Aster DM Healthcare Limited (NSE: ASTERDM) Q2 2025 Earnings Call dated Oct. 24, 2024
Corporate Participants:
Puneet Maheshwari — Senior Manager, Investor Relations
Alisha Moopen — Deputy Managing Director
Ramesh Kumar — Chief Operating Officer
Sunil Kumar M R — Joint Chief Financial Officer
Anoop Moopen — Non-Executive Director
Hitesh Dhaddha — Chief of Investor Relations and M&A
Analysts:
Sanjay Shah — Analyst
Damayanti Kerai — Analyst
Krishnendu Shah — Analyst
Sumit Rathi — Analyst
Kunal Randeria — Analyst
Prateek Poddar — Analyst
Nikhil
Alankar Garude — Analyst
Harith Ahamed — Analyst
Amrish Kakkar — Analyst
Naman — Analyst
Presentation:
Puneet Maheshwari — Senior Manager, Investor Relations
Good morning, everyone. I welcome you to Aster DM Healthcare Earnings Conference Call for the Second Quarter of FY ’25. The company declared the Q2 results for FY ’25. With us, we have the senior management of Aster DM Healthcare, namely Ms. Alisha Moopen, Deputy Managing Director; Mr. TJ Wilson, Non-Executive Director; Mr. Anoop Moopen, Non-Executive Director; Mr. Ramesh Kumar, Chief Operating Officer; Mr. Sunil Kumar, Chief Financial Officer; and Mr. Hitesh Dhaddha, Chief of Investor Relations and Mergers and Acquisitions.
I would like to inform everyone about how we will conduct this call. All external attendees will be in listen-only mode for the duration of the entire call. We will start the call with opening remarks by management, followed by an interactive Q&A session. During the Q&A session, you will get a chance to ask a question by raising your hand by clicking on the raise hand icon in Zoom application at the bottom of your window. We will call out your name after which your line will be unmuted and you will be able to ask your question. We request you to please limit your question to two, but not more than three per participant at a time.
Certain forward-looking statements may be discussed in this meeting and such statements are subject to certain risks and uncertainties like government actions, local, political or economic developments, technological risks and many other factors that could cause actual results to differ materially. Aster DM Healthcare Limited will not be in any way responsible for any action taken based on such statements and undertakes no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.
With this, I will now request Ms. Alisha Moopen to start with opening remarks. Over to you, Ms. Alisha.
Alisha Moopen — Deputy Managing Director
Thank you, Puneet. Good morning, everyone, and thank you for joining our Q2 FY ’25 earnings call. To begin, the Indian healthcare sector is experiencing robust growth driven by several macroeconomic factors; rising healthcare demand fueled by a growing middle-class, the increasing prevalence of chronic diseases and enhanced government focus on expanding healthcare infrastructure and insurance coverage continues to create significant opportunities. Additionally, India’s emergence as a major hub for medical tourism further amplifies the attractiveness of the hospital industry. Amid this favorable backdrop, we are very pleased to report that we are outpacing the industry growth. Our superior quality of care, state-of-the-art infrastructure and leadership position in key micro markets have allowed us to consistently deliver results that exceed broader industry benchmarks.
In Q2 FY ’25, we sustained our strong momentum from the first quarter with steady growth across all key operational and financial metrics. The strategic realignment we executed earlier this year, combined with our deep understanding of India’s diverse healthcare needs has been crucial in driving this performance. Our focus on expanding capacity, streamlining operations and enhancing service delivery has further strengthened our ability to meet the growing needs of the healthcare sector. This focus has also solidified our leadership in the regions we serve where our reputation for quality care continues to differentiate us even in highly competitive landscape.
Now coming to the financial performance. Looking at overall India’s long-term performance. Over the last five years, our India operations has achieved robust growth with a CAGR of 23% in revenue and 38% in operating EBITDA up to FY ’24. This success has been driven by a strategic focus on expanding capacity, boosting the ARPOB and increasing the international patient revenue. At the same time, we have delivered stronger margin improvement through disciplined cost management, operational efficiencies and optimizing our service mix, allowing us to scale profitability while maintaining high-quality care.
Now coming to the H1 FY ’25 performance. Our overall India business recorded revenue growth of 18%, reaching INR2,088 crores in the first half of FY ’25. This growth was driven by 7% increase in occupied beds and a 12% year-on-year increase in Average Revenue Per Occupied Bed, the ARPOB. Aster’s operating EBITDA also grew by 44%, totaling INR410 crores with EBITDA margins expanding to 19.6% in H1 FY ’25, up from 16.1% a year-ago. This substantial improvement has been fueled by operational efficiencies, evidenced by a reduction in average length of stay, cost optimization initiatives and enhanced EBITDA performance from our abs business. Notably, our material costs, excluding Wholesale Pharmacy decreased to 20.7% in H1 ’25 from 22.8% in the same-period last year.
Our net profit post NCI doubled to INR171 crores in H1 FY ’25 compared to INR91 crores in H1 FY ’24, which showcases our strong operational performance and increased other income from interest earned on the investment of remaining sale proceeds from the segregation of our GCC business. Furthermore, we have seen a positive shift in our payer mix with the contribution from insurance business increasing by over 300 basis points to 30%. This growth was partially offset by a corresponding reduction in the scheme business.
Now coming to our core business, hospitals and the clinics. Our core hospital business is demonstrating continued growth, achieving an operating EBITDA margins of 22.4% for H1 ’25, up from 19.1% in the prior year. Specifically, our mature hospitals, which by definition for us has been in operation for over six years has showed a very impressive expansion in operating margins, reaching 25% in H1 of FY ’25 compared to 22% just over a year-ago with a return of capital employed of 32%. Our deliberate focus on building a sustainable business model is reflected in our well-diversified specialty mix where no single specialty accounts for more than 15% of total hospital revenue. This strategic diversification, it enhances our resilience and positions us well for future growth in the healthcare sector.
We are actually making significant progress in enhancing our oncology services with Aster Whitefield Hospital becoming the first hospital in India to introduce the groundbreaking interoperative electron radiation therapy for cancer care at the Aster International Institute of Oncology. This represents a significant leap forward in the hospital’s commitment to providing the highest-quality treatment options for our cancer patients. Coming to some of the newer businesses as Pharmacy and Labs, as of September 30, 2024, we have established 232 Patient Experience Centers and 212 Aster Pharmacy-branded retail stores. Additionally, our lab business performed well, achieving a revenue growth of 17% year-on-year in Q2 FY ’25, while maintaining a positive EBITDA margin of 11%, up from 3.4% in Q1 FY ’25.
Coming to our capex plan, we remain committed to our robust expansion plans. This quarter, we successfully operationalized 100 beds at MIMS Kannur and added 25 beds at Aster Aadhar, bringing our total capacity to nearly 5,000 beds as of September 30, 2024. Additionally, we are excited about the greenfield expansion of Aster Women and Children Hospital in Hyderabad, which will feature 300 beds and is anticipated to be completed by FY ’26. This project further to add approximately 1,800 beds to our overall capacity, elevating our total bed count to nearly 6,800 by FY ’27. Our expansion pipeline also includes significant brownfield projects at renowned hospitals such as Aster Medcity, at Aster CMI and Aster Whitefield, which are on track to become large capacity facilities with approximately 950 beds, 850 beds and 500 beds, respectively.
Coming to some of the changes in our Board of Directors and leadership team. We are very excited to announce recent changes to our Board of Directors, welcoming Mr. Madhavan Nambiar, Sunil Theckath, Anooop Moopen, Zeba Moopen, as our new members. Their diverse expertise and fresh perspectives will enhance our leadership team, strengthen our governance and support our strategic growth initiatives. We look forward to their valuable contribution as we continue to drive our mission forward. I’m delighted to announce the promotion of Mr. Ramesh Kumar to Chief Operating Officer of Aster DM Healthcare India. Previously serving as the Regional CEO for Karnataka and Maharashtra, Mr. Kumar brings a wealth of experience and leadership to his new role. We are confident that his strategic vision will play a crucial role in advancing our operations and enhancing the quality of healthcare services that we provide.
Just to share some of the recent recognitions that we have had. We’re thrilled to announce that following Aster CMI Hospital in Bengaluru achieving platinum-level NABH Digital accreditation last quarter, both MIMS Calicut and Aster Medcity Kochi have now become the first hospital in Kerala to achieve this prestigious status. With a total of nine hospitals currently holding NABH Digital accreditation, we are proud to demonstrate our leadership in the digital transformation of healthcare.
Looking ahead, Aster DM Healthcare is very well-positioned for substantial growth with a focused strategy on expanding capacity, enhancing operational efficiencies and improving patient care. These strategic priorities not only help us maintain our momentum, but also deliver long-term value for our stakeholders. We are confident that this concentrated approach will further reinforce our leadership in the Indian healthcare sector and enable us to meet the rising demand for high-quality medical services.
I will now request our Group COO, Mr. Ramesh to further elaborate on our cluster performance. Over to you, Ramesh.
Ramesh Kumar — Chief Operating Officer
Thank you, Ms. Alisha. Very good morning to everyone. I’m really excited to provide you an overview of our cluster performance for quarter two FY ’25. In fact, we have witnessed a continuous growth and improved operational efficiency across all our regions and I would like to provide a few highlights around the same.
Starting with Kerala cluster, the region remains the cornerstone of our operations. With a total bed capacity of 2,501, we have 1,898 operational census beds with a solid 77% occupancy rate. This utilization demonstrates the trust our patients place in the quality of care at our facilities. In terms of our financial performance, Kerala has showed a significant strength. Total revenue from the cluster has increased from INR1,087 crores in H1 FY ’25 compared to INR965 crores, which was in H1 FY ’24, making a growth of 13%. The operating EBITDA for the Kerala cluster has grown by 30% year-on-year to INR259 crores in H1 FY ’25. The margins have improved to 23.9% in H1 FY ’25 from 20.7% in H1 FY ’24, reflecting both our top line growth and our efficiency in managing operational costs.
Next, turning to Karnataka and Maharashtra cluster. This cluster has also shown a significant progress with the total bed capacity of 1,446 beds and 1,010 operational census beds, we have seen the occupancy improve by almost about 600 basis points year-on-year from 59% to 65% in H1 FY ’25. Revenue of Karnataka and Maharashtra cluster has grown by 35% year-on-year, reaching INR696 crores in H1 FY ’25, up to around INR516 [Phonetic] crores in H1 FY ’24. The operating EBITDA for the cluster also shows a robust growth of 62%, increasing from INR101 crores in H1 FY ’24 to INR164 crores in H1 FY ’25. Our operating EBITDA margins have also improved to 23.5% in H1 FY ’25, up from 19.6% in the previous year. This demonstrates our ability to enhance the profitability, while continuing to expand services, especially through our high-end treatment in hospitals like our Aster CMI and Aster Whitefield in Bengaluru.
Finally, both our Andhra and Telangana cluster has also demonstrated a strong performance with a total bed capacity of 1,047 beds and 781 operational census beds. The occupancy rate improved by around 700 basis points from 49% in H1 FY ’24 to 56% in H1 FY ’25. The revenue for Andhra cluster grew by around 17%, reaching INR236 crores in H1 FY ’25 compared to INR202 crores in H1 FY ’24. Operating EBITDA grew by around 44% from INR21 crores in H1 FY ’24 to INR30 crores in H1 FY ’25, with the margin improving from 12.8% compared to that of 10.4% in the previous year.
Now, we see across all our regions, our performance continues to drive both the revenue growth and enhanced profitability. In total, our bed capacity stands at 4,994 beds with 3,689 operational census beds. Outpatient visits have grown by almost 13% and inpatient visits by 14%, which clearly highlights the increasing demand for our services. Looking ahead, we remain confident in our ability to sustain the growth trajectory. By maintaining a focus on the operational excellence and expanding our reach and delivering the highest-quality of care, we are well-positioned to continue this positive momentum.
I now request our CFO, Mr. Sunil to elaborate more on our financial performance. Thank you.
Sunil Kumar M R — Joint Chief Financial Officer
Thank you, Mr. Ramesh. Good morning, everyone. For the quarter ended 30th September 2024, India revenues have increased to INR1,086 crores, up by 16% from INR934 crores in quarter two FY ’24 and operating EBITDA has increased to INR233 crores with a margin of 21.4% compared to INR157 crores in quarter two FY ’24 with a growth of 48%. PAT post NCI for quarter two FY ’25 is at INR97 crores compared to INR50 crores in quarter two FY ’24 with a growth of 95% year-on-year. For the half year ended 30th September ’24, India revenues have increased to INR2,088 crores, up by 18% from INR1,772 crores in H1 FY ’24 and operating EBITDA has increased to INR410 crores with the margin of 19.6% compared to INR285 crores in H1 FY ’24 with a growth of 44%. PAT post NCI for H1 FY ’25 is at INR171 crores compared to INR91 crores in H1 FY ’24 with a growth of 88% year-on-year.
For the quarter-ending 30th September 2024, our EBITDA margins have grown by more than 450 bps, increasing from 16.8% to 21.4% year-on-year. This growth is driven by several factors like the Hospital and Clinics segment has achieved over 19% revenue growth with the margins expanding by more than 400 bps from 19.8% to 24%. Our matured hospitals, which contribute 72% of our Hospital Clinics segment are now operating at an operating EBITDA margin of 25.9%. Revenue growth in this segment stems from a combination of increased volumes across our hospitals and 11% rise in ARPOB and 6% improvement in ALOS, alongside revenue assurance measures which we have taken.
The growth in operating EBITDA is a result of various optimization initiatives across our hospitals. Our material cost percentage excluding Wholesale Pharmacy has steadily decreased from 25.3% in FY ’22 to 22% in FY ’24 and further 20% to 20.3% during quarter two FY ’25, marking 500 bps efficiency improvement over three years period. Additionally, manpower cost and overheads have contributed through operating leverage to the EBITDA growth. Aster Labs reached breakeven in quarter four FY ’24 with margins increasing to 3.4% in quarter one FY ’25, a further to 11% in quarter two FY ’25. This impressive turnaround has been fueled by strong 41% year-on-year growth in external business, improved operating leverage and material cost efficiencies.
For the half year ended 30th September 2024, our capital expenditure totaled INR161 crores with approximately 65% spent towards expanding our capacity. We operationalized 100 beds in MIMS Kannur during the quarter. Over the next three years, we aim to further add nearly 1,900 beds with the majority of these being brownfield expansion to ensure that there is no much dilution in our margins. Optimized capital allocation coupled with margin improvement, our ROCE has experienced a significant growth. ROCE surged by 390 bps year-on-year, reaching 18% at consolidated level and Hospital and Clinics segment ROCE rose to 23.8% from 20.1% in HY FY ’24. Matured hospitals saw impressive increase in ROCE by over 530 bps, reaching 32.4% in H1 FY ’25. As of now, Aster India net cash stands at INR988 crores as on 30th September 2024.
On that note, I conclude my remarks. We would be happy to answer any questions that you may have. I now request Puneet to open the question-and-answer session. Thank you.
Questions and Answers:
Puneet Maheshwari
Thanks, Sunil. We can now move on to the Q&A session. Before moving on to the Q&A session, I would also like to request to all the participants if you can introduce yourself with your name and the company that you are associated with before asking the questions. If you are not associated with any company and you are an individual investor, you can highlight that also.
Moving on to the Q&A session. The first question is from Mr. Sanjay Shah. Mr. Sanjay, if you can unmute yourself and introduce yourself as well.
Sanjay Shah
Yes, sir. I think I’m audible.
Puneet Maheshwari
Yeah, you are audible now.
Sanjay Shah
Thanks for opportunity. And sir, congratulations for decent set of numbers and very nice presentation too. Sir, my question was regarding growth trajectory what we are highlighting, that is we are adding 1,800 bed. Can you highlight upon what will be the capex required for it and which are the geographies where we plan to increase our bed capacity?
Alisha Moopen
Sunil, why don’t you go ahead? Thank you.
Sunil Kumar M R
Thanks, Sanjay for the question. Yeah, as we put across, we are adding something around 1,800 to 1,900 beds in Aster India, out of which 100 beds which were supposed to add in our Kannur that’s got operational in the quarter two. In addition to that in the down — coming down from the North, in the Calicut, we are adding 75 beds, which is again existing hospital with the 500 or 600 beds there. In addition to that Aster Medcity Kochi, where we are at 750 beds, there we are adding 100 beds. As of now, it’s almost ready and we have also got occupancy certificate also and we expect it to operationalize sometime this month-end. Coming down further South, Aster Capital is another hospital which we are adding in Trivandrum. It’s a greenfield hospital. It’s overall a 600-bed hospital, but Phase 1, we are adding 450 beds.
Coming to Karnataka and Maharashtra cluster, in Karnataka, you know already that 350 beds of Whitefield Hospital, which is operational, we are adding another 150 beds there as a brownfield expansion, which is expected to get operationalized sometime this year or later part of it. And then also in the Aster CMI Hospital, which is again a 500-bed hospital with a 65% to 66% occupancy, we are adding another 350 beds there. So, this is the broad expansion which is happening. In addition to that, Medcity considering I told that we’re already adding the 100 beds in the current month, we also started working on adding another 100 beds, basically for a physical medicine and rehabilitation. That is expected to come in next two years’ time.
In terms of capex for the current 1,800, 1,900 beds we are talking about, that’s going to cost us something like INR1,450 crores, right, overall capex. Out of INR1,450 crores, almost INR215 crores to INR220 crores already been spent. So, balance INR1,200 crores to INR1,250 crores is going to be spent in the year FY ’25, ’26, ’27.
Sanjay, I hope that answers your question?
Sanjay Shah
Yes. Helpful, sir. Thank you. And sir, my second question was regarding, we have seen some good uptick on our ARPOB, especially on Kerala side and Karnataka side. So, can you highlight upon how is the trajectory ahead of this? And this ARPOB is more coming from our specialty businesses where we offer to the patient or there is addition of some international patient or there is a price rise? How you define?
Sunil Kumar M R
So, Sanjay ARPOB growth, if you look at history sometime [Technical Issues] so if you look at our historical growth, right, we have been last five years CAGR, we’ve been growing at a 9% average. And here you can see 12% we have grown in H1 and around 11% ARPOB growth, which has happened in the quarter two FY ’25. Even if you look at the, what you call Karnataka cluster or the Kerala cluster, there also you get a double-digit ARPOB growth. Now with this ARPOB growth, there is a multiple factors to it. First one should be the price increase because that is something which we take every year. At the same time, it’s not — we spread it across the units, right, based on the geography to geography, we take the decision. So, somewhere between 3% to 3.5% will be your price increase. In addition to that, we also initiated a lot of revenue measures.
See, considering we have 19 hospitals today, last two years, we have done a lot of work from the IT part of it to consolidate our HIS, consolidate our ERP, consolidate our Service and Item Master. With this, we are trying to leverage on the volumes what we have and trying to do a revenue augmentation, right, by looking at what are the billings services which is missed, what about the service laddering, all these things we have brought into the picture, which has helped us to drive at least 1% of our ARPOB through that.
In addition to that, I would say major other part also is basically your ALOS. ALOS has decreased year-on-year almost by 6%. That is also one of the very important factors which is driving the ARPOB growth. In addition to that, scheme patients, if you recall, Calicut almost a year back, right, we used to do a scheme offer something like 8% to 9%, now, it has gone down at least by 300 bps to 400 bps. Even in Medcity, we have reduced the scheme patients by almost 400 bps. So, considering all these things have really impacted the ARPOB growth.
Now looking at the future, even if you look at our payer base also, right, in H1, we are growing even walk-in patients or cash patients have grown by 20%. Your TPA patients have grown by 30%. At the same time, your scheme patients have reduced by around 11% to 12%. So, all these factors have helped us the ARPOB growth and we considering still our majority of our business comes from non-metros, we still see a good scope for our ARPOB growth, at least 7% to 8% percentage in the medium-term. I’m talking about three- to four-year span period. I think in average we should be able to still grow at 7% to 8%.
Sanjay Shah
That’s great. Sir, my last question was regarding Andhra and Telangana, where we see still a growth and where we can bring in. So, how we see that sector panning out for us on occupancy side also and ARPOB side?
Sunil Kumar M R
So, I can start with the first part, maybe Ramesh can comment to that. See, if you’ve seen historically, Sanjay, Andhra/Telangana has been a — during the COVID they did really well, but post COVID, they were not able to scale-up the non — basically, the occupancy bit of it. And that’s also specifically, because they are perceived as a more like a cardiology hospital. Even today, 35% to 40% of the business comes from the cardiology or cardiac sciences per se. Now that we are — last year we rebranded that into Aster Ramesh Hospital and also we are driving to add more specialties like multi-specialty and we are trying to bring the pediatric, women’s health, all these things are really driving the growth.
And if you see long for a long-time, at least last two years, we have stuck at occupancy of 50%, but now you can see an uptick in both our Ramesh Hospitals also and the Telangana cluster also where the — what you can see occupancy has really gone up to almost 56% for the H1 FY ’25, but we still see a good scope to grow here. And one important thing which has happened is that last two years, the EBITDA has been stuck at 10% to 11%. But you can see a very good turnaround which has happened in the quarter two. Quarter one, we were at something like 10.9% specifically. The cluster has moved to almost to 15%, 16% in the quarter two with the average EBITDA margin of something like 12.9% in H1. So, we see that this has got a very good scope. Even today ARPOB is very low at 30,000. It’s got, again here also we have got a very good scope to increase the ARPOB further. Keeping this in mind, this particular — basically, Andhra and Telangana cluster, which is today at 15% EBITDA, it should go to above 20%s. So that is something which is achievable and sustainable.
Ramesh, you want to add to that?
Ramesh Kumar
Yeah. So moreover, if you look at the split between Andhra, Andhra that is in Vijaywada, primarily it is the cardiology center. So, we are trying to enhance all of the multi-specialty verticals also into the cardiology center. So, we are expecting good growth in Vijaywada. Guntur is a 500-bedded facility. Guntur is a larger facility. It is pitched in as a bigger multi-specialty hospital. So, we are expecting a good traction in Guntur and also focus on oncology business there. So, your ARPOB increases and we are looking at a good footfall coming in.
The other two sectors, especially coming down further, Tirupati, Tirupati is another center where Narayanadri we have taken over. And in fact, there is a significant growth which has happened from hardly around INR2.5 crores, INR3 crores, within a years’ time, we have doubled the revenue of Tirupati, a good amount of traction happening there. And of course, we have a — since Prime is a smaller facility of 150 bed, we are trying to scale-up that also with the case-mix. So, there is a good potential. We are looking at the case-mix. We are looking at the ARPOB — to increase the ARPOB also and also being matured hospitals, a few of them and we have tried to increase the EBITDA margins as well.
Sanjay Shah
That’s great, sir. Real helpful. Thank you very much, sir.
Alisha Moopen
I just wanted to add to that point, Mr. Sanjay, what you asked. Even for the future, when you look at it, we have announced our new 300-bed hospital in Hyderabad, which is a specialized women and children. So, we are very bullish about the market. We believe that there is scope and having sort of a specialized center for women and children will further enhance sort of the portfolio we have in Andhra and Telangana as well.
Sanjay Shah
Thanks. Thanks for updating and I congratulate new members joining the Board and good luck to you, ma’am. Thank you. Thank you for replying my questions.
Puneet Maheshwari
Thank you, Sanjay. The next question who is asking is from Damayanti from HSBC. Damayanti, can you unmute yourself and ask the question?
Damayanti Kerai
Yeah. Hi. I hope I’m audible. This is Damayanti from HSBC Securities and Capital Markets. So, my first question is continuing the discussion on margin pickup, which we have seen during the quarter or in first half. So, you mentioned in AP and Telangana cluster, margins can go upward of say 20% or so. And in the existing Kerala and Maharashtra, Karnataka cluster, it’s already at mid-20%s. So, if you can talk a bit about how we should see margins moving up in the more mature clusters from here on, say from 25% level or so? What is the potentially margins can go up to? And very broadly, if you can also talk about some of the initiatives which you believe can really push margins from current levels also? And how should we see margins in say next two or three years?
Sunil Kumar M R
Sure. Thank you, Damayanti, for that question. Yes. With respect to margin, we can see that, right, specifically, at least on the H1, we have closed at consol level at 19.6% operating EBITDA and our hospital segment at 22.8%. There is at least 300 to 400 basis points improvement, which has happened year-on-year and it’s specifically driven by two, three levers. Majorly, it’s our material costs. Material cost has gone more than 200 bps efficiency we have brought in there. And if you look at, okay, quarter two itself is at 20.3%. But if you ask me, do you think there is still scope to reduce? Yes, there is at least another 100 bps can further material cost can be done, which is in the coming years.
Next is, another efficiency which brought us is in the — specifically the manpower cost. See manpower cost also, we see at least 90 to 100 bps has reduced. And again, as I’ve been calling out previously also saying that with the increase in occupancy going on and with the brownfield expansion, which we are doing, you don’t really need to add across the employees across the board, right? You need to only add the bet side staffs. Other than that you don’t have to extend in the leadership team or the admin staff. To that extent, we keep on going to increase that efficiency. And you’ll see that because as I said material cost already is leveraged more than 400 bps in last three years, we see the further growth will come from the efficiency increase in the manpower cost.
In addition to that, another 100 basis points we are able to expand in the overhead also, because overheads is more or less semi-variable cost, right? So, it doesn’t go very linear with our revenue growth. To that extent, we are able to get the benefit also. And also one of the reason why we’re also getting is that if you look at our maturity profile, right, today 70% of our beds are above six years and 72% revenue or 73% revenue is coming from the — above six years hospitals. And there already margins are at more than 24%. So, considering more assets are getting into mature stage, we expect the margin expansion to continue.
From a overall perspective, today where we are at 19.6%, we can say at least I’m giving a — saying broadly, next two, three years, we can go to 21% plus and also at a yearly basis. And also with respect to Hospital and Clinics segment, which is a core segment where 94% of the revenue comes in, there we see that which we are today at 22.8% for the half year. On a full year basis, we should go around 24% plus. Even this is all numbers, Damayanti I’m putting it across, including the addition which we are doing. See if you’re not just adding it, then it could go faster. But at the same time, there is no dilution happening because they are all EBITDA accretive and that’s where we see the EBITDA margins to expand in the next two to three years’ timeline.
Damayanti Kerai
Sure. That’s helpful. And I understand you had some restructuring done at the Wholesale Pharmacy segment also. So, if you can talk about it and how do you see that business from your overall service or offering perspective?
Sunil Kumar M R
Yeah. See, Wholesale Pharmacy, it has got two segments. We call that as a Business Unit 1 and Business Unit 2. Business Unit 1 is something which we acquired almost three years back, right? So that has got more of a B2B business. Under B2C, basically, we’re talking about the trade business also. So that continues to grow at 10% year-on-year. Another business, another vertical which we added after purchasing or acquiring that is the BU2. Basically, this segment used to drive the back-end purchases for the — our retail business. But we have seen that handling the back-end pharmacy from our end, logistically, it is not really creating more benefit or creating operating leverage in terms of expanding our EBITDA margin.
That’s where we thought that why don’t we outsource it and that’s where six months back, we did outsourcing of that. To that extent, you are seeing there is a dip in revenue, but at the same time, it’s benefiting us by reducing the EBITDA losses in the Wholesale Pharmacy and also giving us the overall EBITDA margin expansion across the India, Aster India level. And we expect from the Wholesale future point-of-view, as I said, the BU2 is completely outsourced, so we can only look at whatever revenue is seeing is 95% is coming from the Business Unit 1 and that’s expected to grow at 10% to 12% year-on-year.
Damayanti Kerai
Sure. And my last question is for Ms. Alisha. So, Alisha, I think you mentioned like you have induced several Board members and management team also. So, do you have plan to hire a new CEO for India operation? Or do you think the current team is good enough to sustain the current operations?
Alisha Moopen
Thank you. Thank you, Damayanti. So, a really good point and really good question. So definitely, we’ve had these new Board members, including some of the promoter members like Zeba and Anoop have joined and they’ve been involved now in business review, strategic oversight. They’re supporting the unit heads, Ramesh, the CEOs and the COOs and function heads. The business seems to be doing quite well for us. We have said that it’s very important for us to have the right team in place. We do have very strong unit leadership and functional leaders at play right now. We would look at maybe a CEO in the future. Right now, we seem to be scaling up quite well. Ramesh is doing a great job along with the rest of the team. We didn’t want to rush into this because this is a very key role for the organization. We believe that the team at hand is more than capable of delivering what we have committed to for this year and we will relook at this maybe over the next few quarters.
Damayanti Kerai
Sure. Thank you. Thank you for your response.
Puneet Maheshwari
Thanks, Damayanti. The next question is from Mr. Krishnendu Shah. Krishnendu, can you please unmute yourself and introduce yourself also?
Krishnendu Shah
Can you hear me?
Puneet Maheshwari
Yeah. We can hear you.
Krishnendu Shah
Yeah. This is Krishnendu from Quantum Mutual Fund Advisors. Most of the questions have been answered. But quickly, on slide 35, when I was looking at the Karnataka and the Maharashtra culture, the inpatient volume is like 24% growth. So, just trying to understand because I’m new to the business, just trying to understand what this is on a H1 — to H1 basis Y-o-Y, there is a 24% Y-o-Y growth in-patient volume. What explains that? And what you call on number three slide, we have 545 [Indecipherable] some beds but just a little bit.
Sunil Kumar M R
Yeah. Thanks to for the question. If I understood the first question with respect to the slide 35, where you’re talking about the growth in in-patient, right, so more than 20%. What — it’s very important to know that majorly the growth is coming from the Aster Whitefield Hospital. If you recall, we were only operational two or three years back only with children block, which is 50 beds and balance 300 beds came into operational only in the October 2023, right? That’s where the growth which has come in the current year, which was not there in the H1 FY ’24. Right? That is a major addition. Otherwise, we are still growing at a 11% to 12% in the others — other than Whitefield Hospital.
Krishnendu Shah
Yeah. And on the revenue per bed side, if the insurance penetration increases say from 30% to 50%, do you see revenue per bed being flattish or you still be able to take a price increase because the RAC [Phonetic] rates for insurance will be a little bit lower.
Sunil Kumar M R
See, if you look at our IP ARPOB, right, not overall ARPOB and we break into cash and TPA, we don’t see much of a difference at all. But even our negotiations, right, we give a hardly single-digit discount to that, right? So, even that in mind, ARPOB doesn’t really showcase basically, because your insurance patients come for a high-end case-mix and also they usually opt for a twin sharing or single room. So that’s where your ARPBO is going to be always almost equal to your cash ARPOB. That is first thing. But even if you look at the year-on-year growth, right, as you also said very correctly called out, 27% contribution has moved to 30% and also from the growth point of view if you add it, growth of almost 34% year-on-year for the H1.
But we don’t expect the ARPOB to be flattish because these insurance companies, yes, we don’t do every year renewal, but every two-year renewal, we do it. And whenever we do a two-year renewal, we always get an inflation more than double-digits, right? It’s always offset of 10%. So, as long as that is happening and case-mix is improving and the bed mix is improving, specifically the TPA patients, we don’t expect any degrowth in the ARPOB. It is going to be quite strong even at least in the next three to four years’ timeline, which I could say.
Krishnendu Shah
And we don’t see — face any competition from, say, Telangana and other regions whether there’s a lot of hospitals? Do you see any pricing pressure out there or is comfortable for you to take normal 3%, 4%, 5% price increase?
Sunil Kumar M R
Yeah. We don’t see any — see, if you look that way, every metro, you can see 4,000 to 5,000 beds getting added in the next three to five years, right? So, even with that always the price increase because you’re not taking a 10% or 12%, right? You’re talking about a 5% to 6% price increase where ARPOB impact is only 3%, 3.5%. So that will never be a real burden to the patient. And considering that we don’t see any pressure in not doing the price increase. And it’s — as I said, we are not doing something — we are double-digit price increase. It’s around 3% to 3.5%, very decent price increase which we can do and we continue to do that.
Krishnendu Shah
And last two questions. Your capacity is 4,994 beds, but occupancy is 2,491. So, I’m just wondering, but the average occupancy on slides are something else. Am I getting something wrong out here?
Sunil Kumar M R
No, no. Okay, let me explain that, right? See, 4,994 beds is a capacity beds. This has got a combination of census and non-census, okay? So, census beds would be something like 3,800 to 3,900 beds. Others, 1,100 to 1,200 are the non-operational, non-census. Non-census means we are talking about emergency beds, daycare beds, right? These are all revenue-generating beds, but you don’t take for midnight census. So that is anyway operational. In addition to the 5,800 beds, which I talked about the census beds, out of that only 3,689 is operational, right? Balance another 150 which is there, basically we’ve got another 50, 60 beds in [Indecipherable] Hospital, another 50, 70 beds in our Whitefield Hospital, another 50 beds in Guntur Hospital. So, these are the census beds which yet to operationalize, which we always do, but what you’re saying is very right. I hope that answers your question. So, occupancy is always calculated on the operational census beds.
Krishnendu Shah
I see, the 2,000 number is, it’s on census beds and some of them are still not operational also?
Sunil Kumar M R
Yes. Around 150 beds, 150 to 200 beds.
Krishnendu Shah
Last question from my side. So, your average loss is like 3.2%, right, and Kerala is 3.1%. So, we can — how long can we go, do we go for — 3.1% is the max or is like 2.9% is what we can. Is there a park in the head that you can go to 2.9%, 2.8%, so that’s stretching it a lot, but is it possible because we already had 3.1% at Kerala. So, is that the benchmark, what is number out there?
Sunil Kumar M R
Yeah. If you ask me, I think we are literally quite efficient in that ALOS, right? So, 3.1%, if you’re doing only tertiary care or secondary care, you can go up to 2.5%, 2.6%, but we are doing more quaternary care procedures, including the transplants, robotic surgeries, high-end surgery. 3%, 3.1% is a really good number to stay on.
Krishnendu Shah
That’s why your ALSO has a higher number? Sorry, ARPOB has a high number.
Sunil Kumar M R
Yeah.
Krishnendu Shah
Thank you for your time. Thank you very much.
Sunil Kumar M R
Thank you.
Puneet Maheshwari
Thanks, Krishnendu. The next question is from Mr. Sumit from Centrum. Sumit, can you please unmute yourself and ask the question?
Sumit Rathi
Am I audible?
Puneet Maheshwari
Yes, you are audible.
Sumit Rathi
Thank you for the opportunity. Congrats on good set of numbers. So, just want to understand about the margin expect from cluster point of view. So, margins in Karnataka are better than like for the Kerala cluster. So, what is driving this? And like how should we see it going forward over the short-term to medium-term?
Sunil Kumar M R
See, now if you look at the margins, I think Karnataka is very similar to Kerala, right, from the — if you look at — yeah, if you look at H1, yes, there is a 100 bps difference. But if you look at only quarter two performance, I think both clusters are at 25% margins, right? Now, very important thing we all have to understand is that EBITDA margins are very much leveraged to your ARPOB. If your ARPOB is higher, the margins always go up. For example, Kerala, which has ARPOB of the average of INR40,000, where you have a range from North Kerala to INR30,000 to INR50,000-plus in Aster Medcity Kochi, you know the 25% is a very good margin to be at a consolidated level — at the cluster level.
Now, when you look at Karnataka and Maharashtra, where ARPOBs are as high as near to INR58,000 to INR60,000 where some of the hospitals even do INR70,000, I think this has got a very good potential to further grow. If you ask me 25%, which is where today, it has got potential to go even near to around 29%, 30%. But because that’s leverage in ARPOB. In addition to that, one of the limitation I see in Kerala in addition to ARPOB is the higher minimum wages. For example, nurses in Kerala cluster, we pay approximately INR30,000 to INR32,000 staff nurse where in Karnataka, you pay somewhere between INR18,000 to INR20,000. So, it has got a dual issue in Kerala where you got ARPOB lower than Karnataka. At the same time, minimum wage is higher. So that limits the margin expansion to the extent potential which Karnataka cluster can do.
Krishnendu Shah
Okay. So, like going forward, let’s say, so Karnataka would be the major cluster which should be driving the margins, right? How should we see AP cluster also fairing in terms of margin expansion?
Sunil Kumar M R
Yeah. Karnataka, as I said, it will always have a 300 to 400 basis points higher margin than Kerala. At the same time, I’m not going to say that margins already peaked in Kerala. Margin expansion is still going to happen because we see still efficiencies in some of certain of the — some of the cost lines which we can do. Andhra, coming to Andhra/Telangana, because you know the performance has been subdued for last couple of years and now things are really picking up in the quarter two, we can see here also the margins can settle somewhere in the mid-20%s.
Sumit Rathi
Okay, okay. Understood, sir. Thank you.
Sunil Kumar M R
Thank you.
Puneet Maheshwari
Thanks, Sumit. The next question is from Mr. Kunal Randeria from Axis Securities. Kunal, can you please unmute yourself and ask that question?
Kunal Randeria
Yeah. Hi. Good morning. My first question is on the Kerala cluster. The occupancy is hovering around 78% to 80% and I think around 340 beds are coming next year. So do you run the risk of a slowdown — potential slowdown in the coming quarters?
Sunil Kumar M R
Thank you. Yeah, thank you, Kunal. Maybe Ramesh, you want to take that question?
Ramesh Kumar
Yeah, yeah. So it is pretty much as you see that it is — we are clocking around 77% occupancy. And I’m sure in the days to come, I don’t think so, there is a slowdown, I would say. It has got to do with the seasonal fluctuation. And if you can see, especially the quarter two had a little bit of — slightly because of the seasonalization and also the festive season across Kerala, so we have seen that slightly the occupancy has gone down [Phonetic]. But in the days to come, I’m sure there will be –definitely there is a surge is what we are expecting and the season is back and we would expect the occupancy to go up.
Kunal Randeria
No, no, sorry, my question was occupancy is already pretty high and it’s actually very difficult to bridge the 80% mark and new beds would be only coming next year. So you run the risk of not meeting the demand because you don’t have the beds.
Ramesh Kumar
No. So right now with — there are two large facilities if you look at [Indecipherable] and as to Aster Medcity. So Aster Medcity in 10 days’ time, we are opening another additional 100 beds. So there I think it will ease out. And, Kannur we have — which is already around 100 beds, nearing 100 beds we have opened now. o that is easing out. So I don’t think so we should have, except in Calicut. There also we are trying to shift few other facilities and understand trying to bring in some more additional beds in MIMS Calicut as well. So these are the three large hospitals and we are already taking action on that and we are opening up these space.
Alisha Moopen
So Sumit, if I can also — or Kunal, if I can just come in here as well. See, we’ve — while the sweet spot is 75% to 80%, we’ve also been able to manage in Kerala because of the demand, like exactly like you said, closer to 90% as well. So we don’t think in the next couple of quarters, there would be a slowdown because operational efficiency that the team manages is quite good. So we should be able to kind of continue with a higher occupancy in Kerala.
Anoop, I don’t know if you want to add anything maybe to this.
Anoop Moopen
So I think basically the question was whether we would have sufficient beds to meet the demand. I think, correct me, Kunal, if that’s what you’re trying to ask.
Kunal Randeria
Yeah, that was my question because 340 beds are only coming next year, right, and you are already close to 80%. Yeah.
Anoop Moopen
So see, basically when we are running at this capacity, so when there is a gap, we open up for the scheme patients and try to fill up the gap. And when we are running at full levels, we try to focus more on other areas where we would reduce on the scheme and more on cash patients and things. So that’s how we balance the occupancy levels and our performance.
Kunal Randeria
Got it. Got it. That’s helpful. Second question again actually is to Alisha. Alisha, now several family members are on the Board. So I’m just wondering if you could share what the roles and responsibilities, how are they divided?
Alisha Moopen
Yeah, sure. So, Kunal, as — once the segregation actually happened, we were talking about how there needs to be a double-down efforts on scaling up our India business of course. So the way we have kind of divided from a promoter family perspective at least the involvement is much more on a strategic level. So I work a lot with the function heads, whereas Anoop is more focused on the Kerala cluster and Zeba is more focused on the Karnataka cluster along with Ramesh. So the idea was how can we make sure that we are deciding the best strategy for each of these regions.
Anoop has spent a lot of time in Kerala, understands that market very closely. Zeba is someone who studied in Karnataka, has worked there, understands that market and again is a doctor. So looking at the medical strategy, something which is hers forte. Anoop is someone who is an engineer. Again, when we are looking at projects and looking at the expansion of the new project, that’s something where he is definitely able to add his expertise. So we come in more as supportive roles. The performers are all the team that’s on the ground full time dedicated to this.
But we felt that with this segregation, it was important for us to kind of enhance the — or sort of make the strategy a bit more laser-sharp and which is where both Anoop and Zeba have come in. And of course, the IDs also who have — some of them who used to be with us who have come back to sort of talk about what should be Aster’s strategy to be sort of top three in the country, right. And we felt that we needed more inputs and more support to get to that pole position, which has been Chairman’s goal.
Kunal Randeria
Sure. And so Alisha, if I can ask you on this, as far as your bandwidth goes, is it more on the India business or you are still heavily involved in the GCC business?
Alisha Moopen
No, I’m very involved in the GCC business because I am the Managing Director for the GCC business. So, yes, it’s — like I said, the business is run with the local team in place between Ramesh, the cluster heads, the CEOs, the function heads.
We feel India is running on a very good trajectory with the teams that are there. We come in more from a strategic support perspective, how do we look at allocation between the different regions, which departments to focus on. So I think definitely having Zeba and Anoop join has been a great support system as well.
Kunal Randeria
Perfect, that’s helpful. Last question for Sunil. I see in the balance sheet I’ve seen the sharp increase in ROU assets and these liabilities. So what has led to this?
Sunil Kumar M R
Yeah. Thanks, Kunal. So with respect to ROU and ROI, even the lease liabilities, right, both are interrelated. We were at something like INR700-odd crores I think as on 31st March 2024. And after that if you recall we added — signed off two agreements, right, leased projects. One is the Aster CMI. It’s already a lease project if you recall which is 500 bed. We added — we are adding another 350 beds, right. So that is a liability which we will create because you’re going to pay additional rent to the 350 beds and again it’s a 20-year lease, right. So to that extent you have to create ROU. There itself I think it came to around INR350 crores to INR400 crores and balance another INR250 crores to INR300 crores is coming from our Women & Children hospital. That is — I think we signed off sometime in September, September 22 if I’m right, and that has kicked in in the quarter closure of the 30th of September. That’s again 300-bed hospital again with a 30 to 31-year lease. So that lease payments — present values been created as a ROU and lease liability.
So these are the two major assets which we have added in the H1 which has increased the lease liabilities and the ROU by almost INR600 crores to INR700 crores.
Kunal Randeria
Got it. And if I can squeeze one more, sorry. The tax rate has gone up in the last couple of quarters, the P&L tax. So what has led to it and what should we model going forward?
Sunil Kumar M R
See we had this 35 AD benefit for quite long, like Medcity is where we had huge carry-forward losses and we’ve been utilizing for last almost 10 years now. And I think in the last year also we moved from the tax ranging from old to new. So considering most of the carry forward loss has been utilized until last year, now we are — got back to the usual tax rate of between, based on the legal entity, right, 25% or 22% and that’s where you can see a effective tax rate of near to 30% now, right. So I think that’s expected to continue unless — because also we are not adding new assets in the listed entity. We are adding the new assets in the separate subsidiaries to ensure that cash flow management is quite efficient. Keeping that in mind, I think current tax rate should continue.
Kunal Randeria
Got it. Thank you and all the best.
Sunil Kumar M R
Thank you.
Puneet Maheshwari
Thanks, Kunal. We would like to highlight that we will be giving preference to attendees who have not asked a question before. So in that line, the next question is from Mr. Prateek Poddar. Mr. Prateek, if you can unmute yourself and ask the question please and can you please give your background as well?
Prateek Poddar
Yeah. Hi. This is Prateek from Bandhan AMC. A couple of questions. One is on the women and children hospital which is starting in Hyderabad, how should we think about this? Is it this new practice area which you want to develop and scale this up from a medium-term perspective? And from a payback period perspective, would this practice area be a faster payback period — faster payback period versus let’s say multi-specialty? That’s question number one.
Second is, when I read the press release, you talk about nine hospitals getting this digital standards published by NABH. Maybe you could just spend a bit of time and explain what is this? Does it result in better operational efficiency or better customer satisfaction?
And lastly on labs and pharmacies business, I think you called that out. Just from a two, three-year perspective, how should we think about this business? These were the three questions. Hello?
Alisha Moopen
Thank you. Thank you, Prateek. Ramesh, do you want to comment on the women and children as a specialty for Aster? [Indecipherable]
Ramesh Kumar
Yeah. So this women and children hospital at Hyderabad we are looking at as the state-of-art, the first of which we wanted to have the largest hospital of that center to make up presence felt. And we thought we should have all the specialty, subspecialty of pediatric in this center and ensure that it becomes the point, I mean where people can address to all kinds of patients coming into the system, the pediatric patient. And also women, as far as the gynec part is concerned, we wanted to have one of the best experience as far as have the state-of-art good rooms and facilities to ensure that they have a good experience in the center. So that’s a thought process. We want to make it as the best center in Hyderabad.
Prateek Poddar
Payback periods and from a, let’s say, medium-term perspective, would you want to scale this up in the sense, would you want to add more of this practice of these hospitals and other clusters?
Ramesh Kumar
We would like to — we will be adding — as such, we have done this women and children Aster in Bangalore, Aster Whitefield. So that itself is a big success for us. And which is — which is almost running at 80% occupancy. From there now I think we are looking at Hyderabad and other centers also we’d be looking at and this model.
Prateek Poddar
And the payback periods are faster, right?
Sunil Kumar M R
The payback period, it all depends on the ramp-up, but should be in the range of nine to 11 years.
Prateek Poddar
Sure. The second question was on the nine hospitals which were accredited with the digital standards published by NABH. Maybe what does it lead to? Does it lead to operational efficiency or customer satisfaction?
Ramesh Kumar
See, it leads mainly to operational efficiency. It gives us the kind of — it’s a standardization what we have achieved. So earlier, we didn’t have any kind of — this kind of audit happening. So with the support of NABH, I think we are able to come up with this kind of standardization across all the units.
Prateek Poddar
And could you quantify the operational efficiency? I mean
Ramesh Kumar
It can be as good as anything to do with a discharge summary in a visit, are we able to monitor the discharge timing where it leads to patient satisfaction. So we are able to meet and we are able to integrate all these factors together and see that we are able to deliver kind of better patient satisfaction and operational efficiency.
Prateek Poddar
Got it. Got it. And I think there’s one question.
Alisha Moopen
Prateek, on that —
Prateek Poddar
Yeah.
Alisha Moopen
Something like this discharge that Ramesh was talking about, right, I think we’ve realized that’s one of the biggest pain points.
Prateek Poddar
Yeah, yeah. I agree with you.
Alisha Moopen
After everyone is done with the surgery and all the post-op discussions, right. So it’s a bit hard to quantify exactly. We believe that we look at it from a customer experience point-of-view. So that’s one part of it. But like what Ramesh said, in terms of standardizing care — standardizing protocols, there are big intangible benefits of that, right, from a quality, maintenance and consistency perspective.
Prateek Poddar
Got it. Got it. The last question was on labs and pharmacies business. A part of it was called out in terms of Unit 1. But just from a three, four years perspective, medium term, how should I think about this business unit? I know it’s very small for you today.
Sunil Kumar M R
Yeah, yeah. See, even when we envisioned lab and pharmacy, Prateek, the idea was never to create a chain out of it, right. But our core business is going to remain the hospitals. But we are always looking from the continuity of care point of view. That’s where even you will see that in the current quarter, the quarter three will be launching the app also, wherein we are going to consolidate the OP consultations, OP to IP conversions, the IP patient journey and the labs — post-discharge labs, sample collections, reporting, then the acute and chronic care patient pharma delivery, right. That is the whole concept why we even got into labs and pharmacy. And you’ll see that labs and pharmacy, both are in the states where majorly we are present, right, where there’s a hospital.
Now, labs inherently it’s a high-margin business. And that’s one of the reasons why we were able to quickly break even in the last year and now margins are scaled to double-digit in the quarter two.
And again, this margin can go beyond 20% provided the non-Aster business because this Aster Labs provides services to our own hospitals by creating more efficiency at the same time does the third-party business also, right? So today — last year, it was 23% of our component of the lab business was from the non-Aster business.
Now this year already in H1 we’ve gone to 28%. So the idea is that next two to three years’ time we want to move this 28% to near 50%. If we can achieve that, we are looking at a margin above 20 percentage. And again, it doesn’t require too much of capital infusion because already we have 14 satellite labs. We don’t expect to add any more processing labs at all. It’s only the collection centers, which we will be worried on. And once the app kicks in, we should be concentrating more on the home care business.
Now moving on to the pharmacy. Pharmacy it’s inherently a, what you can say, low-margin business, right. So you don’t expect to do a double-digit margin anyway. We’re talking about a –somewhere in the mid-single digit, right. So keeping that in mind, we are trying to break you in there. That’s what we’ve done. That’s where we’ll see we are not expanding the pharmacies and everything.
We kept it around 200 or so. And now the way we did the lab break, expecting break even to happen in the — sometime in the year FY ’26.
Prateek Poddar
Very helpful, very helpful. Thanks. Thanks. Thanks so much.
Sunil Kumar M R
Thank you.
Puneet Maheshwari
Thanks, Prateek. The next question is from Mr. Nikhil [Phonetic]. Mr. Nikhil, can you please unmute yourself and introduce yourself and ask the question? Nikhil, you’re on mute.
Nikhil
Am I audible?
Puneet Maheshwari
Yes, you’re audible.
Nikhil
[Technical Issues] giving me the opportunity. Most of my questions have been answered. So I would just like to ask you update on acquisition. Like what are the acquisitions are we looking at? Are we still planning to expand in the UP side? And that’s pretty much it.
Alisha Moopen
Hitesh, do you want to come in here?
Hitesh Dhaddha
Yeah. Sure, Alisha. So regarding acquisition we keep evaluating opportunities. I think the objective is to take the leadership position in the South India market where we are already second-largest. And there are certain states where we can expand more presence. While we have strong presence in Karnataka, Tamil Nadu, Andhra, Telangana, there are states like Maharashtra and Tamil Nadu where we can expand ourselves further.
So I think these are geographies that we would like to kind of look at M&A opportunities and we continue to explore those. But I think as of now there’s nothing that we can really talk about from the kind of commitment perspective.
Nikhil
Okay, sir. And I would just like to ask you about the MVT business. Like how are we planning to grow the MVT business? Are we like looking to increase our proportion in the revenue?
Alisha Moopen
Yeah. So that’s definitely something which we keep working on, right because MVT business for us, especially for Medcity and CMI has been quite significant.
So Ramesh, do you want to just comment on how we are looking at enhancing some of the existing markets as well as new markets we are opening to?
Ramesh Kumar
Yeah. Sure. So as far as MVT business Kerala is concerned, we have 90% of our business coming from Oman and Maldives. So that is continuing and it will continue to grow and a little bit of African markets. So we are also looking at — right now Bangladeshis also drain down into our Calicut and a little bit into Mid City as well. So that has slowed down a bit as we know that there are some issues which is prevailing in Bangladesh. As far as Bangalore is concerned or Karnataka, I would say, more or less we have almost the GCC markets patients coming in and mainly from a few of the African markets also we have a lot of patients coming in.
Kurdistan and Iraq is another place where a few patients are flowing in for oncology and mainly for onco business and for our neuro business as well.
Nikhil
Okay, sir. Thank you for the details. Sir I would just like to ask like in our last call, like we said that we are in talks with our promoters in Andhra Pradesh and Telangana. So those talks did materialize in this quarter, I guess. So are we still looking to like increase the efficiency there? And how — can you just throw some light on that area?
And can you provide a summarized outlook for each of the cluster if it is possible?
Sunil Kumar M R
So Ramesh, you want to answer the first one? I can come on the second.
Ramesh Kumar
I didn’t hear clearly the very first point.
Sunil Kumar M R
I think he is referring to the Ramesh Hospitals. So let me add to that. So Nikhil, you are — so you’re looking at how are we doing a turnaround, right? So yes today the SHA very clearly talks about day-to-day operations run by the Ramesh Hospitals and our investment is more strategic and we control the Board. And also, as we’ve been talking about strategically to discuss with them that how to improve the top line and how to improve more efficiencies. And if you can see, I would agree with the point that that’s exactly working for us. That’s where you can see the quarter two business, which is ramped up. And again when look at the growth also, you can see across the board, you can see multi-specialty growing up because that was not the strong suit considering cardiac was capturing more than 35% to 40% of the business. And also we’re seeing the periodic business increasing quite well there.
So keeping all this growth expanding, yes, that’s where with even the small increase in the top line, we are able to see a big movement in the EBITDA margin. And with — if it continues to have the top line growth in the further quarters, Ramesh Hospitals have got the capacity to reach somewhere upwards of 20%s as an EBITDA margin in next two to three years’ timeline.
Nikhil
Yeah, sir. And can you please provide a summarized outlook on each of the cluster if it’s possible?
Sunil Kumar M R
On the margin bit of it?
Nikhil
Yes, like on the margin bit of it.
Sunil Kumar M R
Yeah. So I think, yeah, I tried to cover in the previous one. So, look at the Kerala market, I told you that O&M asset is lower than the Karnataka cluster market. And also the manpower cost is again comparatively higher to the K&M cluster. Keeping that in mind, quarter two already, they have achieved a 25% margin and H1, it’s almost near to 23%-plus EBITDA margin. And we see that going forward, it can go upwards of 25% also because we’re adding capacity across the board. As we said, we operationalized 100 beds in Kannur. We are going to operationalize 100 beds in Medcity this quarter. And Trivandrum is going to kick in and there’s a Calicut expansion which we have planned.
So keeping that, we keep adding the beds, we are expanding, we expect that EBITDA margins to be expanding there. Yeah, it may not reach to the Karnataka level, but at least it should go beyond 25%.
Now coming to Karnataka and Maharashtra cluster considering it has got a higher ARPOB as compared to the Kerala cluster and also the lower minimum wages, keeping in mind, we should currently, which is again at quarter two out of 25%, specifically driven by a very good performance by Aster Whitefield Hospital where their EBITDA margins have reached to near 20%s there. So with that, we expect at least to go at least 300 to 400 points higher than the Kerala cluster.
And Andhra, I told you that today, which is at a quarter two at something like 15% to 16% EBITDA margin. It should go about 20% in a couple of quarters or at least two years’ timeline.
Nikhil
Okay, sir. That’s it from my side. Thank you and all the best for the future.
Puneet Maheshwari
Thanks, Nikhil. The next question is from Mr. Alankar from Kotak.
Alankar Garude
Yeah. Hi. Thank you for the opportunity. First question is more of a follow-up to one of Prateek’s questions. What is the current split between pediatrics and maternity at the Bangalore hospital? And do you expect a similar split at the upcoming Hyderabad one as well?
Sunil Kumar M R
So you’re talking about the current occupancy and the trend in Bangalore?
Alankar Garude
No, no, the revenue split. The revenue split between pediatrics and maternity at the Bangalore hospital.
Sunil Kumar M R
Yeah. So presently it is around — say, we can say around — we are doing a roughly around INR5 crores of — which is out of that INR25 crores in — INR30 crores in Whitefield. So you can approximately say around 3% to 4% — 4% of our — 5% of our business is women. And yeah, children put together it should be around 8% to 9% of the total revenue at both the hospitals. I mean, what has happened at Whitefield and of course, multi-specialty centers. This Whitefield hospital since the concept we have built on women and children that is slightly — the concept is very well-accepted, attached to a — next to a multi-specialty center.
So we have a better traction there than compared to a complete multi-specialty center having women and child inbuilt into the system. So this successful concept is what we are looking at Hyderabad which is standalone center, which can give us a good revenue on — standalone for mother and child.
Alisha Moopen
So Alankar, I mean, I’ll also just come in here. So in Kottakkal, we had a multi-specialty hospital and then we opened up a women and children wing. In Whitefield, what we have done is we started with the women and children because that was the availability of space. And then we’ve added other departments like what Ramesh has said. You’ve got now INR25 crores coming from the entire unit, which is oncology and all the other specialties. Hyderabad is slightly different in the sense that it is an independent women and children hospital. There is — it is going to be the biggest in Hyderabad, even bigger than the Rainbow one which is there. And the focus is on maternity, on pediatrics, all the subspecialties, aesthetics, infertility.
So it is a — in that sense as being a fully independent unit. It would be our first — we started with that in Whitefield, but then of course, Whitefield does have the full expansion that has come on-board with all the other specialties.
So I’m not sure if you would directly comparing that would make sense. But Sunil, just to talk about the split between pediatrics and women in both of these existing facilities, would you be able to give that or do we need to go back to Alankar?
Sunil Kumar M R
Yeah. No, Alisha. Yeah, we can give that number. So if you look at the CMI hospital, we do around 7% of women’s health and around 3% to 4% on the children care. And — no, I was saying the reverse. So children care is around 6% to 7% and women’s health, around 3% to 4%. When you go to RV, 5% is the pediatric care what we do and another 4% is the women care. And when you look at the Whitefield the child and adults — that the pediatric specialty does around 8.5% and women’s health does almost 7%. So that is a number.
But as you rightly called out, at India level, when you look at, we do up to 6% the women’s health and 6% the pediatric bit of it. But Hyderabad very clearly called it’s independent facility where it’s independent women and children hospital where 70% of the revenue is expected to be driven by pediatric and only 30% from the women care.
And we are going to have a super specialty and subspecialty mix in all the pediatric whether it’s a cardiac surgery or it’s a gastro or ortho and also state-of-the-art NICU and PICU also. So that’s what we’re expecting for in the Hyderabad.
Alankar Garude
Thank you. That’s helpful. And just — so this is through the build-to-suit model because the construction is — I mean, the hospital is opening pretty quickly and it’s leased.
Sunil Kumar M R
So it’s warm shell, Alankar. So this is a warm shell. It was a building of almost 3 lakh square feet. It was existing building. It was ready to be converted into an office space or alternative commercial. So considering that this really suited for our needs, we were able to convert that into a women and children hospital. Now what we have to do, why it’s going to be early is that because already the whole structure — warm shell and the high side is completely ready.
So it’s only going to take one or — one year or even less than that just to put interiors and equip with the medical equipments.
Alankar Garude
Understood. Thank you. The second question, Alisha, for you, in the first call — in the last call rather, you had spoken about looking to merge with a platform to accelerate growth. Does this still remain a priority for us? And should we look at the CEO hiring, which you said could happen in the next few quarters if required in conjunction with any potential M&A?
Alisha Moopen
So Alankar we have been looking at various opportunities over the last six months. Still early for me to come back to you yet. Hopefully, in the next couple of quarters, we will have — we’ll be more crystallized and we’ll have better clarity on that. So the point on the structure and looking at the CEO hiring will also depend on some of the transactions which we are exploring at this stage?
Alankar Garude
Understood. And are you still evaluating a potential entry in UP?
Alisha Moopen
Specifically, not right now. No, we’re not.
Alankar Garude
Okay, fair enough. And maybe one last question from my side. I mean, while our performance in this quarter has been very strong and congratulations for that, we have seen some senior-level attrition in Kerala and Karnataka. So just wanted to understand the attrition is in which functions. Anything to be worried about any impact you see in the future? Thank you.
Alisha Moopen
No, Alankar, I think — I mean as the system is growing and as people have been performing, of course, we expect some level of churn to happen. As I mentioned earlier also, we do have a very strong local team in most of the units. It’s not specific to any function or any specific unit as such even the attrition. We had a few attrition in Kerala, but they’re split between some in MIMS, some in Medcity.
We have been also hiring. So there are some senior-level resources coming on-board to Kerala soon. So you will hear about that also hopefully in the next call. But nothing that we are worried about. Performance seems very strong, solid. The team has been — team, the brand, everything seems to be kind of moving in the right direction as far as we are concerned.
Alankar Garude
Great. Thank you and all the best. That’s it — that’s it from my side.
Alisha Moopen
Thank you, Alankar.
Puneet Maheshwari
Thanks, Alankar. The next question is from Mr. Harith from Avendus. Mr. Harith can you please unmute?
Harith Ahamed
Hi. Good morning. Thanks for the opportunity. The first question is on the labs and pharmacies segment, where you’ve disclosed around INR70 crores revenue for the quarter. So can you provide a breakup between the two verticals, the lab business and the wholesale pharmacy business for the revenues?
Sunil Kumar M R
So pharmacy business, you’re referring to the quarter two or H1, Harith?
Harith Ahamed
H1 is fine.
Sunil Kumar M R
Okay. H1, whatever the number is there from that INR66 crores is related to the labs with a INR5 crore EBITDA that amounts to 7.5% margin and balance is related to the wholesale pharmacy.
Harith Ahamed
Okay. Thanks so much. And the operating margins that you reported this quarter for the hospitals business of around 24%. Can you comment a bit about the sustainability of this number, especially given that we are adding almost 300 beds in the second half? So what I’m trying to understand is whether there is a benefit of seasonality in this 24% number and we should expect some normalization in the second half.
Sunil Kumar M R
See, Harith, if you — you always follow the health care, right? So quarter two is always going to be the strongest, right. So again, quarter one is the weakest because in — at least in our case, we have got the Ramadan and what do you call the school holidays and everything. Quarter one is always subdued, quarter two with the rains, everything coming in, multi-specialty does really well.
But if you look at our growth from the — across the specialties, right, multi-specialty grew at 24%. Cardiac sciences has grown by 20%. Then the neurosciences has grown by 23%. Our oncology has grown by almost 27%. And even our pediatric care across the board has grown by 20%. So you can see it’s a mix of multi-specialty and the super specialty, which has grown.
And now whether that 24% is sustainable? Yes, it’s sustainable because we are talking about only 24%, not like — I’ve not achieved 30%, but 24% again as I called out in the initial stage, a majority of it has come from the material cost. Our material cost is one of the lowest today because we’re able to drive a good compliance across the board, very good support from the business units and that has able to leverage to the restricted bands. And that has really further helped us to getting negotiated on good procurement mode.
So keeping all these benefits, I think we got still the expansion happened to in the further efficiency in material cost of another 100 bps. Manpower is the major thing because you saw the capex slide wherein the bed addition may — almost more than 50% is coming from the brownfield addition. So these brownfield addition helps us in leveraging the manpower cost. That’s a very big way because today we are ramped-up in Kerala very specifically, very quick and you can’t rationalize the — or bring efficiency when you’re ramping up in a very quick manner. But with brownfield expansion you — as I called out, you don’t have to hire a leadership team, you don’t have to hire the admin people. You only have to need to ensure that the current existing capacity which utilize and wherever required to add the bedside staff. That’s it. So with that happening, margin expansion is going to happen because I can see still another 200, 300 basis points coming from the manpower cost. And as I said, in that overheads already we have done 100 basis points. And again further, there is another, I would say, 50 basis points to 100 basis points coming across.
But yes, all these things will take time, right. That’s how you can see in the last few quarters how the efficiency slowly is kicking in. But yes, quarter two was — revenue jump was very quick.
But quarter three, quarter four also you don’t expect anything major downfall or upside because festivals are there, but we’ve got a very strong occupancy running in even in October. We expect the performance of quarter two to continue.
Harith Ahamed
Thank you, Sunil. And last one, Alisha, just a follow-up from Alankar’s question. The discussions you alluded to with private equity investors and then various platforms, can you clarify if those discussions are still ongoing or have we decided to focus on our organic growth plans for now?
Alisha Moopen
Harith, so discussions are still ongoing. I think I just don’t have anything to disclose per se. So we are continuing to explore the various options. So the goal is to kind of scale up. So we’re trying to see what’s the best way for us to do that.
Harith Ahamed
All right. Got it. Thanks, Alisha. That’s all from my side.
Alisha Moopen
Thanks, Harith.
Puneet Maheshwari
Thanks, Harith. The next question is from Mr. Amrish [Phonetic]. Mr. Amrish, can you please introduce yourself and ask the question?
Amrish Kakkar
Hi. I’m Amrish Kakkar [Phonetic], individual investor. My first question is on Telangana, again on Hyderabad. So is it reasonable to assume that this hospital’s margins and ARPOBs will be closer to Karnataka than it is to the Telangana-Hyderabad cluster so effectively over a longer three, four year period, we might even see the margins further enhance compared to what Sunil mentioned?
Sunil Kumar M R
So Amrish, thanks for the question. If you are referring to our Aster Prime Hospital in Telangana.
Amrish Kakkar
No. So the new children where —
Sunil Kumar M R
Children hospital? Okay.
Amrish Kakkar
Yeah, yeah. So the margins in that.
Sunil Kumar M R
Women and children hospital, again see, that’s again inherently a very-high margin business, right. You are using the peer groups to do to more than 30% margin, right. So it’s very clearly a 30% margin business with again profile mix is very good. We got 50% cash, 50% from TPA. And if you have a very good state-of-the-art NICU, PICU, IVF and a birthing center, we expect to have a very good margin, very similar to Bangalore.
Amrish Kakkar
And therefore — you had mentioned that we’re heading to 20% plus in the cluster. This will probably enhance that as and when the hospital matures, right?
Sunil Kumar M R
Yes. Because if you look at individually, yes, it should achieve it. But I was giving guidance of two to three years wherein hospitals utilization starts from the first [Phonetic] year, right. And with the Andhra cluster put together, I was giving that guidance.
Amrish Kakkar
Okay, okay. Thank you. Second one is just a minor comment on the O&M. I think we’ve taken out O&M — the asset-light O&M revenues and margins. I understand it’s a very small part of our business. Is that sort of an indication we should take that this is probably not the big big thing we want to swing for in the next few years? We’ve got bigger opportunities?
Sunil Kumar M R
Let me put across the numbers, then I can ask Ramesh or someone to come in. See, with respect to O&M business, we — for the quarter or the quarter two, we achieved a business of around INR40 crores and EBITDA margin of around 7.7%. So still our Tirupati Hospital and PMF Kollam is a strong suit. They’re really doing well. And our Madegowda hospital in Mandya and Aster Mother Hospital in Areekode almost near to breakeven, right. So they are not bleeding, but overall, we are at 7.7% margin.
And with respect to expansion, we don’t — as we also previously called out, considering the ARPOBs are lower and EBITDA margins will be lower, ROCEs are better, right, double digit, say, ROCE. We continue — want to stabilize this one before we look at expanding further.
Ramesh, you want to add anything on the O&M asset-light?
Ramesh Kumar
Yeah, yeah. Rightly said about this. There are — the good thing is it’s an asset-light model and as Sunil has mentioned if you really look at — I mean assets are yet to go into the full throttle and the ARPOB is slightly lower.
A few challenges are there being a Tier 2 or a Tier 3 city. Usually the challenges are retaining the clinicians and then making them perform. So high end work — clinical work would not happen there. So it will take its — it would take its time to really stabilize and then show a very good growth.
So we are just looking at the model now slowly. A few of them have started performing and some of them are — it depends on the geography. So we are yet to decide on how the bottle would be taken off, but still we would be exploring because that’s a lot of opportunity happening in Tier-2 and Tier-3 cities.
Amrish Kakkar
Thank you. Thank you and all the best.
Puneet Maheshwari
Thanks, Amrish. So we have next question in line, Mr. Krishnendu again who has joined back the queue. Krishnendu? You can unmute yourself and ask the question if you have any.
Krishnendu Shah
Yeah, yeah. Thanks, sir. Just a clarification to the numbers. So we are adding another 630 beds almost — odd-beds [Phonetic] next year, 639 beds. They’re all on lease. So for FY ’26 what would be the increase in lease amount ROU which will be added? And post that do you think that the addition to the ROU will go down? That’s the first question.
And if you could just. Sorry, go ahead.
Sunil Kumar M R
[Technical Issues]
Krishnendu Shah
The second question was, could you give a sense of what would have been the, what you call revenue per bed for government hospitals in the south zone? What kind of — this is just for my knowledge?
Sunil Kumar M R
Yeah. So with respect to your first question on the FY ’26, right, yeah, 639 beds we are adding that’s basically coming from the Kasaragod which is leased. But in MIMS Kasaragod we have not leased the warm shell, we leased the land. So that land is leased for almost 60 years, right. So you don’t expect any major rental cost at all because we are doing the complete building there. So it’s only the rental what you’re paying for the land. So you can expect a very least hit from the rent point-of-view.
Calicut again, it’s a small capacity of 75 beds you’re adding. Again, you don’t expect any major amount coming in. But yes, women and children care, see when we stabilize, usually at a stabilized level, when you reach a very good optimum capacity utilization and a good revenue, you can expect a revenue share or your revenue share is not there. But lease amount or rental amount should be somewhere between 4% to 5%, right? But if you want a number directly, you’re talking about a — you can take approximately INR50 per square feet for 3 lakh square feet rental and take an inflation for every three years at 12% to 15% that will give you the number.
Krishnendu Shah
That’s the cash flow, but how much could I add to the ROU per se [Speech Overlap]?
Sunil Kumar M R
ROU almost INR250 crores — INR250 crores to INR275 crores is what we added.
Krishnendu Shah
[Indecipherable]
Sunil Kumar M R
I think that’s already added — that’s already added, Krishnendu. If you look at 31st March to 30th September, our lease level ROU has increased by double rate from INR700 crore to INR1,300 crore-odd. So it has got two numbers. One is INR250 crore, INR300 crores coming from the, what you call the women and children hospital, Hyderabad. And second one is from the Aster CMI expansion from Bangalore.
Krishnendu Shah
So — and on top of that, we add another INR250 crores next year?
Sunil Kumar M R
No, there will be no again addition, because whatever signed off, you’re talking about, [Indecipherable] are giving a pipeline, whatever is already agreement signed off, that’s — already kicks in into the balance sheet immediately. So there is no addition coming in unless we sign off a new agreement.
Krishnendu Shah
Okay. So for FY ’26 or ’27 onwards, the ROU just depreciates, that’s it and interest comes out from that. And last question about that on the government hospitals in south and all, how does the numbers look like?
Sunil Kumar M R
We do very less, right? We do only —
Krishnendu Shah
No, no, not about us. Not about us. I mean just about government, which is such a large portion of the health care, the hospital — government hospitals, what [Indecipherable] just for my knowledge, there’s nothing. So just want to know. Any idea? Not for us.
Sunil Kumar M R
Maybe I don’t know, 20,000 [Phonetic] maybe. Nothing more than that.
Krishnendu Shah
Yeah. Sure. Thank you.
Sunil Kumar M R
Thanks you.
Puneet Maheshwari
Thanks, Krishnendu. Thanks, Krishnendu. If anyone of other attendees would like to ask a question, please pick up and raise your hands. Okay, so we have one more drop. Mr. Naman [Phonetic]. Could you please unmute yourself and ask the question?
Naman
Hi, sir. This is Naman from Minera Capital [Phonetic]. Just two small questions. First on the [Technical Issues] which we had alluded to the last quarter and it would be gone by the end of the year. So any update on that? And second on the tax rate. The quarterly basis the tax rate seems abnormally high. So what is the normalized tax rate we can expect for the full year or the next few years?
Sunil Kumar M R
Naman, I didn’t get the first question. But the second question with respect to effective tax rate, I called out for another question which we got during the call. Till last year, we were able to get the benefit of the old regime and the carry-forward losses. So that has been exhausted. So during that time, we used to be an effective rate of somewhere between 12% to 14%.
Considering this year that whole carry-forward loss has been completely exhausted, we need to end up paying the tax. That’s where you can see it should jump to almost 29% to 30%. But future you can look at somewhere between 25% to 30% will be your effective rate.
Naman
Got it. And first question was on the pledge which we have on our shareholdings. So it seems around 90% of our shareholding is by the promoters. So on the last call, we had alluded that it could be gone by the end of the year. So is there any update on that?
Alisha Moopen
Yeah. So Naman, I think we mentioned last time also it was just a high pledge because of a technical reasons where the Company — I mean where the promoter shareholding is based out of. It sort of reduced significantly now. It was a bridge loan during the time of the transaction. We are refinancing it right now. So by the end of the year, like I said, we should — this should be restructured.
Naman
Got it. Thank you.
Alisha Moopen
Thank you.
Puneet Maheshwari
Dear all due to the time constraints, I would like to mention that we will conclude our earnings call for this quarter for Aster DM Healthcare. Now, I thank the management and all the attendees for joining us today. If you have any further questions or queries, please get in touch with us. Thank you.
Alisha Moopen
Thank you.
Sunil Kumar M R
Thank you.
Ramesh Kumar
Bye-bye.