Krishna Institute of Medical Sciences Limited (KIMS) Q2 FY23 Earnings Concall Transcript

Krishna Institute of Medical Sciences Limited (NSE:KIMS) Q2 FY23 Earnings Concall dated Nov. 11, 2022

Corporate Participants:

Bhaskar Rao Bollineni — Founder and Managing Director

Vikas Maheshwari — Chief Financial Officer

Abhinay Bollineni — Executive Director and Chief Executive Officer

Analysts:

Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst

Chintan Sheth — Sameeksha Capital — Analyst

Rahul Jeewani — IIFL Securities Limited — Analyst

Harshit Toshniwal — BottomsUp Research — Analyst

Prakash Agarwal — Axis Capital — Analyst

Alankar Garude — Kotak Institutional Equities — Analyst

Chintan Seth — Sameeksha Capital — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen, and welcome to the Q2 FY ’23 Earnings Conference Call of KIMS Hospitals, hosted by IIFL Securities Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jeewani from IIFL Securities Limited. Thank you, and over to you, sir.

Rahul Jeewani — IIFL Securities Limited — Analyst

Hi. Good morning, everyone. I’m Rahul from IIFL Institutional Equities. I welcome you all to the Second Quarter Earnings Conference Call of KIMS Hospitals. From KIMS, we have with us today, Dr. Bhaskar Rao Bollineni, Founder and Managing Director; Dr. Abhinay Bollineni, Executive Director and CEO; and Mr. Vikas Maheshwari, CFO.

Over to you, sir, for your opening comments.

Bhaskar Rao Bollineni — Founder and Managing Director

Okay. Good morning and a warm welcome to our dear investors. We met last on August 11, 2022. And I am now here today to apprise you of the latest development and the financial results of quarter two of the financial year ’23. You are aware of our earlier acquisitions of Sunshine Hospitals and Manavata Hospitals at Nashik by taking the major stake. Again, I have great pleasure in informing you about yet another acquisition made by KIMS in the state of Maharashtra. From September 1, 2022, SPANV Medisearch Lifesciences Private Limited, known as Kingsway Hospitals at Nagpur, has become a subsidiary of KIMS Hospitals following our acquisition of 51% stake. You will be happy to know that it is a first hospital outside the State of Telangana and Andhra Pradesh. Kingsway Hospitals is one of the leading multi-specialty hospitals in Nagpur. It has quickly emerged as the hospital of choice for the citizens of Nagpur and surrounding areas. The top specialties of KIMS include cardiology, nephrology, urology, orthopedics, pediatrics and oncology. And we are also in line with [Technical Issues] started by doctors, one of the [Technical Issues] because we have been aligned with that, that’s why we have been — they approached us and we are also happy to share with them. Our vast experience in running multi-specialty hospitals and turning them around will help present acquisition to quickly reach an optimum level of operational efficiency and add value to our shareholders.

I will now come to the financial results of quarter two of financial year ’23. Our company recorded a good performance with a steady growth under various parameters as can be seen from the following results. The year-on-year comparison may not be right due to consolidation of Sunshine Hospitals from April ’22 and Kingsway Nagpur from September 2022. Consolidated revenue from operations grew by 13.8% quarter-on-quarter basis, INR5,461 million, ex Nagpur grew by 11%. Consolidated adjusted EBITDA excluding other income [Indecipherable] adjustment and an old case of luxury tax payment grew by 14.5% on a quarter-on-quarter basis to INR1,502 million, ex Nagpur grew by 13.4% to INR1,488 million. Consolidated adjusted EBITDA margin stands at 26.6%, ex Nagpur stands at 27.1%, quarter-on-quarter improvement of 0.6%.

The group continues to have a very strong balance sheet along with healthy operating cash flow and has built a strong financial foundation for the next phase of growth. Our operational highlights during the half yearly FY ’23, Company has added 951 beds; Sunshine 602 beds, Nagpur 333 beds, Rajahmundry 15 beds, which is a substantial addition. Both IP and volumes have shown growth on quarter-on-quarter basis at 17.5% and 15.5% respectively. This speaks about the strength of the hospital, what we are doing in last two decades. Average revenue per operating bed and average revenue per patient have shown a slight decline of 3.2% and 3.1% respectively on a quarter-on-quarter basis, though there is an increase of 17.5% and 5.8% respectively on a year-on year basis.

Other developments. Let me now present the developments in other projects. From last July, Manavata Hospitals at Nashik has become a subsidiary of KIMS Hospitals, in which we have undertaken a greenfield project of the hospital. Gastro project at our Vizag subsidiary, KIMS ICON, will commence from December 2022. The work of Sunshine Hospital at Begumpet is progressing well, and it will be started by April 2023. The project undertaken at Bangalore semi brownfield is moving ahead and expected to be operational by March ’24.

Latest technology. We are always in the forefront acquiring the new technology that is available in the world so that the doctors and the patients will get the maximum benefit out of it. The use of artificial intelligence has brought about trailblazing changes in modern neurosurgery, thereby improving the quality of life of patients having undergone brain surgery. In keeping with our mission of bringing the best medical care by adopting newer techniques, we launched the brain mapping technology, Omniscient Neurotechnology, Quicktome TM to further bolster our infrastructure facilities, popularly known as tumor mapping, it allows surgeons to opt for the safest trajectory to target that needs surgical treatment inside the brain. Adoption of brain mapping technology will further cement our position as the country’s best neurosciences center.

I will also brief some of our clinical achievements done during this quarter both in tier 2 and tier 3 cities. It has demonstrated that clinical achievements and quality care will result in increased volumes leading to growth of the organization. KIMS has emerged as a hub of transplants and during the quarter, we performed as many as 137 organ transplants including both heart and lung transplants, which is the biggest achievement in Asia under the leadership of Dr. Sandeep Attawar. We are proud of the fact that very complicated and major surgeries are being done successfully at our various tier 2 and tier 3 centers. Earlier, those people were required to go all the way to major cities for such operations. Now, our presence in such centers is saving the patients a lot of their valuable time and money and we are able to improvise our volumes. There are some of the examples, I would like to put it in front of you. Woman born without an esophagus at birth undergoes complex surgery at KIMS Kurnool. First cadaver kidney transplant done at KIMS Kurnool. Woman with a rare autoimmune disorder gets a new lease of life successfully at KIMS Kurnool. Kidney stone measuring 2 centimeters was successfully removed from a 9-month-old baby at KIMS Kurnool.

A 70 year-old man walks again post a complex stent procedure at KIMS Vizag. After spending a grueling 100 days in the hospital, a 70-year-old successfully discharged after treatment for the rare Guillain-Barre syndrome, which is a very rare feat and doing in a place like Vizag. Two Iraqi girls with a complex scoliosis problem successfully operated it KIMS Secunderabad. A severely injured trauma patient with multiple organs ruptured internally was successfully operated upon at KIMS Secunderabad. A 3-year-old girl with a rare neck infection was successfully operated upon at KIMS Kondapur. A 5-month baby undergone a complex brain surgery at KIMS Anantapur. Trauma patient undergoes six life-saving surgeries in a span of 14 hours, successfully discharged from KIMS Anantapur. Complex ureter cancer surgery performed on a 50-year-old woman at KIMS Anantapur month. A nine-hour complex Bentall procedure in a patient suffering from abnormal enlargement of aorta successfully done at KIMS Nagpur. There is a lot of appreciation from the patients. One of the appreciation, I will be able to put forward in front of you. We keep receiving many letters of thanks and appreciation from our patients.

Today, I want to share a letter received from a professor from Botswana. This signifies how the name of KIMS has spread far and wide and heard in far off places like Botswana. Professor Parasuram from University of Botswana, [Indecipherable] was diagnosed with a brain tumor as he started forgetting important things on a regular basis. He flew out to Hyderabad and came to KIMS for treatment. These are the excepts from this letter. “I went through the surgery on August 23, 2022, under the leadership of great neurosurgeon, Dr. Panigrahi and his team. It is nice and great that people in far off places like Botswana know the talents and critical surgical skills that Dr. Panigrahi has, outside in India [Phonetic]. I was in ICU for three days after surgery and later, I was moved to the special sharing room in the ward. I was very comfortable and felt happy with the specialties and treatment as a patient at KIMS Hospital. Many, many thanks to KIMS Hospital Secunderabad and their post-surgery services and especially Dr. Manas Kumar Panigrahi for saving my life by quickly performing this critical brain tumor removal surgery with the latest technology.” Such words of appreciation serve as a tonic for us to serve the patients better and better.

I will quote a disciple asking his Guru, what is more important, the journey or destination? Guru replied the company. When the company is good, it leads to good results. You are in good company with KIMS and we in turn are in your good company. I conclude now assuring you that we will continue to work with same tempo and determination in achieving our results. One more, I will keep sending my wellness journals to all of you. Those people who have not received, if you can be able to share your emails, on a monthly basis, we’ll keep on sending a wellness journal so that we can be away from most of the diseases.

Thank you.

Questions and Answers:

Operator

Sir, shall we open for the Q&A session?

Bhaskar Rao Bollineni — Founder and Managing Director

Yes.

Operator

Thank you very much. [Operator Instructions]. We have the first question from the line of Chintan Sheth from Sameeksha Capital. Please go ahead.

Chintan Sheth — Sameeksha Capital — Analyst

Thank you for the opportunity and congrats on the good set of numbers and being a shareholder, we are happy to hear an appreciation letter from our patient and kudos to the team. Sir, one — couple of questions. One is on the growth aspect you mentioned Bangalore in March ’24 and others, if you can briefly update where are we in terms of capex and how will be the capex outlay likely to pan out over the course of next two to three years. That is one and the number of bed addition relative to that capex. And second is on the ARPP and ARPOB decline this quarter as you mentioned in the initial remarks. How should we read about it in terms of whether the trajectory will likely to stay? Obviously, it will be driven by [Technical Issues] and there are other factors as well, but if you can just incrementally give us some trajectory going forward. We also indicated earlier that there is a rate revision likely to happen. If you can update on that as well? Thank you.

Vikas Maheshwari — Chief Financial Officer

Okay. So, as far as ARPOB is concerned, like we had mentioned multiple times in the past, I think we should always consider it in that range of INR29,000 to INR31,000 and every quarter based on the occupancy, number of patients being discharged, complexity of work, it could hover. But if you look at consistently over the last three, four quarters, we have been hovering around the same range. So when one looks at prospective quarters, we should assume that we will safely be in the INR29,000 to INR31,000 kind of a bracket, and it will change based on the numbers. As far as the expansion is concerned, I think fortunately all the expansions so far are on track. Let me go state wise. As far as Telangana is concerned, Kondapur will be operational in the next 24 to 30 months as per the original timeline, and the total outlay for that project is going to be to the tune of INR350 crores, but spread over the next three years. And that is towards the interiors, medical equipment and the other infrastructure. That’s the expansion that’s happening in Telangana. And as far as Andhra is concerned, we had earlier mentioned we are expanding bed capacity in each of our hospitals. This is largely to accommodate more specialties, to accommodate growth in existing specialties and have cancer [Phonetic] as a significant contributor to the overall growth in that market. As far as Karnataka is concerned, we had a couple of projects that we were looking at in the past. One that has solidified is the Soul Space project where we acquired a shopping mall and we are building a 400-bedded hospital. We have completed acquisition of the mall, and work has started in full swing. We should complete the project in the next 12 to 18 months and have it operational in the next 12 to 18 months. We have already completed an outlay of INR120 crores towards acquiring the property and an incremental INR300 crores and INR250 crores to INR300 crores is what we will spend to complete the project, and this will be spent out in the next 12 to 18 months. This is towards refurbishing the entire space and also towards the medical equipment.

Chintan Sheth — Sameeksha Capital — Analyst

What will be the bed capacity of that mall?

Vikas Maheshwari — Chief Financial Officer

That will be 400 to 420 beds in full capacity, but we want to operationalize all the beds, but capex for all the beds is what I had mentioned.

Chintan Sheth — Sameeksha Capital — Analyst

And we’ll start with around 200, 250 or less than that?

Vikas Maheshwari — Chief Financial Officer

Yes, so the medical equipment will be bought in staggered manner, but the infra upgradation will happen for all of the beds in one go.

Chintan Sheth — Sameeksha Capital — Analyst

Correct, Correct. We’ll start with 200, 250, right?

Vikas Maheshwari — Chief Financial Officer

Correct, correct. 200 beds are more than enough to start with.

Chintan Sheth — Sameeksha Capital — Analyst

And we also — we’re discussions with some Maharashtra [Technical Issues].

Vikas Maheshwari — Chief Financial Officer

Correct. So, this is as far as Bangalore is concerned. We are still evaluating more opportunities. I think by the next quarter we should be able to bring something on table. As far as Maharashtra is concerned, we had earlier spoken about Nashik, which is on track. Again, 12 months from now, we should operationalize it as I said. The structural work of [Technical Issues] is completed. We will start on civil work and interiors in this quarter and hopefully by 12 months, we will be on track to operationalize that property. As far as Thane is concerned, we are still waiting for some clearances from government authority. Hopefully, by end of this quarter, we should get it and if we do get it by end of this quarter, by 9 to 12 months, we should look at operationalizing it.

Chintan Sheth — Sameeksha Capital — Analyst

Sure. And update on the insurance rate revision on pricing?

Vikas Maheshwari — Chief Financial Officer

So, some of the insurance have happened, some are yet to happen, but it typically takes six months to nine months after the date of renewal — for the renewal process to happen.

Chintan Sheth — Sameeksha Capital — Analyst

Okay. Okay. Sure. I’ll jump back in the queue. Thank you. [Speech Overlap].

Operator

Thank you. [Operator Instructions]. We have the next question from the line of Bhavya Gandhi from Dalal & Broacha Stock Broking. Please go ahead.

Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst

Yeah. Thank you for taking my question. And congratulations on good set of numbers. Sir, I just wanted to understand how would the debt look like maybe one or two years down the line assuming the merger is going to take place and that is going to come on our books on a full-year basis and also on the cash flow, are we going to take some external debt going forward for the capex or how is that? Yeah.

Vikas Maheshwari — Chief Financial Officer

Thanks, Bhavya. It’s a good question. [Technical Issues] we are only focused on two projects, which is Bangalore, for which Dr. Abhinay just briefed that we have completed the transaction and the work is going on and the Nasik one, which we have already done, so as on 30th September after the closure of the Nagpur transaction where we have infused INR80 crore rupees of the equity and some loan we have given to the subsidiary for cleaning up the balance sheet, etc., etc. With that, the Nagpur subsidiary has INR150 crores [Phonetic] debt, so as on 30th September, as on net debt level, we are at around [Indecipherable] net debt positive right now. So, from the cash positive from the last quarter because of the macro transactions and the Nashik and the Bangalore project, which we are undertaking, so some INR50 crores of the net debt is there. The company, if you look at the cash flow we are generating, something like INR200 crores of the cash flow we have generated for the first half. If you analyze it, [Technical Issues] the cash we will be generating this year and the next year depending upon the working capital adjustment. So, on the safer side, even if we look at some working capital [Indecipherable] depending upon the common payment, etc., etc., INR700 crores cash will get submitted in next 24 months and that is what is the project we are taking so that interim period since the capex will be first and our cash flow will come over [Indecipherable] 24 months, there may be some debt in the books, but overall, over a period of time, next two years, based on these two projects, which we are taking, we are very comfortable on that situation. But as far as another thing which we may look at is like at the Sunshine, we are looking at buying out the new building where we are moving on, if that [Technical Issues] some debt will come, but accordingly the rental will come down on that balance sheet, it will be value accretive for the whole organization and we are also looking at and discussion with the board, etc., for increasing our minority interest in — buying out the minority — few of the minorities in few companies and if that happens, that incremental cash outflow will happen.

Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst

Okay. Fair enough. Fair enough, sir. And on the EBITDA front, what is the internal target — maybe we are at almost 26%, 26.5% and at peak, we were at 30%. I understand there were mergers, low-margin business getting merged with high-margin business, but going forward, we might be looking at cost rationalization and maybe we want to get back to our company level margins, so what is our internal target maybe? Maybe hypothetical, difficult maybe to tell at this stage. Yeah.

Abhinay Bollineni — Executive Director and Chief Executive Officer

I think across our hospitals, so all our Telangana — all our mature hospitals are [Technical Issues] around 30% margin and as the revenue growth happens, there an expansion happens, the margin keeps expanding. So, our internal target first is to see how we can get the recently acquired KIMS Hospitals to that 30%, bringing Sunshine and Kingsway also into to that 30% bracket. So, I think we are pretty confident we should be able to achieve that in the next two years.

Vikas Maheshwari — Chief Financial Officer

So, Bhavya, to add what Dr. Abhinay has told, though we have shared that details in presentation, just to make it more clear in terms of — for the whole audience, if you look at the KIMS as a group for the nine hospitals, whether it is Andhra, acquired or mature, or the KIMS matured even in the state of Telangana, we are at about 30% of the EBITDA on that basis. So, that is continuing and then we believe that we will be able to maintain, but kicker will come from the Sunshine, which we have added which is operating right now at a suboptimal EBITDA margin of 18%, right. So, these assets are in the same market, so we believe that in next three to nine months’ time we should be able to reach something like that 25% margin on that, so the margin improvement will come from there and accordingly, Nagpur which we have added the one-month revenue and the EBITDA which have got added and we bought at a very reasonable price of that and it is just EBITDA positive. It is sitting on a great operating leverage and as revenue ramp-up and the doctor joining the team and the revenue ramp-up happens and the cost rationalizations together, we believe that that also will happen in the next six to nine months’ time, should be in the trajectory of 20% to 25%, so the main improvement of the EBITDA at the console level will come from our Sunshine and Nagpur acquisition and to some extent from the AP acquired assets.

Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst

Okay. Fair enough, sir. Thank you so much. That’s really helpful. I’ll get back in the queue.

Vikas Maheshwari — Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions]. We have the next question from the line of Harshit Toshniwal from BottomsUp Research. Please go ahead.

Harshit Toshniwal — BottomsUp Research — Analyst

Hi, sir. [Technical Issues].

Operator

No, sir. There is a slight disturbance. May we request you to use your handset please?

Harshit Toshniwal — BottomsUp Research — Analyst

Is this better now?

Operator

Yes. Please proceed.

Harshit Toshniwal — BottomsUp Research — Analyst

Yes. Hi, sir. I have two questions. So, one is more, sir, in general to these business operation itself. When we say for example, when we try to expand in Bangalore or for example when we try to maintain our market share in even Telangana market, I wanted to understand that what is our approach to the doctor engagement, say for example, I think in FY ’22, we had around 1,400 doctors, so how much would be on payroll and what is the one which we engage on a fee as a service model and what would be the preference as we expand to the newer cities? How to build that doctor network?

Bhaskar Rao Bollineni — Founder and Managing Director

That’s the first question?

Harshit Toshniwal — BottomsUp Research — Analyst

I had a few more, but I’ll ask it after this.

Abhinay Bollineni — Executive Director and Chief Executive Officer

So, I think all doctors that are engaged are in a consulting model only. We don’t have any of them on full time — sorry on a fixed pay kind of a model. That’s not how it works and moving forward, in Bangalore also, we will continue to engage with them in a similar format.

Harshit Toshniwal — BottomsUp Research — Analyst

Okay. But [Technical Issues] from a hospital point of view, does having doctors on payroll help in better branding even though the costs are slightly higher, but does it help in inserting a more turbulent branch for example in a place like Telangana, also does it make sense to keep doctors on a consulting basis or to have a mix of payroll and consulting?

Abhinay Bollineni — Executive Director and Chief Executive Officer

I think it’s an industry wide practice that has been going on for quite some time. And doctors are more comfortable in a consulting model than on a payroll model.

Harshit Toshniwal — BottomsUp Research — Analyst

Okay. Okay. Got it. And the second question is relating to our overall share — so when we look at our stakes in many of the subsidiaries across hospitals, so I think in Sunshine in Nashik one and the Nagpur one, we have a clear segregation of the EBITDA, but when I look at our AP matured as said, we have overall EBITDA and revenue number, but is there a way to simplify our net networking across the AP and Telangana as such for the valuation calculation?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Yeah, Harshit. So, see what has happened is that we believe on the doctor partnership model and if we — the reason which we float the subsidiary for each hospital is that once that particular doctor has a stake on that, they feel that it is their own hospital and they — more work, they more do ethical [Phonetic] work, bring more volume and their friends [Technical Issues] clinicians, etc., etc., at the hospital. The simplified way of doing it is that if we merge all the subsidiaries, there will be a very small pie in the overall group, so our idea is that we should merge the hospitals once they reach [Technical Issues], so we are working towards that and as we told in the earlier response to Bhavya is that we are looking at increasing some minority stake in three of the subsidiaries, which will consolidate our holding and once they mature, obviously the plan is that in next two to three years’ time, we should merge with the parent company to simplify the structure, but it is something like 18 to 24 months away, I believe.

Harshit Toshniwal — BottomsUp Research — Analyst

Okay. And so for example, I didn’t see I want in [Technical Issues]

Operator

Sorry to interrupt. Mr. Harshit Toshniwal, your voice is not that clear. May we request you to please use your handset if possible? Thank you.

Harshit Toshniwal — BottomsUp Research — Analyst

Sure. I’ll use my handset. So just if I want to look at the ex of Sunshine Nagpur and Nashik in the balance part, a number which we can use drop ballpark numbers for our share, net share in the overall profits. So it’s more like 90%, 95%, because the holding structure is different across different hospitals. So on a consolidated business, today we want to evaluate it then should we assume the stake of KIMS to be at around 90% to 95% on the broader level?

Abhinay Bollineni — Executive Director and Chief Executive Officer

At the PAT level, yes, at the EBITDA, roughly 14% will be the minority interest. At the net level it’ll be less.

Harshit Toshniwal — BottomsUp Research — Analyst

At that — okay, at the net level, it will be [Technical Issues] 14% is a minority.

Abhinay Bollineni — Executive Director and Chief Executive Officer

Correct.

Bhaskar Rao Bollineni — Founder and Managing Director

This is for the ex — only for the EBITDA [Speech Overlap]

Abhinay Bollineni — Executive Director and Chief Executive Officer

It is from the first half calculation of the EBITDA unit wise, it is a roughly 14% of the EBITDA is belongs to the minority interest. At the net level, it should be 7% to 8%.

Harshit Toshniwal — BottomsUp Research — Analyst

And this is the entire — all entire balance sheet and all even Sunshine put together or this is just ex of Sunshine and Nashik and Nagpur?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Including all subsidiaries, which is Vizag, Anantapur, Kurnool, Sunshine, everything, all subsidiaries including.

Bhaskar Rao Bollineni — Founder and Managing Director

If it is only KIMS, it should be 4% to 5%.

Harshit Toshniwal — BottomsUp Research — Analyst

Got it. Got it. Got it. And going forward, if a lot of our improvement is going to come in, say for example, Sunshine, etc., then this 14% EBITDA share should increase, the minority share should increase some 14% to maybe somewhere around 18% to 20% level.

Abhinay Bollineni — Executive Director and Chief Executive Officer

That is why we are looking at some increasing our stake, have said before that happens.

Harshit Toshniwal — BottomsUp Research — Analyst

Understood, sir. Got it. And one last question. I think probably something related to this itself. When we — say for example, taking the case of the Nashik hospital, right and when evaluate it, and when you say that you are going increase the interest — minority interest out there? Then how do we value that stake at that amount of time for the various doctors?

Bhaskar Rao Bollineni — Founder and Managing Director

That is by literal discussion. So far we have not reached that stage. We are just in touch with that and we’ll be very value concept and give a fair deal to all the shareholders, including KIMS shareholders and their shareholders.

Harshit Toshniwal — BottomsUp Research — Analyst

Understood. One last question from my side, sir. When we look at the case profile, if you can help, we understand that at an overall level, our margin would be more around 25%, 30% from a mature hospital. But since case mix is a very important lever, and that is where across industry itself wanted to get some sense as to Godly, what are the specific cases where we make higher margins versus the other. For example, if we try to look onco and ortho across segments some guidance as to how should we look at the margin profile for different assess? And I’m not talking specifically for KIMS, but in general from an industry understanding point of view.

Bhaskar Rao Bollineni — Founder and Managing Director

So it has — you see the way we track it internally is based on revenue occupancy and utilization of the assets. So specialty mix really doesn’t matter so much. I mean, to an extent it does, but we have been able to, in case of Sunshine, where ortho currently tries almost 30%, 35% of the revenue, we’re still pretty confident that we’ll be able to get to that kind of margin. That is because, we believe that is head room for growth in terms of volume and get to higher occupancies. And that is what will drive operating leverage. So even where our costs are as low as INR15,000 to INR20,000 where we have been delivering 30% kind of a margin. So even I think it’s less to do with what kind specialties and what kind of pricing. It’s more to do with at that pricing, are we able to control costs and are we able to get to scale? And that is what we are trying to do in most of the hospitals.

Abhinay Bollineni — Executive Director and Chief Executive Officer

What — then RPA and ROB, and the most important thing in general, we are asking in the healthcare it is the, how we can able to improvise the volume and the pair mix, that is the key that can able to help the organization of each user organization.

Harshit Toshniwal — BottomsUp Research — Analyst

Okay. Okay. Okay, got it. But so no meaningful difference in terms of, for example, a cardiac versus neuro case itself?

Abhinay Bollineni — Executive Director and Chief Executive Officer

No, it doesn’t matter. I think the hospital should be a multi-specialty and we should focus on scale of the volume in occupancy for our specialties.

Harshit Toshniwal — BottomsUp Research — Analyst

Understood, understood. Got it, sir. I think thanks a lot, very useful.

Operator

Thank you. We have the next question from the line of Rahul Jeewani from IIFL Securities. Please go ahead.

Rahul Jeewani — IIFL Securities Limited — Analyst

Yeah. Hi sir. Sir, if we now look at our occupancies at a group level, we are trending somewhere around 69%, 70%. So how do you look at occupancies going forward on the base business, apart from the incremental capacity which you are adding? So on the base occupancies, where you can — you be in let’s say 18 to 24 months down the line?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Did you say base occupancy? Rahul, can you clarify a little please?

Rahul Jeewani — IIFL Securities Limited — Analyst

Yeah, yeah, Dr. Abhinay —

Abhinay Bollineni — Executive Director and Chief Executive Officer

70% occupancy on a consult level at a H1 numbers.

Rahul Jeewani — IIFL Securities Limited — Analyst

Yeah. So Dr. Abhinay, I was asking that if we look at your occupancies, we are at 70% on census bed, but the way some of your other peers disclose on operating beds, then on operating beds, our occupancies will be around 60%. So how are you viewing the overall occupancies to improve on the base business going forward? Apart from the capacity additions which we — you will be doing over the next two to three year period?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Right. So I think we should — we’re comfortable to get to 70%, 75% on the operational beds.

Rahul Jeewani — IIFL Securities Limited — Analyst

Okay. So the operational bed occupancies, which right now are at 60% that you think can improve to 70%, 75%?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Because we’re not adding bed capacity in all the hospitals, we’re adding bed capacity only in certain hospitals. So we are expecting that the current bed capacity in the current hospitals will be sufficient to increase the number of — increase the volume enough.

Rahul Jeewani — IIFL Securities Limited — Analyst

Okay. Okay. Okay. And with that occupancy ramp up, how do you expect the profitability of the — of KIMS improving ex of Sunshine and Nagpur? Now, one question which I had on your base business margins is that if you look at your mature hospitals, your mature hospitals last year were doing around 34% kind of EBITDA margins? And in H1, should the margins for the matured hospitals have been slightly on the lower side at 32%. So why the run rate on the mature hospital margins is slightly below and with the ramp up in occupancy, how are you looking at the margins for KIMS ex of Sunshine and Nagpur?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Okay. We are pretty confident that we’ve been seeing that happen over the last six to nine months, historically, that almost 50% of the incremental revenue 45% to 50% of the incremental revenue, we’ve been able to come see that convert back into EBITDA. So in Telangana and in our KIMS mature assets, which is Kondapur, Secunderabad, assets in Andhra, we’ve seen it scaled that way. Unfortunately, this quarter there were some exceptional items because of which instead of having INR25 crores of incremental, 50% of that flowing in, we only saw INR15 crores flow in, which I think moving forward, these exceptional items will come down and we should see that 50% translate, 45% to 50%.

Rahul Jeewani — IIFL Securities Limited — Analyst

Okay, Dr. Abhinay. And what were these one off exceptional items?

Vikas Maheshwari — Chief Financial Officer

It is INR5.5 crore, which we paid for the luxury tax disputes, which were related to the dated back to 2011. And there was a one-time settlement, if KIM which the government Telangana government, Andhra government circulated. We update for that. So that amount has hit that. At the same time, there was some receivable related provision of to — up to some INR11 crore — INR7 crore for the ECL incremental provision, which keeps fluctuating quarter-on-quarter depending upon the shape of the quarter. And then some — there were some old receivables which we are carrying forward. We have finally took the hit and the balance sheet of INR54 crore.

Rahul Jeewani — IIFL Securities Limited — Analyst

Okay, Vikas. Because, so this INR5.5 crore you had disclosed in the exchange filings as well. So apart from that, you are saying that another INR15 crore is related to these receivable provisions?

Vikas Maheshwari — Chief Financial Officer

INR10 crore. INR10 crore.

Rahul Jeewani — IIFL Securities Limited — Analyst

INR10 crore? Okay. Okay. And my last question before I join back the queue is, that if you look at now one of your key peers in the Hyderabad market, which is CARE Hospitals, there is news flow that CARE Hospitals can potentially be acquired by few key investors or one other large player in the sector. So how do you see the competitive intensity in your core market changing once this transaction happens? As in with some of these players acquiring CARE obviously, the new set of management will try to invest behind the business. So how would you view the competitive intensity changing for your core market? Thank you.

Bhaskar Rao Bollineni — Founder and Managing Director

As long as our core values, we are going to stick to those values. Any number of hospitals that comes and as long as our doctors are happy, the infrastructure with administration and technology and more and more doctors keep adding to us. So even that, I don’t think very, very big competition for us.

Rahul Jeewani — IIFL Securities Limited — Analyst

Sure, sir. And would retention of doctor talent be an issue? Or do you think that your doctor equity model would continue to give you some sort of an advantage versus competition in retaining talent?

Bhaskar Rao Bollineni — Founder and Managing Director

Yes, definitely. It’ll give some added advantage for us. I don’t think we have any attrition in the medical.

Rahul Jeewani — IIFL Securities Limited — Analyst

Sure sir. And what is the doctor attrition rate as of now for us? And since you highlighted that point?

Bhaskar Rao Bollineni — Founder and Managing Director

In the last quarter, we lost only one doctor not full doctor. [Speech Overlap]

Rahul Jeewani — IIFL Securities Limited — Analyst

Sure, sir. That’s it from my side. I will join back the queue. Thank you.

Operator

Thank you. We have the next question from the line of Prakash Agarwal from Axis Capital. Please go ahead.

Prakash Agarwal — Axis Capital — Analyst

Yeah, good morning. Thank you for the opportunity. Question on Telangana cluster, so if you see occupancy by most hospitals reported have gone up, here in Telangana, it’s kindly — is kind of stable here, while others moved. So any particular reason?

Abhinay Bollineni — Executive Director and Chief Executive Officer

I think in Telangana, we have two assets, which is KIMS Secunderabad and Kondapur. Kondapur, currently, the occupancy is quite high and we don’t have that capacity to accommodate more number of patients. So until the new facility comes, there will be some restricted growth there. As far as Secunderabad is concerned, we have seen the occupancy more up. The overall volumes for the Telangana cluster has moved up by almost 10%, I think we are fairly happy with the volume movement that has happened from quarter one to quarter two, and there’s a dip in NOL by almost 10% which is resulted in the [indecipherable].

Prakash Agarwal — Axis Capital — Analyst

Okay. And secondly, on Sunshine, so ramp up is partly there in the occupancy, but when do you think it’ll reach how much time does it take and what are the company action to improve the occupancy levels here?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Yeah. So I think let me just stick this question. There are two assets of Sunshine and one of the assets, which is in Gachibowli. We have done a fair bit of progress. So earlier though, the revenue remains constant, we have done a lot of clean-up which, which in the case was to get a lot of new doctors at lower cost versus the higher cost doctors that they were paying earlier. So we had replaced them in spite of which we’ve been able to retain the revenue, now all that cleanup has done. We are waiting for some more doctors to join the company soon over the next two to three months. And once they join over the next six months, you should see that hospital hitting a higher occupancy close to the tune of 60%, 65%. And all of that incremental revenue will translate to a high margin in the Sunshine Gachibowli facility.

As far as Begumpet facility is concerned, by end of this year, by December, we should have finished all the operational efficiency or plugins that we could potentially do. And from the fourth quarter of this year, we can start seeing that translating the EBITDA growth as far as Begumpet, Secunderabad facility of Sunshine is concerned. We have not been able to make much progress in the revenue growth because of moving from the current facility to a newer facility. And we want to start engaging and bringing new doctors onboard once we move to the new facility. So that will — it’s later to happen between Feb-March of this financial year. And once that happens, maybe in six to eight months, we’ll bring new doctors onboard, and then from there, six to nine months, you will start seeing an incremental revenue come up and wrap up happen. So that’s how we planned out Sunshine. So the Gachibowli as said should reach a healthy occupancy and healthy margin by the first — end of first quarter next financial year, first or second quarter next financial year. And the Begumpet facility should see its stabilized by the end of first quarter, the next financial year FY’24.

Prakash Agarwal — Axis Capital — Analyst

Okay, fair enough. And lastly, on Nagpur showing 92% occupancy already but 10% margin, so what do you think, are there sweet spots, which you can get after and in next two, three quarters, it’ll be at least 18%, 20% margin?

Abhinay Bollineni — Executive Director and Chief Executive Officer

So I think the good part of Nagpur is it’s already delivering 10% EBITDA margin. We believe there is a lot of efficiency that we can drive in on the consulting cost and consumable cost. Once that is fixed to the tune of 2%, 3% and once that is fixed, we have identified a lot of clinical talent that that can be added to the company and we are hopeful that they should all be on-boarded by January-Feb. And from there in six to nine months, we should see a significant moment in the occupancy sorry, in terms of the revenue, which automatically will start flowing into EBITDA. So by the end of second quarter next year or third quarter, we should see Nagpur ramp up to a healthy 20% kind margin with incremental revenue. Occupied rates are 175 days.

Prakash Agarwal — Axis Capital — Analyst

Okay. And lastly on Thane, I think you mentioned that you have expansion plans. What is the size we are talking about and is it also a turnaround asset?

Abhinay Bollineni — Executive Director and Chief Executive Officer

So that is something that we’re still haven’t concluded. We have been exploring that with one a project in Thane around 250, 300 beds. But unfortunately there has been some delay there. We should come back to you that in the next investor call.

Prakash Agarwal — Axis Capital — Analyst

Okay, lovely. Thank you and all the best.

Operator

Thank you. We have the next question from the line of Alankar Garude from Kotak Institutional Equities. Please go ahead.

Alankar Garude — Kotak Institutional Equities — Analyst

Hi, good morning everyone. So one of the aspects, which is worked for well — worked well for us in the past is, in AP, Telangana particularly the doctor partnership model. Now we have done couple of similar types in Maharashtra as well. Based on your experience so far, is the incoming interest from doctors who are running hospitals in these other states be it Maharashtra or Karnataka or maybe any other state Tamil Nadu as well to partner with KIMS as high as what we have seen in AP, Telangana?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Yeah, in fact, in Maharashtra, we have worked close to 10 opportunities, but we didn’t take all those opportunities forward in the doctor partnership model, especially after we signed Nashik, Nagpur. And there’s stocks that we are doing something in Bombay, people are, doctors are understanding it, we’ll be able to create a larger network in Maharashtra. But again, there is definitely good interest in Maharashtra there, but we are a little choosy and picky on the size and format of hospital that we want do, especially in the beginning years. We want to be a little cautious and careful about the properties that we choose and the partnerships that we choose. But there is good traction. There is definitely good traction in the market.

Alankar Garude — Kotak Institutional Equities — Analyst

Understood. And just the hypothetically, Abhinay, if we get lower interest from doctors, right? For the partnership model, say maybe not immediately, but say three, five years down the line, are we open to acquiring entire assets on our own?

Abhinay Bollineni — Executive Director and Chief Executive Officer

We’re absolutely okay to acquire 100% of the assets on our own. In fact, even in Nagpur, we were pretty clean to do at least a significant 75%, 80%, but it was that the local talent wanted to retain some and probably do it initially, so we absolutely okay with getting to 80%, 90%.

Alankar Garude — Kotak Institutional Equities — Analyst

Understood. And maybe one final question linked to this again see as you mentioned earlier in the call, right, you have acquired a set attractive valuations in the past now with many hospitals actually looking to grow inorganically can getting good assets at attractive valuations increasingly be an issue for us?

Bhaskar Rao Bollineni — Founder and Managing Director

No.

Abhinay Bollineni — Executive Director and Chief Executive Officer

No, I don’t think that’s going to be a challenge because both Nagpur and [indecipherable] term sheets had much higher valuation, and these are as we sent as just one month, two months old and one is one year old. So I think what they’re looking at is long term value creation and how we can partner with a likeminded group and be able to scale it. So this valuation plays a role, but also these are things that doctors are looking forward to, especially doctor partnership models.

Alankar Garude — Kotak Institutional Equities — Analyst

Fair enough. That’s all from my side. Thank you.

Operator

Thank you. We have a follow-up question from the line of Chintan Seth from Sameeksha Capital. Please go ahead. Mr. Seth, there is a disturbance on your line and kindly proceed with your question, please.

Chintan Seth — Sameeksha Capital — Analyst

Is it okay now?

Operator

Yes, please proceed.

Chintan Seth — Sameeksha Capital — Analyst

Yeah. So sorry for the audio. One question only on the September pledge that increased slightly from a pledge, this is related to the nursing hospital from the portal or the incremental increase in places also related to the acquisitions we are making currently. And what will be the outlook for that?

Bhaskar Rao Bollineni — Founder and Managing Director

How much is the pledge increase? It is only one time I think we are going to release the — what we have been pledge for the medical school that is going to be released once they do the balance sheet and the ratings. I think by next year, I think it’ll come down that okay [Speech Overlap].

Chintan Seth — Sameeksha Capital — Analyst

Come down and then over next couple of years, it’ll likely to. So the increase, I just wanted to know if the increase is related purely to the nursing hospital or is related to the new acquisitions or the — we are making for which we might require additional funding. So is it business related or promoter business related test?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Chintan, the more pledge here to break into two parts. One is promoter, another is a promoter group. The promoter who runs a very sizeable infra and the real estate business, and if they go and borrow from the market for their own business of infra and real estate, the rate is high, because for the share place, the rate is slightly lower, they have opted for the pledge of their shares. So if you look at the promoter group share completely, I think they own 4.74 out of that 4.49 is completely pledged. So that is of the promoter group, later on which we have a limited influence to restrict them for the pledged. We don’t have the much of the restrictions, but we have continuously kept on advising them to remove this pledge. We believe that they have selling some asset and they’re likely to get some large amount in tune of INR700 crore, INR800 crore by sale of assets. Once that happened, probably those pledge will go away. I’m using the word again probably because that is what is the feedback is being given to us as far as doctors after house pledge is concerned.

That is the two pledged. One is with the YES bank and another is with the NBFC. So I think 12 lakh shares are with the Yes bank, which is completely a collateral security given for a medical college, which is doing a very healthy balance sheet and healthy operating margin and EBITDA, they’re doing something like that INR40 crores — INR40 crores, INR45 crores of the EBITDA. There’s a completely collateral, the only blood with Dr. Bhaskara has done is 12,34,000 and this is for the loan against shared pledge, which again has gone to their brothers who are running the infra and real estate business. Once that asset gets sold, this pledge will go away. So the outer limit timeline, you should keep something like that, March and June, at least Dr. Bhaskara Rao, this 12,34,000 share pledge will go. Yes Bank may take some time, but gradually it’ll come down.

Chintan Seth — Sameeksha Capital — Analyst

Sure. That’s very elaborative. Thank you. Thank you for time. All the very best.

Operator

Thank you. We have a follow up question from the line of Bhavya Gandhi from Dalal & Broacha Stock Broking. Please go ahead.

Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst

Yeah, thank you so much for taking my question again. Sir, just a clarification with respect to our share of EBITDA on consolidated level right now, we are at INR150 crore odd for this quarter. So you could just provide our share of EBITDA, assuming our 51% stake and maybe across different [Technical Issues]?

Bhaskar Rao Bollineni — Founder and Managing Director

So Bhavya, it’s a good question. As we told earlier, in the first half basis, roughly 14% of the EBITDA belongs to the minority.

Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst

Less 14% would be our share, right? Simply put up like that.

Bhaskar Rao Bollineni — Founder and Managing Director

Yeah. 86% belongs 14% of the EBITDA based on the various subsidiaries. The minority shareholding, it is 14% for minority interest.

Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst

Small request, if we can put that across maybe an investor presentation going forward, because now we have a couple of different acquisitions at different share, right? So it becomes difficult to calculate at our end. [Speech Overlap]

Bhaskar Rao Bollineni — Founder and Managing Director

We take this point and we’ll include going forward in our presentation.

Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst

Fair enough, sir. And PAT level is 7% right?

Bhaskar Rao Bollineni — Founder and Managing Director

Yeah, it should be at around 6% to 7%.

Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst

Fair enough, sir. Thank you so much. That really helped. That’s it from mine.

Operator

Thank you. As that was the last question for today, I would now like to hand the conference over to the management for closing comments.

Bhaskar Rao Bollineni — Founder and Managing Director

Good. I think your company has done very well, and you people, thanks for joining the call and giving some information in the form of questions to improvise our financials and value for the patients and us. And we’ll continue to try to embrace your company and make sure that you people get a good return on investment. Thank you. Jai Hind.

Operator

[Operator Closing Remarks]