Aster DM Healthcare Limited (ASTERDM) Q3 FY23 Earnings Concall Transcript

Aster DM Healthcare Limited (NSE:ASTERDM) Q3 FY23 Earnings Concall dated Feb. 15, 2023.

Corporate Participants:

Azad Moopen — Chairman and Managing Director

Alisha Moopen — Deputy Managing Director

Amitabh Johri — Chief Financial Officer – GCC Finance

Sunil Kumar — Head of Finance of India

Analysts:

Nikhil Mathur — HDFC — Analyst

Amrish Kacker — Analysys Mason Limited — Analyst

Shyam — Goldman Sachs Group — Analyst

Nikhil Chandak — JM Financial Limited — Analyst

Unidentified Participant — — Analyst

Naman Bhansali — Perpetuity Ventures — Analyst

Presentation:

Operator

Good morning, everyone. I welcome you to Aster DM Healthcare’s Earnings Conference Call for the Third Quarter of Financial Year ’23. The company declared Q3 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 on the company website.

Today, to discuss the quarterly business performance and the future business outlook, we have the senior management team at Aster DM Healthcare available with us. It includes Dr. Azad Moopen, Chairman and Managing Director; Ms. Alisha Moopen, Deputy Managing Director; Mr. T.J. Wilson, Non-Executive Director; Mr. Amitabh Johri, CFO for GCC Operations; Mr. Sunil Kumar, CFO for India Operations. [Operator Instructions] Certain statements that may be discussed in the 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 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 Dr. Moopen to start with the opening remarks. Over to you, sir.

Azad Moopen — Chairman and Managing Director

Thank you, Bala. Thank you very much. Good morning, everyone. Thank you all for joining us for the earnings call for the third quarter of financial year ’23. The COVID-19 pandemic fortunately is very well under control with improving herd immunity of the population worldwide. We hope and pray that we won’t have the challenge of a portent variant in future. It’s very important that we remain vigilant about COVID as well as other infectious diseases, which are capable of playing havoc with health of world population as we have seen.

The International Monetary Fund recently published its forecast, paving a slightly less gloomy picture as the inflation [Technical Issues] 2022. Consumer spending remains robust and the energy crisis following the Russian invation of Ukraine has been less severe than initially feared. That’s not to say that outlook is rosy as the global economy still faces major headwinds and a fall in growth from 3.4% in 2022 to 2009% this year before rebounding to 3.1% into 2024. However, it is relieving that IMF predicts the slowdown to be less pronounced than previously anticipated.

As per IMF, growth in India is set to decline from 6.8% in 2022 to 6.1% in 2023 before picking up to 6.8% in 2024. With resilient domestic demand despite external headwinds, meaning India will remain the world’s fastest-growing major economy, both in 2023 as well as in 2024. With the thriving economy and our strategic initiatives, we are able to produce excellent revenues and profitability growth in India already. And we hope that we’ll be able to continue that. The oil and non-oil sector in UAE continues to do well with good growth being predicted in 2023 showing resilience in the face of global economic headwinds.

UAE continues to be a preferred destination for business and people, but the saturation in the health care sector is producing demand supply issues in the sector, and that’s reducing the growth. The interaction of corporate tax as well as the insurance-related issues shall have an impact on the profitability of business. One of the major opportunities in the GCC is the opening up of Saudi Arabia and with large population and the thriving oil economy. Alisha will speak more on this, and you will — you can hear more about this from her.

Let me now discuss the financial performance of Aster for quarter three financial year ’23. At a consolidated level, we posted a revenue of INR3,192 crores, which is an increase of 20% when compared with the same period last financial year. EBITDA was INR449 crores when compared to INR397 crore in financial year ’22, an increase of 13%. EBITDA growth has impacted due to the loss from new hospitals in GCC. Adjusted for this loss, EBITDA was INR468 crore, an increase of 15% over the last quarter — over the last year Q3. Profit after tax post NCI stands at INR159 crore when compared to INR148 crore in quarter three of financial year ’22.

Profit after tax, excluding losses for new hospitals is INR180 crore, a growth of 12%. The Aster India business continues to grow very well with revenues growing at 25% to INR771 crore and EBITDA increasing by 13% to INR115 crore, and the profit after tax stood at INR30 crores as compared to INR27 crores in financial year ’22 with a growth of 11%. With respect to the GCC business, revenue grew 19% year-on-year to INR2,421 crore, and EBITDA grew 13% year-on-year to INR334 crore as compared to INR296 crore in the same period last financial year.

Moving to the operational updates in the quarter. Aster India continues to have excellent growth as seen from the above numbers and is slated to grow further in the coming years. Some of our hospitals have reached almost full capacity, and we are adding new beds in such areas. We are also setting up new hospitals in the geographies where Aster is the leading brand. The work on the new 200-bed Aster Hospital Kasaragod has bigger. We are also in the process of adding 100 beds in Aster Hospital Kannur and 100 beds in Aster Hospital — Aster Medcity Kochi because it’s already working on almost full capacity.

The work on the Phase two of 275-bed Aster Whitefield Hospital in Bangalore is nearing completion, and we shall soon be starting the construction of a Phase I through 350 Aster Capital Hospital in Trivandrum. One of the strategies we adopted is to add more beds by the O&M model, O&M asset-light model to take health care to the suburban areas without incurring a lot of costs. In the last quarter, we added 150 beds at Tirupati, Andhra Pradesh. And we are adding another 100 beds this quarter in Mandya in Karnataka.

The total number of beds added this financial year through this model in three asset-light hospitals is 390 beds. We also acquired 100% share in Adiran IB Healthcare Private Limited through a subsidiary, Dr. Ramesh Hospitals at a cost of just INR1.6 crore. With this acquisition of 50-bed hospital, we now have a total capacity of 263 beds in Vijayawada and 913 beds in six hospitals in AP, become the largest health care provider in the state with presence in Vijayawada, Guntur, Ongole and Tirupati. We are adopting strategies to improve the revenue and margins in the state, including the acceptance of orogastric cases.

Last year, we announced our intent to increase the stake in the profitable Malabar Institute of Medical Sciences MIMS subsidiary, a subsidiary which operates four hospitals in North Kerala with 1,464 beds. We have started the process and are hopeful to increase our stake from 74.14% to over 76% in coming months. Coming to other asset-light businesses as on 31st December 2022, we have a total of 239 Aster Pharmacy branded retail stores, 105 in Karnataka, 72 in Kerala, 60 in Telangana and two in Andhra Pradesh, which are operated by Alfaone Retail Pharmacies Private Limited.

The Aster Labs has established its presence in Karnataka, Kerala, Maharashtra and Tamil Nadu, Andhra Pradesh and Telangana. As of 31st December 2022, there are two reference labs, 18 satellite labs and 157 patient experience centers. The restructuring of the lab management with the expansion of retail pharmacy outlets will enable us to establish Aster omnichannel ecosystem more effectively. I’m happy to let you know that Aster Health Academy, which was launched recently with the headquarters at Bangalore shall be leveraging our internal capabilities and external resources to develop the next generation of health care leaders.

Apart from managerial process, the academy is also developing repository of clinical process in collaboration with world-class health care providers. In GCC, there were some challenges last quarter due to the losses from the new Aster Hospital Sharjah and Aster Royal Hospital Muscat. These are temporary in nature and utilization of these hospitals is expected to increase in the coming quarters. The future opportunity in GCC, Saudi Arabia with a population of 30 million, it is equal to the combined population of all of the GCC countries. We were struggling earlier with the Aster Sanad Hospital in Riyadh, which has now turned profitable with 10%-plus EBITDA margin this financial year.

We are looking at other opportunities, including the rolling out of a network of pharmacies. Alisha will talk to you more on the GCC related matters. I wanted to inform you certain management changes which has happened during the quarter. Mr. Sreenath Reddy has stepped down from the post of Group CFO on 5th January 2023, which was a planned activity on the basis of restructuring of the company, which is in progress. That’s a restructuring where we think that the GCC and India demerged our — I mean, the structure will change. Going forward, the GCC finance matter shall be looked after by Mr. Amitabh Johri, who is presently the CFO for GCC as well as the India part shall be looked after by Mr. Sunil Kumar, who is presently CFO of India.

Accordingly, both of them shall be addressing you on both geographies today, and they will be available for any queries and now as well as in the future regarding the investment-related matters. The Investor Relations position, which was vacant, has been filled up by a highly experienced senior IR portioners, who will be joining us in April. We will also be responsible — he will also be responsible for our M&A activities in India. We have begun the process of selecting the CEO for India and expect to have the position filled within the next two months.

Status of the restructuring. We have been updating you about the progress of the restructuring process. While we have shared in the past that Board formed a subcommittee on March ’22 and appointed investment bankers in June ’22, we had reached out to the potential investors — who had reached out to the potential investors. The company’s investment bankers have received interest and indicative terms for potential buyers of Gulf Cooperative Council Region business. The investment bankers are working actively with the potential buyers on terms and their advisers are conducting due diligence on the GCC business.

The investment bankers have communicated that binding bids are likely to be received in the quarter one of financial year 2023-2024. Upon submission of the final evaluation by the investment bankers, the Board shall review the proposal of sale of the company’s business in GCC. Appropriate intimations and impact disclosures will be made as and when any conclusions have arrived at and approved by the board.

I now request Deputy Managing Director, Alisha Moopen, to elaborate more on GCC business, the digital transformation and other strategic initiatives undertaken by Aster. Thank you very much.

Alisha Moopen — Deputy Managing Director

Thank you, Chairman. Good morning, everyone. As Chairman mentioned, we are seeing the COVID receding and UAE is seeing an increased topic of visitors and return of its staffs who have moved out during this COVID period. The overall numbers of GCC has seen a revenue increase of 19% on the revenue and 13% of the EBITDA over the last year. The GCC business, EBITDA, excluding operational losses from the new hospital commission during this period is INR468 crores, which is a growth of 15%. If you look at it at a segmental level, the hospital revenues during the quarter 3, it increased by 22% year-on-year.

We expect this hospital business to grow larger, especially with the installation of the new beds of Sharjah and Oman. But the impediment of the new facilities has been a little bit more extended and delayed than we had anticipated. This is the intense negotiation that is a reality of an med-free insured market that we are facing. We want to make sure that we get the right contracts and the right rates in place for the large facilities and big infrastructure that we are building up. So while we were hoping that most of this will be done by the end of Q3, this has starting a little bit more delayed than we anticipated.

But we know that we will be seeing much larger growth as these impediments are complete. The retail business on the other hand actually saw an increase in revenue of 36%, and that kind of lends itself to the focus we’ve had on increasing noninsurance business in the clinics and also in the clinics, we are seeing the core revenue, which is excluding the PCR, showing an increase of more than 35%. On the business update, as Chairman mentioned, we are kind of [Technical Issues] for Saudi in a big way. We are working on all the regulatory approvals to set up the joint venture with our partners Al Hokair Group.

We are expecting to set up our first facilities in Q1 ’23-’24. Our plan for the first year is to have 50 pharmacies to be rolled out and things are working according to the plan so far. We also launched Wellth, which is a hub of integrated medicine in UAE, which was in November last year. This was, again, to move towards a more wellness initiative within the UAE to help people leave more healthier lives, alleviate chronic lifestyle diseases and also have them preventive medical treat flections.

Wellth is managed by Medcare and has a whole wide range of services, which includes anti-aging regenerative medicine consultation, addiction management, prevention, osteopathic fracture and a fully integrated wellness thought. This also includes DNA test base, chronic disease management and actually these are completely new venture within the Medcare vertical. On the Aster Pharmacy front, which is the retail arm, we have entered into a strategic partnership with UAE’s largest online food delivery and food commerce platform Talabat to bring prescription medicines directly to the front door of patients in Dubai.

Post-COVID, what we are seeing is an increased activity of delivery of medicines, but we wanted to extend it one step further to enable prescription delivery with this aggregator partnership. Under the strategic path, Aster Pharmacy customers, they can upload their — the Talabat customers can upload their medical prescription securely and GPay to the Talabat app to make the prescription medicine purchases beginning 1st February 2023. This partnership is decided to save consumers time and money in line with the buying vision to provide the highest quality of specialized and accessible health care to its community members by pursuing efficiency, appropriate allocation and utilization of resources.

It each creates a complete ecosystem of care that fully utilizes their latest technologies to enhance patient-centered care and ensure medication adherent compliance in line with Aster DM’s mission to improve Aster stability to health care. As Chairman mentioned, we have made good strides as far as our digital health ambition is concerned. Our asset-light asset has seen significant traction in the third quarter. We are currently advancing for one premedical app in the UAE, both in the Apple Play Store, Apple Store as well as the Google Play store with currently at around 220,000 downloads, which is up from 86,000 in the last quarter.

Both the consultation and the e-pharmacy services that are live on the platform has seen significant growth during this time. Now the major improvements that were made was smoother appointment bookings, quicker search, conversion-focused product listing and product detail pages, all of this feature is done on the basis of consumer research and feedback, which we update in our private datas. In the third quarter, we had more than 38,000 appointments book through myAster. We’ve had nearly one million transactions on the app, a combination of appointment bookings as well as the pharmacy orders.

This number has continued to scale since the e-pharmacy orders has increased 150% month-on-month. Our non-prescription orders on our digital channels have also grown by two times in comparison to the prior quarters. And this is continuing to scale as well. The home delivery business continues to trend more than AED10 million on average per month. We are working on improving our efficiency of our rider-base using state-of-the-art technology, which will help us to scale the digital orders without a major increase to our cost base.

I will now request our GCC CFO, Amitabh Johri and India CFO, Sunil Kumar to take you through the details of the financial and segmental performance for the quarter. Thank you.

Amitabh Johri — Chief Financial Officer – GCC Finance

Thank you, Alisha. Good morning, everyone. On a consolidated basis, our revenue from operations for the quarter is INR3,192 crores. It’s an increase of 40% on a year-on-year basis. Consolidated EBITDA for the quarter was at INR449 crores as against INR397 crores, which is again a growth of 13%. This quarter also saw operational losses from three new businesses in GCC, namely Aster Hospital Sharjah and Aster Royal Muscat. And one India hospital [Technical Issues] Hospital Areekode. This impacted the quarter’s EBITDA.

So excluding the losses from these new losses, the EBITDA stands at INR468 crores as against INR406 crores during the same period of the last financial year, which is a growth of 15%. Consolidated PAT post NCI is at INR139 crores as compared to INR148 crores [Technical Issues] excluding losses from new hospitals, as I called out earlier, the PAT post-NCI stands at INR180 crores. Coming to the nine months performance, the revenue from operations stood at INR8,671 crores. It’s a growth of 15% compared to the same period last financial year. EBITDA for this period was at INR1,060 crores compared to INR1,021 crores in FY ’22 nine months.

Excluding the losses from the new hospitals, GCC and India, the EBITDA was at INR1,123 crores, which is a growth of 9%, PAT post NCI was at INR254 crores compared to INR300 crores in the FY ’22 nine-month period. Excluding the losses from new hospitals and onetime other income, the PAT stood at INR346 crores, which is 11% growth over the same period last year. Specific on the revenue from GCC operations was at INR2,421 crores, it’s an increase of 19% on year-on-year basis. Our previous year had significant COVID revenue, which makes some of the revenue and EBITDA numbers as not comparable. Q3 for the last year had almost INR207 crores of COVID revenue.

The core business revenue growth, excluding this COVID testing was 32% on a year-on-year basis. EBITDA from GCC operations stand at INR334 crores as against INR296 crores in quarter three of FY ’22. Excluding losses of new hospitals in GCC, the EBITDA stands at INR350 crores in Q3 FY ’23, which is a growth of 15%. Coming to the segmental reporting, as Alisha had called out, performance for the quarter has been good. The GCC hospital revenue was at INR1,059 crores, an increase of 22% on a year-on-year basis, and the EBITDA stands at INR171 crores compared to INR141 crores in FY ’22 Q3. It’s a growth of 21% year-on-year basis.

Excluding the losses from new hospitals, the hospital segment had a EBITDA of INR188 crores. The adjusted EBITDA margin for losses from new hospital was 18.1%. GCC clinic revenue stands at INR662 crores, an increase of 4% year-on-year. Normalized for COVID testing, the core business of the clinic segments saw a healthy growth rate of 35% in this quarter. It’s also a resumption of normal business from GCC perspective. EBITDA for GCC clinic segment stands at INR142 crores, which is at a 21.5% margin. GCC pharmacy’s revenue increased 36% year-on-year basis on the back of our new initiatives like e-pharmacy, home delivery and new stores being open.

From a revenue of INR608 crores to INR829 crores on account of additional sales have been generated in this quarter. EBITDA increased from INR72 crores to INR98 crores, is an increase of 29%. EBITDA margin for this segment is at 11.9%. The GCC net debt stands at INR203 crores as of 31st December compared to 197 — sorry GCC net debt stands at USD203 million as of 31st December ’22 compared to USD197 million as of 31st December — 31st March ’22.

Now I request the CFO of India Operations, Mr. Sunil Kumar, to take you through the India performance during the period.

Sunil Kumar — Head of Finance of India

Thank you, Amitabh. Good morning, everyone. For the quarter ended 31st December 2022, India revenues have increased to INR771 crores, up by 25 percentage from INR618 crores in Q3 FY ’22. EBITDA from India operations have increased to INR115 crores with EBITDA margin of 15 percentage compared to INR102 crores in Q3 FY ’22 with a growth of 13 percentage. Excluding the losses from the new hospital Aster Mother Hospital Areekode, EBITDA is at INR118 crores in Q3 FY ’23 with a year-on-year growth of 16 percentage.

For the nine months performance, the revenue from operations stands at INR2,179 crores with a growth of 23 percentage compared to INR1,776 crores for nine months FY ’22. EBITDA from India operations stands at INR326 crores with a margin of 15 percentage in nine months FY ’23 compared to INR275 crores in nine months FY ’22 with a growth of 19 percentage. Excluding the losses from the new hospital, EBITDA is at INR336 crores in nine months FY ’23, with the growth of 22 percentage compared to nine months FY ’22.

PAT post-NCI is at INR99 crores compared to INR49 crores in nine-month FY ’22 with a growth of 104 percentage year-on-year. With respect to segmental performance, revenue from India hospitals and clinics stands at INR735 crores in Q3 FY ’23 with a growth of 20% year-on-year. EBITDA stands at INR132 crores with a margin of 18 percentage in Q3 FY ’23 as compared to INR110 crores in Q3 FY ’22 with a 20% growth in year-on-year. Excluding the new hospital, the EBITDA stands at INR135 crores in Q3 FY ’23 with a year-on-year growth of 23 percentage.

Aster India net debt stands at INR455 crores as on 31st December ’22 compared to INR319 crores as at 31st March ’22. The capital expense for the nine-month period is at INR190 crores. On that note, I conclude my remarks. We would be very happy to answer any questions that you may have.

I now request Balachander to open the question-and-answer session. Thank you.

Questions and Answers:

Operator

[Operator Instructions] So I would request Nikhil Chandak to raise the first question. [Technical Issues]. I would request the second question, Nikhil Mathur to ask this question, please.

Nikhil Mathur — HDFC — Analyst

Hi, however. Hello.

Azad Moopen — Chairman and Managing Director

Yeah, hi. Yes, thank.

Amitabh Johri — Chief Financial Officer – GCC Finance

Yes, you’re right.

Nikhil Mathur — HDFC — Analyst

Yes, hi, good morning, everyone, two, three questions I had. The first question is on the losses currently sitting in the zero- to two-year maturity profile hospitals. If I look at GCC and India combined, this loss in nine months at EBITDA level is around INR66 crores. Given the planned bed additions in FY ’24, do you expect these losses to further go up? Or are you now reaching a stage where some of the losses are still start getting absorbed with incremental revenue. So we might be entering a phase of flattish losses from these maturity profile hospitals.

Azad Moopen — Chairman and Managing Director

Yes. So Amitabh, do you would like to take it up for GCC and Sunil for India?

Amitabh Johri — Chief Financial Officer – GCC Finance

Sure, Mr. Chairman. Nikhil, thank you for the question. So if you look at from a GCC perspective, as we called out, there are three hospitals that have been opened recently. We’re having operating losses at least for Q3. Alisha had alluded to some of the impediments that are open, which we expect to come sometime between quarter four of this financial year and quarter one of next financial year, so FY ’24.

Assuming that happens, it will allow us to start reducing the losses, and we expect that by at least quarter three or quarter four of next financial year, we should start seeing neutrality coming in, in terms of initial losses reducing significantly. That is on the profile of these three hospitals that at course. Sunil, I request you to pick up the India…

Nikhil Mathur — HDFC — Analyst

Yes, just one follow-up here. What is the planned bed addition in GCC in FY ’24?

Amitabh Johri — Chief Financial Officer – GCC Finance

So we are looking at incremental beds of almost 150 — close to 210, 220 beds right now. When I say that 220 beds, this is between the next building that is coming up in Saudi. That’s around 50 — 659 beds that are here. And incrementally, we are looking at another facility coming up in Dubai, where we have taken a fully fitted out facilities who are creating a multispecialty hospital.

Alisha Moopen — Deputy Managing Director

So, Nikhil, just to add to what Amitabh said, the two new beds — this year the new hospitals, which would be coming up in FY ’24. One of them will not have this insurance issues because it’s already an extension — it’s an extension of existing release. So, there is no an panel men that is required for that. The other hospitals will only be commissioned by Q4 of 2024 — I mean Q1 of ’24, basically January — around January time next year. So we again do not see losses of that unit for this coming year. So as Amitabh mentioned, we expect the losses of these three hospitals to flatten out with increasing revenue and increasing occupancy by Q3 this year.

Sunil Kumar — Head of Finance of India

India, a bit of it, see, zero to three years, we have about 22 hospitals specifically Aster Mother Hospital Areekode, and Whitefield Hospital. That’s — in the Whitefield Hospital, we’ve got three blocks, A, B and C. Only the current operation is the women, children block where our losses are hardly anything there. So whatever the losses which you are seeing is majority contributed by Mother Hospital Areekode. And this is being a O&M model, we don’t expect that loss to continue the next year. So that is one bit of it. From the next year point of view, the major hospital, which is going to get operational is only Aster Whitefield, we end new block with 275 beds.

And as you know, that’s a bigger capacity with a full-fledged multi-specialty, including oncology, which we are commencing. So loss is going to be a good number. But at the same time, that is the only hospital which is coming up immediately. And what we see is other additional beds is going to come up only in the O&M projects, where we don’t expect anyway just. So with that being in the — keeping the picture, we don’t expect huge losses in the coming years. That’s going to be very minimal, whatever you’re seeing there. So inner and around, that number should be there.

Nikhil Mathur — HDFC — Analyst

Sure. The second question I had was on your initiatives on the pharmacy side in India. How many stores are you planning in India in the next 12 months, 24 months? And a question tied to that is that we have seen a couple of companies now listed Metlife and Apollo, having a very sizable presence in the southern market of India and also expanding into West. Being the third big entrant on the organized side, I mean, isn’t it a bit late in the game because you already have a fairly established market on the pharmacy side and then you have to incumbent. So how is your difficult would it be to kind of make a presence as a third player in this market?

Azad Moopen — Chairman and Managing Director

So Nikhil, I’ll answer the first part of that and — second part of that, and Sunil will answer about the numbers, the number of units and all. So strategically, what we thought is that unlike other players who are much larger and much bigger, we are not looking at catching up on these numbers. What we are looking at are two things: one, an ecosystem to be created between our hospitals, pharmacies, labs and home care, which will — with the myAster app, which is now launched in GCC coming into India in the next six to eight months, this will tie up the patient and all the requirements of the patient. We have been talking about the omnichannel, which we hope that is the difference that we can provide unlike other providers, of course, some of our — I mean competitors or peer group have got that, but not to this level that we are looking at where we are tying this up.

So for that, it is important that we have the pharmacies also. So if you look at the geographies where we are rolling out, this is not pan-India. We are looking at geographies where we already have hospitals and we can extend that whereby, for example, the patient who is discharged giving the medicines from the pharmacies around or doing the strong labs up there and even the home care post discharge. So we want to create — want the brand to have a wider presence. And second, to provide the patients that care.

So number wise, we are not going to be anywhere near that, and that is the most important thing. The second part, which we are trying, we are again not looking at the — I mean, the profits which are coming up from the actual medicine supply and all, we are looking at our own white-label products. We have this advantage of having the GCC business where we have a large number of white-labeled products. We are also trying to get this benefit in India, where we will be now looking at having white-labeled products, which are much more profitable when compared to the normal medicines.

And we know that’s a cutthroat competition with huge discount and all. We don’t want to go into that online or off-line players, but we’ll be looking at having a better margin through the white-label products. Sunil, will tell about the numbers.

Sunil Kumar — Head of Finance of India

Yes. Thank you, Chairman. Adding on to that, Nikhil, number-wise, we already had 239 pharmacies, and we are expecting to close the year with around 260 to 270 pharmacies. And the next one year, we are looking in a range of 125 to 150 pharmacies is what we look at, at least in every year, we want to add up. That’s a number bit of it.

Nikhil Mathur — HDFC — Analyst

Sure. And then one more question, if I may just squeeze in. The O&M model, I understand it is more for India that we’re talking about 300, 350 bed additions. Can you give some sense on what’s the EBITDA per bed that you are targeting from this O&M model? I mean I think in India, you are at INR24 lakhs, INR25 lakhs EBITDA per bed basis last quarter number. So any sense on how the EBITDA per bed can look like in this O&M model?

Azad Moopen — Chairman and Managing Director

Sunil, do you want to answer that?

Sunil Kumar — Head of Finance of India

Thank you, Nikhil. More than EBITDA per bed, I would like to give you on the margin bit of it. See, in this O&M model, right, we are — you know that we are putting in Tier two, Tier three cities. That means op costs are going to be lower. Second is that we are not — we’re going to treat the skin patients also because volume is the key there. So considering all those things and also the capex investment is very low. That means to say we’re getting the existing hospital with the — most of the equipment being there and our investment on the — what we call equipment, will be less.

I’m talking about INR5 lakh to INR10 lakh per bed. So keeping that in mind, my revenue share will be on a higher end. And here, we look at a margin somewhere between around 15 percentage. So that’s the number we’re looking. We’re not looking at what we are in other hospitals wherein we are 20% above, 25% above. So that margins we are not looking at. It will be lower margin, but a higher ROC. That’s what we expect there.

Nikhil Mathur — HDFC — Analyst

So in terms of accounting, you will book proportionate revenues and — or it would be a management fee, what would you be looking at?

Sunil Kumar — Head of Finance of India

No, it’s not a management fee, it’s just like the other O&M models, we book the complete revenue and complete profitability. The whole accounts will be running by us. And we instead — instead of we charging a management fee, we give a revenue share to the landlord.

Nikhil Mathur — HDFC — Analyst

Okay. And where is that expensed out, the revenue share to the landlord?

Sunil Kumar — Head of Finance of India

That will come as your normal rent basically on the EBITDA and EBITDA, right? So rent…

Nikhil Mathur — HDFC — Analyst

Okay. Little bit as a lease, right?

Sunil Kumar — Head of Finance of India

Right. Exactly.

Nikhil Mathur — HDFC — Analyst

Okay, okay, understood. Thank you so much.

Sunil Kumar — Head of Finance of India

Thank you.

Operator

The next question is from Amrish Kacker. [Operator Instructions] And go-ahead and ask your question.

Amrish Kacker — Analysys Mason Limited — Analyst

Thank you for the opportunity. My first question is just a follow-up on the O&M question. So I think the strategic rationale has been explained quite clearly. We also understand for our own brownfield and greenfield, what the future expansion looks like. Could you help me to understand how should I think about what the additions on beds could be looking out two, three, four years into this — into the O&M model?

Azad Moopen — Chairman and Managing Director

No. What was that question, last part of it, that I didn’t…

Amrish Kacker — Analysys Mason Limited — Analyst

How do I think about what is the capacity — incremental capacity for O&M hospitals going forward?

Azad Moopen — Chairman and Managing Director

So we think that we’ll be able to add around 500 beds in a year through this model. This year, we already have reached 390 beds or so. And we have one hospital, which is in closer state. So what we do is that we do a thorough DD. And we want to have all the requirements like the legal as well as other statutory requirements being met. Then only we enter into that. We have at least 15, 20 in consideration, but we make it very, very clear that we will enter only if all the requirements are being met.

So at least one more hospital, we hope that we’ll be able to do it this year or early next year, first quarter of next financial year. So answering your question, we are talking about adding about 500 beds in a year. And the best part of that is that, like what Sunil was mentioning, our total cost for this is so low, and that is going to have a high impact on our ROC.

Amrish Kacker — Analysys Mason Limited — Analyst

And this is the medium term, I mean we can think about this 500 beds a year for medium term, not just next year. The second question is just trying to understand a little bit more on the pharmacy and lab profitability. So we do now show the numbers, EBITDA and revenue numbers split out. And if my understanding is correct, the pharmacy business should — because it’s run by a third party, we should not be having a lot of losses in that. So is it mainly the labs that has a negative EBITDA. Could you help to understand — explain that a little bit?

Azad Moopen — Chairman and Managing Director

Sunil?

Sunil Kumar — Head of Finance of India

What you said is exactly right, right? So whatever we’ve given the segmental portion that covers only the labs and wholesale pharmacy. And as you know, pharmacies are managed by another company called CRPPL. So we don’t consolidate that numbers, but capture the wholesale revenue out of it. And as rightly said, 80% to 90% of the losses which are sitting there, that is contributed by Aster labs. You’re right.

Azad Moopen — Chairman and Managing Director

Just to extend that, I also wanted to just — Amrish, I wanted to add that. The labs we have done a restructuring earlier this was being run as a vertical across all the geographies. Now we have aligned it with our individual hospital clusters. So this has produced a significant impact because now that ecosystem has started working, and that is producing one increased awareness as well as sales.

Second, the cost also has come down. So we hope that by — maybe in six months to nine months, we’ll be able to go into a breakeven on the lab side. That is our hope that at least by next year, we’ll be able to — towards the third quarter, we’ll be able to go into a, I mean, breakeven state in the lab.

Amrish Kacker — Analysys Mason Limited — Analyst

If I may just slip a quick question in on the debt. How should we think about the debt evolution in India — net debt?

Azad Moopen — Chairman and Managing Director

Yes. Sunil?

Sunil Kumar — Head of Finance of India

Amrish, on net debt, excluding the lease liabilities, right, we should be in the range of which 2:1 ratio in our own net EBITDA ratio would be around two. That’s why we are looking at. Even now also, we are at just I think 1.6 or 1.7. So considering that the capex, what we already communicated around INR198 crores are spent under the current financial year, we are — because Whitefield is going to be operational and major medical equipments are going to be purchased in the last quarter.

So we see that capex growing to more than INR250 crores, INR300 crores. So — and as per the previous guidance we’ve given, we expect to incur around INR250 crores to INR300 crores going forward also considering we have got almost 1,800 beds in pipeline. So keeping all this in mind, we will be able to keep that ratio, net debt to EBITDA, excluding lease liabilities below around two is what we — what I see.

Amrish Kacker — Analysys Mason Limited — Analyst

Thank you very much and all the best.

Sunil Kumar — Head of Finance of India

Thank you.

Operator

The next question is from Shyam [Phonetic] if you can go ahead and ask your question please.

Shyam — Goldman Sachs Group — Analyst

Yeah, good morning and thank you for taking my question. Just a question, just like from last quarter, I think the Andhra, Telangana region, if there is an update because that seems to be the one underperforming cluster in the India business. So do you think that fiscal ’23, it’s going to be difficult and maybe we rebase and look at ’24 as the earliest when this business can grow?

Azad Moopen — Chairman and Managing Director

Exactly. So that’s what we are also trying, while this quarter may see some improvement in the margins as well as overall profitability. But we hope that with the changes that we have brought in, including bringing some of the advocacy related hospitals, which we were losing out. That was a strategic failure, which happened two, three years back, but the COVID revenues filled it up.

But now we are thinking that with that also coming into the picture, we’ll be able to go to that pre-COVID levels of profitability. So you are absolutely right. With this, I mean, changes, we hope that it will go into — I mean, the earlier levels as well as to the EBITDA as well as revenues going up.

Shyam — Goldman Sachs Group — Analyst

Dr. Moopen, just probing here. When you look at the historical, let’s assume fiscal ’22 or ’21 margins may be COVID. I’m looking only Andhra, Telangana cluster. It’s margin 16% or 19%, right? Do you think that can be achieved, right? Or should we look at the fiscal ’20 where 15% is the right number to go by?

Azad Moopen — Chairman and Managing Director

Yes. So I will rather go for that 15% in the near future, next financial year, and then we hope that we’ll be able to go beyond that in the — as we go forward. Yes, what you said is right.

Shyam — Goldman Sachs Group — Analyst

Got it, sir, helpful. The second question is on the GCC pharmacy. I think pretty solid numbers for this quarter. I think there’s an acceleration even when I look at Y-o-Y growth Q2 versus Q3 also. So what’s driving that acceleration? Is it additions of a new pharmacy and rollout? Or is it just the same store also growth seem pretty strong?

Azad Moopen — Chairman and Managing Director

Alisha, you would like to answer that?

Alisha Moopen — Deputy Managing Director

So it’s a combination of what we haven’t added too many new stores. So there is a lot of focus on same-store growth itself. I think we have been changing the assortments. We believe we think for like what Chairman was saying, our own product sale of our own products. We’ve been working on our wholesale and distribution business, where our products are now in the supermarkets and the beauty free. So there’s been a whole range of effort to sort of make sure there’s a more balance between prescription and nonprescription dispensation. And so it’s not really just new store additional growth. I think we added around 30 pharmacies last year. Amitabh, you want to just…

Amitabh Johri — Chief Financial Officer – GCC Finance

So, Alisha, the last quarter, we have added only 12 pharmacies.

Alisha Moopen — Deputy Managing Director

No, the whole nine months for this year.

Amitabh Johri — Chief Financial Officer – GCC Finance

Nine months, 30-odd pharmacies. So, it’s not that much, in fact, just to add in to what Alisha said. In the initial months, we don’t see too much of our sales boost coming from the new pharmacies. So it’s more around operational efficiencies and the whole dispensation on the cataloging that we have done, that has allowed us to gather more sales revenues.

Azad Moopen — Chairman and Managing Director

So Shyam, I’d like to chip in here. So one of the things which Alisha mentioned in her speech was the myAster app and the home delivery. So this has a definite impact on that. And we hope that this will be the driver as we go forward, and that is going to be one of the major areas of focus for the company to go into that area of digitalization as well as the e-commerce base.

Shyam — Goldman Sachs Group — Analyst

Got it. And just last follow-up. Is just the dilution in the margins when I look at nine months or even quarter three over last year, is it the investments that is leading to dilution in margins and we should look towards, say, at some point of time, margins to be at least stable in this segment?

Alisha Moopen — Deputy Managing Director

You’re talking about the pharmacy, Shyam?

Shyam — Goldman Sachs Group — Analyst

Yes. Yes. Yes, Alisha.

Alisha Moopen — Deputy Managing Director

Yes. So some of it is the new investments and like our Chairman said, as we are building up the myAster platform, we obviously have had — we’re doing some free deliveries, all of that kind of increased the scale up and adoption of the platform itself, but we expect it to sort of stabilize to what it was at the nine percentage, 10 percentage. But we really wanted to ensure that we are able to kind of push on the adoption, but we also wanted to do it without losing any money, we not just go with making it negative, but there’s a slight dilution in margin you’re seeing because of that increase.

Shyam — Goldman Sachs Group — Analyst

And the last data point, what’s the private label sales now? And how has that been trending?

Alisha Moopen — Deputy Managing Director

It’s roughly around 15%. So we’re seeing a good improvement on that, which used to be around 11%.

Shyam — Goldman Sachs Group — Analyst

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

Alisha Moopen — Deputy Managing Director

Thank you.

Azad Moopen — Chairman and Managing Director

Thank you.

Operator

The next question is from Nikhil Chandak. Nikhil, [Operator Instructions]

Nikhil Chandak — JM Financial Limited — Analyst

Yeah I think so. I really I can’t. Thanks. So. I had just one question, and this was on the GCC restructuring. I did see the comment in the notes to the account that you were expecting certain bids, etc, in the first quarter of next financial year. What I wanted to check is — please if you can share what is the broad thought process? Now this initiative has been on for more than a year, if I recollect. So I’m sure you broadly have a structure in mind. What I wanted to check is, are you looking at a complete exit of the GCC business and delinking the Indian listed entity from the GCC business?

Or do you envisage a structure where the Indian entity continues to hold a part shareholding in the GCC business? And the third leg is if you are exiting the GCC business completely, I’m sure you would have some thought process on what do you do with the cash? Do you put it in. [Technical Issues]. I think some more concrete information on this will help because depressing the valuations of the listed stock?

Azad Moopen — Chairman and Managing Director

So I will give you some insights into that. One part I can tell you that if this is going ahead, as the board has decided that or going ahead, it will be a complete segregation between the GCC and India. So it will be a sale of the GCC business by India listed company. So that is what I can give a clarity on. So that is what we have asked for this or the company has appointed the investment bankers who have got bids for buying the GCC business from the listed company. So that part, I just wanted to clarify.

Then the other parts, how this money is going to be used when it comes to India, how is it going to be dividended out or used for expansion. I don’t want to go into that because the Board has not decided how to do that, but it will be a significant amount, which will be appropriately used as per the Board’s direction as we go forward.

Nikhil Chandak — JM Financial Limited — Analyst

Yes. So at least that is clear that there is no cross holding because that’s — that will not be great for a shareholder. So at least there’s no cross-holding between Indian listed entity and whatever GCC or that’s the eventual plan?

Azad Moopen — Chairman and Managing Director

Yes. Nikhil, that you’re absolutely right. That is very clear as well as whatever is happening now is for a complete clear cutoff between the two.

Nikhil Chandak — JM Financial Limited — Analyst

Perfect. And my second question, no, that’s very reassuring. And my second question is how do we take the India business in the other parts of the country, is there a plan? Or do you still plan to be primarily a South-focused business? Or is there a plan to kind of go towards, say, West or North Central? Because the South has the most number of organized hospital chains at this point of time.

So is — are you seeing competitive intensity increasing in the South region? Or is it still a market where growth can come through for, say, the next three to five years? And the resultantly, do you see the need to go to other regions more aggressively than what you’ve done so far?

Azad Moopen — Chairman and Managing Director

Yes. So we have now been in the south like what you know. But there are areas in South India, where we have not gone into — for example, in Tamil Nadu where we are now trying to start off with something in Chennai, where we are looking for a hospital to be established, but we have not identified the right land. And but — so I’m telling you that Tamil Nadu is a large opportunity. But beyond that, as we feel that there is more of saturation, we always have the desire to go into other parts of India, whether it is Northeast, whether it is North, whether it is other parts of India.

We definitely will be looking at it. India is a huge opportunity. And as we have the bandwidth — developed the bandwidth and we have the confidence that we’ll be able to put it all together. We definitely will look at that. So this can happen in many ways. It can be organic, inorganic, like what you were talking about, the money coming into India maybe or maybe it’s M&A. So we’ll have to look at that. But we have the significant plans for India as we go forward.

Nikhil Chandak — JM Financial Limited — Analyst

Okay, great, thank you so much.

Azad Moopen — Chairman and Managing Director

Thank you.

Operator

Thank you and good. [Operator Instructions]. Yes, sorry. Please go ahead. No. Ask your question.

Unidentified Participant — — Analyst

Hello can you hear me.

Azad Moopen — Chairman and Managing Director

Yes, yes, yes, yes.

Unidentified Participant — — Analyst

Yeah, hi sir, just — my question was just in regards to any outlook or guidance for the next financial year for the business as a whole in terms of revenue or EBITDA margins? What are you expecting, what are your targets?

Azad Moopen — Chairman and Managing Director

So Nikhil, we don’t give any guidance regarding the revenue and profits. That’s — as you know, we can’t do that. And while we have some internal projections and all, we can’t tell the market what it is. But we see significant opportunities in India as well as in GCC, like what has been mentioned in the initial part of this, we are seeing the growth is very good in India. We hope that this will continue on the same pace. Even in GCC, there has been good growth.

There have been some headwinds like — not headwind actually, some losses, which were incurred by our hospitals, the two hospitals coming on stream, all of a sudden, we just have some impact. But we hope that this financial year, we’ll be having. And beyond that, also Saudi also we mentioned. So we see the growth going forward to be at a — I mean same or more better ways as we go forward, everything including the revenue, EBITDA, everything to be at a better place, Nikhil.

Unidentified Participant — — Analyst

Thank you sir. Thank you and all the best.

Azad Moopen — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from Naman Bhansali. Please go ahead.

Naman Bhansali — Perpetuity Ventures — Analyst

Hi, sir, my first question relates to the India business. So currently, we have some 4,000 capacity beds, and we are looking to add another 1,800 beds by FY ’25 or ’26 as per our latest presentation. So I just wanted to know the strategy here that are we looking to pause at any some point of time and realize the full potential of our business in terms of margins and leverage on the India side. So this is my first question.

And second is on the GCC clinic side. So the overall revenue has a 4% growth on a Y-o-Y basis. And I see the revenue per outpatient if I tried to calculate, it has risen significantly versus a Y-o-Y number. So as on a Y-o-Y basis, the revenue is largely flat and the outpatient seems largely at a decent growth at 7%, 8%, but the revenue per outpatient seems a big inflated number. So can you just put some picture on that?

Azad Moopen — Chairman and Managing Director

Yes. So the first part, I will answer. And the second part, Alisha or Amitabh will answer that. So it’s not that we are going to grow, I mean, just for adding beds. These are all strategic decisions which have been taken. Some of these are expansion of our hospitals where we know that immediately, that will get filled up and we will have significant benefit coming out of that. For example, what we are doing in our kannur Hospital or Aster Medcity. And as well as what we have seen is that in our own geography and our main geography, Kerala.

As soon as we start a hospital, it gets filled up because of the brand — the trust of people and the brand because of the large presence there. So what you will see is that the large part of these beds are going to be in a geography where we hope that this will get immediately going to a breakeven. You may be aware that our Kannur Hospital, when we started four years back, went into a breakeven, cash break in within eight months or less than a year. So definitely, we will be concerned to add more beds and just to put capex into that. But only if we are confident that this can give a decent return on investment without much of delay, we will do that. But there are some strategic areas where we have to look at, like, for example, I mentioned about Tamil Nadu as we go forward.

These are all things which we will be taking a call depending on our — I mean, our — I mean, the EBITDA and the debt to net EBITDA. We’ll be looking at that and taking a part. But part of this growth also is coming from businesses which doesn’t require too much of capex, like the capex-light model, which is 500 beds is what that we hope that we’ll be able to add every year. So I know that the challenge is to have the growth at the same time, not to spend too much on the capex so that there is — the margins are kept and you have a better ROC.

We are very aware about that. And we hope that — see, some of our hospitals, when we look at it, that’s gone to that range of near 30% margin. So that gives us a lot of confidence. So some of the large hospitals we have. And many of these hospitals have gone to about 20% margin. So overall, we feel very confident about the India profitability. And we think that this is something which will help us to drive better profitability as we go forward. And Alisha, you want to say — tell about it?

Alisha Moopen — Deputy Managing Director

So, Naman, when you look at the previous quarters, you have a high OP number also because of the PCR visit. So their per patient collection would be lower because it’s PCR protection market. So what you’re seeing now is our core business, the usual consultation, that’s procedure, which is the higher — which is the higher per patient collection, which is tripling in now. We just haven’t been able to bring back the volumes as it was before, but we are seeing Q3 has been very strong and saying that Q4. So slowly it is you’re seeing the volume, but it is going back to the per patient collection that used to be part of the core business. So it’s a little bit different comparisons.

Naman Bhansali — Perpetuity Ventures — Analyst

That answers my question. And just one follow-up on the India hospitals. So what are the optimal occupancy rates that we can assume for a business, which is increasing on a quarter-on-quarter basis versus previous years that has reached around 70%. But what are the peak occupancies that our hospitals can do, if there are some ICU or PSU beds which are kept separate. So I just wanted a picture of that.

Azad Moopen — Chairman and Managing Director

Yes. Sunil, you want to answer that?

Sunil Kumar — Head of Finance of India

Naman, so if you see currently right on the overall, as you said, we are at 68% occupancy at the India level, but Kerala is around 80 percentage currently. And Karnataka at 60 percentage and Andhra clusters at around 50 percentage. When you look at the what is the peak occupancy, we can go up to 80%, 85% easily. There are certain hospitals were in, for example, in the Kerala, they reach even 90 percentage because they create certain holding period by holding beds and then manage the occupancy. So comfortably without any impact on the service excellence, easily, we can look at 85% occupancy.

Naman Bhansali — Perpetuity Ventures — Analyst

Okay. And as you mentioned, Andhra and Telangana, which are some lower occupancy region for us. So what initiatives or what are the things that we are going to reach those segments at a higher occupancy rate?

Sunil Kumar — Head of Finance of India

Naman, there, see, currently, one of the reasons as Chairman told in the initial call, we have stopped the scheme patients, right. So we are only currently treating the insurance and certain corporates and walk-in patients. So that is one of the reason why we have 50% occupancy. But now already, we are restarting the schemes. And also, there is a certain outreach clinics which we have started, that is trying to be getting more referrals. Then we’re also trying to create certain implant centers with respect to certain specialties.

So that will have — considering that will have an impact to create more occupancy there. So but as I said, you can see even from the margin point of view, so it has slowly grown. We expect it to turn around very quickly post-COVID. In the initial quarter, it started with EBITDA margin of 7%, then went into 8% something, then now we will reach around 10% in the Q3. But overall, it’s around nine percentage. But as we said that it’s going to go a little slowly, we can’t expect a faster ramp up, but we are seeing good growth coming into the future quarters.

Naman Bhansali — Perpetuity Ventures — Analyst

Thank you.

Sunil Kumar — Head of Finance of India

Thanks.

Operator

[Operator Instructions] I see no more attendees having their hands raised. So I think this concludes the earnings call for this quarter for Aster DM Healthcare. 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 this. Thank you all.