Aster DM Healthcare Limited (ASTERDM) Q2 FY23 Earnings Concall Transcript

Aster DM Healthcare Limited (NSE:ASTERDM) Q2 FY23 Earnings Concall dated Nov. 11, 2022

Corporate Participants:

Azad Moopen — Chairman & Managing Director

Sreenath Reddy — Group Chief Financial Officer

Amitabh Johri — Chief Financial Officer, GCC

Sunil Kumar M R — Head of Finance, India

Sunil Kumar — Head of Finance

Analysts:

Ambrish Kacker — — Analyst

Shyam Srinivasan — Goldman Sachs — Analyst

Unidentified Participant — — Analyst

Mehul Sheth — Axis Capital — Analyst

Harith Ahamed — Spark Capital — Analyst

Presentation:

Operator

Good morning, everyone. I welcome you to Aster DM Healthcare’s Earnings Conference Call for the Second Qarter of Financial Year 23. The company declared the Q2 FY’23 results last evening. I hope you’ve got a chance to review them, along with other materials, which were posted on the stock exchanges and the company website.

Today, to discuss the quarterly business performance and the future business outlook, we have the senior management at Aster DM Healthcare available with us. It includes Dr. Azad Moopen, our Chairman and Managing Director; Ms. Alisha Moopen, Deputy Managing Director; Mr. T.J. Wilson, Non-Executive Director; Mr. Sreenath Reddy, Group CFOr; Mr. Amitabh Johri, Chief Financial Officer for GCC; and Mr. Sunil Kumar, Head of Finance for India.

I would like to infom everyone about how we will conduct this call. All external attendees will be in the 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 the Zoom application at the bottom of the window. We will call out your name, after which your line will be unmuted, and you will be able to ask your question. We request you to please limit your questions to 2 but not more than 3 per participant at a time. Post the completion of your query being answered, we will lower your hand.

I would also like to inform that certain statements that may be discussed in this meeting that are not historical facts and might be forward-looking statements. Such forward-looking 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 from those contemplated by the relevant forward-looking statements. Aster DM Healthcare Limited will not be in any way responsible for any action taken based on such statements and undertakes no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.

With this, I will ask our Chairman, Dr. Azad Moopen to start with the opening remarks. Over to you, sir.

Azad Moopen — Chairman & Managing Director

Thank you, Bala. Thank you very much. Good morning, everyone. Thank you all for joining us for our earnings for the second-quarter for the second quarter of financial year ’23. I hope all is well with you and your families. The world is moving out of the dark cloud of COVID and business are slowly limping back to normalcy. However, with the very high inflation in many countries and the threat of recession in the horizon, central banks in many countries have been steadily increasing the interest rates. This has led to the tepid economic activity in the near future in most countries, resulting in lowergrowth forecast by IMF across the globe. Couple of exceptions are India and UAE. India predicted growth rate in the current financial year is 6.8% and that of UAE is 5.1%, which are relatively better when compared to major global economies. This will be one of the highest growth rates of UAE, compared to last several years by by the high oil prices and booming real-estate sector. Given our geographical spread in India and GCC, we expect Aster to have a robust business performance in the coming quarters.

Let me now discuss briefly the financial performance of Aster for the quarter two of financial year ’23. At a consolidated level, we posted a revenue of INR2,816 crores, which is an increase of 12% when compared with the same-period last financial year. EBITDA was INR319 crores when compared to INR343 crore in quarter two of financial year ’22. EBITDA growth was impacted due to the losses from commissioning of the new hospitals in GCC and India. Adjusted for this loss, EBITDA was INR342 crores. Post after tax post NCI stands at rupees INR46 crores when compared to INR107 crores in financial year — quarter two financial year ’22. Profit after tax post NCI, excluding impact of commissioning of new Hospital is INR88 crores.

With respect to the GCC business, revenue grew 19% over the year to INR2,059 crore with EBITDA at INR192 crore as compared to INR241 crores in the same period last financial year. The Aster India business continues to grow well with revenue growing 24% to INR757 crores and EBITDA increasing by 24% to INR127 crores. Profit after tax post NCI stood at INR50 crores, as compared to INR23 crores in quarter two financial year ’22, a growth of 119% in India.

I would like to add few things about the the EBITDA in GCC. Unlike in other businesses, the commissioning of hospitals is a time-consuming process in GCC. Especially, UAE, due to the stringent inspection as well as insurance empanelment. On an average, it takes six to eight months after building completion, equipment installation, to get the authority approvals and empaneling of different insurance companies. The insurance companies turn doctors and staff being on-boarded and giving empanelment. This adds to huge cost, which can’t be capitalized. This has led to the significant additional losses there is salary and rental cost without any revenue.

Apart from this, also in the GCC we have the quarter — the population usually come back after their holidays and during this period. But this year, large number of people due to the COVID earlier years have not come back and many of — they are just coming back after the second quarter only. So this is something which we thought has really impacted the overall performance in GCC.

Moving to the operational updates for the quarter in India. Aster Hospitals Bangalore has started the Aster Interventional Institue of Oncology with one of the very well-known onco and robotic surgeon, Dr. Somashekar and his team joining Aster. A newly launched institute under its dynamic leadership will be the center of excellence for cancer care and robotic surgery, offering the entire range of oncology related services, backed by experienced team of doctors, cutting edge technologies and latest innovations in cancer care.

We entered into hospital operations and management and agreement with Narayanadri Hospitals & Research Institute Pvt Ltd, NHRI, Tirupati, Andhra Pradesh recently. It’s a 150 bed multi-specialty hospital situated in Tirupati, Andhra Pradesh. With this addition, we have added 290 beds or O&M asset-light model in the current financial year. We expect to add another two to three hospitals of around 300 to 400 beds together before the end-of-the current financial year. This is a low-margin business. While it is so, it’s also very low CapEx and shall help us increase our ROC. It will also help to increase referrals of the cases to our flagship hospital.

We have entered into a share purchase agreement to acquire the remaining 22.69 % in Shri [Indecipherable] multi-specialty hospital. Pursuant to this acquisition, the 158 prime hospital in Hyderabad has now become wholly-owned by company. We have also decided to acquire more stake in very profitable Malabar Institute of Medical Sciences, which operates four Hospitals in North Kerala with a bed capacity of 1,449. Aster already owns 74.1% stake in MIMS, but have decided to acquire 5% stake at INR100 per share, spending INR50 crores for this, which will reduce number of small shareholders and increase the holding in this very profitable subsidiary with major expansion plans in pipeline.

Coming to the Aster Pharmacy and branded retail stores operated by Alpha one Retail Pharmacy Limited, ARPL, we have recently crossed the milestone of opening our 200 store in India. In our endeavor to bring ominchannel healthcare delivery to the doorsteps of the people, we are adding more pharmacies to our network of hospitals labs, clinics and online consultation platform. As of 30th September 2022, there are 214 pharmacies, 96 in Karnataka, 65 in Kerala, and 53 in Telangana.

Aster Labs has it presence in Karnataka, Kerala, Maharashtra, Tamil Nadu, and Andhra Pradesh and Telangana. As of 30th September 2022, there are two referral labs, 17 satellite labs, and 140 patient experience centers. There has been a change in the overall structure of the labs business where earlier it was being managed completely centrally, now we have decided that this will be managed by the different clusters where the labs are situated for more efficiency.

On the CSR front, Aster DM Healthcare completed the handover of 250 Aster homes to the victims of 2018 Kerala floods who lost everything to the devastating alamity. This was a project by Aster volunteers with support from philanthropist, partners and our employees of Aster. In the GCC region, we have inaugurated 101 Aster Hospital in Sharjah in October 2022. The soft launch job which was done in May 2022. The hospital has a team of experienced doctors with proven clinical excellence and support staff to offer exceptional patient care and medical outcomes. The newest facility has all core specialties like obstetrics gynecology, orthopedics, neurology, cardiology, pediatrics, generalsurgery and urology. The plan is to add mini tertiary care treatments to the boquet of services in future.

In Oman, we had soft launch of181 beded multi-specialty hospital, Aster Royal Hospital in Muscat, located next to the Aster Al Raffah Hospital. This this is being considered as the best private hospital in Oman and this is already attracting lot of attention. Some of the special features of the new Hospital included dedicated floor for mother and child, cath lab with interventional radiology, advanced tertiary departments of gastroenterology, urology, orthopedics, obstetrics and a stroke unit.

Status of restructuring. Just want to give you an update on this, the status of the restructuring of the company. The investment bankers have informed that they are in recipt of the interest and indicative terms from various potential investors who are in the process of evaluating the same. Upon submission of the evaluation of investment bankers, the Board shall review adoption for segregating the company business in the Gulf Cooperation Council Region from the business in India.

Thank you very much. Now I request, Deputy Managing Director, Alisha Moopen to elaborate more on the GCC business and digital transformation and other to strategic initiatives undertaken by Aster. Thank you very much. Thank you, Chairman. Good morning, everyone. We are past the COVID travel restrictions which has good news. Having said that, this has impacted the GCC in somewhat — some a couple of negative quarters. Quarter two saw some unprecedented travel out of the GCC region, given the first vacation time post the COVID restrictions which has been lifted off. The impact also from the reduction of PCR revenue was very visible on the financial results. Additionally, the quarter also witnessed the delays in the insurance and panel med, as Chairman mentioned, for two of its new Hospital which is both Sharjah and the Aster Royal Hospital, Oman. This has delayed the ability of the hospitals to start commercial operations fully. With regards to the GCC financial performance for Q2 FY ’23, the Hospital revenues during the quarter has increased by 88% year-on year. The retail business saw an increase of revenue by 34%, while the core revenue of the clinics business, which is excluding the PCR, saw an increase of 14%. The GCC business EBITDA excluding operational losses from the new hospitals commissioned during this period is INR212 crores. Overall the GCC revenue grew by 9% over last year, and EBITDA saw a reduction of 20% over last year. However, the core GCC business excluding COVID testing grew at a healthy rate of 21%. We do see better forecasted growth rates for UAE in the coming months. October and November so far has been reflective of that. On few of the business updates, we continue to feel very positive about the Saudi market. Our existing Hospital has been showing a very steady and consistent performance for the last three quarters. Aster DM Healthcare, we have launched our pharmacy operations in Saudi Arabia through a tie-up with Alfacare Holding Group. The partners will create a network of 250 plus Aster pharmacies in the Kingdom in the next five years. The partnership plans to open in high-street locations, communities and malls, beginning with Riyadh. As Phase 2, the aim is to set up a pharmaceutical manufacturing as well in the Kingdom. We have rechristined our digital app as My Aster from One Aster. This is symbolic of our affinity to our patient base. Our digital initiatives have set a new benchmark for digital healthcare delivery in the UAE. Following key tactical and its basis valuable consumer feedback, we have not released the full-fledged tele consultation as well as the pharmacy platform under the new My Aster. My Aster is now ranked number two across the app store and playstore in the UAE in the pre medical apps category. In Q2, wiht non prescription orders practically doubling month-on month, we saw a 74% increase in patient registrations on the app. A 130% increase in the virtual consults and 90% increase in physical appointments, which are booked through the app. My Aster continues to grow exponentially. It is currently scaling at 86,000 app downloads. We have 97,000 monthly active users. We’ve had more than 4,000 non-prescription and 700 plus prescription orders per month, 3,000 plus appointments booked adn 300 tele consults per month. The Pharmacy home delivery business, which pulls easily convertible population into the digital pharmacy orders continues to scale it around AED10 million per month in revenue. We are promoting — we are actively promoting the movement of these customers over to the My Aster platform in order to be able to serve them better with a real-time tracking technologies as well as increase their purchase frequency and increase the overall lifetime value. It’s still very early days in the growth curve given that we yet to scale performance marketing. We continue to work agile to enable quick releases incorporating engagement drivers for the UAE, while working to adapt to suit Indian market and business. In line with device vision to become the world’s metaverse hub, Medcare Women and Children Hospital, we partnered with Biometaverse and we officially setup it’s virtual existence by going-live on October 11 wWith the first Hospital metaverse hospital, which really gives a glimpse into the real-life experience at Medcare Women and Children. The idea is to use it for medical tourism given the potential patients, giving them a chance to have an immersive visual experience of the hospital facility. Medcare also announced its expansion into the premium wellness and beauty care segment with acquisition of 60% of the shares in skin three clinics. Skin three clinics as an award-winning premium chain of esthetic and wellness center. This acquisition will accelerate Medcare’s plan to emerge as an international hub for beauty, esthetic, wellness, and adding to its existing network in the UAE. With this agreement, Skin three’s unique offering will be incorporated as well into the Medcare service portfolio, which will give us an edge in the esthetic and wellness segment, which is a key driver in UAEs growing in tourism sector. I will now request the, Group CFO, Sreenath Reddy to take us through the financial and segmental performance for the quarter. Thanks, everyone.

Sreenath Reddy — Group Chief Financial Officer

Thank you, Alisha. Good, morning, everyone. On a consolidated basis, our revenue from operations for the quarter is INR2,816 crores, aAn increase of 12% year-on year. Consolidated EBITDA for the quarter was INR319 crores. Excluding the loss of new hospitals not present in FY’22 Q2, namely Aster Hospital Sharjah, Aster ospital Sonapur, Aster Royal Hospital at Muscat, Aster Mother Hosiptal Areekode. The EBITDA stands at INR342 crores as againse INR343 crores during the same period last financial year.

Consolidated PAT, both NCI, is at INR46 crores as compared to INR107 crores in Q2 FY’22. Excluding loses from new hospitals, PAT post NCI, stands at INR88 crores. Revenue from our GCC operational was INR2,059 crores, an increase of 9% year-on year, whereas the revenue growth excluding COVID testing was 21% year-on year. EBITDA from GCC operations stands at INR192 crores. Excluding loses of new hospitals in GCC, the EBITDA stands at rupees INR212 crores as gainst INR241 crores in Q2 FY’22. The decrease is mainly due to drastic reduction of high-margin COVID testing, which affected our business, especially in our clinic segment.

Contribution of COVID business has reduced to 2% of our GCC business as agaist 12% in the same period last year. India revenues have increased to INR757 crores, up 24% year-on year form from INR609 crores in Q2 FY’22. The main contributor for this growth is the increased occupancy which stands at 72% in Q2 FY23, and the resulting 28% growth in inpatient volume. The EBITDA from India operations was INR127 crores, compared to INR102 crores during the same-period last financial year.

Coming to half yearly performance, the revenue from operations stood at INR5,478 crores, a growth of 12% compared to the same period last financial year. The EBITDA was at INR611 crores compared to INR624 crores in FY22 H1. Excluding losses from new hospitals, the EBITDA of INR654 crores with a growth of 5%. PAT post NCI was INR150 crores compared to INR151 crores in FY’22 H1. Excluding losses from new hospitals and one-time other income, PAT stood at INR165 crores, which is a 9% growth. An important point to mention is that we are now going back to the pre COVID scenario, wherin the EBITDA for the first half of the year as per historical trends, will be in the range of 35% to 40% of the full year number. And H2 in the range of 60% to 65%.

Coming to the segmental performance for the quarter, GCC Hospitals revenue was at INR950 crores, an increase of 8% year-on year. And the EBITDA stands at INR132 crores compared to INR147 crores in FY’22 Q2. Excluding losses from new hospital, the Hospital segment has an EBITDA of INR152 crores. The EBITDA margin adjusted for the losses from new hospitals was 15.2%.

GCC clinics revenue stands at INR528 crores, a decrese of 11% year-on year. As mentioned earlier, the decrease was mainly due to so rapid reduction of COVID testing business. Contribution of COVID to clinic business has reduced to around 6% as against 26% last year same period. Normalize for the COVID testing, the core business of the clinic segment grew by a healthy rate of 14%. The EBITDA for GCC clinics segment stands at INR56 crores at 12.4% marging.

GCC pharmicies revenue increased 34% year-on year from INR520 crores to INR695 crores. EBITDA increased from INR57 crores to INR66 crores, a n increse of 14%. EBITDA margin for this segment is ast 9.4%. India hospitals and clinic segment are grown to INR723 crores when compared to INR601 crores, an increse of 20% year-on year. The EBITDA has increased from INR114 crores Q2 FY22 to INR142 crores in Q2 FY23, an increse of 24% year-on year. We expect to see this positive trend to continue in the coming quarters.

Consolidated net debt as of 30th September ’22 stads at INR245 crores compared to INR1,806 crores as of 31st March 2022. India net debt stands at INR390 crores compared to INR319 as at 31st March 2022. And GCC net-debt stands to $203 million from USD197 million as at 31 March 2022. Capital expenditure during the six months was V349 crores. On that note, I conclude my remarks. We will be happy to answer any questions that you may have. I now request Mr. Bala to open the Q&A session.

Questions and Answers:

 

Operator

[Operator Instructions] I think the first question from Mr. Ambrish Kacker. Please go ahead, Mr. Ambrish.

Ambrish Kacker — — Analyst

Thank you for the opportunity and congratulations on some very good progress in India. I had one question on GCC and one on India. So GCC, just to make sure, I have understood the financials for Q2, so I’m looking more from a steady-state going-forward. I understand the seasonality impacts and I understand the COVID issue. So we’ve still got a negative PAT, and I think you’ve explained that there is a — perhaps a INR19 crores impact just from the new hospitals. So I think this part is clear. is there for steady state — Q2 going forward, generally we should not be seeing negative PAT. Is that reasonable? And is there, any impact on the clinic as well in GCC in Q2, because the segment results show about just a INR3 crore total for all four Clinics. That’s the, first question.

Sreenath Reddy — Group Chief Financial Officer

Yeah on the the first part of the question, definitely quarter there and quarter four, especially in the GCC, is the peak period, and you will not find that negative PAT in quarter three and quarter four. In terms of clinics, during the quarter, we had that impact, right, because mainly due to COVID testing business going down. So that has ignificantly impacted the profitability of the clinic segment as well as the overall GCC business. Amitabh, you woujld like to answer?

Amitabh Johri — Chief Financial Officer, GCC

Sure. Thanks, Srenath. So, if you look at the Clinics segment of our, the profitability for the same quarter last year which is Q2 FY ’22 was 16.6% and the profitability for this quarter is around 12.4%, and that’s largely emnating from the fact that if you — if you want to talk of the PCR revenue, there was almost 26% of revenue coming from PCR in the last quarter, which was a high-margin business and that has pretty much come down to 2%, which has led to a 20% reduction in the overall revenue base from a — 11% reduction year-on year on the revenue base in the Clinics side, that is mostly backing the margins of the business. However, It is worthwhile to say that if you were to remove the PCR impact, the clinics business is showing a year-on year growth of almost 14%, that is a core business coming back.

Ambrish Kacker — — Analyst

Okay. Thank you. Just as a very quick follow-up. As looking also — if we were to look out to FY’24 Q2, then we seem to have the worst of a couple of things this year. One is the hospital, he new Sharjah Hospital, plus perhaps a more active holiday season than we would have otherwise seen. So actually we should not expect negative PAT in GCC from FY’24 onwards, Q2 FY’24.

Sreenath Reddy — Group Chief Financial Officer

Yeah, you are right.

Ambrish Kacker — — Analyst

That’s reasonably. That’s reasonable. Thank you. So second question is on the India strategy. So just one — so there’s a lot of moving parts and there is a lot of progress, so it’s very interesting to see, especially on the pharmacies and the PEC side. I’m just trying to understand a little bit more on our O&M strategy. So I think Chairman has already explained a little bit on the financial side, which is — so this is regarding of course our Tirupati acquisition and we’ll probably do two or three more — two or three more partnerships before the year end. So this will be likely slightly lower-margin, but of course they will not have the denominator, so obviously you should improve. Just to understand a little bit strategically, what is it that the O&M are doing for our business? So is this a way for us to get bed space faster? Is it a way for us to be getting more specialization? Is it a way for us to consolidate some of the fragmentation of the market? If you could just qualitatively explain a little bit about on a longer-term basis what role this O&M play in our strategy — in the Hospital side in India?

Sreenath Reddy — Group Chief Financial Officer

Chairman, you are on mute.

Azad Moopen — Chairman & Managing Director

Yeah. Thank you very much, Ambrish. So I just wanted to highlight, this was a strategy which we adopted — decided to adopt last year because we thought that there are multiple benefits by this. One most importantly, we extend our services to people who are in the periphery rather than the main cities, and this we didn’t want to construct and invest into that, which is going to be very-very capital-intensive. So we thought that what is the best way in which we can do that, and we thought that the [Indecipherable] will be the best way to do that. So, there are multiple benefits due to this.

One, many of our Hospital, for example in Kerala, we have the issue of almost full capacity or almost full capacity in some of the hospitals. So this helps in having, some of these patients who are not requiring our treatment to be kept in such places or even after discharge they can be looked after, little long-term or medium term care that can be done in hospital, so that this the average loss in the Hospital comes down, which will help a lot in introducing our ARPU.

Now the other important thing is the referrals which come from this hospitals. What we have seen is that when we manage such hospitals, while some of these cases can be managed there, many of these will have to be referred to the hospitals. So this acts like a hub-and-spoke where the hospitals in which we are managing, the case naturally will come down on hospitals. So that’s another major benefit that we are finding. So for us the advantage is that even managing something like a cath lab, for example, which is required even 50 kilometers away from main city, we can have a doctor who is attached to our cardiology department going and doing that and coming back after one year, two year and doing in main hospitals. So for us it’s easier to do that. So we are getting people who can do the emergency medicine or in cardiology or neurology wherever is required so it’s much more easier when compared to other people who are just running it in the periphery.

Apart from that, of course, the financial benefit, the investment that Sunil will tell. We are now — the hospitals where we have invested, it’s very miniscule investment which has come, it is more of our knowledge which has come in, and that helps us to get there top-line and bottom-line like what I said, our EBITDA, we will have to consider this separately because it will go down, but there will be a significant increase in the ROCs. Regarding the investment, our India CFO, Sunil will highlight, Sunil?

Sunil Kumar M R — Head of Finance, India

Thank you, Chairman. So thank you, Ambrish for your question. With respect to investments, we will work on two different things. One, is that we give industries refundable security deposit and, other thing is somewhere between INR5 to INR10 so this again this comes back because it’s industry refundable. Second bit of this is on the investment point-of-view because it’s existing hospital and which is running hospital. We look at investment less than INR5 crores so that means to say we are looking at investment of INR5 to INR10 lakh, not more than that, and we enter into a long-term contract here between the 15 to 20 years with a less lock-in compared to the usual [Indecipherable] what we enter into the metros.

These are the important parts on the financial results. Thank you.

Ambrish Kacker — — Analyst

It was very clear, if I may just a very short follow-up to this, so just from a cash-flow perspective we should the INR5 to INR10 crores is an outflow but then I’m not comparing to a brownfield or greenfield but just from a cash-flow for an O&M we have INR5 to INR10 crore outflow upfront and then slowly we will make the spec, is that — is that reasonable — reasonable understanding.

Sunil Kumar M R — Head of Finance, India

That is right — that is right Ambrish.

Ambrish Kacker — — Analyst

Thank you. Perfect, thanks a lot, and all the best to the team. Thank you very much.

Sunil Kumar M R — Head of Finance, India

Thank you.

Operator

Thank you Ambrish. The next question is from Shyam Srinivasan. Shyam please go ahead.

Azad Moopen — Chairman & Managing Director

Please go ahead Shyam.

Shyam Srinivasan — Goldman Sachs — Analyst

Sure. Yeah, I have unmuted myself. Good morning and thank you for taking my question. So a just the first one on the GCC Hospitals constant-currency revenue growth of 0%. I think you alluded to some of the things but I’m just trying to get a qualitative color. Our beds are up I think, 14%, 15% operational beds, occupied beds are up 10%. Our visits are probably up 3% or 4% inatient visits. ARPOB is up, so when I do all of that why still we are having 0% constant-currency growth.

Azad Moopen — Chairman & Managing Director

So, Amitabh you would like to answer that?

Amitabh Johri — Chief Financial Officer, GCC

Yes, Chairman. So thank you very much for your question Shyam. Effectively what we are looking at this is quarter two where we have increased the beds but these are new hospitals first of all. They are yet to go through the occupancy. If you look at the new hospital occupancy we are looking at almost 3% kind of an occupancy in the new hospitals. Also the fact is that the old hospital, which are the ones which are more than three years that is where we are seeing higher occupancy up in the range of 60% to 65%. Having said that while the patient base has increased everything all of the factors are increasing it’s a factor of ALOS that has increased in this period and secondly it’s also a period where the patients given the vacation period have reduced the elective surgeries. Sso if we want to look at our July and August specific months the revenues for hospitals were fairly down as compared to what it was previous year given the fact that the electives have gone down. It’s only in the month of September as the vacation period started to recede that we saw the revenue was coming up and as a result which is why you see already muted growth on the revenue side on this.

Shyam Srinivasan — Goldman Sachs — Analyst

Just following-up here when I look at say October or November, have you seen things reverse or move more towards surgical/elective procedures.

Amitabh Johri — Chief Financial Officer, GCC

I think that’s a fair assessment of yours. As we have moved towards October and November we are seeing more footfalls, we’re seeing more elective procedures being conducted and a reflection of that is during the revenue side.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it. Helpful. My second question is on the India business and specifically I think the Andhra, Telangana cluster from a margin outlook perspective it still remains lower. I think Q1 we had it lower but Q2 no signs of improvement so if you can outline what’s happening there.

Azad Moopen — Chairman & Managing Director

Yes, Sunil, do you want to take that question Sunil.

Sunil Kumar M R — Head of Finance, India

Sure, Chairman. Thank you. Thanks Shyam for the question. See in Andhra, Telangana cluster from the occupancy point-of-view, right from the Q1 we were somewhere between 44% to 45% in the Q1 that has improved to almost 55% to 56% in Q2. So that is one bit of moving part. Second is from the EBITDA margin rate. I think Q1 it was around 7% as a cluster and it does move to around 8.2 in the Q2 so margin has moved but what has happened is that this margin moved actually more than double-digits, right, I am talking about [technical issue] only in the end of September. So you will start seeing jumping into a double-digit margin somewhere in their teens in the Q3 but we have to see because one of the important part which we discussed in the last analyst call also is that whether the margins on the occupancy which was lower which will improve have shown a good amount of improvement happened in August and September and we think October already we are doing really well and I think that we will as, I said, we’ll move to a double-digit margins in Q3. That’s, very much possible.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it. Just last couple of questions. One on India utilizations, so where are we — is there, any guidance that you’re giving either for the second-half or the full-year in terms of utilization, because clearly, things have improved. I think Chairman mentioned about high occupancy in Kerala so if you can just, help us understand how the second-half could likely pan-out on India hospital utilization perspective.

Azad Moopen — Chairman & Managing Director

Yeah, Sunil?

Sunil Kumar M R — Head of Finance, India

Yes, Chairman. Thank you. So Shyam on the occupancy we were at 63% in the Q1 and Q1 we all know it is the quarter where starting of the financial year and follows the lowest and as expected Q2 is always very good in India and it has moved to almost 72% occupancy, right, so now Q3 is where we will have festivals because already you know that in October we had two festivals coming in again in December end is there, and January, February, March also it is a similar thing but we don’t see a reduction in occupancy from 70 to back to 60s what we saw in the quarter one. So it’s a fair assessment that it will be around 70 in the second-half because October indicates that even with the festivals we are at 70% so my expectation is that we will be around 70% in Q3, Q4 and most importantly we are seeing that Kerala is doing above 80% occupancy. That is expected to continue with the patient flow there and only movement which I see possibly[Phonetic] that’s where I said that above 75% even with the festivals is that Kerala, Karnataka, moved from 55% to almost 60% plus occupancy.

So we see that it’s moving further forward and one of the important thing which you noted in the Chairman’s speech we have — Dr. Somashekhar was onboarded into Bangalore cluster and we are expecting oncology to do really well in the Q3 and Q4 and going-forward. So considering that it will be upwards of 70%.

Azad Moopen — Chairman & Managing Director

Shyam, I just wanted to add to what Sunil said. See we have been looking at how now we can improve our income as well as our profits and all, so the focus now is on the quality of cases rather than quantity of cases because we know that in many places we are reaching that top-level of occupancy and even though we will have the O&M Hospitals and are offloading a little we are now trying to see how we can increase a conversion from OP to IP more of [indecipherable] coming in as well as the complexity of [indecipherable] so that be ARPOB goes up in-spite of the occupancy not going up but we want to increase ARPOB and thus the profitability so that’s the plan in many of the places we are bringing in a lot of high-end tertiary care which will definitely increase our revenue as well as our reputation.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it. Thank you. Thank you so much and all the best.

Operator

Thank you Shyam. I think the next question is from [technical issue] Please go ahead.

Unidentified Participant — — Analyst

Yeah, hi sir, thank you for the opportunity. So just one question from my end. When I check your profitability or EBITDA margins in India so would it be possible to just, provide some color as to how would your India Hospital EBITDA margins look like in Kerala versus what you’re reporting over your other clusters?

Azad Moopen — Chairman & Managing Director

Yeah, Sreenath you want to answer that regarding this [Multiple speakers].

Sreenath Reddy — Group Chief Financial Officer

Yes, thank you sir. Mr. Abdhulla[Phonetic], I think we already put across in the investor presentation overall hospitals it is somewhere[Phonetic] in Q2, very specifically. We are at 19% EBITDA margin. Out of which 20% plus is what we see in Kerala cluster and EBITDA at, almost 15% to 16% in Karnataka if you go to EBITDA in Karnataka, [phonetic] because in we have lot of older models in Karnataka specifically. If you go to EBITDA level it will be upwards of 19% and Andhra cluster is around 8%. I hope that answers your question.

Unidentified Participant — — Analyst

Yes sir, yes sir and secondly on [Indecipherable] in clinics and the Pharmacy business and labs business in India so I mean where do we see the overall count going on and sort of cash burn what we expect? I mean would this businesses that is clinics, and pharmacies, largely breakeven in FY24 or ’25. Any roadmap on that?

Azad Moopen — Chairman & Managing Director

Yes. So we are now — we have started looking at the rollout happening very well in the last year. We are now trying to consolidate whatever we have rolled out and bring it up to the levels which we want at the top line and bottom line. So we hope that the labs with the restructuring, which I mentioned, as it is aligned with the individual clusters, we hope that next financial year, we will go into a breakeven. And the pharmacy may take a bit more. The financial year after that, we’ll be able to go into a breakeven. And that’s our expectation. But the labs it is going in that direction and we hope that we’ll be able to go into a breakeven.

Unidentified Participant — — Analyst

Sure sir. Thank you so much and wish you all the best.

Azad Moopen — Chairman & Managing Director

Thank you.

Operator

The next question is from Rishab Tiwari[Phonetic] Please go ahead Rishab.

Unidentified Participant — — Analyst

Good morning. Thanks for the opportunity. I had a question regarding the Ind AS 116 impact. So what would be the Ind AS 116 impact on EBITDA in Q2 for India and GCC?

Sreenath Reddy — Group Chief Financial Officer

Yes. So in terms of the margins? So Indian markets will be — just give me a second. The India market in terms of EBITDA, apparently there will be any change in terms of the EBITDA as well as the margin because many of the assets are owned by us. But however in the GCC, there wil be at least on a consolidated basis around 2.5% difference in terms of the previous 116 and post IndAS 116.

Unidentified Participant — — Analyst

[Technical issue]

Sreenath Reddy — Group Chief Financial Officer

On India business, it is very negligible. [Technical issue]

Azad Moopen — Chairman & Managing Director

Your voice is breaking.

Sreenath Reddy — Group Chief Financial Officer

Better now.

Azad Moopen — Chairman & Managing Director

Yes, yes.

Unidentified Participant — — Analyst

So I’m saying it used to be around INR6 crores when you used to report the numbers, Pre IndAS and post IndAS. Is it closer to that number? Or has it changed?

Sreenath Reddy — Group Chief Financial Officer

Yes, it’s closer to that number.

Unidentified Participant — — Analyst

Okay. Thank you.

Operator

Thank you Rishab[Phonetic]. The next question is from Mehul Sheth. Please go ahead Mehul.

Mehul Sheth — Axis Capital — Analyst

Thank you sir. So first question around your India business, specifically on the hospital side. So we’ve done this 19.6% kind of EBITDA margin at 20% kind of a growth. Q3 it’s a weak seasonally. In Q4, it will pick up again. So what are your overall growth as well as margin guidance for FY ’23?

And how you see the margin trajectory beyond FY ’22 with the new hospitals [indecipherable]?

Azad Moopen — Chairman & Managing Director

Yes. So we don’t usually give any guidance on the margins and all. But what we see is that there has been, like what I said, one the occupancy is ramping up. Some of the places it has already gone to that high level, but some of the geographies like Karnataka and all, we have significant I mean, opportunities for growth. There’s occupancy still remaining there. As well as in Andhra Pradesh, in Telangana also, we have occupancy, which is there. So there will be a growth definitely coming from that. Regarding the margins also, we hope that with the strategy of having more of I mean, high-end cases, our margins should go up is what we feel. So a specific number, I’m not giving, but there could be some increase in our maybe 100 basis point, there could be a growth, even maybe up to 100 to 200 basis point increase in some of the overall when you look at — we hope that there will be an increase in the overall markets.

Mehul Sheth — Axis Capital — Analyst

And sir, one more thing on GCC part of the business. So what are your current status like your overall strategy of restructuring to separate of GCC in India and also some update on the Saudi Arabia, where you are now looking for a minority partner. So is there any progress across all these restructuring plans?

Azad Moopen — Chairman & Managing Director

Yes. So the restructuring, I already mentioned, the investment bankers have got expression of interest, and that’s being assessed and we will be — I mean, informing the Board as well as the exchange. But regarding this Saudi, we had earlier thought of either selling it completely or going for a minority partner there. But the business has significantly done well in the last six months, and it’s actually going into a good profitable state. So what we thought is that as there will be a new partner coming in when the restructuring happens and there will be some opinion which we’ll have to take from them, we shall take a call on that once the restructuring happens rather than doing anything now because it’s a major piece, and we don’t want this to be taken out or given out at all. So the thought is that let us wait for that. See whether and how it happens. And then in that case, we will do. Regarding the margin improvement, Amitabh, our CFO, GCC, will give some color to that.

Amitabh Johri — Chief Financial Officer, GCC

Thank you, Mr. Chairman. Good morning Mehul, on the business side, as Mr. Chairman called out, at least for the last three quarters, we’ve seen a steady growth on revenues as well EBITDA. This business in quarter 2 of last year was perhaps a business in rate. But today, we talk of almost 12% EBITDA margin in that business. And we’ve seen that trend line continuing where a month-on-month revenue increase is happening on that.

So we are confident about the steady growth of the business. And as Mr. Chairman called out, that’s reflective of our strategy also that we want to continue investing in that.

Mehul Sheth — Axis Capital — Analyst

Okay, sir. And sir, one book keeping question, kind of the tax rate for this quarter has been, it is like on a historically higher level. So what’s your guidance on the [technical issue]

Azad Moopen — Chairman & Managing Director

Sorry, I didn’t hear it clearly. If you can just repeat that.

Mehul Sheth — Axis Capital — Analyst

Yes, sure. So it’s about tax rate or tax outlook for the quarter. So it was on a higher side for Q2. It’s somewhere in the range of around 23% of PBT. So what, — why this tax rate was higher? And what’s your overall expectations?

Sreenath Reddy — Group Chief Financial Officer

Yes. So it is expected to be in similar lines what is in the second quarter because of the improved performance in India. So that is expected to be somewhere similar.

Mehul Sheth — Axis Capital — Analyst

So on — so basically, in the half year, your tax rate is something — somewhere in the range of 14%[Phonetic]. So we can see further increase in the tax rate somewhere?

Sreenath Reddy — Group Chief Financial Officer

Maybe not at 14%, not as a percentage, but what I said is more in absolute terms because the profitability in GCC in the coming quarters will go. And therefore, maybe taking as a percentage may not be appropriate. Maybe if you look at a percentage, then it would be somewhere in the range of around 7% to 8%.

Mehul Sheth — Axis Capital — Analyst

Sure. Thank you. That is all from my side.

Operator

Thank you Mehul. The next question is from [indecipherable] Please go ahead.

Unidentified Participant — — Analyst

Hi sir. Congratulations on good numbers on the India business. So I wanted to know just one thing. What is your key priority area other than the India business, which you have currently improved? So what are the priority areas to focus on in the GCC business? And where do you look at the steady-state basis the margins of overall GCC verticals of your pharmacies, clinics, and hospitals? So that is my question.

Azad Moopen — Chairman & Managing Director

Yes. So the GCC business, as you know, the first and second quarter, we have had, I mean struggle like all the players but it’s — usually, we have seen that it improves in the third and fourth quarter. So we definitely will see that the existing hospital — new hospitals, which are being started that goes into a decent occupancy level in the coming six months. So that’s one of the top priorities because these are fairly large hospitals in Oman as well as in Sharjah and making those hospitals profitable is the most important — single most important focus that we will have. Of course, we also are now focusing on the pharmacy business. Pharmacy earlier used to be a business which was focusing on just pharma mainly, not just, but pharma mainly. But non-pharma, it was much less. So what we have now done is that we are in the new pharmacies that we are opening, we are looking at locations where there could be more of non-pharma sales where the margins are much better when compared to the pharma. Now another thing which we are now looking at is that to look at the pharma — expansion of the pharma into other geographies, like, for example, in Saudi Arabia. We already have entered into an agreement to start 250 pharmacies in association with local, I mean, group there, where this will be rolled out in association with them.

So that is another very important area which we are looking at, first in Saudi and if possible, in other areas also. Apart from that, we are the most important, if you ask me, on a basis of business. I mean, in GCC first and then India, it is the digital transformation. See, we are on a digital transformation journey, which has started about two years back. We have been as our consultants and we have a big — I mean, a large number of technology staff who have joined, which is one of the reasons our salaries have gone up and our margins to some extent, taken a hit in GCC but the app is almost ready for the GCC. This is called the myAster app like what Alisha mentioned. That being rolled out, we will be the first in GCC to do that. We hope that we’ll be able to tie up the different pieces, the e-pharmacy first and along with that, the hospitals, clinics and our other offerings like home care and all, which will create that ecosystem, which nobody else has here and that will produce significant improvement in our overall performance in all the verticals like the hospitals, clinics, and pharmacies. So answering your question, yes. There are multiple pieces. One is a stabilization of the new hospitals, which have started, which we are very confident within a short period, we will be able to make it into a breakeven stage and then the pharmacy expansion and also then this app, which is being rolled out.

Unidentified Participant — — Analyst

Okay. Yes, that helps. And my second question is relating to a recent number of acquisitions and partnerships which we are recently done. So one of the things you have done is in Bangladesh is pharmacies. So can you talk a little bit about that?

Azad Moopen — Chairman & Managing Director

Yes. In Bangladesh, actually, it is not an acquisition. We are trying out another model where we want to franchise the pharmacies because Aster Pharmacy are very well known and respected in the GCC, especially in UAE. So we want to try out their franchise model in other countries. So what we are doing in Bangladesh is a franchisee arrangement with one of the good reputed groups there, where we are rolling out some pharmacies there. It is not actually an investment. It’s a franchisee model.

Unidentified Participant — — Analyst

Okay. Thank you. That is it.

Azad Moopen — Chairman & Managing Director

Thank you.

Operator

Thank you [Indecipherable]. The next question is from Ankit Pandya[Phonetic]. Please go ahead Ankit.

Unidentified Participant — — Analyst

Yeah, Hi. Am I audible?

Operator

Yes, Ankit, you are audible. Please go ahead.

Unidentified Participant — — Analyst

Thank you for the opportunity. So first question on the GCC business. So I know that you have already mentioned that at the PAT level because of the new hospital losses it has been negative. But is there any other line item or any other reason for the negative — for the PAT or like any change in depreciation or finance cost or anything like that, if you can comment on that?

Azad Moopen — Chairman & Managing Director

Amitabh, you would like to answer that?

Amitabh Johri — Chief Financial Officer, GCC

Sure, Mr. Chairman. So yes, thank you very much for your question, Ankit. Yes, the impact is largely because of the new hospitals because if you look at year-on-year comparison for quarter 2, there’s almost a INR28 crores increase in — on account of depreciation and right to use and almost INR12 crores impact is coming from the lease liability and interest that is coming over there because of the asset financing. So overall, that kind of puts INR40-odd crores of increased impact on the PAT from EBITDA.

Unidentified Participant — — Analyst

So by Q3 onwards, you expect that to — the hospitals to improve and PAT become positive from 2Q onwards?

Amitabh Johri — Chief Financial Officer, GCC

Ankit that’s a fair assumption because once the occupancy of the hospital increase, the revenue and the profitability will allow us to absorb this depreciation and the associated costs.

Sreenath Reddy — Group Chief Financial Officer

Yes. To add to what Amitabh said. See these new facilities will be under losses for some time. But like what I said earlier, Q3 and Q4 is a peak period. So the rest of the other facilities will contribute significant profit. And therefore, after considering the losses of the new hospitals at the net PAT level, it will be a profit number.

Unidentified Participant — — Analyst

Okay. Fair enough. And one on the cash flow so the [indecipherable] payables have gone up significantly by almost INR300 crores. So any reason — particular reason for that?

Amitabh Johri — Chief Financial Officer, GCC

Is this specific to GCC or India?

Unidentified Participant — — Analyst

No, overall on the total cash flow statement. From the balance sheet point perspective.

Amitabh Johri — Chief Financial Officer, GCC

INR300 crores have gone up and payables — trade payables.

Sreenath Reddy — Group Chief Financial Officer

Yes. So these are — see, these receivables as well as payables will be fluctuating. And this is something which is not [indecipherable] normal course of business. So those numbers keep fluctuating.

Unidentified Participant — — Analyst

Okay. That is it from my side. Thank you.

Operator

Thank you Ankit. The next question is from Harith. Harith please go ahead and unmute yourself.

Harith Ahamed — Spark Capital — Analyst

Hi, good morning. Thanks for the opportunity. So on these hospitals under O&M contract that you talked about, will you consolidate the P&L of these hospitals? Or will it be some kind of management fee that you’ll be booking?

Sreenath Reddy — Group Chief Financial Officer

No. So we’ll all be consolidating all the O&M. We don’t look at taking any management fee. At least in India, we don’t do that. But outside India, if it’s suppose like, for example, if you’re looking at say Africa or some other countries, then maybe we can think of such kind of a model while we take up these. But within India, it is all we consolidated all the revenues, profits or losses to our account.

Harith Ahamed — Spark Capital — Analyst

Okay. And you mentioned these contracts will come at lower margins. So is it because of the revenue share or a rent that you will be paying the owners of these assets? Or because of the nature of the markets that you expect for these hospitals to be at lower margins?

Sreenath Reddy — Group Chief Financial Officer

Yes. So it is both. One is the nature of the market, right? So because this [indecipherable] to towns. So naturally, that the affordability is slightly lower. So that is one. And two is that because we are also paying a percentage of the revenue. So both these factors will regulate margins.

Harith Ahamed — Spark Capital — Analyst

Any sense that you can give on the revenue share that you have typically in these kind of contracts?

Sreenath Reddy — Group Chief Financial Officer

Sunil, you would like to comment that?

Sunil Kumar — Head of Finance

Thank you. Yes, Harith it will be somewhere around 5 to 8 percentage, somewhere in between that.

Harith Ahamed — Spark Capital — Analyst

Okay. And then the second one is on the restructuring that you talked about for the GCC business. Can you help us understand if the promoters will continue to own a significant stake in the GCC business post the restructuring? Or will it be an outright sale of the GCC business? Some color on the structure that you’re contemplating will be helpful.

Azad Moopen — Chairman & Managing Director

Yes. So one thing which I just want to tell is that the restructuring is something that the Board or committee is taking forward. And there are various options, but the preferred option from the promoter side is to remain on both sides. So that’s what we have given as our preference. So we’ll be there on both sides is what as promoters we have mentioned.

Harith Ahamed — Spark Capital — Analyst

Okay. And this purchase of minority — additional minority stake in the MIMS subsidiary that you talked about. How many assets are there or how many hospitals are there under this subsidiary? Does it include the Kannur Hospital?

Azad Moopen — Chairman & Managing Director

Yes, yes. This includes all the hospitals in Malabar, which is Kannur, Calicut, the largest is Calicut, then we have Kottakkal and now we are also starting one in Kasargod where the work has just started. So all these hospitals come under and also, I mean, the Mother Hospital, which is one of the, I mean, operations management, which we have taken. So all this together comes under the Malabar Institute of Medical Sciences, and that’s the one where we are now increasing our stake.

Harith Ahamed — Spark Capital — Analyst

And doctor, can you help me understand the rationale for setting up some of these newer hospitals under this subsidiary instead of under the parent company, like the one in Kannur or the one you’re now investing in Kasargod, the reasons for setting this up under the subsidiary?

Azad Moopen — Chairman & Managing Director

So the recent main reason for this is that MIMS is recognized as a very, very prominent brand with a lot of confidence by people in the geography. So in North Kerala, that’s a brand which we started off and which is still having significant recall as well as confidence of the people. That’s one of the reasons. Second, MIMS as a business has got a good strong balance sheet, and it is easy for us to, I mean, utilize that funding for this purpose. So we thought that, that will be good to have under the Aster MIMS, I mean, brand rather than just going for Aster.

Harith Ahamed — Spark Capital — Analyst

Understood. Thanks for taking my questions.

Operator

Thank you Harith. The next question is from [indecipherable] please go ahead and ask the question.

Unidentified Participant — — Analyst

Hello, am I audible?

Operator

Yes, Nihar[Phonetic] you are audible.

Unidentified Participant — — Analyst

So considering that we are already established players in GCC, I just wanted to understand the managements thought behind wanting to dilute our ownership there? Like why are we even looking to restructure it? And what do we plan to do with the funds which we raise from this restructuring?

Azad Moopen — Chairman & Managing Director

Okay. So this is a question which we wouldn’t like to answer now because there has been a lot of discussion on why we should restructure and after a lot of thought, the Board has decided that we should consider that. So board has entrusted this committee, which is driving it. Like what I mentioned earlier, as promoters as we would like to be in GCC as well as in India. We don’t want to get into that, why this is being done, not being done. But this will come into the public once the Board subcommittee decide and the Board approves that. There are strategic reasons why we are considering that. We have earlier considered than postponed it. But at this point, we are seriously going forward and the investment bankers have been appointed who have got a positive response from people who want to take it. So this is a very thought of decision. But why is that? How is it being done? I don’t want to know they we want that.

Unidentified Participant — — Analyst

And what are we planning to do with the funds which we are like raising from it? Has there been a proper planning yet or.

Azad Moopen — Chairman & Managing Director

Yes. That also, again, the Board has to decide. Now once they decide to sell first thing is to decide to sell and if they consider that the price which India is getting from that is something which is, I mean, acceptable or beneficial for the listed company, then they will get that money. And by getting — once they get that money, they’ll have to decide how to use that. What is the purpose of that?

Unidentified Participant — — Analyst

Okay. That is it my side. Thank you.

Azad Moopen — Chairman & Managing Director

Thank you.

Operator

[Operator Instructions] Since there are no more questions, this concludes the earnings call for today. I thank you all and the management for joining us today. If you have any further questions or queries, please do get in touch with us. Thank you all.

Azad Moopen — Chairman & Managing Director

Thank you, Bala. Thank you very much. Thank you, everyone.

Sreenath Reddy — Group Chief Financial Officer

Thank you.