as a constraint as we go and our size increases? Sorry, does it act as a constraint? Is that what you asked? Yeah, yeah. Now, you know, we'll be set close to 5000-6 000 beds in next five years. Once that is crossed, will it act because extreme labor management and service-oriented is our industry. Does it put a constraint? Mm-hmm. beyond which, it will act as a constraint? No. Look, I think there are two things. Okay, one is you're absolutely right. It is a service industry, extremely, people oriented. We have over 25,000 people who work for us at Max Healthcare. You know, but do keep in mind that we have a huge amount of unemployment in the country. We have a massive demographic dividend. Okay? We have such a large population below the age of 25, who are looking for jobs. You know, although overseas you're seeing this right now, that you're seeing a shortage of trained manpower, but we are the largest exporters and providers of, you know, medical technicians, doctors, nurses to the world. Do keep in mind, okay, all of it's sort of reflects in the price, doesn't it? I mean, today, the cost of a nurse or even a resident doctor in India, okay, is about INR 40,000-INR 45,000 a month. I mean, compared to any of their Western counterparts, I mean, it's nothing. No, no. Sir, my question is. It just shows you the kind of our management bandwidth to manage it. No, no, we have no issues on the management bandwidth. A lot of expansion happening through brownfield. Brownfield, what happens is the same hospital, they sort of expand. Yeah. I mean, if you look at the Mumbai example, it's like Hinduja puts up another wing. You're not gonna put up new management. You need more sort of people at the bottom end. Having said that, okay, you know, you are gonna increase teams, such as projects, digital and so on and so forth, because these are some of to sort of focus on growth opportunities. All right. Sir, my next question. Do keep in mind also Max. Yeah. Yeah. Look, I think it is. It's not as if what you're saying is not valid. It is a valid question. Okay? That's a challenge that all top management across all successful organizations face today. Okay? How to sort of reward, retain, you know, their top managers, senior managers, and attract new talent from the market. I mean, that's a constant. Right. Sir my next question, the second question is the color on the scope. Can you give me some color on the scope of inorganic growth opportunities available? Inorganic growth opportunities available? Yeah. I think there are plenty of inorganic growth opportunities available because there are lots of PE-owned hospital chains up for sale. There are lots of standalone ones up for sale, you know. I can't give you color beyond that. You know, I think there's quite a bit available. It's not as if it's not. You're seeing. Right. You know, some sensibilities around valuations. You know, those hectic periods. It's getting back to serious business, right? I think all of the stuff that we were seeing in the equity markets and in transaction values, et cetera, is. There's some sim- Mm-hmm. Seems to be some semblance of peace right now. Okay. Thank you, sir. Thank you so much. Thanks. Thank you. The next question is from the line of Praveen Sahay from Edelweiss Wealth. Please go ahead. Yeah. My next question is, as you had mentioned in the presentation that the Central Government Health Scheme has some delay in the payment. Can you give some detail from which, you know, facility, which location you got a, you know, impact of that and how much is the outstanding, is that? I think we basically gave you the exact outstanding, but typically what happens is that the government has a, you know, if I look at previous history over the last 20 years, they have a habit of sort of the intermittent delays. You see bunching up of payments and suddenly for months you don't get payments, then suddenly you get it for this thing, et cetera. They kind of accumulate, and they get released. That's one. Having said that, the central government, this is, you know, the payment is made through a portal or the system works through a central government health scheme, which is moving to the NHA now. It's moving to a different system. Okay. The delay which is happening right now is because of that they're moving to an NHA, okay, whilst. It's literally a handover happening. It's not just us. I think everybody in the industry, everybody is sort of impacted. We perhaps a little more so because we do more, like we've seen, we do a higher proportion of institutional business at our hospitals. Yogesh? Mm-hmm. Yeah. Our outstanding is, as at end of April, it was around INR 270 crores outstanding. We've been talking to NHA for quite some time. We've been told every month that, you know, they're like, they'll be paying us some money, you know, and we also had a meeting with Health Minister, etc. Eventually, you know, we have taken a call to stop the OPD business. That means we're not doing the OPD there. The charges, the rates, you know, the rate is INR 156 per consult. We stopped that, and that's the news item that you would have seen in the front page, you know, in The Times of India. I think we're getting a signal that they are now getting their house in order, and we should be getting some payments in the course of next two weeks. Okay. Sandeep, frankly, I'm not concerned about this. I'm not perturbed about this. Okay. Okay, great. I mean, when the accumulation we push, we also come up with media stories and write letters and so on and so forth. You know, that's all part of the game with the government, you know. Okay. That's helpful, sir. The second question related to the outpatient. I can understand for this quarter because of Omicron. In the last, you know, continuously from second quarter, third quarter, there is a down, then from third to fourth quarter, there is a down. Do you see, you know, this trend to change and you are seeing this currently because April, May already is done? No, I think you only see it down. OPD business only lower in COVID quarters or COVID month. Otherwise, you see a sharp bounce back in non-COVID months. Let me say this. I think basically on this OPD footfalls, I think typically in quarter three is generally a soft quarter for OPD footfalls because of this, you know, festival season, et cetera. Also in quarter three, as you would have, we would have mentioned this earlier also that we have de-paneled ourselves for, you know, some of these state schemes where it was high OPD footfalls but low IPDs, right. For example, ECHS, et cetera, we had de-paneled ourselves. There was also a de-growth in quarter three because quarter two in terms of the OPD footfalls, and that was by design, right? It wasn't something that we not anticipated. It's because of the fact that we wanted to bring down the institutional business. We picked up those, you know, institutions where it was high OPD and low IPD because we were also facing a lot of constraints on the OPD side, right. I would say in quarter, as we see, you know, April onwards, every numbers are getting normalized. Right. Got it. On the occupancy side, can you give any color on the normal high level of occupancy you can reach to a hospital-wide? Like, how much of the maximum any hospital can go up to in the occupancy? You know, you can go to 77-78% on a sustainable basis. I mean, we've done 81%, 82%. Some of our hospitals even consistently for years have been doing at 80% +. But you know, you do it on a sustainable basis at that level, you know, it does compromise, you know, I won't say outcomes, but definitely, you know, your discharge time, your, you know, admission time and so on and so forth. Patient services. 77-78% is what I would put it to. Right. That's the natural level. Yeah. Lastly, on the pricing side, is there any, you know, increase in the pricing happened in the past quarter or you are expecting increase in the prices in the coming quarters? Yes, there is a price change which has happened from first quarter. Also there's one or two major TPAs where the price has been revised. This is a normal yearly, you know, ritual that we do. Yes, there is some price change. How much is that, sir, if possible? I think Abhay alluded to it that typically, you know, it's 2.5%-3% depending on, you know, how much TPA price revision is. You know that TPA price revision doesn't happen every year. It generally happen after 18 months or 24 months, depending on what the contract is. I think major TPA revisions happened last year, so this will be obviously lower, you know, compared to last year. But I think still on the cash side and some of the big TPAs there will be some price revision. No, I can't give you a value, but I'm saying it's in the lower side of that range that we mentioned. Okay. Great, sir. Thank you for taking my question. All the best. Thank you. Thank you. The next question is from the line of Bharat Sheth from Quest Investment. Please go ahead. Hi, sir. Thanks for the opportunity. Sir, you said that our 40% of the occupancy is, I mean, our contribution is coming from the lower realization that is a government kind of a tier. Is that correct understanding? 30%. 31. 34%, which is, it shows, well, let's say 30, 31%. Earlier you had given us some scope that over time it will come down. Can you give some color on where we expect in next three-year time or how we see this gradually decreasing every year? It was 37%. It's come down to 30%-31%. Okay? Yeah. Over the next two years it will come down to about 15%. Okay. That will help us to improve our ARPOB, correct? Absolutely. Okay. Sir, on this diagnostics you said that we are also looking for inorganic opportunity. Can you share some color on what kind of a criteria you have in mind while acquiring geography or specialty? What kind of RRRs, IRRs that we expect while taking over any new opportunity? IRR? See on this inorganic opportunity. What kind of internal rate of return that we expect? Let me put it this way. Okay, we have a ROC of closer to 30%. Correct. Across the board. Anything that we do over a period of time has to be accretive. There's no point doing anything which is non-accretive to our ROC. That's one. Secondly, if I look at the laboratory or pathology business, you know, where the pricing are right now and you know, my expectation is perhaps in this industry both margins and multiples will be under stress. Okay? In my mind, it's highly valued. Okay? If I have to do any acquisitions in this business, I would only use my stock to do it. I would not use cash to do any sort of this thing. Again, we have to be able to be convinced about the turnaround opportunities over there. Qualitative- No, that. Apart from this financial, qualitative, what kind of, I mean, or geographic. North is something I would like to do, West is something I would like to do, but, you know, not go beyond that. I don't want to go East and I don't want to go. Well, I definitely don't wanna go South right now as far as. Please understand, I mean, out of INR 5,500 crore, we are, my current business is about INR 120-INR 130 crore. We're talking of a very small base to start with. Do we have some kind of new capability? Are we evaluating? New capabilities, as in? In this specialty type or doing, having a contribution higher from the specialty rather than doing a wellness side or normal test. There are plenty of initiatives on that side, okay, to move up the value chain. We are already focusing on the more high-end stuff, etcetera, to do, you know, the one-off tests and so on. But again, you know, the path from INR 100 crore onwards is pretty long to get to a meaningful level. Okay. Thank you. I mean, is there any big bang initiative we are looking at investing in which will 3x my this thing in the next year or 2? No. Answer to that is no. While doing brownfield expansion and what are the capabilities, I mean, additional manpower on which side we require, how much per bed or if you can share some color. Typically you have a 5.5-6 employees per bed ratio. Correct. Right? Brownfields essentially require that. You don't require distinct management already in place in the subsisting facility as well as the senior management already in place. You don't require the high-end for brownfields. You know, first and foremost, the question is why do you do a brownfield? Okay, you do a brownfield because you run out of space. In our hospital, we run out of space. Okay. Yeah. In most of our hospitals right now, you can't get beds. The waiting in emergency is anything from 6 hours to 1.5 days, okay, to get a bed of yours. Okay. Second, finding it difficult to onboard more doctors simply because I don't have operation theaters to give them, I don't have OPD chambers to give them, and I have no patients, sorry, I have no beds for the patients. The third is, okay, I've actually had to take up office. My entire management in the hospital is now sitting in malls outside the hospitals. Because we've cannibalized those spaces and we've taken up this thing. Therefore, I have a tearing need to do a brownfield. It's like Wockhardt Hospitals in Bombay, right? I mean, it run out of space. They're making a tower. How long will it take to fill that up? And what do you require for it? The doctor is already there. The management is already there. You're making another tower. In the same, which is in the contiguous land, right? Therefore, a brownfield. Okay. Well, thank you very much, sir. It's a low-hanging fruit. Okay. Thank you very much, sir. All the best. Thank you. Thank you. The next question is from the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead. Yeah, sure. Thanks for taking my question again. Can you help me with the gross block number associated with the 3,300 beds that are today operational for the entire group, including the partner facilities? Mangesh? I don't get the question. Can you repeat the question, please? My question is that can you help me with the gross block number for the 3,200 beds which are currently operational, which includes the partner facilities? Yeah. I think we already have the benefits with you. You know- That has a net assets, I mean, and this typical gross number there. Net, the net tangible asset is INR 3,227 crores. You would have seen that there. Mm-hmm. Includes the land and everything else. Plus the accumulated depreciation, what would be the number? You're asking gross block? Hello? I'm saying net assets plus accumulated depreciation, the gross asset, what would that number. I can touch offline as well in case it's not handy at this now. No. Gross would be in the range of INR 4,200 crores. INR 4,200 crores. Okay. That's helpful. Sir, on the existing business, up to 31% of beds, do you mind sharing what percentage of this 31% is towards government beds and what percentage is usually occupied by the NGO or private sort of entities? Most of this 31% will be the CGHS tariff, you know, entities. They'll be all state governments or the central government or ECHS type schemes. It's all CGHS dependent tariff, I would say. My question on this would be, if a majority of these are government associated relationships, aren't they? Aren't these riders set in stone when the facility would have been built? Wouldn't these have a part of the term agreement of the land or the facility that this percentage rate has to be reserved for institutional patients? No, I think that's different. That is that we have some population on the EWS side, which is the economically weaker section. That's a treatment free of cost. We don't get any money for that. As Ravindra alluded to that, you know, the money that is spent around INR 14 crore-INR 15 crore every month on that treatment. That's not part of that 31%. Final question. I think I heard the number 13% of revenues came from digital channels. Please correct me if this number is not right. The question on this is that, are there any significant investments that have been taken in FY 2022 and FY 2024? Do you envision a lot more spend towards building the digital footprint? Yes, we do. As in, we already spent, I would say. I can't give you a number now. I mean, we spent a lot of money there, and in fact, going forward there's an increasing spend on this particular line item. We have a separate team for digital marketing, right? There's an outbound call center. There's a, you know, bot out there, bot on the website. There's a lead management, you know, team out there. I think there's a full-fledged department on the digital marketing side. Yes, the budget is going up for them for next year. It's also. Put the values out there, but it's a significant increase in the budget there. Okay. I mean, I'm fine if you are not comfortable sharing the exact number. But is this spend likely to be accelerated in 2023, likely to change in levels with respect to 2022? Is it a long-drawn process, I mean, three, four years of business spend has to be done or one or two years and then you'll be done with whatever level you want to reach at? I would say this will be a permanent change in the line items in terms of where the sales and marketing money gets spent. And also there'll be higher allocation to them for all times to come as I see it. There is also some of it is manpower cost, right? Putting more people on it, we can't do off and on type here. I would say, I mean, if you ask me a proportion, then probably a 60% increase in the budget. Sorry, I, what is the proportion? 60% increase in the budget. 60. Okay. That's helpful, sir. Thank you so much and all the best. Thank you. The next question is from the line of Bhavya Gandhi from Dalal & Broacha. Please go ahead. Thank you for taking my question. I just wanted to understand, is it so flexible to change the institutional mix to, you know, maybe cash or insurance? Because, you know, we go for institutional mix, when our occupancies don't get filled, right? Is it so flexible to switch? You're right. I mean, that's why we do it right now. Instead of keeping the bed idle, we do it. Please understand, two-thirds of our business, okay, which is non-institutional, has a particular rate of growth. It is growing at, let's say, 8%-9% per year for the last so many years. Right. Now, we as you have seen, we are operating at a 74%-75% occupancy level. Maximum we can get to 77%-78%, which I mentioned, right? What do I do about the rest? Let's say I have 2,000-odd beds or 2,200 beds will grow by about 8%-9% every year. I need 200 more beds every year. Okay. Now I've got to a stage, when I have 60% occupancy, yes, your point holds. I, when my capacity is out right now, what do I do? I have to displace the business. It becomes, you know. It's not so much about this thing. Okay. Okay. I mean, insurance business is growing at a certain rate, right? International is growing at a certain rate, and so is cash. Now, when that segment of business is growing in an environment where we have no capacity, then automatically distilling will happen. Right. Another question is with respect to diagnostics. Say for example, if you are doing a capital deployment out of INR 100, you know, the larger chunk is into still the entire hospital spend is into normal hospital business itself, right? Why are for a small pie of 15%, and actually, you know, right now the margins are attractive, but with competition kicking in, the margins will also start dipping. Why are we looking at maybe acquisition in the diagnostic space? Because from a capital deployment angle, is it, you know, viable enough in the longer run? Because, you know, our normal hospital business also gives us 25% margin today. No, no. It is viable on multiple fronts. You see, please understand our brand is a lot more than our reach right now as far as diagnostics is concerned. Okay. I mean, we get patients from, you know, Max is aspirational brand not only for people in Delhi NCR, but also up country, smaller places, and so on and so forth, both for doctors and patients, right? If somebody wants to, you know, get a major surgery they will go to Max Hospital, okay. Imagine, if Max Hospital is providing you a pathology in your town, in your small, this thing, et cetera, right? That's the opportunity. My problem is that my brand is there, my reach is not. I see. Secondly, look, it's not as if, you know, why are people getting into this business? They're getting into it because it's attractive and under-penetrated, okay? Everything is in its favor. Yes, you know, as right now it's getting crowded and you're gonna have, you know, you have venture capital money coming in, business discounting and so on and so forth, right? Very similar to what happened perhaps in the telecom space. You're gonna have a shakeout over here. You're gonna have some of the players, et cetera, who go out of business, okay. You'll have some players who are going to be established, et cetera, okay. Eventually everybody will raise prices back to, you know, everybody's got to earn some money. Okay. The fact of the matter is, do I have more of a right to survive in this business and thrive in this business than others? Okay. My belief is yes, and simply because I have a hospital brand to back it. Right. Overall, from a margin perspective, will it be more de-dilutive? Because, like, will we be able to even generate 25% EBITDA margin when it comes to diagnostic? I understand from a brand perspective it will be helpful. No, no. If you understand, okay, EBITDA margin means nothing. You have to look at it from ROC standpoint, right? It's a services business. It doesn't require too much this thing, okay? It's all variable costs. So even from a percentage standpoint, it goes down, it doesn't matter. I mean, I'd rather have a higher ROC. Okay, fair enough. Lucas, I think that's the reason why. I mean, it's precisely the reason that you mentioned, you know, we moved out of Suburban. You know, we were trying to do the non-elective to done elective, you know, very transition with Suburban. You know, beyond a point we can go further and, you know, obviously, Lal spent more money than we thought we would be spending on it. Yes, we are very, very cognizant of the fact that, you know, this should be ROCE effective. From an expense standpoint, normal expenses, we talk about expenses. Is there any room for any of the expenses where we can control and maybe do some sort of margin? Because our employee cost cannot be adjusted, right? Doctor consultation fees, because that is the key in the entire business. Whatever adjustments we were about to do, we've done one by changing the clinical mix almost at optimum level, right? You are trying to change the payer mix. From another expenses standpoint, is there any room wherein we can, you know, sort of adjust our expenses and there's a lever to maybe increase our margins? You know, three years ago our margin was 8.8%, and we gave a plan, okay, and the total EBITDA of the company, okay. Right. was INR 340 crore. We gave a plan for INR 120 crore in the first year, another INR 120 crore in the second year. That's 360, INR 340 crore is equivalent to the entire EBITDA of the company, and we actually implemented it, right? Right. Okay. No, that's commented. There's no denial on that. No. The point I'm making is we, you know, all of the stuff you're talking about on the expense side, et cetera, we've done it, right? I mean, by the end of the day, anything further, we have to sort of maintain a balance. You don't want to compromise on the outcomes or the patient services. Now, our Max being a metro brand in metro in Delhi and Bombay and stuff like that, you know, our patients generally tend to ask for more. So we have to ask for more of ourselves as well. You know, the whole patient comfort, et cetera, is a lot more than that. So I don't see any. It's incremental this thing. I, in my, in our understanding there is. You know the two things that we sort of pride ourselves about, okay, is very tight cost management, and the second is, you know, very disciplined as far as capital allocation is concerned. These have been our two main sort of stays as operators. Right. Fair enough, sir. Thank you so much. Thank you so much. Thank you. Thank you. Thank you. We'll take one last question, which is from the line of Nisarg Parekh from Natures Capital. Please go ahead. Yeah. Hi. Thank you. My question is, you know, you kind of alluded to briefly, but how do you look at the geographic expansion with few new acquisitions also made in Delhi? You know, so, you know, at what point do you think that you've reached an optimum capacity in Delhi NCR and you would like to make this a bit more geographically diverse spend by, you know, maybe entering a bit more into West or South? Look, I think, you know, first and foremost, you obviously always look at low-hanging fruit in your backyard before you go further and so on. We've done that. You know, we will look at other geographies. We are looking at other geographies. It's not as if we are not there in Uttarakhand. Our highest ROCE business is over there. It's not as if we are not in Mohali. We have a fantastic business over there, which again. My highest ROCE are in fact, not Delhi and Bombay. They are, the other towns, and we will see our focus over there. You also understand our focus over there will be through perhaps M&A and not through build ups. I'm just trying to understand three to five years out, you know, Delhi's, say, 70%-75% Delhi NCR. You know, where do we see that mix going? Do we see mix of, like you said, maybe, non-metro Tier I and towns actually increasing? How do you see that mix for the next three to five years? You know, it's tough to sort of answer that question, right? I mean, if let's say I get an opportunity to buy Medanta tomorrow, okay. It's not. I mean, it's already making money. For example, if I do a transaction like that, I'll have 200 more beds in Delhi. You're gonna ask me then, "Look, you have further concentration." The problem is it's not concentration. You have to play it on merit. It's existing business which is already. I perhaps won't do a greenfield in Delhi. But if I get an opportunity to buy something which I believe I can turn up even further, okay, why wouldn't I do it? You know, although we are proactive, we're also reactive. In M&A you have to be reactive as well, right? It's a little hard to sort of define look what our geographies will be. If I get a very good opportunity in Bangalore, I'll go to Bangalore tomorrow. I must get it. Got it. My second question is on medical inflation, right? You know, with, you know, what are you seeing on medical inflation? Are you seeing that picking up, you know, more than average given things around? Do you see any kind of regulatory risk on price caps, et cetera? You know, government has been coming out with slew of regulations to kind of curb inflation. What is your sense on regulatory impact on the healthcare sector to kind of curb any medical inflation which might be in excess? It has to be inputs, right? By the end of the day, you know, if there is inflation on input costs of medicines and consumables, et cetera, for us it's a passthrough. We essentially pass it on to the patient because any inflation increase in MRP, that's just passed on to. We are basically only making a margin out of that. You don't see any kind of price caps like. No, I don't. There's never been an output price cap. There's always been a price cap on inputs. Right. We had that conversation. I mean, you know, I've already provided my views on why the stents and the implants, et cetera, and probably do the welcome drink. Overall, you have to understand one thing. If there's one sector, okay, which is counter-cyclical, is anti-inflation, is insulation from inflation is perhaps the medical sector, right? I mean, not India, globally, not only us. I think that's the nature of this business. It's a defensive. In India, it's offensive simply because of the huge under-penetration. Got it. Thank you. Just one data point question, if you can. Given Q4 has been, you know, impacted by Omicron, can you provide March 2022 month ARPOB and occupancy? No, we won't be able to share with you this, that data, no. Okay. Thank you. I think coming to the last one, but look, keep in mind one thing, what is being disclosed. Hello? Yeah. Yeah. We're here. I think the occupancy in January was 60%. The average occupancy for the quarter was 68%. Okay. I'm sure most of you guys can work out perhaps or closer to where you were in March, et cetera. Yes. Got it. Thank you, sir. Yeah. Okay. Thank you. Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments. Thank you, everybody, you know, for joining late in the day today. We try not to make it a habit, and next time we'll pick a more convenient time for everyone. Thank you so much. Thank you. Thank you, everybody. Thank you. On behalf of Max Healthcare, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.