Fortis Healthcare Ltd (FORTIS) Q2 FY23 Earnings Concall Transcript

Fortis Healthcare Ltd (NSE:FORTIS) Q2 FY23 Earnings Conference Call dated Nov. 14, 2022

Corporate Participants:

Anurag Kalra — Senior Vice President of Investor Relations

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

Anand K — Chief Executive Officer

Vivek Kumar Goyal — Chief Financial Officer

Analysts:

Kunal Randeria — Nuvama — Analyst

Nitin Agarwal — DAM Capital — Analyst

Shyam Srinivasan — Goldman Sachs — Analyst

Abdulkader Puranwala — Elara Capital — Analyst

Sanjay Shah — KSA Securities — Analyst

Bharat Sheth — Quest Investments — Analyst

Dheeresh Pathak — WhiteOak Capital — Analyst

Amit Khetan — Laburnum Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q2 FY ’23 Post Results Conference Call of Fortis Healthcare Limited. [Operator Instructions]

I now hand the conference over to Mr. Anurag Kalra, Senior Vice President, Investor Relations at Fortis Healthcare Limited. Thank you, and over to you, Mr. Kalra.

Anurag Kalra — Senior Vice President of Investor Relations

Thank you, Inba. A very good afternoon and good morning, ladies and gentlemen, and thank you for taking the time to be with us on our quarter two FY ’23 earnings call. The call is being led by our MD and CEO, Dr. Ashutosh Raghuvanshi. With him, we have our Chief Financial Officer, Mr. Vivek Goyal; from SRL, Mr. Anand, who is the CEO there; and Mangesh Shirodkar, the CFO of SRL. Along with me, I also have Gaurav. I hope all of you have got a chance to go through the results deck and the press release that we had circulated on Friday evening. We will begin with some opening comments by Dr. Raghuvanshi, following which Anand will take you through certain key highlights of the diagnostics business, and then we can open the floor for questions and answers.

I’ll now hand over to Dr. Raghuvanshi.

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

Thank you, Anurag. Good morning and good afternoon, everyone. Thank you for joining us on our Q2 financial year ’23 earnings call. I hope all of you have had a great time with your family and friends during the festival season. I would like to straightaway talk on the performance of the Company for the quarter, and then Anand will take you through the highlights for the diagnostic business.

We have witnessed a strong set of earnings for the quarter. Our consolidated revenues have increased 10% versus Q2 of financial year ’22 to INR1,607 crores. I’m very pleased with the way our hospital business has performed. Our hospital business revenues have grown 18% versus Q2 of financial year ’22 and 9% versus Q1 of financial year ’23.

Our diagnostic business, on the other hand, witnessed revenue decline versus Q2 of financial year ’22, which was primarily on account of the significantly lower COVID contribution. However, it is pertinent to note that compared to the trailing quarter, the business witnessed a 6% revenue growth, reflecting early but encouraging signs of pickup post the COVID impact seen previously. Just to recall, the diagnostics business had an approximately 22% revenue contribution from COVID and COVID allied test in Q2 of financial year ’22, which stood at a near 5% in Q2 of financial year ’23. If we adjust the COVID revenues on a like-to-like basis, the diagnostic business revenue actually grew 5.3% versus Q2 of financial year ’22.

On the profitability metrics, our hospital business EBITDA stands at INR246 crores, an increase of 30% and reflecting margins of 18.9% versus 17.2% in Q2 of financial year ’22 and 17.4% in the Q1 of financial year ’23. The improvement in margins has been led by a healthy performance of all the key hospital operating metrics, which I shall speak of in a while.

On the diagnostics segment, commensurate with the decline in COVID and COVID allied revenues, EBITDA for the quarter stood at INR73 crores versus INR103 crores in Q2 of financial year ’22. However, EBITDA was higher versus INR64 crores in the trailing quarter. This reflects margins basis gross revenue at 20.7% for the quarter versus 25.7% in Q2 of financial year ’22 and better than margins of 19.3% in Q1 of financial year ’23.

Combining both the hospitals and the diagnostics business, our consolidated EBITDA for the quarter was INR319 crores compared to INR292 crores in Q2 of financial year ’22 and INR272 crores in Q1 of financial year ’23. Consolidated EBITDA margin was at 19.8% versus 20% in Q2 of financial year ’22 and better than 18.2% in Q1 of financial year 2023.

To highlight the contributions of hospital EBITDA increased to 77% in Q2 of financial year ’23 versus 65% in Q2 of financial year ’22. This significant size, the momentum in our hospital business earnings enabling us to maintain our consolidated margins despite the impact in diagnostic business as a result of lower COVID volumes. At the PAT level, we reported a profit after tax prior to exceptional items of INR167 crores compared to INR130 crores in Q2 of financial year ’22. This is a 28% growth versus the corresponding quarter and 24% growth versus Q1 of financial year ’23.

I would like to mention there was an exceptional gain of INR15.6 crores, which pertains to reversal of impairment in one of our associated companies. Let me also briefly touch on the consolidated H1 financial year ’23 financial numbers of the Company. For H1, our consolidated revenue stood at INR3,095 crores, a growth of 8% over the corresponding period. EBITDA for the quarter was INR590 crores versus INR575 crores for H1 of financial year ’22, translating into a margin of 19.1% versus 20% in the corresponding previous period.

PAT, excluding exceptional items for the period, stood at INR301 crores versus INR255 crores for the H1 of financial year ’22 at a growth of 18%. On the qualitative aspect of the hospital business, we have made significant progress on all fronts. With the strong demand for elective procedures, our surgical revenue contribution to overall revenue was at 59% compared to 56% in Q2 of financial year ’22, led by a better specialty mix and robust traction in our international patient revenue. Our hospital business witnessed an occupancy of 70% versus 65% in Q2 of financial year ’22 and 64% in Q1 of financial year ’23, while ARPOB grew 5% to INR1.97 crores from INR1.87 crores in Q2 financial year ’22. ARPOB was similar to Q1 of financial year ’23.

If you would recall, we had indicated that our aim is to reach 75% by the end of this fiscal. However, given the strong traction, we were able to achieve this rather quickly. I would tend to be cautiously optimistic in Q3, which is generally effective season across North India, and hence, occupancy may see some seasonal impact in Q3.

On the international patient business, we continue to witness strong traction. International patient revenues were at INR109 crores, a growth of 164% over the corresponding quarter and 23% over the trailing quarter. International patient revenue during Q2 of financial year ’23 contributed 8.4% to total hospital revenues versus 3.8% in Q2 of financial year ’22.

It is also important to highlight that some of our key underperforming facilities have witnessed higher revenues and better profitability versus both the trailing and corresponding quarters. On our downfield expansion plans, which we have been discussing with you, our expansion plans are well on track and we are adding capacities across all our major facilities like FMRI, Mulund, BG Road, Shalimar Bagh, Noida and Anandpur Currently, our teams have been working tirelessly on several digital transformation projects such as implementation of electronic medical records we have the implementation and improving patient experience through websites and apps.

We are quite excited with the EMR projects specifically as it would further strengthen our core belief of care for good for all our patients, enabling quicker access to health care records and faster diagnosis and treatment. During the quarter, we commissioned several medical programs and further strengthen medical infrastructure at various facilities. These include launch of a state-of-art lung transplant clinic and pulmonary medicine unit at Fortis Jaipur bone marrow transplant unit at Fortis Mohali and Fortis Faridabad, a new LINAC at Fortis Mulund and Ortho Robot at Fortis BG Road, a neuro navigation system at Fortis Amritsar and a new cath lab at Fortis Mohali.

Commensurate with our medical program expansion, we continue to attract high-quality clinical talent. We have on-boarded clinicians in the specialty of cardiac, oncology, neurosciences and gastroenterology during this quarter.

On the diagnostics side, though the business was impacted due to decline in COVID volumes, adjusting for the COVID revenues, non-COVID revenues have grown 5.3% versus Q2 of financial year ’22 and 5.6% versus quarter one of financial year ’23. Additionally, if we look at H1 financial year ’23, non-COVID revenues grew by 15.5% versus the corresponding previous period.

On SRL, our focus is on strengthening the business’ growth drivers by expanding our geographic footprint and channel network with further additions of stat labs and customer touch points. Anand will take you through more of the details in a short while.

On the balance sheet, we remain quite healthy with the net debt to EBITDA of 0.44x versus 0.74x for Q2 financial year ’22. Our net debt stands at INR565 crores as of September 30, 2020, and our debt equity mix allows us the flexibility to leverage our balance sheet to further our growth objectives.

With that, I would like to end my comments reiterating to all of you that we remain steadfastly committed towards our growth path in order to further our operational performance and create longer-term value for all the shareholders.

Thank you. And with this, I would like to hand over to Anand for his comments on the diagnostics business.

Anand K — Chief Executive Officer

Thank you, Dr. Raghuvanshi. Very good morning to everyone on the call. Thank you for joining us today. On behalf of SRL Diagnostics, I warmly welcome you all for our Q2 FY ’23 results conference call. I hope all of you and your families are safe and in good health.

During the quarter, we reported a revenue of INR351 crores with 95% of our revenues coming from non-COVID testing. Our EBITDA stands at INR73 crores with a margin of 21% for Q2 FY ’23. We conducted 10 million tests in the quarter and serviced over 4.3 million patients. While COVID-related testing and volumes are slumped as predicted, we are witnessing an uptick in non-COVID volumes across our network. SRL B2C, B2B revenue mix stands at 55% to 45%, consistent with our Q1 ratio. Our non-COVID revenue growth stands at 5% in Q2 FY ’23 versus Q2 of FY ’22 and 6% versus the trailing quarter Q1 FY ’23. Non-COVID revenue grew by 16% approximately in H1 FY ’23 compared to H1 of FY ’22.

In a fourth pandemic setting, we are witnessing a heightened wellness consciousness amongst customers, and this reflects in our preventive portfolio, which has grown 21% in terms of revenue over Q2 of FY ’22. Keeping in line with our network expansion strategy, we have added 207 new customer touch points in Q2 of FY ’23. And our customer touch point per lab ratio now stands at 18.6 compared to 12.1 in the corresponding Q2 FY ’22.

Our new customer experience initiatives, including WhatsApp chat bot and live lobotomist tracking features have received a good response from our patients we service through our home collection network. On the people front, we completed more than 1,300 mandates of training in Q2 FY ’23. In the last few years, SRL has progressed to bring many tailor-made competency enhancement programs. Training, learning and development continues to be one of our priority areas.

Over the years, we have built strong learning and development functions at SRL, where we manage more than 90% learning dimensions internally. We use technology for learning enforcement as well as talent as we spent through learning management systems and assessment tools. We are working relentlessly on building the organization as a great place to work, and we have significantly progressed on our overall NPS score and going ahead strong on being the preferred employer in the diagnostic industry.

Our state-of-the-art reference laboratory at SRL Mumbai has been reaccredited by College of American Pathologists U.S.A. This is a testament to our continued focus and commitment to next-generation diagnostic services. We will continue to focus on expanding our network in priority and expansion cities and focus on continuously improving our customer experience across all our network. Our NPS score from patients remained consistent at 78.

On the scientific side, we will continue our concerted efforts in the chronic diseases category, lifestyle diseases, preventive health care category and our specialized portfolio that comprises autoimmune diseases, transplant technologies, infectious diseases and oncology.

Our genomics portfolio revenue grew by 27% in Q2 FY ’23 compared to Q2 ’22. Our sustained focus on genomics and next-generation diagnostics, along with our work in digital technology, will help us differentiate ourselves and also enable us to reach maturity.

Thank you very much for your attention. I would like to now hand over the call to Mr. Anurag Kalra, Head of our Investor Relations.

Anurag Kalra — Senior Vice President of Investor Relations

Thank you, Anand. Ladies and gentlemen, we shall now open the floor for question-and-answers. Inba, please moderate that.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Kunal Randeria from Nuvama. Please go ahead.

Kunal Randeria — Nuvama — Analyst

Yes. Good morning, and thanks for this opportunity. Just on the hospital business, I still see that 20% of the revenue comes from CGHS, government, PSUs and ECHS, so I assume the bed contribution will be even higher than this. So now that you have a good 70% type occupancy, going forward, do you see this number coming down quite a bit and what we should expect in the coming years?

Vivek Kumar Goyal — Chief Financial Officer

Yes. I will take this question. Vivek this side. So you are absolutely right. There is opportunity here to change the payer mix in our favor in some of our hospitals where the potential level is quite high, but it will be very selective. It will not be like across the board.

Kunal Randeria — Nuvama — Analyst

Sure. But your TPA plus, I think, cash is around 70%, 72%-odd, so should we expect it should remain at these levels going forward?

Vivek Kumar Goyal — Chief Financial Officer

So the payer will go for TPA care and the international business. And the other business — scheme business will come down.

Kunal Randeria — Nuvama — Analyst

Got it. Okay. And one just quick one on diagnostics. The 5% non-COVID year-on-year growth is slightly lower than what some of the players have reported. So just wondering and especially since you’ve added a lot of touch points in the last few quarters, so just wondering the kind of growth momentum that you expect, especially considering the kind of competition that you are seeing in this industry.

Anand K — Chief Executive Officer

So thank you. This is Anand here. So the — usually the Q2 is the best quarter for the year for diagnostics. And what we see here is primarily because, last year, because of COVID, we see a lot of testing happening, especially around hospitals. So what we calculate as COVID and COVID allied tests just a few tests related to COVID, but as you know, during COVID when the — during the second quarter of last year, there’s a lot of hospitalization that happened. And the testing momentum also increased at that time, so maybe it will not be the right comparison between Q2 and Q2 of this year in terms of non-COVID as well. But at the same time, internally for us we also have a situation where we had Himachal Pradesh tender, we were having HP PPP project which we were running last year. We’ve been running it for the last eight years, so we have — the contract ended this year. So it was not part of the — it was part of Q2, but — Q2 of last year, but it’s not part of Q2 of this year. So that has also contributed to it. If you adjust for that, our growth will be close to about 9%.

Kunal Randeria — Nuvama — Analyst

Got it. Thank you very much.

Anand K — Chief Executive Officer

Thank you.

Operator

Thank you. We’ll take a next question from the line of Nitin Agarwal from DAM Capital. Please go ahead.

Nitin Agarwal — DAM Capital — Analyst

Thanks for taking my question. Dr. Raghuvanshi, on the hospital network expansion, we’ve talked about 300- to 400-bed per annum addition over the next two to four years. Now two things. One is, a, this entire expansion is going to be brownfield, right? Or are we looking at — is there any element of greenfields in this expansion?

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

This entire expansion is brownfield. It is within the given hospitals, but at some places, we have to construct a fresh tower. And in certain places, we already have the civil construction done and only the interior work needs to be done. So it’s a mix of both, but essentially this is all in the category of brownfield.

Nitin Agarwal — DAM Capital — Analyst

And this will — typically, what, a INR50 lakh, INR60 lakh per bed sort of expansion cost for further expansion?

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

Yes. So on a blended basis, the entire thing would come to about INR80 lakhs per bed.

Nitin Agarwal — DAM Capital — Analyst

Despite it being like a brownfield sort of expansion?

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

Yes, but because, you see, we will also be enhancing and upgrading equipment and larger diagnostic equipment, then imaging equipment will also be enhanced along with it because, as the capacity of these hospitals will increase, we will need a lot of other medical equipment as well. So compared to kind of a greenfield which would easily be about INR1.5 crores [Phonetic], this is definitely much less than that.

Nitin Agarwal — DAM Capital — Analyst

And in terms of the expansion that we’re undertaking, is it fair to assume that bulk of it will be coming in what you call Tier 1 towns and metros?

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

Yes, majority of this is in NCR and in Bangalore and Mumbai and in Kolkata.

Nitin Agarwal — DAM Capital — Analyst

Thanks. And if I just push that, on the operating facilities which are there that we have right now, beyond this expansion that we will undertake over the next three, four years, I mean, how much more can we add from a brownfield capacities on our existing network? I mean, if you were to hypothetically just stretch it out maximum, how much more can we do on the existing facilities in general?

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

So other than the planned 1,300 beds which we have given a kind of timelines for, another 700 beds more could be added further.

Nitin Agarwal — DAM Capital — Analyst

So approximately about 2,000 beds on the current network. And thereon, our expansion would be largely has to be on newer assets, whether we buy something out or we do some greenfield.

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

That’s correct. That’s correct.

Nitin Agarwal — DAM Capital — Analyst

Okay. And sir, in the metrics that we’ve discussed, on the improvement in the — or hospital-wide improvement, if you can probably just shed some light on which have been the more notable movements in this quarter. There has been some movement in the lower-tier hospitals, lower-profitability hospitals, which have reduced in this quarter.

Vivek Kumar Goyal — Chief Financial Officer

Yes. So there is improvement, overall improvement, as you have seen, overall improvement, in the profitability of all the hospitals. And the hospital from the lower table has moved to the upper table. Anurag will able to explain this.

Anurag Kalra — Senior Vice President of Investor Relations

Yes. So Nitin, just to give you some examples. In the highest bracket, we’ve added BG Road, which was one level lower. We’ve added Anandapur, which was one level lower. Mohali continues to be in the higher bracket. From — in the next category, we’ve added a few more hospitals, like Faridabad and Ludhiana. So those are the ones that have been doing well. But overall, if you were to just look at it in a synopsis basis when you look at FY ’22, the topmost bracket added some about [Phonetic] 700-odd beds. Today, the topmost brackets have about 1,170-odd beds. So that gives you a very good indication of how we are moving up level to level.

Nitin Agarwal — DAM Capital — Analyst

Anurag, of the hospitals which are there in the lower two tiers, any sort of outlook on that? There’s another 1,000 beds which are there in that less than 10%, 15% bracket and specifically 700-odd beds in the less than 10% bracket. Any — I mean, how are we looking at these assets?

Anurag Kalra — Senior Vice President of Investor Relations

So if I can answer this question. So there are a couple of hospitals which are already showing very good sign of improvement. We have discussed in every call, like, FEHI and Jaipur are in this category, which are definitely showing very good sign of improvement. And we have planned how to improve it further. Maybe some more investment may be required. Maybe, some more specialty, we may be able to add to these hospitals. And those type of plan are work in progress. And with that, these hospitals we may reach to 15%-plus EBITDA margin category, but that will take some time. And the other hospital in this chain, two in Chennai, which we have — one is a sort of new hospital. And the ramp-up is taking some time, but the team is working very hard to improve that ramp up there. And other is Malar, where the progress is improving but at a slow pace.

Nitin Agarwal — DAM Capital — Analyst

And sir, I mean, it’s fair to expect that, of the six hospital which are there in this 10 — lower than 15% bracket, all goes to plan. Or we should have probably — this number should halve as we go forward in the coming quarters. More than — it should be probably two or three hospitals which probably — it should not be more than more than two or three hospitals going forward.

Vivek Kumar Goyal — Chief Financial Officer

Not coming quarter, but yes. Maybe, in the medium term, we can short-term in one year to 1.5 years time, we can expect that or at least that we have a plan to move to above 15%.

Nitin Agarwal — DAM Capital — Analyst

Okay, sir. Thank you.

Operator

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

Shyam Srinivasan — Goldman Sachs — Analyst

Yes. Good morning, and thank you for taking my question. Just, first, on the guidance for occupancy. Dr. Raghuvanshi, you said that we have touched 70% and we would like to progress toward 75%, so despite some seasonal Q3 may be slower, but just what are the drivers of this, Dr. Raghuvanshi, in terms of — is it that you are seeing more and more specialty? Is it international patients? Is it market share gains? If you could help us understand. And NCR, clearly at least one of the key reasons for you. There is quite a lot of supply also coming, so how do you kind of embed that into your outlook as well?

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

Yes. Shyam, as I have said many times before that as far as the additional capacity which is coming across in the region and NCR, that will get very easily absorbed. And that is not of concern because there is a little bit of demand-supply gap in this season. It’s of a huge [Indecipherable]. So the main driver for us would be volumes coming because of the addition of clinical talents. As I’ve mentioned, we have added quite a bit of talent in last quarter. And as they start getting stabilized, that would be one of the drivers. And international definitely have been showing continuous improvement. It has come to a good level now. In absolute terms, it is a little better than pre-COVID levels, but since our domestic numbers have grown, so as a percentage of overall revenue, it is still at about 8.5%. So that is likely to go about 10%, 12% as well. So that will be another driver for growth as well.

Shyam Srinivasan — Goldman Sachs — Analyst

Okay. That’s helpful, Dr. Raghuvanshi. So the second thing I saw was your mix, specialiy mix. Surgical revenues have grown 24%, just calculating it from your pie charts, but something like oncology has grown like 50%. So what are we doing here? Maybe there’s a base effect I don’t know. But I’m just saying which are the specialty mix that you think you will continue to see further traction?

Operator

Sir, it looks like the management’s line is disconnected. Ladies and gentlemen, we request you to please remain connected while we join them back. Please do not disconnect your lines. We’ll call the management right away. Thank you. [Technical Issues]

We have the line from management connected. Mr. Srinivasan, I think you’ll have to repeat your question. I’m not sure how the…

Shyam Srinivasan — Goldman Sachs — Analyst

Yes. Okay, great. My second question was just on the specialty mix. So if I were to just do simple math on using numbers of the specialty mix, onco revenues have grown 50% roughly. And when I look at overall growth, it’s 18%, so I just want to understand how we are achieving this. And it — can this kind of sustain the kind of growth we are seeing in some of the higher-growing specialties?

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

Yes. So onco growth specifically. As we had stated about two years back that onco is a area where we are focusing. And we had acquired some talent. Plus, we had created some facilities. Like, for example, in BG Road, we did not have oncology earlier. We added there two years back and many other infrastructure things we have done in the oncology segment. So we expect that oncology will continue to show higher growth for at least another one year or so. And that would be sort of then stabilized to a much more regular rate of growth. Other than that, the other core specialiies which we have been focusing on, those also have grown significantly, but oncology definitely will remain a focus area.

Shyam Srinivasan — Goldman Sachs — Analyst

Yes. Thank you, Dr. Raghuvanshi. Just the second one is on — third question is on margins. You used to call out the losses at Arcot Road, so can you quantify that? And just to Mr. Vivek’s question on slower progress in terms of ramp-up, if you could clarify that also, please, in terms of how long we think a breakeven at, say, Arcot Road could happen.

Vivek Kumar Goyal — Chief Financial Officer

Yes. If I can take this question, Shyam. Arcot Road’s performance actually has not improved, if we compare with the last quarter. So it is incurring EBITDA negative of around INR8 crores per quarter, and that is continuing. And that is primarily contributed because we are not able to ramp up the facility, the occupancy there. And main reason, we have discussed earlier also. There is some construction work going on, some bridges going — in — just in front of the hospital which is upsetting the patient flow. And that is the main reason.

And I think we are also building the clinical talent there. We are also spending some money on the advertisement and other things. Just to highlight this, this facility is the very good facility, state of the art. And all other parameters, it is very good, but I think just because of the this obstruction, I think the patient flow is affected.

And with regard to your second question by when we expect it to be EBITDA — at least not bleeding, at least, for us, we are expecting in next six months time it will be in that — this range.

Shyam Srinivasan — Goldman Sachs — Analyst

In 12 months, you’re seeing…

Vivek Kumar Goyal — Chief Financial Officer

Six months.

Shyam Srinivasan — Goldman Sachs — Analyst

Six months, yes. Okay, sorry. My bad. Last question is on SRL, Mr. Anand, just one on, you talked about 9% when we — growth for non-COVID if we exclude the government contracts. So if you could also help us understand the split between volume and price for that, sir. Thank you.

Anand K — Chief Executive Officer

Thank you, Shyam. So in terms of contribution, if you see, it was about 4% of our revenue in Q2 of FY ’22, the HP PPP contract. And it was — largely it was more of a, since it was a government contract, the volumes were quite high. And ARPT was quite low.

Shyam Srinivasan — Goldman Sachs — Analyst

No, sir. My question was different. I was saying, excluding that, you talked about your growth in non-COVID for Q2 this quarter versus last year was 9%, so I’m looking for the split of that into volume and price.

Anand K — Chief Executive Officer

It’s about — just a second. Let me look at it. So our ARPT has grown by about 8% on the H1, but it’s a sort of a mix of volume and ARPT growth, which a larger contributor on the ARPT side.

Shyam Srinivasan — Goldman Sachs — Analyst

So Anand, safe to assume some low single-digit volume growth, right? So when can this kind of improve, right? And I don’t think it’s only for you, right? Everybody else is struggling for volume growth. Would that be competition, especially in, say, semi-specialized tests driving this? Or you think patient footfalls into even your B2C have been slower than usual?

Anand K — Chief Executive Officer

So in our case, as I told you, it is primarily because of the HP PPP which was very high in volume. So with that, the volume was very high, but the ARPT was really low. So that is why we are seeing the growth here as higher ARPT and lower volume growth. But as if you’re seeing — separately, if you you’re seeing, we are seeing a good growth on the B2C segment as well.

Shyam Srinivasan — Goldman Sachs — Analyst

Anand, sorry to persist, but I’m completely removing HP PPP product in both your Q2 last year and Q2 this year, okay? Let’s assume — I’m not even talking about that business at all. And you then look at the non whatever, right, just the business which is non that and you said it’s 9% growth. So that is what I was trying to dissect. I’m not even looking at this project, this government project. And there, when I — when you do the math, you suggested about low single-digit volume growth for that business, so my question is simple, right? What is — why is that growth slower? And it’s not only for you, right? Everybody seems to be facing this issue, so that’s where the question is coming from more.

Anand K — Chief Executive Officer

So I think it is more to do with the higher revenues during the Q2 of FY ’22 driven by COVID. Even though we calculate only COVID and COVID allied tests only four tests of COVID is considered as COVID allied tests, but as you know, during last Q2, there were a lot of drive into hospitals and a lot of testing happened on multiple parameters, not just the IL-6, D-dimer, CRP, those kind of COVID allied tests. A lot of other tests also happened, so that has boosted the volume during that time in a much bigger way. So I think it’s too early for us to really look at any trends on this at this point of time. I think we’ll have to allow another one or two quarters to settle on how exactly this growth is turning out to be.

Shyam Srinivasan — Goldman Sachs — Analyst

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

Anand K — Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from the line of Abdulkader Puranwala from Elara Capital. Please go ahead.

Abdulkader Puranwala — Elara Capital — Analyst

Hi, sir. Thank you for the opportunity. Sorry if this may be a repeat question, but I’m just going through your hospital margin metric. So if I look at the category of EBITDA margin for your hospital which falls in the 10% to 20% bracket. And occupancy has surged to around 70%, 72%, but I mean [Indecipherable] still remain in this margin bracket, so apart from occupancy, we wanted to know what will be the other factors which you guys are working upon to improve the margin in these hospital beds.

Vivek Kumar Goyal — Chief Financial Officer

Yes. So it is a good question. So apart from the occupancy, we are very well working in improving our payer mix, which I have covered in my earlier comments, where we are trying to reduce the scheme business to the extent possible and increase the share of TPA cares and international business which are high-margin business for us.

Secondly, we are also trying to improve the specialty mix also in our favor by adding more specialty by investing in infrastructure in the form of equipment and things like that. So that — those are the state ones. And thirdly, we are also working on the margins. So we do come out with some margins and cost-optimizing things where we can maximize the productivity and things like that. So all those things will lead to this improvement in the margins.

Abdulkader Puranwala — Elara Capital — Analyst

Got it. Thank you, so I’ll return back to the queue.

Vivek Kumar Goyal — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is from the line of Sanjay Shah from KSA Securities. Please go ahead.

Sanjay Shah — KSA Securities — Analyst

Good morning, gentlemen. Thanks for the opportunity. Dr. Raghuvanshi, my question is regarding our brand that is our parent’s strength. That is IHH worldwide. They are into personalized care ranging from primary to ordinary and even some ancillary offerings. So how in India we compare ourselves with the par treatment to our patients. And is there any scope to add more to our offerings and profiles?

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

Yes. So Sanjay, we are getting a lot of support. And we are using our — a lot of synergies with IHH, especially regarding the quality. So we participate in that global quality program. Quality benchmarks and metrics are followed on regular monthly basis across the entire IHH network, so the best practices of on clinical quality and other innovative initiatives is shared across the network, including with Fortis, so that is one big advantage. Another thing which I had briefly mentioned during my statement is about the electronic medical record which we are working along with the IHH folks to implement across our Fortis network, which will help us to improve the speed with which we can deliver discharges and medical records to our patients. And also it will help during the treatment and diagnostic [Technical Issues].

Sanjay Shah — KSA Securities — Analyst

So sir, over and above these digital, that EMR what we are talking, do we have any surgical side or any other in-patient care which we can offer and which we are right now not offering in India and have a scope to expand that in India?

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

So generally, we have all these areas being offered in India as well. So there are no specific surgical facilities, but however, in oncology, especially on the CAR T cell therapy and proton therapy, we are coordinating with them, so that some of our patients who may be wanting for proton therapy, we can refer them to Singapore for doing that. So that kind of collaborations are also in place.

Sanjay Shah — KSA Securities — Analyst

Sir, my last question was regarding this EMR, what you mentioned. So is there any regulatory binding and regulatory rules which we need to understand on this EMR? Is that EMR only for our hospitals, our records? Or even we come to share with a patient also.

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

Yes. So the EMRs, of course, are patients’ property. The record, medical record, of an individual patient is something which is patient’s property. However, we manage it, so there is the national guidelines which are there. And there are certain requirements for keeping it interoperable, so that it can be transported from one provider to the other. So it is absolutely compliant to the guidelines which have been issued, yes.

Sanjay Shah — KSA Securities — Analyst

Thank you. Very helpful. Thank you, and good luck to you sir.

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question is from the line of Bharat Sheth from Quest Investments. Please go ahead.

Bharat Sheth — Quest Investments — Analyst

Hi, sir. Thanks for the opportunity. Sorry, I joined a little later. So this question, if you just answered, can you repeat, please? Sir, like in diagnostics, we have some government business. So do we have any kind of such obligation in our hospital business where we have to provide them at concessional rate and which, over a period, we may reduce so it can help us to improve the profitability?

Vivek Kumar Goyal — Chief Financial Officer

No. Except — in FEHI, we have 25 beds [Indecipherable]. I don’t know — I don’t think there is any of this facility where — no, apart from FEHI, we don’t have any obligation at any of our facilities to take government business, government [Indecipherable] provide free service or concession-grade service.

Bharat Sheth — Quest Investments — Analyst

Okay, fair. And second question, sir, on these hub-and-spoke several-tier institution. I mean companies are going in hub and spoke mode, say, for Tier 2 and Tier 3 cities. So do we have any kind of such aspiration? Or is that clearly a profitable business or — make a business case?

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

Yes. So we have stayed away from that because there are challenges in Tier 2, Tier 3 cities on the operations side. Typically, these markets are very price sensitive. And clinical talent doesn’t come by so easily over there, so we have not selectively gone for that. But however, if there is in future something which is very synergistic to our larger cluster in a metro city, we will consider that on case-to-case basis, but not on a stand-alone basis, we are not looking at that.

Bharat Sheth — Quest Investments — Analyst

Great. And last question on diagnostics side sir. How do we really plan to ramp up our facilities as well as, I mean, our geographic diversification?

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

All right. So we are actually adding — as you know, we are probably having the best equitable distribution of our business across all geographies, but we continue to add — expand our network through the — through our focus city expansion plan as well as adding more collection centers. So we have added — even in this quarter, we have added up to 207 customer touch points. So similar, that is a way we are expanding in hub-and-spoke model, where we are adding more reference — more regional reference laboratories and then stat labs to complement that as well as collection centers to expand it further.

Bharat Sheth — Quest Investments — Analyst

Okay. And sir, recently there is an interview of our parent company where they have suggested that they may change the Fortis name to Parkway because of the kind of, I mean, obligation. I mean this brand belongs to the erstwhile promoter. So will it have any kind of — I mean, what are we doing to promote this new brand or, if at all, that will really can have a kind of a, say, cannibalization of — hello?

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

Yes. So we had earlier also made it, an announcement that we will consider changing the name to Parkway. So that definitely remains something which we will — we are continuing to evaluate. You are right that brand change always carries a certain amount of risk and expense as well, but there are certain constraints around the brand which is owned by the ex-promoters. But since the area — there are still some clarifications we need to seek from a legal point of view, so this is some time away, but this is definitely our preference, to consider a change in brand, after careful evaluation. But this valuation is to be done further to decide finally as to how to go about it and when to time it. So certainly, the moment those clarities emerge, we will make the proper announcement.

Bharat Sheth — Quest Investments — Analyst

Okay. Thank you very much, sir, and all the best.

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. We’ll take our next question from the line of Dheeresh Pathak from WhiteOak Capital. Please go ahead.

Dheeresh Pathak — WhiteOak Capital — Analyst

Yes. Thank you. So I’m not sure if you already answered, but you were explaining the downstream, a potential immediately of 1,300 beds. Have you been inserting [Indecipherable]? But is there a more granular breakup that you have given? Like what would be the capex obviously in the next few years and which cluster the beds will be?

Vivek Kumar Goyal — Chief Financial Officer

Yes. So as mentioned earlier, so this bed extension is on our existing hospital only and all are in metros. So major expansion is happening in the NCR region, yes, followed by Bombay and Kolkata and Bangalore also. Bangalore…

Dheeresh Pathak — WhiteOak Capital — Analyst

Can you give numbers also, sir, if possible? Like how many beds in NCR? How many in Bombay? And how many in Kolkata?

Vivek Kumar Goyal — Chief Financial Officer

Yes. So 50% of the bed expansion is coming in the NCR region. And Bangalore, we are expanding around 200 beds, and Kolkata around another 200 beds. And Mumbai, we have already completed the construction. We are waiting for the OC. We have partly operationalized the beds. So total expansion 110 beds [Phonetic]. Out of that, 45 has already been operationalized. And Kolkata, I’ve already called, yes. These are the places where we are doing the major expansion.

Dheeresh Pathak — WhiteOak Capital — Analyst

Okay. And the 50%, the bigger expansion in NCR, what is the timeline for commissioning on those beds?

Vivek Kumar Goyal — Chief Financial Officer

Well, look, these include expanding the capacity in three of our major big hospital in NCR, which include FMRI, Shalimar Bagh and Noida. So there we are expanding bed capacity by almost 170 to 200 beds in each location. Plus there is a 60-bed expansion which is underway in Faridabad. So Faridabad expansion is underway. It’s — may be completed in a year time. However, the other three expansion, we have submitted [Indecipherable] to the authorities. For one hospital in Noida, we have already got all the approval and construction work will be started post this NGT restriction is removed.

Dheeresh Pathak — WhiteOak Capital — Analyst

Okay, thank you. So probably like the bigger one will be in NCR, where probably commissioning is probably like 18 to 24 months away. Is that a fair assumption?

Vivek Kumar Goyal — Chief Financial Officer

Absolutely.

Dheeresh Pathak — WhiteOak Capital — Analyst

Okay. Sir, second question is in terms of the regulatory from the supreme court order and other things, can you just clarify like what all you’re allowed to do? Like name change as per the interview in the media, understanding, name change, you’re allowed. Capital structure and shareholding change in the listed entity, is that allowed? What is allowed and what is not allowed?

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

Yes. So as we are still evaluating the legal position, and our lawyers are working on that. Some of the areas are very clear that there is no restriction, like brand, as you mentioned, but as far as the other areas are concerned, those, still some clarity [Indecipherable] of course, it is a matter which IHH needs to clarify with the authorities. And then based on that, they will be making the necessary steps what they need to take. As far as Fortis is concerned, we definitely doesn’t — don’t have much effect of this on our operations. The only areas which we are to wait for is the clarity on the RHT transaction [Indecipherable].

Dheeresh Pathak — WhiteOak Capital — Analyst

No. What I meant was, let’s say for example, if you want to buy an asset, M&A, and issue your shares as currency, will that be allowed? Or that also will not be allowed.

Ashutosh Raghuvanshi — Managing Director and Chief Executive Officer

So share as currency is we don’t think, is allowed at the moment, but we do have capacity to look at some other smaller acquisitions which we will evaluate.

Dheeresh Pathak — WhiteOak Capital — Analyst

Okay, so change in capital structure and shareholding is not allowed, okay, understood. And the last question is on this I mean the EBITDA margin profile based on number of beds. So there are five hospitals with 716 beds, which are less than 10% EBITDA. One obviously is the Arcot Road. Which are the other assets? Because they will have been operational for a while. So is there a structural issue that these hospitals — can you identify some of these hospitals? And what is the issue with these hospitals that they are less than 10% EBITDA?

Vivek Kumar Goyal — Chief Financial Officer

Yes. So out of these five, six hospital, Arcot Road and I have explained in detail what is the problem there.

Dheeresh Pathak — WhiteOak Capital — Analyst

Right.

Vivek Kumar Goyal — Chief Financial Officer

There’s some sign of improvement, but at the same time, the progress is slightly slow because the fix they are required some long-term fix in the form of infrastructure improvement and things like that, getting the fire NOC. All those things are required, which is likely time consuming, something is in our hands which we are trying to complete and something we have told, get it done through the government agencies.

As regards Jaipur and FEHI’s, both are progressing quite well in terms of occupancy as well as in the margins. And in both the hospital, we also feel that there is an opportunity to add further facilities. So that is something which we are in the — on the exploration stage. And once we complete it, I think that will give a further boost to the margin expansion of both these hospitals. The large hospital in this category is the Vashi hospital, a sizable hospital in this category, which is, again, having its own challenge because of a specific area where there will be some [Indecipherable] being operated. And there are infrastructure leaders also. And it is a government hospital and we are operating it. So that hospital is also slightly slow in improving the progress. So I think…

Dheeresh Pathak — WhiteOak Capital — Analyst

Okay. Jaipur would have been operational for a while. So you are saying we don’t have the full stack of specialties. That is the reason why it has been slower…

Vivek Kumar Goyal — Chief Financial Officer

Yes. For example, onco is not there in Jaipur. And [Indecipherable] at a very good look, there is bed capacity available to expand. So those type of things, we are exploring.

Dheeresh Pathak — WhiteOak Capital — Analyst

Understood. Okay. Thank you for taking my questions.

Vivek Kumar Goyal — Chief Financial Officer

Yes.

Operator

Thank you. Our next question is from the line of Amit Khetan from Laburnum Capital. Please go ahead.

Amit Khetan — Laburnum Capital — Analyst

Hi. Good morning, and thank you for the opportunity. So your press release mentioned, talked about portfolio rationalization and inorganic expansion going to be drivers of operational performance. Could you elaborate on — a little bit on both these aspects, especially in light of the supreme court judgement? Are we ready to press ahead on both these levers?

Vivek Kumar Goyal — Chief Financial Officer

Yes. So we are moving ahead on both these levers. Brownfield expansion, anyway, the capex requirement is quite low — less. And as you have seen, the cash flow generation from the business is quite handsome to take care of this brownfield expansion of its own. And as mentioned in Dr. Raghuvanshi’s speech also, the leverage ratio is quite comfortable. Our debt level — net debt level, is INR500 crore plus[Phonetic] level. It is less than half of the one-year EBITDA, so that is — that gives us confidence that we can — the very well fund it by a little bit leveraging our balance sheet, so we are actively pursuing the acquisition opportunity which makes sense for our overall growth strategy.

Amit Khetan — Laburnum Capital — Analyst

Understood. So should we expect some kind of strategic action over the next six to 12 months?

Vivek Kumar Goyal — Chief Financial Officer

These deals are very difficult to predict, but yes, our aspiration will be to close that in [Phonetic] during this period.

Amit Khetan — Laburnum Capital — Analyst

Got it. And this holds true for both — for portfolio rationalization as well.

Vivek Kumar Goyal — Chief Financial Officer

Yes.

Amit Khetan — Laburnum Capital — Analyst

Got it. Thank you.

Operator

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

Anurag Kalra — Senior Vice President of Investor Relations

Thank you, Inba. Ladies and gentlemen, thank you very much for joining us on the call today. Gaurav and myself are available. In case you have any further clarification or queries, please feel free to reach out to us or e-mail us. Thank you very much, and have a good day.

Operator

[Operator Closing Remarks]

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