Max Healthcare Institute Ltd (MAXHEALTH) Q2 FY23 Earnings Concall Transcript

Max Healthcare Institute Ltd (NSE:MAXHEALTH) Q2 FY23 Earnings Concall dated Nov. 02, 2022

Corporate Participants:

Suraj Digawalekar — CDR India Investor Relations

Abhay Soi — Promoter, Chairman and Managing Director

Yogesh Sareen — Senior Director & Chief Financial Officer

Analysts:

Kishan Amarchand Tosniwal — Polar Ventures LLP — Analyst

Nikhil Mathur — HDFC Mutual Fund — Analyst

Prakash Agarwal — Axis Capital — Analyst

Damayanti Kerai — HSBC — Analyst

Praveen Sahay — Edelweiss — Analyst

Shaleen Kumar — UBS — Analyst

Dheeresh Pathak — White Oak Capital — Analyst

Tushar Manudhane — Motilal Oswal — Analyst

Bharat Sheth — Quest Investment Advisors — Analyst

Harith Ahamed — Spark Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Max Healthcare’s Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Suraj Digawalekar from CDR India. Thank you, and over to you, sir.

Suraj Digawalekar — CDR India Investor Relations

Thank you. Good morning, everyone, and thank you for joining us on Max Healthcare’s Q2 and H1 FY ’21 Earnings Conference Call. We have with us today, Mr. Abhay Soi, Chairman and Managing Director; and Mr. Yogesh Sareen, Senior Director and Chief Financial Officer. We will begin the call with opening remarks from the management, following which we will have the forum open for interactive question-and-answer session.

Before we begin, I would like to point out that some statements made in today’s discussion 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. Thank you, and over to you, Abhay.

Abhay Soi — Promoter, Chairman and Managing Director

Very good morning to everyone. We are pleased to welcome you to Max Healthcare’s Q2 earnings call. Let me start by giving you updates about the company’s performance for the first — for the quarter.

Like the previous quarter, this was a normalized quarter. We witnessed a steady growth in occupancy, driven by improved patient footfalls from international and insurance segments. There were concerted efforts to unlock value through previously articulated growth levers. Consequently, we delivered our best-ever performance for the second consecutive quarter this financial year. A significant development this quarter is that, we are now a net cash surplus company compared to a net debt of INR217 crores at the end of Q1 FY ’23.

We have a net cash surplus of INR42 crores at the end of this quarter. We’re also happy to share that our digital app Max MyHealth has been successfully launched at the end of September 2022. The app has enhanced the experience of both patients and clinicians in our ecosystem. It provides a gamut of services, including pathology, radiology, ambulance, home care and facilitate physical and virtual consults, among other things. It also provides access to patients, health records and trends at the click of a button.

Before I move on to the highlights of this quarter, please note that in Q2 last year, we had a revenue of INR91 crores and an EBITDA of INR25 crores from COVID-19 vaccinations. Since this was a non-recurring revenue, the comparative numbers and percentage are thus being reported on a like-to-like basis.

Key highlights of our performance in Q2 are: occupancy for the quarter improved to 78% from 74% in the previous — in Q1 FY ’23 and 75% in Q2 FY ’22; institutional bed share has been brought down to 28% this quarter from 30% in Q1 FY ’23 and 37% in Q2 FY ’22, in line with our strategy. Consequently, the institutional revenue share dropped to 16% compared to 23% last year. Revenue from international patients grew by 16% quarter-on-quarter and reflected 110% of pre-COVID average despite negligible patient footfall from Afghanistan, a key territory for us that contributed around 12% of the revenues previously.

Network gross revenue rose to INR1,567 crores our highest-ever, reflecting a growth of 6% quarter-on-quarter and 17% year-on-year. ARPOB for the quarter was INR66,000, same as previous quarter but grew 12% year-on-year. The mix of medical patients went up compared to last quarter due to seasonal infections, and this was reflected in the lower ARPOB. Increase in ARPOB over Q2 last year was led by improvement in the payer mix and case mix, as well as annual price revisions.

Network operating EBITDA for Q2 FY ’23 was INR410 crores compared to INR370 crores in the previous quarter and INR337 crores in Q2 FY ’22, reflecting a growth of 11% quarter-on-quarter and 22% year-on-year. Indirect overheads were up during the quarter due to relatively higher provisioning for CGHS bills outstanding beyond 365 days, in line with our tight provisioning policy, seasonal cost increase for power and marketing expenses related to international patients. EBITDA margins improved to 27.7% versus 26.6% in Q1 FY ’23 and 26.7% in Q2 FY ’22. Annualized EBITDA per bed, most importantly, rose to INR64.3 lakhs, our highest-ever, clocking a growth of 4% quarter-on-quarter and 17% year-on-year.

Q2 FY ’23 PAT was INR267 crores versus INR229 crores in Q1 FY ’23 and INR207 crores in Q2 FY ’22. This excludes a gain of INR244 crores in tax expenses due to reversal of deferred tax liability relating to intangible assets transferred to MHIL pursuant to voluntary liquidation of Saket City Hospital Limited.

During Q2, INR28 crores was deployed towards ongoing capacity expansion projects. Construction of 100 beds at Shalimar Bagh, and 300 beds at Dwarka is on track, and we expect them to be commissioned in last quarter of FY ’23 and first half of FY ’24, respectively, as indicated earlier. The outlay for some of the expansion projects has been deferred in view of ongoing discussions with some of the world’s top contractors for faster build out.

Digital revenues grew to INR242 crores and accounted for 15% of overall revenue. Continuing efforts to give back to the community, we treated 39,700 OPD and 1,300 IPD patients from economically weaker sections of society free of charge. Both our strategic business units continued their growth momentum, MaxLab reported a gross revenue of INR30 crores. This reflects a growth of 21% quarter-on-quarter and 65% year-on-year on like-to-like basis.

We added 65-plus channel partners during this quarter, taking the overall active clients to 900-plus and now offer our services across 34 cities. You may keep in mind that we have made huge investments towards MaxLab for the organic growth in the past quarters. Max@Home reported a top line of INR35 crores, reflecting a growth of 9% quarter-on-quarter and 26% year-on-year, supported by a team of 800-plus people. Max@Home offers services across 13 service lines and enjoys a high degree of customer loyalty.

Now, coming to the overall overview of the company’s financial performance in the first half of this financial year. Network gross revenue stood at INR3,040 crores, reflecting a growth of 17% year-on-year. Network operating EBITDA grew by 22% year-on-year to INR780 crores, increased OPD footfalls, improved case mix and reduction in institutional bed share resulted in margin expansion by 120 basis points to 27.2%, while EBITDA per bed grew by 26% to INR63.2 lakh per bed. We continue to focus our efforts on the growth levers articulated earlier. That is, we are — one, we are making significant investments to expand our bed capacity in the next three to four years, which is in line.

Second, to complement Indian government’s initiatives such as Heal in India, we continue to augment our international outreach initiatives and setting up offices across new geographies, we’re also actively looking at inorganic expansion opportunities across existing and new markets, and we continue to improve our case mix through deployment of technology and hiring new talent.

With this, we open the floor for Q&A. Thank you.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Kishan Amarchand Tosniwal from Polar Ventures LLP. Please go ahead.

Kishan Amarchand Tosniwal — Polar Ventures LLP — Analyst

Good morning. Am I loud and clear?

Abhay Soi — Promoter, Chairman and Managing Director

Yes, we can hear you.

Kishan Amarchand Tosniwal — Polar Ventures LLP — Analyst

Yes. Just wanted two questions to be answered. How do you see the international business growth in the coming quarters?

Abhay Soi — Promoter, Chairman and Managing Director

We’re very positive about it. You may seen growing like we — I mentioned in the announcement that is already 110% of pre-COVID levels. This is in spite of the fact that 12% of our business, our key market was Afghanistan, where the Indian government right now is not issuing visas. So once that opens up, we will see and we hope it to open up shortly because things seem to be normalizing over there, at least from a government to government perspective. And once that happens, this will be augur even better for us. It’s a big thing to say that we’ve been able to sort of compensate and overcompensate this through other growth levers that we’ve invested in, in the international business. So that’s done well. And we are quite positive about it going forward.

I think if you couple this with the new Heal in India program of the Indian government, it’s very similar to Make in India, which has been sort of announced by the government, I think that will give us huge impetus, particularly because we have so much of our capacity in the metros.

Kishan Amarchand Tosniwal — Polar Ventures LLP — Analyst

Okay. The second part is that — how is that Nanavati doing after the VRS and — after the VRS has been done?

Abhay Soi — Promoter, Chairman and Managing Director

So he’s doing reasonably well. We are in mid-teens as far as the EBITDA margins are concerned. Going forward, hopefully, we can go back to the rest of the portfolio as well. But like I mentioned in the past, the ROC is the highest amongst the ROC, although in terms of percentage, the EBITDA margins are lower than the rest of the pack.

Kishan Amarchand Tosniwal — Polar Ventures LLP — Analyst

The building that was coming up, which has been already dismantled and you started work. How is the progress on that?

Abhay Soi — Promoter, Chairman and Managing Director

Very well. I think we are well on schedule as far as that is concerned. The piling work has been completed. We are beginning excavation soon. And you’re going to see that online in the next two years.

Kishan Amarchand Tosniwal — Polar Ventures LLP — Analyst

Thank you very much. Best of luck for the [Indecipherable].

Abhay Soi — Promoter, Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Hi, good morning everyone. My first question is on the capex plans of the company. If I look at first half, the capex incurred is, I think, INR41 crores, if I’m getting that number right. And I think the budget in the most recent investor presentation was around INR657 crores for FY ’23. So any particular reason why this gap?

Abhay Soi — Promoter, Chairman and Managing Director

So I think — yes, so a large amount of it was to be bunched up towards the second half, it’s a little difficult to sort of break it up. You’re going to see a majority of that investment happening in the first half of the current year. Of course, one is engaging contracts, engaging vendors and work starting, etc. But besides the mobilization advance, really the payments start happening on delivery of certain milestones. I think as and when that happens, you will see that payout happen. It’s a little — when you’re making five year plans for so many hospitals, it’s really difficult to sort of put it out quarter-by-quarter, so we put it out in a year. So you’re going to see significant investments will be complete — invest the entire INR640 crores in the second half of the year, doubtful. But will it sort of bunch up in the first quarter of the next year, likely. But at this stage, we are not seeing any delays on the overall project schemes.

I’ll give you an example, because when we were conceiving the projects, you look at construction as usual, but there are new technologies such as structural steel and hollow tubes, etc, which cuts down timelines as far as the entire construction is concerned, but it sort of takes you back a little bit into the planning stage about how to take it [Phonetic] and go about. So that’s why we don’t see delays because we see benefits coming out of using alternate medicine. They may be marginally more expensive, but that’s the new sort of way of doing things faster these days.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Okay. So it can be safe to assume that capex running behind budget will not have any impact at least on Shalimar Bagh and Dwarka. Is that the right assumption?

Abhay Soi — Promoter, Chairman and Managing Director

Absolutely. Not — as far as Dwarka is concerned, we are hoping within the first quarter of next year for it to come on stream. And as far as Shalimar Bagh is concerned, it will be on stream early on in the first — in the last quarters of the current year. So Shalimar Bagh expenditure has been as per budget as per plan. So there’s no sort of delay over there. And Dwarka as you’re aware, there’s actually somebody else is constructing it, and that’s well on stream.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Got it. And second question I had on MaxLab. Now, there seems to be some pretty strong traction building up from Max’s perspective. There’s quarter-on-quarter growth, there’s Y-o-Y substantial growth in non-COVID revenues. And I think you have added quite a few partners as well. In two quarters, I think 150 partners have been added. So two questions here. I mean, a, obviously, it would be very helpful if you can share the MaxLab outlook from a three to five year horizon? And b, when you talk about partners, is it some sort of a franchisee model or who exactly are these partners — some revenue sharing happens, if you can help us understand a bit of concept there on how you’re going about growing your business?

Abhay Soi — Promoter, Chairman and Managing Director

Yes. So I think there are two things. One is, we’ve been investing heavily in this business. When I say investing, both in terms of — I mean, there has been a mild investment towards marketing, but investment towards creating partners and partnerships with franchisees and so on and so forth. I think in the first quarter, the current year, we added about 400-odd franchisees to this and some significant sort of this thing. So your EBITDA sort of gets depressed because of the investments that you’re making in it.

So I don’t want you to kind of get misguided by looking at lower EBITDA margins or somebody actually mentioned to me that from a loss-making this thing in the past quarters that you’ve gone into a mildly profitable, etc. But this is on account of the new sort of investments that you’re making. I think overall, this business has always been profitable. There’s no reason for it not to be, etc. And if you were to sort of draw a line and not grow, immediately, you’ll see this business coming into profitability, but that’s not what the idea is. It’s about such an underpenetrated market, and we have such a strong sort of brand and a strategic advantage and comparative advantage compared to other players in this that we continue to invest in the business.

Yogesh, do you want to sort of share light on what sort of arrangements that we have?

Yogesh Sareen — Senior Director & Chief Financial Officer

Yes. So we have — obviously, we have a franchisee model. We also have our own company-owned centers. We then also have a model which is the Phlebo at Site. And this is the — we mix patient with Phlebo, the nursing home of a doctor, etc, or a smaller hospital. We also have HLMs, right? We do third-party Hospital based Lab Management areas, there are more than 20 labs that we manage, big ones, I would say. And then we also have pick up points, wherever Phlebos go and pick up the sample counts. So there are already various models. I would say, the HLM is the deep discount model where we get probably 55% of the amount billed to the patient, but others would be a discount of 25% to 30%, right? So that’s the model and obviously, company-owned center, we bill at retail price. So there’s no discounting there.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Right. And in terms of the lab network, are only the hospital-based labs being leveraged as of today? Or there are some stand-alone labs as well? And then — and what’s the lab network outlook over the next three to five years?

Yogesh Sareen — Senior Director & Chief Financial Officer

So as of now, we are leveraging the hospital lab. And not only our own hospital, but also these HLMs that we have, right, this third-party Hospital Lab Management, these are hospitals — so we took up samples and try and get it tested in the nearest lab. And the nearest lab may well be a lab, which is managed by us, but not owned by us. So I think that’s the way it is. So they have their own labs in terms of new HLMs, but I think they don’t have reference out their own, the MaxLab team. I think they will certainly be looking forward to one, once the business scales up.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Got it.

Abhay Soi — Promoter, Chairman and Managing Director

I mean, right now, we have spare capacity in our labs. We obviously use that. But as and when there’s a need for a centralized lab, I don’t think there’s a problem. And in any case the investment isn’t too much, right, it’s a very negligible sort of investment over here.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Right. So, I mean, would you comment, Abhay sir, that MaxLab — now that it is crossing INR100 crores kind of a revenue mark if I analyze this quarter numbers, is as important a piece for the company as hospitals? Can it be looked at that way?

Abhay Soi — Promoter, Chairman and Managing Director

Absolutely. It always has been. I think we started focusing more on it, and in the past, we also said we’d like to look at inorganic growth, but obviously, sort of numbers and valuations and the dynamics of the industry sort of change. So we decided to kind of look at — focus on more on the organic growth as far as this is concerned. But this is always going to be a key focus area. And otherwise, we wouldn’t be in it. Otherwise, we wouldn’t be showing it as a separate segment.

And similarly — I mean, you’re saying this about MaxLab and similarly about Max@Home as well. And you’ve seen, I mean, that’s a high number, and it’s a profitable business, does mid-teens sort of EBITDA margins. It’s the largest home care business in the country and actually the only profitable one. We’re very, very excited about that as well. I mean, the traction that we’re getting is essentially giving you a hospital in your — extending the hospital to your home.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Sure. Thank you so much. That’s all from my end.

Operator

Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.

Prakash Agarwal — Axis Capital — Analyst

Yeah, hi. Good morning and thanks for the opportunity. So first question, trying to understand this occupancy run rate better. So we’ve been tracking very well and now touching 78%. I understand Saket and other marquee ones would be even higher, 85% plus. Sir, what is the headroom here for us to max out on the existing hospitals?

Abhay Soi — Promoter, Chairman and Managing Director

So look, I think there are two or three things that you need to look at, in perspective, okay? See our pre-COVID level, we were at 70% to 73%, compare it to about 75%, 76% post-COVID, as a base. Now, certain quarters, and particularly quarter two every year, is the time — that’s the time when you have the rains, etc, so you have more viral diseases, more dengue, so on and so forth. This quarter is typically characterized by higher occupancy, okay, because of more medical patients coming. But also, it’s characterized by because these patients, your earnings from these beds are lower, okay, you have a downward pressure on ARPOB. Yes? So although you see the 78% occupancy, it’s basically — this peak is a little bit happened because of the viral load and the medical business, which has come, the dengue business and so on and so forth, which is a seasonal business.

Having said that, you also have a secular increase, okay, in your business as usual, which is your surgical business and your regular business, which is the non-seasonal business, which is further augmented by your international business reverting to even higher levels and growing, your insurance business growing and so on and so forth. So what you’re going to see in the subsequent quarter is because — and this business, okay, a, it will bring you a little higher occupancy, but also brings you higher ARPOB.

Overall, when you look at let’s say, 75% to 78% sort of a range, okay, of occupancy, your question being, where do you sort of go from here? You have to keep in mind that even now 28% of the total beds, that means of the 78% occupancy, 28% of the 70%, it’s almost like one third of it, okay, is being consumed by institutional business, which is very low ARPOB business. And the ARPOB basically is close to half of what the ARPOB of the business as usual is.

Prakash Agarwal — Axis Capital — Analyst

No, I understand that. That was my second question anyways, but occupancy-wise, what is the Max can get over…

Abhay Soi — Promoter, Chairman and Managing Director

So let me put it this way. In month of September, we were operating with 81% occupancy, right? I mean, if you ask me the same question, we have hospitals which are operating at 90% plus occupancy. The question is, can all hospitals operate at 90%, radically, yes, okay. One year back, somebody asked me that look, on a sustainable basis, can you operate at 77%, 78%, as been difficult. Today, I’ll say yes. Next year, I’ll say, look, you probably eke out 2 more percentage points over here and so on and so forth. But you are pretty much — look, in my mind, 77%, 78% occupancy on a sustainable basis is where you should be. And then your patient services, etc, on the subjective areas start getting compromised a little bit.

Prakash Agarwal — Axis Capital — Analyst

Understood. Fair enough. So second one is similar on the ARPOB side. As you already touched that you already declined to 28% in terms of institutional business versus 37% a year back. So here — I mean, do we have a minimum threshold where we have to give minimum institutional services to central government employees, or this can go to, say, 10%, 0%? What is the view here over the next four to eight quarters?

Abhay Soi — Promoter, Chairman and Managing Director

So I can give a 30-day notice today. And at the end of 30 days, bring this business down to zero. Keep in mind one thing…

Prakash Agarwal — Axis Capital — Analyst

You don’t have had any obligation, okay.

Abhay Soi — Promoter, Chairman and Managing Director

None whatsoever. Okay?

Prakash Agarwal — Axis Capital — Analyst

So what is our goal for the next four to eight quarters?

Abhay Soi — Promoter, Chairman and Managing Director

So, I do this business because I want to do this business, not because I have to do this business. We do this business because we don’t want the bed idle. If I bring this down to zero today, my occupancy comes down to 55%, 57%, right? The next question is, why aren’t you filling those beds? Now, my goal in the past also we’ve said that five quarters later or six quarters later, this will be below 15%. And that goes down to 15% because that’s when majority of my capacity start kicking in as well. Now, I would say not five to six, I’ll say four to five quarters.

And we’ve always sort of guided down to that this will comfortably come down to 15% or below. And the reason is that the new capacity comes in, suppose the new capacity weren’t to come in, and was to get delayed, this goes down even further. So that’s the inherent advantage within this thing. These beds are built, they are suboptimally used right now, okay? And you have this entire brownfield, etc, kicking in.

Prakash Agarwal — Axis Capital — Analyst

Okay. Perfect. Great. And one more question was on the CCI probe, which came in on a few of the hospital companies, including yours. So if you could give some color, is it to do with the annual price hike, or is it due to that we came into limelight, because our ARPOB is highest in the industry today? And how are you tackling this, because I heard in your opening comments that you have still taken price hike, annual price hike?

Abhay Soi — Promoter, Chairman and Managing Director

So I’m glad you asked this question, okay. This is purely and simply relating to a case in 2015, where a person came to the hospital and said that, look, a syringe — you’re delivering a medicine at — an injection at so and so price, okay, whereas I can get it from a pharmacy at so and so price, which is lower than that. So I should be able to bring my syringe in, and he went and complained regarding this. The sum total of this case is that, they’re saying that, look, okay, I think, firstly, it’s an investigation that they’ve done. Okay, they’ve asked us for a response on that investigation, okay? They haven’t given us the basis of that investigation. So we went to Delhi High Court, and we said, please ask them to give us a basis for the investigation, so we can give a response.

Because as a hospital, what we do is we do not sell medicines and injections, we apply it, right? What we sell is at MRP. So, I mean, through the life of me, we can’t understand where we are sort of off track on this, because we sell at MRP, and we are not in the business of selling the medicines, and we sort of — the nurse comes, gives the injection and so on and so forth. This has got nothing to do with any price hike, this has got nothing to do with pricing. It’s what to do with, is a patient allowed to bring his medicine from outside to in — and that’s not even the jurisdiction of the CCI, frankly, because we can’t have somebody bringing a spurious injection, okay, which may not be sterile or whatever from outside the hospital to inside the hospital.

Prakash Agarwal — Axis Capital — Analyst

Okay. No, this is very helpful. Thank you.

Abhay Soi — Promoter, Chairman and Managing Director

And narrow as that. And there’s some comments made on the investigation, okay, which we don’t know the basis of, okay, such as the hospital beds are — the rates for the hospital beds are more than four star hotels in the neighboring this thing. Now four star hotels, as you are — firstly, nothing stops us from selling our beds at any price, that’s one. Secondly — and definitely not the jurisdiction of the CCI. Secondly, we don’t sell rooms. There’s a nurse, there’s a doctor and there are all of those services, which comes with the bed, essentially you can’t make a like-to-like comparison, right? I mean, right now it’s under investigation, then if — we will give a response. If it’s a litigation, it will be a litigation or it will be killed by them at this stage.

Prakash Agarwal — Axis Capital — Analyst

Fair, got it.

Yogesh Sareen — Senior Director & Chief Financial Officer

Prakash also the question is that, when we have 70% of the patients being treated on a cashless basis, how can we ask patients to bring medicine from outside, right? So they are saying that, you allow patients to bring medicine from outside now — I mean, the whole cashless falls [Phonetic], if that were to happen, right?

Prakash Agarwal — Axis Capital — Analyst

Okay. Got it. Okay. And my last question is on your M&A and asset-light strategy, given that you have a six year, seven year plan, you’re doubling from internal accruals largely, but still net cash balance sheet. But to propel growth or maybe add on to the growth, we’ve seen some companies like KIMS buying out doctor-owned models, hospitals, which are not run properly. What is your thought there, or what are the M&A and asset-light acquisition plans you have?

Abhay Soi — Promoter, Chairman and Managing Director

So look, we’ve written the playbook on it, right? I think essentially, as far as buying hospital and unlocking value, but you have to maintain a certain critical mass and be able to do it, etc, because KIMS or anybody else finds an opportunity does it — is not the sort of — this thing. We at any given point of time are diligencing companies. We are very, very focused on inorganic growth. And like you rightly pointed out, we have unlevered balance sheet, and we have excess cash on the books, we can easily sort of do that. But at the same time, you have to maintain — we have a ROCE of 33%, and whatever we do needs to be accretive to that, over in the long run.

And I’m fairly certain in the next — sooner than later, we will be able to conclude another transaction. But do keep in mind, over the last 10, 12 years, our entire platform has been based on acquiring assets, unlocking value. This doesn’t sort of stop us from doing it. We have a stronger balance sheet, stronger team, stronger abilities to do that, to execute even better on this.

Prakash Agarwal — Axis Capital — Analyst

So you would be still looking at it, but you’re not talking about it which way you’re going ahead. I mean, is it asset-light, is it KIMS model or is it straightaway M&A?

Abhay Soi — Promoter, Chairman and Managing Director

No. So, look, partnering with doctors, etc, doesn’t excite us. If we like something, we want to own more of it than less of it, and we like to have control on it as well. And I think sort of our EBITDA per bed, keep in mind, is 50% better than the next best player in the industry. So, obviously, our model is sort of — works very well for us and for investors.

Prakash Agarwal — Axis Capital — Analyst

Okay, that’s fair. Thank you so much, and all the best.

Abhay Soi — Promoter, Chairman and Managing Director

Thank you.

Operator

Thank you. And the next question is from the line of Damayanti Kerai from HSBC. Please go ahead.

Damayanti Kerai — HSBC — Analyst

Hi. Good morning. Thank you for the opportunity. Abhay, my question is on new bed additions happening over the next 9 to 12 months. So we have Shalimar Bagh and Dwarka adding around 400 new beds. So currently, you are operating at somewhere 26%, 28% EBITDA margin. So after these new beds come in, should we expect some dilution in margins, or other way to ask is like, how fast you think these can achieve EBITDA breakeven, after the launch?

Abhay Soi — Promoter, Chairman and Managing Director

So I think the way to look at it is, look at what our EBITDA per bed is, okay? And then you say, look, if this is 400 beds coming, how long will it get — take me to get to, let’s say, 75% occupancy. That’s about, I guess, 300 beds and multiplied by the EBITDA per bed. So, yes, I think as far as Shalimar Bagh is concerned, it should be a matter of — I mean, there’s no dilution. In fact, day one, there should be accretion as far as this thing is concerned, because the brownfield, there is no significant fixed cost or any fixed costs, which is being incurred, essentially variable cost as and when you open the bed. And my belief is that, it’s only 100 beds in that location, which is a hospital which is operating at 90% plus occupancy at present. So it’s untapped demand.

As far as Dwarka is concerned, again, I think it’s not really going to be dilutive, because it’s a very sort of 300 beds on top of this thing. But I think the kind of response we’ve got, the ramp-up and the breakeven and everything else should be very, very quick over there. So I’m not seeing any real dilution, okay, on overall basis.

Damayanti Kerai — HSBC — Analyst

So broadly, the current level of margins can be maintained?

Abhay Soi — Promoter, Chairman and Managing Director

Absolutely. But again, like I said, please focus on EBITDA per bed rather than EBITDA margins. I would rather do a $10,000 surgery with a 20% margin, than a $5,000 surgery with a 50% margin.

Damayanti Kerai — HSBC — Analyst

Okay. Got it. My second question is on Nanavati Hospital. So you mentioned this facility is currently operating at mid-teen margins. So how — like how long it can take further to reach — near to the corporate average, or how should we look at margins for this particular unit?

Abhay Soi — Promoter, Chairman and Managing Director

Well, Mumbai, by and large, has a higher sort of doctor payout, okay? So you typically have lower margins. But yes, there is room to increase the margins over there. Do keep in mind, it’s — if one was to sort of increase the margin from — by 5% to 6% also from here, it means on a INR400 crore odd top line, INR450 crore top line, you’re talking about INR20 crores, INR22 crores, on a base of INR1,600 crores odd. So it doesn’t really move the needle from that standpoint. But I think the big sort of swing will come over there when the new capacity comes in, which is — the construction is on.

Damayanti Kerai — HSBC — Analyst

Abhay, I think I just lost you in between.

Abhay Soi — Promoter, Chairman and Managing Director

Sorry. So I said that even if you look at a 5% increase in EBITDA margins per se, on about a INR450 crores top line, it’s about a INR20 crores, INR22 crores EBITDA increase on overall company base of, let’s say, roughly INR1,600 crores. So it’s not really — but the big, big this thing will come over there, when the new 500-odd beds come, the construction is on because these will really be the — and it will — what it also does is, it will flatten out your higher doctor costs, as well as the personnel cost.

Damayanti Kerai — HSBC — Analyst

Okay. So operating cost will be spread over a larger bed network, and that will obviously [Speech Overlap]

Abhay Soi — Promoter, Chairman and Managing Director

Actually, there is — and as far as Nanavati is concerned, there is a legacy personnel cost, okay, which is the workers’ cost, okay? That’s the only single line item, which is off WACC. I mean, it’s 30%, 31% compared to 22%, 23% for the rest of the group. Okay. And that either through expansion of capacity or through VRS is the two ways of tackling it. We tackled it partially through VRS. We may be looking at — around the VRS going forward. But more importantly, I think when the new capacity comes in, it gets taken care of by itself.

Damayanti Kerai — HSBC — Analyst

Okay. And my last question is on seasonality on your hospital business. So 2Q, as you said, due to rainy season, we have higher delta of infections, etc. So 3Q, should we assume it to be a lower quarter due to like major festivals falling in? And again, fourth quarter should be a better one? Or how does this seasonality vary across different quarters [Speech Overlap]?

Abhay Soi — Promoter, Chairman and Managing Director

So let me put it this way, usually your Q1 and Q3 are the sort of weaker quarters, right? But rather than timing it like this because sometimes Diwali is here, Diwali is there and so on and so forth, H2 is usually better than H1 historically for all hospital groups.

Damayanti Kerai — HSBC — Analyst

Okay. So very broadly, second half performed better than the first half?

Abhay Soi — Promoter, Chairman and Managing Director

Always. I think if you see any hospital group, typically and historically, our hospital or any other hospitals, they’ve all — H2 is better than H1.

Yogesh Sareen — Senior Director & Chief Financial Officer

You should see a 48%-52% type in EBITDA. Revenue will be 49%-51% type.

Damayanti Kerai — HSBC — Analyst

49%-51%…

Abhay Soi — Promoter, Chairman and Managing Director

I mean historically, I’m giving you based on experience or whatever, but I’m not giving you a guidance. We will be at 48%-52% first half versus second half.

Damayanti Kerai — HSBC — Analyst

Okay. Got it. And final clarification, capex you maintained whatever budget we have done or we have disclosed earlier, that remains on track and this lower capex in first half of this fiscal year is just a matter of timing issues. And eventually, as and when payments, etc, start happening, it should be in the budgeted line?

Abhay Soi — Promoter, Chairman and Managing Director

Yes. So, I mean, if I were to look at things which are going to come up in the next one year, okay, there is obviously certainty, because where we are, we are in the fit-outs, etc, over there. As far as anything which is coming up, really is bunching up towards the end of ’24, ’25 and ’26, I think there is strong visibility that we should be able to meet timelines over there.

Damayanti Kerai — HSBC — Analyst

Okay Abhay. That’s very helpful. Thank you.

Operator

Thank you. The next question is from the line of Praveen Sahay from Edelweiss Wealth Management. Please go ahead.

Praveen Sahay — Edelweiss — Analyst

Yeah, thank you for taking my question. One clarification related to the bed addition. Beyond Shalimar Bagh and Dwarka, you have a major bed addition plan for FY ’25. So is there any deferment in that 1,170 bed odd?

Abhay Soi — Promoter, Chairman and Managing Director

Not really. No. Like I mentioned, the visibility is there and works have started. At the same time, I just want to sort of also layer it up that we all — like I mentioned, the reason I was going down to about 15% — is it used to share is because I would have visibility of this coming out at that time. Let’s say, hypothetically speaking, some project gets delayed at the end, and let’s say, it’s not adjacent to a place which is at zero institutional, you still have the lever, by the way. Having said that, just squarely answering your question, we are not — right now, as far as our visibility is concerned, we’re not foreseeing any delays.

Praveen Sahay — Edelweiss — Analyst

Okay. Great. And the second question is related to the ARPOB. For a sequential basis, if I look at your ARPOB is around INR66,000, even after improvement in the payer mix, like institution gone down to 28% and the international pace and mix also improved, there also sequential improvement we had seen. So what exactly on the Q-o-Q basis related to this flat ARPOB?

Abhay Soi — Promoter, Chairman and Managing Director

Can you just repeat that question, sorry?

Yogesh Sareen — Senior Director & Chief Financial Officer

So basically, this is because of the fact that the mix of the patients have gone up during this quarter. I think mentioned this to — mentioned this earlier also that this quarter two, we had some dengue and viral fever patients etc. So the total medicine has jumped by 26%. You’ve seen that comment in the earning update also. So it’s basically because of the — so if it was not to happen, generally, you’ll find that the ARPOB will drop in quarter two compared to quarter one because of the medical patients going up, right? The medical patients typically — the dengue patients will be 50% of the normal ARPOB that we have, right? So it should have dropped, but the fact that we have this institutional share going down and the investment going up, so it’s being maintained at the same level.

Praveen Sahay — Edelweiss — Analyst

Yes, got it. Thank you for answering my questions. All the best.

Abhay Soi — Promoter, Chairman and Managing Director

Yes. But purely, you can’t look at it like, look, the occupancy went up. So there is a secular increase in occupancy also of your business as usual, right?

Praveen Sahay — Edelweiss — Analyst

Yes, I got the answer, because of our internal medicine increased the contribution, maybe that is the reason why the ARPOB is maintained on the same level.

Abhay Soi — Promoter, Chairman and Managing Director

Yeah.

Praveen Sahay — Edelweiss — Analyst

Thank you sir.

Operator

Thank you. The next question is from the line of Shaleen from UBS. Please go ahead.

Abhay Soi — Promoter, Chairman and Managing Director

Hi Shaleen.

Shaleen Kumar — UBS — Analyst

Yes. Hi Abhay. Great set of numbers. Congratulations on that. So, Abhay, it’s more of an understanding thing. See, I understand your institutional patients are coming down, but is it right way to think that they generally take a general ward, right? So you will be replacing them with a patient in general ward, right? So probably my improvement in ARPOB, when I replace the institutional patients will not be the same level of my average ARPOB?

Abhay Soi — Promoter, Chairman and Managing Director

See, that’s not true. Okay. Let’s say you are working in Northern Railways, right? Who are these people effectively? These are public sector undertakings, the Delhi Jal Board, the various central government, this thing, etc, it could be anybody from Income Tax to, let’s say, from irrigation departments, etc, right?

Yogesh Sareen — Senior Director & Chief Financial Officer

Supreme Court, etc, probably IAS officers also.

Abhay Soi — Promoter, Chairman and Managing Director

Yes. All IAS officers, Rajya Sabha members, Lok Sabha members, former members, etc, all judges — all Supreme Court judges, High Court judges and so on and so forth. Yes? Now, each one of them, if you are a lower sort of tiered officer, or you are a, let’s say, a Class III employee or whatever, then your allocation or your entitlement, like in insurance, okay, maybe general ward. But if you are a Judge or if you’re a IAS officer, whatever else it is, it is single room and deluxe room, or single room. Okay? So what you’re replacing it by, is not that.

The other thing you need to keep in mind is, my INR66,000 ARPOB, right, is a weighted average. It includes the INR35,000, INR36,000 of CGHS as well. What actually replaces it, is the higher ARPOB.

Shaleen Kumar — UBS — Analyst

No, it replaces, but will it replace by the hospital average and I think what you said is possible, yes?

Abhay Soi — Promoter, Chairman and Managing Director

Right. But the other point I want to make is that, yes, although we are talking about reduction in institutional business, right? I think the right way to — and the best way to think about it is, increase in the non-institutional business. Because if you can increase occupancy, right, that’s what I sit with my teams on. I’m saying, look, rather than pushing — your best case scenario is, where you can find ways of increasing occupancy, retaining this, as well as increasing your — finding ways to accommodate your preferred channels.

Shaleen Kumar — UBS — Analyst

But you yourself said, right, that beyond 80% like service compromise can happen. So it’s too difficult to — I mean, I don’t know.

Abhay Soi — Promoter, Chairman and Managing Director

Shaleen, today, yes. Like I said, three years, two years back, somebody asked me a 75%, I would have said, no, you compromise. The fact is — and I’ll give you an example of Breach Candy Hospital in Bombay. I mean, your service is not compromised, it operates at 90%-plus occupancy. It’s just that over a period of time, they found ways to do it, you become more efficient.

If you look at Hinduja Hospital over there in Mumbai, I mean, they’ve got 27 ICU beds, they’ve got the lowest — they have got it down to a [Indecipherable] and simply they’ve got it down, because they’ve been living with the situation of saturation, where they can’t expand it even by a square inch for so many years. I mean, everything is down to just in time and so on and so forth. But yes, those are all incremental efficiencies, but I still want to sort of put that down.

Shaleen Kumar — UBS — Analyst

That’s important, right? Because as a modeling perspective when we model, we start doubting that whether the hospitals can hit beyond 80%. But if you see there is a possibility in their models and you can kind of build in, then it’s very interesting and it’s very important point for us to not to have a…

Abhay Soi — Promoter, Chairman and Managing Director

No. Let me tell you, I have hospitals right now operating at 90% plus, and without compromising anything, because that’s one place we could have put down as far as — because what you don’t want is — and immediately, you see a sort of a pushback in the next couple of quarters, your doctors will have a problem, your patients have a problem and so on and so forth. Our PSAT scores, all of that, okay, on a daily basis, which we look at, has been increasing and improving.

Shaleen Kumar — UBS — Analyst

Right. So do you have a score like NPS score kind of thing as well here? Do patient satisfaction score, you track something like that?

Abhay Soi — Promoter, Chairman and Managing Director

Oh, absolutely. Multiple this things, including — and we do it through — even SMS listings, etc, where it’s voluntary for you to sort of respond to it. So although you only have 4% or 5% people responding to it, okay, but those are very true sort of this thing, right? So you don’t — it’s not as if you’re sitting in a hospital where the management or the nurses coming up to you and say, sir, please sign this. And multiple this thing, we have…

Shaleen Kumar — UBS — Analyst

Understood. Abhay, you also mentioned about moving away from probably a traditional way of construction. Are you going with the hollow structured tubes for the construction instead of RCC?

Abhay Soi — Promoter, Chairman and Managing Director

No. So look, we evaluate hollow tubes versus structural steel frames, okay, or let’s say, composite. So in your basements we still have to do in concrete, we are still finding ways of doing that — mostly in steel as well. But the rest of it you do on steel frames, which is very, very — you see, unlike — the cost of construction is maybe higher by 15% or 20%. But if you can save 20% of the time, in our case, okay, you can get to market that much sooner, because for me every day is the loss of profit, right?

Shaleen Kumar — UBS — Analyst

True.

Abhay Soi — Promoter, Chairman and Managing Director

So unlike the residential real estate, where the cost of construction matters, because the delay is to, let’s say, the consumers account. Here, it’s actually — I have a positive incentive for me to get it up and down — about sooner than later.

Shaleen Kumar — UBS — Analyst

True. Ballpark, have you looked at our IRR — specifically, it’s all about IRR at the end of the day, right? So it’s positive. It’s accretive, [Speech Overlap]

Abhay Soi — Promoter, Chairman and Managing Director

So look, I mean, each day, I mean, when you have a cost of construction on a brownfield or let’s say, INR130 lakhs, INR150 lakhs or whatever and your EBITDA per bed, okay, is INR60 lakhs odd. Okay. You may as well get that sooner. We have 50% ROC — I mean, the question is how soon do you get to that 70%, 60%, whatever that occupancy is. And largely, these are brownfields, right? And like I said, it’s on stationary [Phonetic] demand at my doorstep, I have no fixed cost. I mean, there is absolutely no benefit on any Excel sheet for any — even days delay on this.

Yogesh Sareen — Senior Director & Chief Financial Officer

Shaleen, also, it is about the patient convenience because when you have the traditional construction, you have more disturbance to the patients who are in the hospital, right? So there will obviously be noise, etc. So I think by doing this structure, you’re also able to reduce the interference into the ongoing operations.

Shaleen Kumar — UBS — Analyst

No. Very much agree.

Yogesh Sareen — Senior Director & Chief Financial Officer

Let’s say you’re doing it in Nanavati, right? So you already have a running hospital there, right? If you have all this digging out going there and you have a lot of construction activity going on there, this obviously disturbs people, right, and you can’t do 20, 27 [Phonetic] construction in that case. So this allows us to gravitate this stuff outside and bring it in and so it’s a personal decision and also lower disturbance on the sites, especially where you are running the hospitals.

Shaleen Kumar — UBS — Analyst

Fair enough. Fair enough. No, that’s very very interesting I think, and I think that’s a great move. That’s about it from my side. Thank you so much.

Operator

Thank you. The next question is from the line of Dheeresh Pathak from White Oak Capital. Please go ahead.

Dheeresh Pathak — White Oak Capital — Analyst

Yeah. Thank you for taking my question. Sir, can you give the capex outlay for the Dwarka project and — as well as for the Shalimar Bagh?

Abhay Soi — Promoter, Chairman and Managing Director

So as far as Dwarka is concerned, we are not incurring the capex, okay? We’re incurring will be about INR130-odd crores — basically to give a precise figure, as far as the medical equipment is concerned. Basically, it’s being — entire capex, okay, is being incurred by the developer. We have a fixed rental that we are going to be paying him, which is INR20- crores odd. But Yogesh, can you give the details on both Shalimar Bagh and…

Yogesh Sareen — Senior Director & Chief Financial Officer

Shalimar would be roughly a cost of INR150 crores, including the equipments, and on the Dwarka one, that be around INR170 crores, because we are expecting the business [Phonetic] also there. Now, this is INR170 crores is — in addition, we’ve given some deposits to these guys to start with, as a signing contract. So that is the investment that we have. So INR170 crores plus INR150 crores.

Dheeresh Pathak — White Oak Capital — Analyst

And what is the rental in Dwarka INR20 crores?

Abhay Soi — Promoter, Chairman and Managing Director

INR24 crores? What is it, Yogesh?

Yogesh Sareen — Senior Director & Chief Financial Officer

The rental in Dwarka would be INR22 crores a year.

Dheeresh Pathak — White Oak Capital — Analyst

INR22 crores. Okay. Sir, on the labs business, can you give like a share of revenue from B2B and B2C?

Yogesh Sareen — Senior Director & Chief Financial Officer

Yes. So I would say it will be a 50%-50% type of this thing. So 50% will come via B2B. When I say B2B, this also includes franchisees, right? And balance, we’ll need to see.

Dheeresh Pathak — White Oak Capital — Analyst

But franchises in — two terms, it is B2C, right? But the HLM business would be B2B [Speech Overlap]

Yogesh Sareen — Senior Director & Chief Financial Officer

HLM will be — around 20% of the business will be HLM. And 25% will be coming via the franchisee. So another 5% through this Phlebo etc, balance would be all [Indecipherable], and home pick-ups and the wellness, etc.

Dheeresh Pathak — White Oak Capital — Analyst

Okay. Sir, one last question, for Nanavati, what would be the EBITDA per bed?

Abhay Soi — Promoter, Chairman and Managing Director

Nanavati EBITDA, Yogesh, INR50 lakhs odd?

Yogesh Sareen — Senior Director & Chief Financial Officer

We don’t share the hospital level EBITDA per bed.

Dheeresh Pathak — White Oak Capital — Analyst

Okay. Because the number you said — you said it’s double-digit EBITDA margin. And if I do the math…

Yogesh Sareen — Senior Director & Chief Financial Officer

Mid-teens.

Dheeresh Pathak — White Oak Capital — Analyst

INR450 crore revenue, you said, right, and 15% margin?

Yogesh Sareen — Senior Director & Chief Financial Officer

Yes, it’s around 15% margin, yes. So I would say, actually, in quarter two, it’s around 16% margin, right? And you have the revenue from Maharashtra already in that, this thing, so you can compute it.

Dheeresh Pathak — White Oak Capital — Analyst

Okay. So then also it can look lower, and primary reason like sir explained, is it — because of the legacy doctor cost, which is 10 percentage points…

Yogesh Sareen — Senior Director & Chief Financial Officer

Personnel cost.

Dheeresh Pathak — White Oak Capital — Analyst

Personnel cost, okay. There’s a union there, is it?

Abhay Soi — Promoter, Chairman and Managing Director

Yes. But I mean, it’s a benign union. That’s not — the issue is not that. The issue is that, look, when you do a VRS, right, typically, you pay, let’s say, six months of salary for every year of service left or nine months of salary for every year of service left. So we did the first VRS with six months of salary for every year of service left. Now, this things is — ask is one year of salary for every year of service left. So rather than paying that out, I’d say, look, the new capacity comes in, this gets defrayed over a larger, this thing, in any case, the excess manpower. So there is no — we also have to do cost benefit.

Dheeresh Pathak — White Oak Capital — Analyst

Okay. So even outside of that, also the EBITDA per bed — I don’t know, based on the numbers you’re sharing, even adjusted for that would look lower. So is there something else also in Nanavati like is it lower occupancy, is it lower ARPOB apart from that [Speech Overlap]

Abhay Soi — Promoter, Chairman and Managing Director

Higher numbers of general ward beds at present. The configuration has fewer single rooms, fewer double rooms attached bathroom, etc, because these are older sort of buildings.

Dheeresh Pathak — White Oak Capital — Analyst

Understood.

Abhay Soi — Promoter, Chairman and Managing Director

So the big, big — this thing over there is, for single rooms.

Dheeresh Pathak — White Oak Capital — Analyst

Understood. Thank you for taking…

Abhay Soi — Promoter, Chairman and Managing Director

You are from Bombay, you’ll know that you don’t get a single room in these hospitals, right? I mean, you typically get admission in lower categories and move up, move up.

Dheeresh Pathak — White Oak Capital — Analyst

Okay, okay. Thanks for taking my questions.

Operator

Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.

Tushar Manudhane — Motilal Oswal — Analyst

Thanks for the opportunity. Sir, just firstly on the international patients, will — like historically, if at all– does the patient from Afghanistan have better realization than compared to what you are having from these current international patients? Or will that be just driving the volume, if at all the Afghanistan patients starts coming into India?

Abhay Soi — Promoter, Chairman and Managing Director

Sorry. No, Afghanistan won’t have any better ARR, etc. So it will be all the same. It will be in the same range.

Tushar Manudhane — Motilal Oswal — Analyst

Okay. So it is to drive the volume basically, not the realization?

Yogesh Sareen — Senior Director & Chief Financial Officer

Yeah, yeah.

Tushar Manudhane — Motilal Oswal — Analyst

Secondly, on the…

Yogesh Sareen — Senior Director & Chief Financial Officer

Yes. You know that international patient, the ARR is generally double of the domestic, right, because we get more acute patients there. And that obviously helps us, and it’s more complex work that we get on the international side. And so, obviously, that helps us in terms of the ARPOBs and the EBITDA per bed, etc.

Abhay Soi — Promoter, Chairman and Managing Director

Your average bill is twice. It’s not about the pricing, the average bill is twice.

Tushar Manudhane — Motilal Oswal — Analyst

But the resource as well as the service aspect also will be typically much superior compared to…

Abhay Soi — Promoter, Chairman and Managing Director

No. But understand one thing, in spite of that, I mean, if you — if today, I have a patient for a fracture and I have a patient for a liver transplant, right, I need a lot more absolute margin, okay, as well as the overall billing on a liver transplant. Of course, the resources are higher, but my margins are much higher. So when a person comes, okay — nobody is going to have a fracture and come from Afghanistan to get it sorted over here, but will come for a lifesaving liver transplant or transplant or a life-saving procedure or whatever, where the average billing is much higher.

Tushar Manudhane — Motilal Oswal — Analyst

So, approximately, what would be the — sure sir. Just to understand approximately, what would be the margins from the international patients compared to the company level margin? That’s the broad picture.

Abhay Soi — Promoter, Chairman and Managing Director

No. See, again, you’re talking margins in percentage, which is the wrong sort of cadence to look at. Like I said, you’d rather do 20% margins, okay, on a $10,000 surgery than do a 50% margin on a $2,000 surgery, right? Okay? So what I’m telling you is, the average billing is twice.

Tushar Manudhane — Motilal Oswal — Analyst

Got it, sir. And secondly, on the case mix side, the cardiac side seems to be improving nicely over the past couple of quarters, and oncology is remaining pretty stable. So while the payer mix change will definitely — it can definitely drive the ARPOB. But from a case mix perspective, typically cardiac is a little bit lower compared to oncology. So will that have a certain impact on the overall ARPOB?

Yogesh Sareen — Senior Director & Chief Financial Officer

No. And you’ve seen it like you said yourself, right? You’ve seen it increase, yet you’ve seen overall in increase in ARPOB, correct?

Tushar Manudhane — Motilal Oswal — Analyst

Okay. And just lastly, just to understand the mix of — so while this quarter had a viral load again on account of dengue, so the typical mix of surgery and the medical business for the quarter or for the first half and how probably that can change in the coming — when there is no viral infection per se? So any broad color on that?

Yogesh Sareen — Senior Director & Chief Financial Officer

So, Tushar, this was — the medical mix was up by 2% this time. So let’s say, this was generally 43%-57%, this time it was 45%-55%, 45% for medical. So in quarter one, it was 43%-57%. So I think as we get into quarter three, I think it will normalize to the old levels.

Tushar Manudhane — Motilal Oswal — Analyst

So effectively resulting into, let’s say a ballpark, what kind of increase in ARPOB — is it like in a meaningful range of INR1,000, INR2,000 or much more than that, because of change in this proportion?

Yogesh Sareen — Senior Director & Chief Financial Officer

No, I can’t obviously really suggest what will be the change. But I think you can see that — a 2% change in the mix of the PSU patients and an increase in the interest of the level, which has come in the quarter two compared to quarter one. If that increase was to happen, there’s obviously, as I said, the ARPOB is 1.5x for the intentional and for the PSU it is double. So if you compute that, you’ll get to a number.

Tushar Manudhane — Motilal Oswal — Analyst

Okay sir. That helps. Thank you very much.

Operator

Thank you. The next question is from the line of Bharat Sheth from Quest Investment Advisors Private Limited. Please go ahead.

Bharat Sheth — Quest Investment Advisors — Analyst

Hello?

Abhay Soi — Promoter, Chairman and Managing Director

Hi.

Bharat Sheth — Quest Investment Advisors — Analyst

Hi. Thanks for the opportunity. Sir, you said typically, in Mumbai, doctor payout is higher than the rest part of the world. Is that correct understanding? And if that is that, what exactly are we doing to retain this kind of talent, I mean for our hospital? And in future, then would you like to go for Mumbai?

Abhay Soi — Promoter, Chairman and Managing Director

Sorry. So in Mumbai, I compete with other hospitals in Mumbai, right? So the doctor payout, which is higher for me, also applies to all other hospitals.

Bharat Sheth — Quest Investment Advisors — Analyst

Sorry, I don’t get you, sir?

Abhay Soi — Promoter, Chairman and Managing Director

So my Mumbai hospital does not compete for doctors against hospitals in other parts of the country. We compete with hospitals in Mumbai. Okay? So it’s a secular trend that the doctor payout in all hospitals across the Mumbai are similar, which is higher than compared to the rest of the country.

Bharat Sheth — Quest Investment Advisors — Analyst

Fair, sir. But that ARPOB in Mumbai is much higher than the rest of the country, vis-a-vis the way — because the payout is higher?

Abhay Soi — Promoter, Chairman and Managing Director

Not necessarily. The doctor payout has nothing to do with the ARPOB. Doctor payout is a cost line. Your ARPOB is a revenue line.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay. And sir, can you share some kind of — I mean, broader strategic, say, apart from — I mean, this — all this metro city, how this international tourists, which city attracts more international and which has less?

Abhay Soi — Promoter, Chairman and Managing Director

Number one place in India is Delhi NCR, 40% of all medical tourists come to Delhi NCR. The rest is distributed, Mumbai share is the least.

Bharat Sheth — Quest Investment Advisors — Analyst

Fair. Second, sir, now since we are currently — next two years, we’ll be expanding brownfield. But once we go for brownfield opportunities over, and if we go for a greenfield, then it will be taking a little hit on the margin. Is that understanding correct?

Abhay Soi — Promoter, Chairman and Managing Director

No. Well, when you do greenfields, which are sizable in nature, okay, compared to the rest of your portfolio, okay, it will have sort of temporary this thing — in towards your margins, okay? But it does not mean that you give up that opportunity, when you have that opportunity. So if I get opportunity to do, let’s say, three greenfields right in the middle of Mumbai. Not that I’ll get the land for it, but if I was to, I’d do it, right? But having said that, we have a large base of INR1,500 crores, INR1,600 crores of EBITDA, about INR6,000 crores odd of top line. So how much will it impact it by, is the question.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay. Fair. Sir, last question, sir, we have several levers for expanding the margin. So when we are talking currently, we have around annualized INR65,000 to INR67,000 per bed EBITDA. So with all this lever, where do — what is our aspiration and, of course, occupancy also increasing?

Abhay Soi — Promoter, Chairman and Managing Director

Like I said, we cannot give you forward-looking guidance on EBITDA on this thing. Our EBITDA is INR64 lakhs, not thousand…

Bharat Sheth — Quest Investment Advisors — Analyst

Sorry, INR64 lakhs, sorry.

Abhay Soi — Promoter, Chairman and Managing Director

Yeah, per bed. As far as the levers are concerned, all of them should augur better and improve this going forward. Some sort of calculations you can do, like I said, I’m reducing institutional bed share by 13% in absolute terms. So that means that 13% should be able to generate at least 50% more revenue, 85% of that will flow to EBITDA. So that has some impact on your EBITDA numbers, your international patients increasing, your insurance patient increasing, etc, etc. So I think overall, we are in a good space. Exactly where it will lead you to which quarter, is something for you to estimate. But like I said, I think as a sector, as a company, we are in a good space. We are generating a significant amount of free cash flows, and we have very good land banks, right in the middle of the metros, from 85% capacity, we’ll move to 93% capacity post expansion.

We already have these lands where work has started most importantly. And there’s an opportunity set in the rest of the country. And I’ve always gone out to say that, look, any location, which is viable, where at least two of my competitors have proven viability, we’d be more than happy to sort of enter those places. And, of course, M&A is another big lever for us, and that will throw out further geographies and opportunities for us. We certainly have the balance sheet and the cash flow to support those expansions.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay. Sir, what are the — I mean, while criteria for M&A, I mean, do we still — I mean, I would like to have an — evaluating any 33% kind of ROCE we would like to generate?

Abhay Soi — Promoter, Chairman and Managing Director

Of course, in the long run, of course. I mean, it may not be immediately available, that sort of ROCE. But yes, over a period of time, through those assets through further expansions over there, brownfield, etc, you can unlock value. Because do keep in mind, brownfield expansions allow you a significantly higher ROCE than your present set of operations, because the EBITDA per bed is much higher in the brownfield, and there is no stress on your — even your short-term sort of EBITDA margins.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay. Thank you and all the best, sir.

Operator

Thank you. The next question is from the line of Harith Ahamed from Spark Capital. Please go ahead.

Harith Ahamed — Spark Capital — Analyst

Hi. Thanks for the opportunity. So looking at our disclosed bed addition [Phonetic] plans, we had approximately 1,500 new beds getting commissioned in FY ’25 and I believe a higher number probably in FY ’26. So how should we think of the payer mix, specifically of these new beds? Will we stick to our targeted 15% share from institutional patients, or do we prioritize occupancies and probably accommodate a higher share at these new beds?

Abhay Soi — Promoter, Chairman and Managing Director

So look, 15% is a derived number, right? Essentially, what we believe is that, the reduction in institutional business will stop, when this new sort of capacity comes in, it’s beneficial that majority of this capacity or almost all of this capacity in ’25-’26, is all brownfields. So it will not disturb the payer mix at that time. But at the same time, any further acceleration will stop towards non-institutional.

Yes. So, I mean, I don’t — and then again, coupled with the fact that, look, you’ve got a lot more operating levers for almost all of this capacity because it’s brownfield, it will not disturb your payer mix or your margins at that stage.

Harith Ahamed — Spark Capital — Analyst

Okay. Got it sir. And then in terms of M&A priorities, are we open to assets outside metros and Tier 1 cities, which is a current…

Abhay Soi — Promoter, Chairman and Managing Director

No, absolutely.

Harith Ahamed — Spark Capital — Analyst

And also assets outside the North region of the country, which is again our core market today?

Abhay Soi — Promoter, Chairman and Managing Director

Look, we have capabilities of executing anywhere in the country, on similar sort of model that we understand. Okay. My only criteria has been that, in a new geography, I don’t want to do a greenfield. And B, I don’t want to go to unchartered territory where — I only want to go to places where at least one or two of my competitors — two of my competitors at least have proven viability. We will do it better like we do in each and every micro markets that we competed without exception, and we’ve witnessed that over quarters, right?

Harith Ahamed — Spark Capital — Analyst

Got it. Thanks for taking my question.

Operator

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.

Abhay Soi — Promoter, Chairman and Managing Director

So thank you so much for your time for logging on to the call, and we look forward to connecting with you in the next quarter with good news again. Thank you.

Operator

[Operator Closing Remarks]