Apollo Hospitals Enterprise Ltd. (APOLLOHOSP) Q4 FY22 Earnings Concall Transcript

Apollo Hospitals Enterprise Ltd. (NSE: APOLLOHOSP) Q4 FY22 Earnings Concall dated May 26, 2022

Corporate Participants:

Mayank Vaswani — Moderator

Suneeta Reddy — Managing Director

Obul Reddy — Chief Financial Officer – Pharmacy Business

Hariprasad — President – Hospitals Division

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

C. Chandra Sekhar — Chief Executive Officer – AHLL

Analysts:

Anubhav Aggarwal — Credit Suisse — Analyst

Tushar Manudhane — Motilal Oswal — Analyst

Shyam Srinivasan — Goldman Sachs — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Neha Manpuria — Bank of America — Analyst

Ranvir Singh — Sunidhi Securities — Analyst

Shaleen Kumar — UBS — Analyst

Bismith Nayak — RW Advisors — Analyst

Tarang Agarwal — Old Bridge Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Q4 FY 2022 Earnings Conference Call of Apollo Hospitals Limited. [Operator Instructions]

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

Mayank Vaswani — Moderator

Thank you, Margaret. Good afternoon everyone and thank you for joining us on this call to discuss the financial results of Apollo Hospitals for Q4 and FY 2022 which we announced yesterday. We have with us on the call today the senior management team represented by Mrs. Suneeta Reddy, Managing Director; Dr. Hariprasad, President of the Hospital Division; Mr. A. Krishnan, Group CFO; Mr. C Chandra Sekhar, CEO of Apollo Health and Lifestyle; Mr. Obul Reddy, CFO of the Pharmacy Division and Mr. Sanjiv Gupta, CFO of Apollo 24/7.

Before we begin, I would like to mention that some of the statements made in today’s discussion may be forward looking in nature and may involve risks and uncertainties. Please note the disclaimer mentioning these risks and uncertainties on Slide 2 of the investor presentation shared with all of you earlier. Documents relating to our financial performance have been circulated earlier and these have also been posted on our corporate website.

I would now like to turn the call over to Mrs. Suneeta Reddy for her opening remarks. Thank you, and over to you, ma’am.

Suneeta Reddy — Managing Director

Good afternoon everyone, thank you for taking time to join our earnings call. I sense that you’ve received the documents which we shared yesterday, Quarter four FY 2022 revenue, volumes and occupancy within the healthcare services business were disrupted in January and February 2022 due to COVID-19 Omicron third wave. Planned in high end surgeries were deferred and medical travel within the country was adversely impacted. Sequential performance was therefore muted, while year-on-year traction continued to be strong. Quarter four FY 2022 occupancy across the Group was close to 60% compared to 65% in quarter three FY 2022.

IP volumes across the Group grew 30% year-on-year, however, decreased 9% on a quarter-on-quarter basis. Operating indicators in the healthcare business continued to be robust. Overall quarter four ARPOB improved from 43,329 in quarter four FY 2021 to 48,510. This was achieved through a sustained focus on [Indecipherable] centers of excellence focus and payer mix optimization, which all hospitals ARPOB probably improved from 44,024 to quarter four FY 2021 to INR49,232 in quarter four FY 2022. We executed a planned reduction in lower paying patients in the network, especially the mature hospitals and we see this trend is positive and sustainable. Market segments are expected to grow from current levels, new hospitals ARPOB improved to 46,715 compared to 41,154 in quarter four FY 2021.

Volumes grew by 17% over quarter four FY 2020, revenues grew 46%. In-patient revenues in key specialties grew at very strong rate, compared to pre-COVID levels. Cardiac sciences revenue growth was 33%, oncology with 36%, neurosciences was at 11%, orthopedics at 27%, gastro at 19% and [Indecipherable] at 23% and this has been the result of our efforts within the centers of excellence of offering differentiated clinical product.

Over the last eight quarters, we have been consciously moving low paying patients and customers and have been actively substituting this with cash and insurance patients. These efforts are showing good results with these segments growing by 25% in revenues compared to pre-COVID quarters. Performance in March 2022 improved in comparison to January and February and we believe that the reduction in COVID cases across the country and opening up of travel and easing of restrictions has restored consumer confidence and we will see traction in the healthcare business.

The transfer in the back-end pharmacy business and the Apollo 24/7 digital platform to Apollo Healthco was completed with effect from March 16, 2022. Accordingly, the pharmacy distribution business which used to be reported as a segment in standalone financial now gets reported within Apollo Healthco. Consequently standalone financials are no longer representative of the depth, breadth of our performance in our — in this business. We will going forward focus on consolidated financial. While we believe they represent the full spectrum of our work, including healthcare subsidiaries, Apollo Healthco, Apollo Health and Lifestyle and other businesses.

Against this backdrop, let me walk you through the consolidated financials for the quarter. Consolidated revenues grew 24% on a year-on-year basis to INR3,546 crores, healthcare services grew by 21% to INR1,863 crores, mature healthcare services grew by 21% to INR1,283 crores, while new hospitals grew by 19% to INR532 crores. Consolidated EBITDA stood at INR463 crores, registering a growth of 12% on a year-on-year basis.

Within this Healthcare Services, EBITDA grew by 25% and healthcare services margins were at 21.9%, mature healthcare services EBITDA margin was at 24.3% and new healthcare services EBITDA margin was at 15.5%. Pharmacy distribution revenue grew by 23% year-on-year to INR1,375, Pharmacy Distribution EBITDA post IndAS 116 grew 60% year-on-year to INR19 crores. This is after considering a charge of INR84 crores on account of marketing costs of Apollo 24/7, without that charge, EBITDA was at INR103 crores, a growth of 27% year-on-year and margins was at 7.5% against 7.3% in quarter four FY 2021.

AHLL recorded a net revenue of INR309 crores year-on-year growth of 47% and EBITDA post IndAS of INR38 crores, a year-on-year growth of 41%. The consolidated PAT is at INR178 crores as against INR168 crores in quarter four FY 2021. However, a non-cash tax impact rising of the pharmacy transfer to Apollo Healthco to the extent of INR88 crores are to be considered for reporting purposes. Therefore, PAT for this quarter is INR90 crores. It may be noted that the tax impact has been fully set off against available MAT credit and the accumulated MAT credit available to AHLL has been fully exhausted.

Therefore, AHLL will move to the 25% corporate tax regime from quarter one FY 2023 onwards. I would like to recap the consolidated financials for the full year FY 2022. We closed FY 2022 with consolidated revenue of INR14,663 crores, a growth of 39% over FY 2021. Closing full-year EBITDA is at INR2,185 crores, representing a 92% growth over FY 2021, closing consolidated PAT for FY 2022 is at INR1,056 crores, representing a growth of 602% over FY 2021. Over fiscal 2022 as well as the prior, we have encountered unprecedented challenges and have been compared to respond with agility while transforming and redesigning the healthcare services delivery model. This we believe has strengthened our business across all aspects ranging from infrastructure, medical teams, protocols and processes. Our rapidly growing digital platform is strongly complementing our extensive physical presence across the country, enabling us to provide an omni-channel seamless customer engagement model that is highly differentiated across the speed of response, capabilities, depth of sources and relative offerings for the customers.

We entered this new fiscal year, excited about the opportunities before us, yet cautiously optimistic, because of the challenges and headwinds presented to us by the highly volatile global and national macroeconomic backdrop. For fiscal FY 2023, we believe that healthcare services growth will definitely be in the mid-teens. Margin expansion, however, will outpace revenue growth and improved by 150 basis points to 200 basis points, given our ongoing efforts on payer mix, case mix and cost optimization.

The offline pharmacy business will continue to grow at around 20% with our focus on private label products, same-store growth and an accelerated store expansion of over INR500 crores over the next fiscal compared to 400 stores in FY 2022. We expect Apollo 24/7, which includes online pharmacy consults and diagnostics to grow rapidly. In the last fiscal, we had a GMV of INR450 crores in Apollo 24/7 with quarter four being around INR150 crores. We are currently at a run rate of INR200 crores of GMV per quarter, which we expect to double, as we exit FY 2023.

Our diagnostic business with AHLL will continue to be our focus and we are confident of achieving a INR1,000 crores top line within the next three years. On that note, I would like to hand it over to the moderator and open the line for questions. I have Dr. Hariprasad, Krishnan, Obul Reddy, Chandra and Sanjiv from 24/7 here with me to take your questions. Thank you.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Anubhav Aggarwal from Credit Suisse. Please go ahead.

Anubhav Aggarwal — Credit Suisse — Analyst

Hi, just checking. Am I audible properly?

Operator

Yes, sir. You are.

Anubhav Aggarwal — Credit Suisse — Analyst

Okay. Good afternoon, team. First question is a clarification on the pharmacy segment and this is on the combined margins, which is only 6.1% in this quarter. I recall in the last quarter you had some INR10 crore cost taken up in the front end, is there any one-off in this quarter which is impacted this margin?

Obul Reddy — Chief Financial Officer – Pharmacy Business

No overall, there is a increase in the customer discounts and we were able to absorb that with the higher margin and that is just — there is no other reasons.

Anubhav Aggarwal — Credit Suisse — Analyst

No, but the overall margins are…

Obul Reddy — Chief Financial Officer – Pharmacy Business

The margin in fact we believe is 6.1% against 5.8% in the last quarter. And there is an online cost coming into the number. So there is too much significant compression on the margin. So it’s mainly due to the increase in the discount and online cost which will be shown as a separate segment going forward. So just a clarity customer discount increased due — what was the average discount earlier and versus now? Earlier last year — last year it’s about 10.5% overall and moved to 12% — 12.5% this year and we could compensate largely that through the margin expansion.

Anubhav Aggarwal — Credit Suisse — Analyst

And this is you’re talking only offline customer discount, right?

Obul Reddy — Chief Financial Officer – Pharmacy Business

As current year, it is a blended both online and offline and that segmentation will happen going forward for the next year.

Anubhav Aggarwal — Credit Suisse — Analyst

Okay. And then the portion that you are recording in the, let’s say, back-end pharmacy that percentage of the EBITDA has increased dramatically. Is that going to be the norm going forward like almost like in this quarter 93% of the EBITDA or 90% plus of EBITDA has been captured in the back end?

Obul Reddy — Chief Financial Officer – Pharmacy Business

That — we have about 80% because this year there is a demerger coming into certain liabilities moving and there is an accounting issue, otherwise we will capture about 80% of the margins in the back-end and that sail broadly in that — and 80%, 85%.

Anubhav Aggarwal — Credit Suisse — Analyst

Thank you. Second question is on the 24/7. So this quarter our spend has increased to about INR85 crore quarter level. Now the question here is better we get the funding or do not get the funding, in both scenarios, what do you think can be annual spend in fiscal 2023 on the 24/7?

Hariprasad — President – Hospitals Division

Sanjiv, you want to answer that?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

So I think we are looking at around INR400 crores of overall expenditure for the current fiscal year as against INR84 crores that you saw in Q4.

Anubhav Aggarwal — Credit Suisse — Analyst

And Sanjiv that is irrespective of whether you get funding in this AHL or do not get funding?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Yeah.

Anubhav Aggarwal — Credit Suisse — Analyst

And is there any update on that, let’s say process that you are running?

Suneeta Reddy — Managing Director

So right now, there is no update except that keeping in mind the existing environment where digital healthcare has been undervalued. We have delayed the process, we’re keeping it on hold for another six months.

Anubhav Aggarwal — Credit Suisse — Analyst

Thank you. Just last clarity on hospital ARPOB’s you gave the guidance, but just on ARPOB’s, do you expect them to increase from quarter four level this year or moderate in fiscal 2023?

Suneeta Reddy — Managing Director

So there will be an increase and like I said earlier, the increase will come from payer mix, will come from cost reduction and the third which we’re also seeing is case mix.

Anubhav Aggarwal — Credit Suisse — Analyst

Any headline increase that ma’am you have taken in cash insured patients and insurance segments?

Suneeta Reddy — Managing Director

25% increase.

Obul Reddy — Chief Financial Officer – Pharmacy Business

25% has been the increase that we have seen in the past and going forward we will expect that there will — the momentum should continue for the next year as well.

Anubhav Aggarwal — Credit Suisse — Analyst

But any headline price increase you’ve taken and…

Obul Reddy — Chief Financial Officer – Pharmacy Business

Headline price increase for the coming year would be around 4% to 5%.

Anubhav Aggarwal — Credit Suisse — Analyst

And you have already taken?

Obul Reddy — Chief Financial Officer – Pharmacy Business

No, not as yet.

Anubhav Aggarwal — Credit Suisse — Analyst

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Tushar — sorry Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.

Tushar Manudhane — Motilal Oswal — Analyst

Yeah, thanks for the opportunity. Just again on Apollo 24/7 if you could also share online orders per day and average realization per order as in month of May?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Yeah, so, currently, we are running at about INR70 crores of GMV and as far as the number of orders are concerned, we are closing at around 30,000 orders per day, essentially about majority of them being pharmacy. But we do have diagnostic and consultations to the tune of about 4,000 to 5,000. Those are the numbers we tracking as of now.

Tushar Manudhane — Motilal Oswal — Analyst

Right. This was like 20 — compared to 21,000 a quarter back?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Correct, sir.

Tushar Manudhane — Motilal Oswal — Analyst

Got. Secondly on the hospital side, there has been sharp drop in occupancy in new hospitals, maybe it is due to COVID in Jan, Feb. But again, coming back to like in April, May if you could share what is the occupancy we run here in new hospitals?

Suneeta Reddy — Managing Director

No, it’s picking up in the new hospital, mostly surgically work is picking up. And unlike last year where we had a lot of medical admissions, this year is looking better. Hari, you want to add to that?

Hariprasad — President – Hospitals Division

Yeah, the March itself has shown a increase in the occupancies in the newer hospital and tied to also and increased occupancy is mainly on the surgical front has actually contributed to the improved ARPOB as elucidated by madam just now in here opening remarks.

Tushar Manudhane — Motilal Oswal — Analyst

Got it. That’s it from my side. Thank you.

Operator

Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.

Shyam Srinivasan — Goldman Sachs — Analyst

Good afternoon, thank you for taking my question. First one is on the pharmacy step-up in terms of the store rollout. I think you said 400 we did in fiscal 2022 and we are targeting 500. This has been a slight step change to how we have managed the store rollouts in the pharmacy business. So what’s driving, what’s the logic? Does it entail higher capex, I know it comes under front end, but just want to understand the logic and which are the geographies we will likely to look at?

Hariprasad — President – Hospitals Division

We will actually — look, we are there as you rightly said about 400 stores, every year we increase the number, because now we have certain states where our presence is low in the Central India, so we are increasing the number of stores in that geography, so that we will better serve the online customers as well. And on the capex per store we remain the same more or less. And we are also opening dark stores in some key cities. We just started that and we will be closing in the next three months about 30 to 40 dark stores, so that we will sell better for the online customers.

Shyam Srinivasan — Goldman Sachs — Analyst

So, the 20% growth for pharmacy, so part of it is coming from the store expansion, the rest is the same-store, that’s how we — any other color in terms of either volume growth or how should we look at the 20% growth if you break it down?

Hariprasad — President – Hospitals Division

We’re working down in the new store this year is now given about 2% growth and 18% from the entire basket of existing source. So like as usual unlike earlier years, there is no big difference except that we are getting a normalized quarter against uneven growth rates in the last seven quarter we have seen due to COVID changes.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it. That’s helpful. Last question is on Apollo 24/7. I think we have seen weekly active users, which were I think 26 lakh in December, now it’s come to 38 lakh. So if I were to load Q-o-Q, this is — there has been an acceleration in the March quarter. So can you just walk us through some of the dynamics what’s happening? If I look at overall registrations also, 12.5 has gone to 14 million, right? So, but the percentage change in active is much higher. So is there something that we have been doing that is leading to higher activation?

C. Chandra Sekhar — Chief Executive Officer – AHLL

Yeah, so I think, sir, this is a continuation with respect to what we just as last time many of the users come to the platform to understand and then consume content and we would continue to work on the content side and continue to enrich our customers and users with more information and more supplementary things which help them to towards their continuum of care. And I think some of the things that the company is working upon is to have better content, you’re also working to enhance that while UX. Thanks. Plus, there are many new features, which are coming into the app and the website that also helps.

Apart from the fact that the organic traffic is also inching up very fast as compared to the competitors, as compared to the previous quarter for the months. And I think all this put together, if I see and couple with the fact that in January, we had some kind of benefits coming in from [Indecipherable] there was lot of traffic into our website and app to get those medicines, which were not there elsewhere.

So I think all these factors, some internal some external is helping us to grow our traffic and we continue to see positive side as far as the traction is concerned.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it. And would you attribute anything to discounting in the sense that we have been upping our discounts? Do you think that’s a hook for online customers?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

I think on the discount side, we will continue to maintain our position that has been discussed over a period of last two, three quarters that we are not going to be the leaders or challengers in the market. What we strongly believe is that customer is looking at a wholesome experience of omnichannel. And Apollo is the only company which can provide that omnichannel profit that is the reason that our discounts are also not as high as the competitors give it and our discounts are pretty low in comparison to the competitor. So I don’t see that discount in the region for us to increase the traffic, the traffic is increasing because of variety of reasons. And I think discount is not the card out there that we are playing.

Shyam Srinivasan — Goldman Sachs — Analyst

Last question, just data point, Sanjiv, the 12.5% would our online discounts be higher say 13%, 14% and maybe competition is at 18% to 20%. Would that be fair numbers anecdotally?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

So you are almost on the right direction. So, our discounts would be in the range of about 15% to 16%, which is the online side. And as far as the competition is concerned, competition, what I gather from the primary and secondary sources is that at times, they are upwards of 20%. And so to that extent the gap will continue to be there.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it, yeah. Thank you and all the best.

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Yeah, thank you.

Operator

Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Sameer Baisiwala — Morgan Stanley — Analyst

Thank you so much and good afternoon, everyone. Can you talk about the capital allocation for fiscal 2023 in the sense what would be the surplus from operations? And then how do you plan to deploy that in capex, acquisition and deleveraging?

Suneeta Reddy — Managing Director

So, let me start with the surplus. We had INR600 crores of cash surplus. We have INR800 crores invested in mutual funds. So, definitely we have cash available for growth. In terms of deployment INR350 crores will be used for normalized capex, the balance will be used to, one is to, we have acquired a Brownfield hospital in OMR which is part of Chennai, we will strengthen our Chennai offering and create a world-class care hospital there.

The second part, that will take over a period of time, it will consume another INR500 crores of capital over the next two years, the balance will go to Bangalore where we’re adding another 300 beds. So clearly another and then this is Brownfield. So another INR300 crores will be deployed in Bangalore. So over the next two years, we’re looking at INR800 crores of capital deployed. This is — this is what we see now maybe over the next quarter is there any acquisition opportunities, Brownfield expansion, we will come back to you at that time.

Sameer Baisiwala — Morgan Stanley — Analyst

Yeah, thanks a lot for this. And do you think you’d be left with surplus to continue deleveraging or you think here on it would largely go into growth?

Suneeta Reddy — Managing Director

It has to go into growth. Sameer. we’re at a very comfortable position with debt and equity 0.45 debt to equity.

Obul Reddy — Chief Financial Officer – Pharmacy Business

And even debt to EBITDA wise, if you look at it even for just if you look at healthcare services, given that our gross — if you’ll drop AHLL, we are at INR2,300 crores of gross debt without AHLL and clearly we will get to that EBITDA in the next two years, so it will be a one is to one debt-to-EBITDA. So we have comfortable levels of gearing and we definitely would look at growth.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great, thanks. On the last call, I remember you also talked about Mumbai and NCR. So any capital you want to put over there?

Suneeta Reddy — Managing Director

Well, I think you know — we have INR500 crores, INR600 crores of free cash flow. So I believe that when those opportunities come, we will have no problem investing and completing those two projects, but right now there is nothing confirmed that we can share with the investors.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. Got it. And just on the new project that you highlighted. It’s just 7 acre plot versus 1.5 million square feet development. I mean I would think that this would be probably one of the largest single location and probably the most the densest healthcare services asset. So just your thoughts on this. And of this 650 rooms, what would be the split between the ICU’s, private and the general ward? I mean is it a thing dramatically different that you’re planning over there?

Suneeta Reddy — Managing Director

So, Sameer, it’s a little bit early because we are right now talking to — looking at hospitals abroad, healthcare has changed while 30% of our beds have always been allocated for ICU. We are looking at strengthening the centers of excellence. So we will have the whole gamut robotic cardio work, just very high end clinically differentiated work in each of the COEs, plus we will have the mother and child which I think is a segment that’s wholly undeserved. The intent is that this area is really some is really growing that part of Chennai and we need a strong presence there. We only have 100-bed hospital in that area, 100-bed is insufficient. Plus we’re noticing that connection connectivity to Chennai is improving.

So we do believe there is a huge opportunity to attract foreign patients into this facility. So it will be truly best in class like we’ve done for Proton it will be best-in-class than all the other specialties including transplants that we are planning to set up in the next two years.

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

And Sameer just so that you know we are on the same page, it is also including the basement area which is there also, which includes the car parks, which is why if you look at it, this would clearly have one of the best car parks available for pre-patient flow into the hospital and out, simply outpatient rehab all of that it can enable and because it clearly allows 1500 to even 2000-car parks. So clearly that’s one challenge that we will never have in this facility once the outpatient comes in.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, got it. Just with your permission one or two more. So this is kind of moving out of the city more towards away from city center towards sub-urban. So do you think that this is a template that you can use for other metros analysis because then that brings down your land cost dramatically and then you can have more of such hospitals?

Suneeta Reddy — Managing Director

You know, I think that the heart of the city is really moving and this is going to be the Gurgaon of Chennai. So I’m not looking at it as a sub-urb. This is where all the ITs, is all in OMR, all the high-end schools are in OMR, high-end housing and it’s kind that high-end hospitals are also present in this area. So we’re not looking at it is sub-urban, also proximity to the airport and the fact that, all inpatients can make there much faster.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, got it. I would assume, I’ll get back in the queue. Thank you.

Operator

Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.

Neha Manpuria — Bank of America — Analyst

Taking my question. Ma’am, in your press release, you mentioned about growing your diagnostic business to about INR1,000 crores in the next three years, historically we’ve always looked at diagnostic expansion organically. Is that still the case? Are you open to accelerating growth through inorganic acquisitions in Diagnostics?

Suneeta Reddy — Managing Director

I think we’re open to all options. Chandrashekhar, why don’t you answer that?

C. Chandra Sekhar — Chief Executive Officer – AHLL

Yes, ma’am, I will. So I think the primary emphasis will be on organic growth, the inorganic option ass ma’am correctly pointed out is a very different option and we are open with, but we have certain con towards and rules of how we want to do it. We would not like to do it at the current levels of valuations on which the transactions over the last 12 months have happened. I believe that it doesn’t leave much of arbitrage for growth after post acquisition. So we are going to look at probably valuations which softening a little better. Second, size wise also and the way we are looking at strategic expansion is our core markets being south and east, our organic acquisition appetite would be in markets that we are getting into, especially in the western.

We will grow organically south and east and strengthen further, opportunistic expansion in North and West, but at a size and evaluation which allows upside post acquisition.

Neha Manpuria — Bank of America — Analyst

Understood, sir. That is helpful. And my second question is on AHLL, we’ve also previously talked about potentially looking at value unlocking in AHLL also, given that we have investors there. Any timeline on that, have they thought about how we want to scale that up?

C. Chandra Sekhar — Chief Executive Officer – AHLL

So currently we are having — we have closed the year with a reasonable amount of cash balance and we also are generating cash in the way we are hoping to grow the business this year. I think this opportunistic acquisition will call for certain additional cash to come in, which we will seek at that point of time, as well as unlocking value is concerned, I personally believe that the last two years have not been exactly favorable to some of the formats, which potentially could be considered for such unlock, especially the ones which have been deeply impacted by elective and some of the outpatient footfall reducing etc.

So at this point of time I think FY 2023, we start with very purpose of growing the business and sustainable basis. We are not looking at unlocking value at this point of time within these formats, because they may not justify because of the serious headwinds they have received over the last two years, we would like to have one sustained year when we can revisit that thinking.

Neha Manpuria — Bank of America — Analyst

Understood. And sir, has Spectra recovered or gone back to its pre-COVID levels in terms of occupancy?

C. Chandra Sekhar — Chief Executive Officer – AHLL

Yes, in fact we have two waves of COVID last year as you are aware, most impacted one obviously Spectra, but from a year-on-year basis actually we have a growth. If you look at the Spectra — we have reached on a year-on-year, we actually grew volumes by 42% despite two waves of COVID that impacted. So we are on the right trajectory, we have been — the one thing is that some backlogs also to come in our proposal with. So cumulative effects of organic growth, plus some revival of backlog, we have a 42% volume growth when it comes to surgery from FY 2021 to 2022.

Neha Manpuria — Bank of America — Analyst

Got it. Thank you so much, sir.

Operator

Thank you. The next question is from the line of Ranvir Singh from Sunidhi Securities, please go ahead.

Ranvir Singh — Sunidhi Securities — Analyst

Yeah, thanks for taking my question. My question relates to Apollo 24/7. So, earlier we aim to get some INR10 crore percent registered in next four, five years and given the competition emerging around this business. So, still we hold this possibility?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Yeah, so I think there are two, three things which we need to think about. One is that Apollo being a very strong brand and there is lot of footfall which happens across the Apollo ecosystem be it the hospital, KMH, diagnostic centers over and so forth, even Apollo pharmacies. So, one is that we have customers who come to the client — come to the Apollo ecosystem detach the Apollo ecosystem. So we have the sourcing from that channel. And secondly as more and more people are adopting the e-commerce, more and more people are transacting with the platform, so that one is also increasing.

And I think both these two pools put together, we still believe that we should hit a target of what you rightly talked about. And obviously, our aim is to get the right set of chronic customers rather than just numbers. So at appropriate time in case, we think that this number is to be low down, we’ll come back to you, but at this stage, we are looking at INR10 crores and we’re looking at more on chronic.

Ranvir Singh — Sunidhi Securities — Analyst

So at what level of revenue our that breakeven would be reached?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

So what we anticipate is that FY 2025, 2026 should be the year where the digital business should get a breach one and the combined entity should — the back end should one year in advance. So those are the years that we’re looking at.

Ranvir Singh — Sunidhi Securities — Analyst

Okay. And what is the ticket size currently in this quarter per order?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Ticket size, so currently we are running at about in the range of about 9,00 to 1,000 as the average order value across the system.

Ranvir Singh — Sunidhi Securities — Analyst

Okay. This was lower in earlier quarter, right?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Slightly lower, the average order value has gone up by about 6% versus the previous months. And I think the current kind of working strategy month doing is to see that we are always on the 4 to 6 and let’s hope that in the current quarter we move consistently on the 4 to 6 number.

Ranvir Singh — Sunidhi Securities — Analyst

Okay. Okay. And one more if I could, on AHLL side the footfall has significantly lower on Q-on-Q basis, despite that clinics number of network has increased from 136 to 254. So, was that related to only that in January the disturbance due to Omicron or do you see any other reason footfall?

Obul Reddy — Chief Financial Officer – Pharmacy Business

That’s the only reason and Jan and in mid Feb, I think we have had been impacted, so 1.5 month of the three month quarter.

Ranvir Singh — Sunidhi Securities — Analyst

It seems we are doubling number of network and revenue, the kind of revenue shows that’s probably the few clinics were completely dry during this quarter. So is that a correct assessment?

Obul Reddy — Chief Financial Officer – Pharmacy Business

Yes, that is and we also had, if you have to look at one other thing that completely subsided was vaccination, there is near to zero vaccination in Q4.

Ranvir Singh — Sunidhi Securities — Analyst

Okay, thank you. That’s it from my side.

Operator

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

Shaleen Kumar — UBS — Analyst

Yeah, hi, thanks for the opportunity. So one thing which I like to understand…

Operator

Sorry to interrupt you Mr. Kumar. your audio is quite low.

Shaleen Kumar — UBS — Analyst

Is it any better?

Operator

Yes, slightly better. If you can speak louder, I think it will help.

Shaleen Kumar — UBS — Analyst

Sure. Yeah, thanks, thanks for the opportunity. So, one thing ma’am, when I look at your hospital number obviously Omicron has an impact, but when I look at new hospital, the margin compression is on a higher side compared to a mature hospital and similar is visible on AHLL which probably because of new centers, etc, but what specifically is it because of COVID revenue was higher in new hospital and then specific reason for margin compression?

Suneeta Reddy — Managing Director

See the margin on surgeries is always much higher. So because we had to cancel surgeries and therefore the margins got impacted. Also patients could look on, so occupancies were low. So it’s a competition of these two.

Shaleen Kumar — UBS — Analyst

Yeah, no but mature versus new, the margin compression is relatively higher in new? So that’s the only thing I was trying to understand like…

C. Chandra Sekhar — Chief Executive Officer – AHLL

It’s just because of the fixed cost which is there in the business and the operating leverage, which is there, the reverse happens when you have a bit of a lower revenue, we will get back to the 17% level soon. We were at 14% this quarter and we will get back.

Shaleen Kumar — UBS — Analyst

Sure sir. Sure sir. And possible to get any update on Amazon bit what kind of a traction we are getting?

Suneeta Reddy — Managing Director

Sanjiv?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Yeah, so on liquidity there is a question over that, is that okay?

C. Chandra Sekhar — Chief Executive Officer – AHLL

No, Amazon Sanjiv?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Yeah, can I take this question?

Suneeta Reddy — Managing Director

Yes, yes, you could take.

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

So, on Amazon, I think what is happening at this stage is that we’ve got people from their tech and product side from Seattle out here in Hyderabad, as well as in Mumbai. And what Amazon is looking at it is to have the entire tech side sketch it up before they kind of get into marketing on both YouTube, BTL and start mobilizing more and more customers as well as the transaction. So we expect that the entire technology side to get integrated between the two companies to be over by September or it may slip by a month or so depending upon how it happens.

So some with October end, we expect this to happen and from November onwards, I think the momentum will start happening at this stage, only couple of in courts and things have been opened up to look at the flow of the transaction to test the simulations which are being worked upon.

So as such the back end work has started in full swing. We’ll see more numbers appearing in Q3.

Shaleen Kumar — UBS — Analyst

Right, right, right, sir. Sir, the pricing on Amazon will be independent of the pricing on 24/7 platform or will there be a kind of a floor to it like not going below or they will operate completely independently?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

These are independent platform, so it will be independent.

Shaleen Kumar — UBS — Analyst

Absolutely, absolutely. Just one question, which or rather one thing which we’re trying to understand, agreeably that competitive intensity has increased. Now, just trying to understand, is it because consumer behavior is changing? That’s a reason that some of the e-pharmacy players are forced to do higher discounting or is there some players are seeing a land grab opportunity, so trying to press right at this point of time. So what exactly is happening, any idea?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

It’s a good question. I think to my best knowledge, I think there are two, three things, one is that if you look at the pattern in the top, maybe 15 to 20 cities of the country, you will see lot of adoption of e-commerce happening over there. And COVID particularly last two years, many of the customers have started moving. I mean they started in general dealing with e-commerce, whether it is the healthcare needs or the grocery or the variety of other things that they normally shop for.

So, one is that there is a consumer pattern or a consumer behavior to look out for convenience, to look out for speed to look out for comfort. And so this is one area, which is supporting the increase in the momentum as far as the health tech e-commerce players are concerned. And I think second, as far as the discount side in case you are hinting that some of the competitors are giving more discount to get the grab initially and then get the value share so on and so forth. I think the current times are good times. It is kind of a cautionary bench where we want out there, okay discounts to give about 25%, 30% to get the customers at the end of the day, that does not make sense.

And eventually what is right is for the business is will happen. And so I think as far as the second leg is concerned, second leg, which is kind of grabbing with high discounts, this would also start coming down quickly. I expect in a quarter from now, you would start seeing discounts offered by the competitors under 20, which is today at times, it is about 25% plus.

Shaleen Kumar — UBS — Analyst

Agree, sir. Sir, just last bit, I missed on your order number like what kind of order you think if you don’t mind, can you please repeat it?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

It’s around 30,000 per day today.

Shaleen Kumar — UBS — Analyst

So that’s online order or omnichannel you’re talking about?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

No, this is, this is just the platform driven, sorry, I should have said that, it is just a platform.

Shaleen Kumar — UBS — Analyst

This includes our pharmacy consultation plus diagnostics?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Yes, absolutely.

Shaleen Kumar — UBS — Analyst

All right, sir. All right, thank you so much, sir. Thank you.

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Thank you.

Operator

Thank you. The next question is from the line of Bismith Nayak from RW Advisors. Please go ahead.

Bismith Nayak — RW Advisors — Analyst

Hello. Hello? Am I audible?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Yeah, yeah.

Bismith Nayak — RW Advisors — Analyst

Just one clarification, healthcare overall you said you’re targeting mid-teens growth for FY 2023 and margins can go from 22.6 to around 24%, 25%, is that correct?

Suneeta Reddy — Managing Director

Correct.

Bismith Nayak — RW Advisors — Analyst

Okay. And online pharmacy you’re targeting 20% growth next year as well?

Suneeta Reddy — Managing Director

Correct.

Bismith Nayak — RW Advisors — Analyst

Offline, offline pharmacy, sorry.

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Yeah.

Bismith Nayak — RW Advisors — Analyst

Okay, okay that’s all, thank you. Hello, can you hear us?

Operator

We can hear you now sir.

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

No, any next question?

Operator

Mr. Nayak, do you have any other question?

Bismith Nayak — RW Advisors — Analyst

No, no. I’m good.

Operator

Thank you. The next question is from the line of Tarang Agarwal from Old Bridge Capital. Please go ahead.

Tarang Agarwal — Old Bridge Capital — Analyst

Hello, ma’am. Hello, sir. Good afternoon, just a question on looking at these three businesses together AHL, AHEL and AHLL, just wanted to get a sense on how transfer pricing is happening across the platforms? So for instance if a INR1,000 is spent on medicines through the AHL platform or INR1,000 is spent through diagnostics through the AHL platform or INR1,000 rupees is spent through for consolidation through the AHL platform. If you could give us how is it going to be captured across the different businesses?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

So there is a transfer which has been agreed upon for new customers being funneled into the hospital services business, which is depending on the existing customers, which are serviced through Apollo 24/7. There is a transfer fee, which has been agreed of 2%, whereas if you look at the existing for the new customers, which are coming into the healthcare services, we will typically pay them approximately 10% of the outpatient revenues, which is generated in the — at the hospital level for one year. After one year they become an existing customer and go back to the 2%. This is because there is a customer acquisition cost which 24/7 also has to incur to bring in customers into the healthcare services, that’s the uneven for — that’s the same 10% that we will be paying even for health checks etc that is funneled through 24/7.

As of now, 80% of the business itself generated by the hospitals, it’s only 20% that is getting generated by 24/7, of course, our hope is that with time 24/7 we’ll generate lot more revenues to us. Similarly, even on the diagnostics side, there is a — there is a sharing of approximately 10% to 15% of the revenues, which happens between AHLL and 24/7.

Tarang Agarwal — Old Bridge Capital — Analyst

Got it. And in terms and so far as, would it be fair to presume that the tie-up with Amazon would actually be serviced by the AHEL business and would have nothing to do with the 24/7 business, would that be the right way to look at it?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

So the metrics of AHEL with 24/7 would probably be similar to AHEL with Amazon and so far as the pharmacy piece of the business is concerned?Yeah, but then it will be in AHL, you’re right, it will be in AHL which will be the Apollo Healthscope which is going to be servicing Amazon as well as back-end.

Tarang Agarwal — Old Bridge Capital — Analyst

Okay, got it. Thank you.

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Yeah, with one more leg into it for the Amazon Prime customers, we would also be offering them the diagnostic and the consultation and the consultation services to Apollo 24/7 platform. So to that extent while pharmacy business of Amazon will get captured through front end and back-end for the fulfillment side if the entire diagnostic and consultation both re-consultation and a fresh consultation will be through the platform, Apollo 24/7.

Tarang Agarwal — Old Bridge Capital — Analyst

Okay, thank you. Yeah. Thank you.

Operator

Thank you. The next question is from the line of Anubhav Agarwal from Credit Suisse. Please go ahead.

Anubhav Aggarwal — Credit Suisse — Analyst

Yes, thank you. Just looking for a very rough split of this $3 billion GMV that you talked about into these three components offline 24/7 and the Amazon partnership?

C. Chandra Sekhar — Chief Executive Officer – AHLL

Sanjiv, you have that broad number between offline and online at least?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Yeah, so broadly, what we can think at this stage, this is a number that we’re targeting in three to four years from here upon. I think it will be about $2 billion as far as the pharmacy line is concerned, which is the our own stores, which are 4500 at this stage and growing by say 5200 year-on-year basis. We also expect about 500 million to come from the Amazon side. And apart from that another $500 million to $700 million would be the GMV coming in from 24/7 which would be around the consultations with digital therapeutics, the condition management and many other things.

So that would be the rough estimate or very broad number for the 3 billion bifurcation.

Anubhav Aggarwal — Credit Suisse — Analyst

Okay. That’s helpful, Sanjiv. And secondly, just a clarity again on the pharmacy segment, the first question I asked on the call. I’m still not clear of that, so the total combined pharmacy margin that you talked about 6.1% this quarter then initially you mentioned that customer discounts have increased from 10.5% to 12.5%. So I’m little confused, so when you record 24/7 loss, so online pharmacy losses are they captured in the 6.1% or they’re captured in INR88 crores which or INR85 crores which record below, where are those capture?

Obul Reddy — Chief Financial Officer – Pharmacy Business

6.1 is a combined EBITDA as you rightly said, so our pharmacy online expenses is captured as a part of that. And apart from that, the discount cost is mostly compensated through the margin expansion and we could see that impact.

Anubhav Aggarwal — Credit Suisse — Analyst

Sorry, sir, but I still have the confusion. So this I’m not sure that so the 6.1% includes the 24/7 losses?

Obul Reddy — Chief Financial Officer – Pharmacy Business

That 24/7 losses, 24/7 expenses because the delivery to the customer is happening from the Apollo pharmacies, which is front-end NET. The cost incurred there is almost about 1% of the revenues. So that has to be factored into this. Cost coming into the revenue side of the pharmacy business, which doesn’t include that INR85 crores.

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

So technically it could be — it could have been included as part of 85, as of now that is part of the 6.1% which is being reported now, the logistics cost.

Obul Reddy — Chief Financial Officer – Pharmacy Business

Just to clarify, the online delivery is happening through the front-end business, where the delivery costs are captured. So, which was not there last year and to that extent, there is a margin compression both on account of the expenses, as well as the increased customer discount and we could largely compensate that with the margin increases.

Anubhav Aggarwal — Credit Suisse — Analyst

So this quarter, how much would have been roughly online sales, which have been recorded in that revenue?

Obul Reddy — Chief Financial Officer – Pharmacy Business

Say about this quarter alone, about INR70 crores.

Anubhav Aggarwal — Credit Suisse — Analyst

You are saying roughly about INR7 crore kind of number is getting is impacting the margin?

Obul Reddy — Chief Financial Officer – Pharmacy Business

Yes, even more than that, it will be about INR10 crores to INR11 crores complete delivery cost attributable to that segment of the business.

Anubhav Aggarwal — Credit Suisse — Analyst

And when you talk about INR84 crores, this is largely the non-transaction expense, this is just a fixed cost, let’s say, the, let’s say, the personnel cost which is, let’s say the corporate headquarters kind of cost which are attributed that and promotion, marketing costs?

Obul Reddy — Chief Financial Officer – Pharmacy Business

Online delivery costs which will be fixed irrespective of the deliveries, you will have a fixed online delivery cost, which account for almost 6% of the revenues, online revenues. So apart from the fixed cost, if we add of that, that is is coming to about INR10 crores to INR12 crores, which has impacted my margins for the quarter. And a similar number in the last quarter is very insignificant.

Anubhav Aggarwal — Credit Suisse — Analyst

That’s clear.

Obul Reddy — Chief Financial Officer – Pharmacy Business

Corresponding Q4 is very insignificant, that’s why if you see that, Q3 versus Q4, there is a margin expansion, while Q4 versus Q4, there is a margin compression.

Anubhav Aggarwal — Credit Suisse — Analyst

Okay, thank you.

Operator

Thank you. We’ll take one last question, which is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Sameer Baisiwala — Morgan Stanley — Analyst

Thanks for the follow-up, just a couple of questions on 24/7. How many of your offline stores are really integrated into online business? And second is, what’s your fill rate for online prescriptions and I ask this, because we are not operating on super pharma CRO warehouse-based model. So, if you can answer these, yeah?

Hariprasad — President – Hospitals Division

Sanjiv?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Yeah, so, sir, at this stage, we have lightened up around 1500 stores, out of 4500 stores of network that we have it on the — on the APL. So 1500 stores are based on the pincodes, based on the transaction. So this is all the algorithm based placement of stores against the orders that we’re generating in various geography. So about 1500 have been already lit up, that is the answer to the first question. And if you could repeat the second question, sir?

Sameer Baisiwala — Morgan Stanley — Analyst

Yeah and second question is…

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

Is the fill rate? Yeah, so I think fill rate is to the tune of about 90% plus and we do have a support of other than stores, we do have a support of [Indecipherable] these are the kind of a mini DCs, which we have placed at appropriate locations to just ensure that in case at a store level, we have about 90% for any orders and one or 2 SKUs is missing, then obviously immediately the nearest Dc kinds of shifts that particular SKU to the store and the entire order gets to the customer on an immediate basis. So it’s a network of 1500 stores being lit up plus CVDC LVDC to ensure that the fill rate is very high and as far as SLA more or less 95% plus side on the SLA promise to the customer versus the delivery time.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. Thanks. So this is very helpful. And how do you see this rollout over next one to two years?

Sanjiv Gupta — Chief Financial Officer – Apollo 24/7

So again, this all will be elbow driven. So what happens is that as and when you get more and more orders, so everything runs on a PIN code basis, so 19,000 pin codes, so system keeps looking at the pincodes and pincodes orders versus the freight rate versus delivery time all these three things on a continuous basis they keep looking at it and we periodically review it something like 15 days cycle we review it. And depending upon this elbow we get to know that where we are getting more traffic and where we need to in case we need to spend and accordingly we take of all. I guess next 3 to 4 years maybe, maybe 30% to 40% more capacity will built up, I mean we like up more stores that should be good enough at this stage.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, thank you so much. And just one final on equity raise for AHL. So the question here is can we continue if it doesn’t happen over next six months. How critical it is for the built out of this business?

Suneeta Reddy — Managing Director

No, I think we surely can because the pharmacy division itself has cash and I think the parent company also has enough to support this. So definitely I think launches for six months, but even if it takes nine, I think we’re there to support.

Sameer Baisiwala — Morgan Stanley — Analyst

Suneeta, you said a big straight, big gap between bid and ask or how should we think about it? Are you looking, are you talking to new people, I mean what’s really gone astray?

Suneeta Reddy — Managing Director

So just to say that there is very good interest in 24/7. It’s just the environment was not the right environment and we believe that in this current environment that we would not get the valuation we deserved. So we decided to postpone it by six months. But there is sustained interest in 24/7.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great, thank you so much.

Operator

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

Suneeta Reddy — Managing Director

Ladies and gentlemen, thank you for taking time out for this call. As you can see, in spite of two waves of COVID, I think the whole entity Apollo Hospitals, the Hospital division, the pharmacy 24/7 and Apollo Health and Lifestyle has really recovered. But beyond that, just looking at the future and this year which is really were already present in the future. We are looking at a very strong trajectory of growth and we hope to deliver on our promise. Thank you, again.

Operator

[Operator Closing Remarks]