Krishna Institute of Medical Sciences Limited (KIMS) Q3 FY23 Earnings Concall Transcript

Krishna Institute of Medical Sciences Limited (NSE:KIMS) Q3 FY23 Earnings Concall dated Feb. 10, 2023.

Corporate Participants:

Bhaskar Rao Bollineni — Founder and Managing Director

Abhinay Bollineni — Executive Director and Chief Executive Officer

Vikas Maheshwari — Chief Financial Officer

Analysts:

Rahul Jeewani — IIFL Securities Limited — Analyst

Sagar Shah — Phillip Capital — Analyst

Piyush — Individual Investor — Analyst

Unidentified Participant — — Analyst

Pritesh Chheda — Lucky Investment Managers — Analyst

Rishabh Sisodia — Sameeksha Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to KIMS Hospitals Q3 FY ’23 Earnings Conference Call, 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 afternoon, everyone. I’m Rahul from IIFL Institutional Equities. I welcome you all to the third 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

Good afternoon, and a warm welcome to all of you. Few days ago our Honorable Union Finance Minister presented the annual budget, which augurs well for a stable economic climate. Increase in capex is the defining feature of this budget. It aims at a fiscal consolidation will also delivering good growth and inclusion and also cleaner and greener future. Let me now come to our own financial results of KIMS for quarter three 2023.

The financial highlights, your company recorded a good performance with the steady growth as can be seen from the following results. Current quarter includes three months of performance of Nagpur hospital, post-acquisition of M/s SPANV Medisearch Lifesciences Private Limited effect from 1st September, 2022. Consolidated revenue from operations grew by 42.8% year-on-year basis, INR5,621 million. Consolidated adjusted EBITDA excluding other income INDAS adjustments and one-off items grew by 14% on a year-on-year basis to INR1,417 million. Consolidated adjusted EBITDA margin stands at 26.2%, Ex. Nagpur stands at 27.2%, an improvement of 0.1% quarter-on-quarter basis. Recent acquisitions that is Sunshine and Nagpur hospital have shown sequential improvement. One-off its items the EBITDA margin for quarter three FY ’23 Sunshine EBITDA stands at 21%, Nagpur stands at 11%, which is very encouraging for our team working on ground to turn around the acquisitions.

During the quarter, company has acquired additional stake in three of its subsidiaries 1.92% stake in Sunshine hospitals. 4.07% in Kondapur hospital and 7.79% in Srikakulam Hospitals. Going forward we aim to acquire further in these units. During the quarter, the company has disposed off one of its subsidiaries Suryateja Healthcare Private Limited, Sunshine Karimnagar hospital to focus on core markets in Telangana. Our operational highlights both IP and OP volumes have registered growth. The IP volumes increased by 26% year-on-year basis, and OP volumes have grown by 36.3% year-on-year basis.

On quarter-on-quarter basis, there is a slight dip in volumes by 1.7% due to festive season. However, OP volumes grew by 1.7% on quarter-on-quarter basis. The average revenue per operating bed and the average revenue per patient have registered increase of 28.6% and 12.8% year-on-year basis. And quarter-on-quarter also there is an increase in 2% and 1.1%, respectively. I’m glad to share that KIMS continues to attract patients from all parts of India as well as from abroad on account of its affordability and clinical excellence across all the departments.

The new unit of Sunshine Secunderabad hospital is in final stages of completion. And we aim to shift to this new state-of-art facility by financial year ’24. Projects undertaken at Nashik greenfield project and the Bangalore semi-brownfield project are progressing well and are expected to be operational by financial year ’25. Vizag gastro unit is ready and will be operational by financial year ’24. We rolled out applications that automates operational workflows, including financial counseling, relationship management, crew management among others for greater operational efficiencies.

The expansion plans, as you know the expansion is meant to build up increased volumes by wider reach. Our expansion strategies are powered by strong balance sheet position and aims at spurging stronger balance sheet by value-creation. We are always guided by the prudent financial discipline and a dynamic optimism to optimize the returns to our investors. The clinical achievements in a first-of-its-kind in India, doctors at KIMS Secunderabad removed a liver weighing 12 kgs. A rare case of Insulinoma was successfully treated at KIMS Secunderabad. An unusually big tumor of 22.7 kg was removed from uterus by a surgical oncology team at KIMS Secunderabad. A three-year-old boy with hot complications operated successfully at KIMS studies Kondapur. A seven-year-old gets a new lease of life after series of lower limb surgeries at KIMS Vizag.

First ever our simultaneous liver and kidney transplant was done on a 50-year-old patient at KIMS Vizag. KIMS Nagpur doctors removed an almond stuck for two days in 11-year-old boy’s lung successfully. Rare cartilage transplant surgery was performed at KIMS Kurnool. First-ever kidney transplant was done at KIMS Ongole. First ever Venoplasty was performed at KIMS Saveera, Anantpur. In a first of its kind in Andhra Pradesh a 92-year-old woman got a stent implanted in a flat 10 minutes time. A 95 degree bent spine successfully corrected KIMS Sunshine Hyderabad.

Though it does not pertain to quarter three, I intend to share with you about India’s first interstate interhospital kidney swab that took place few days back in Hyderabad at KIMS and [indecipherable] Hospital. The two couples are from [indecipherable] in Telangana four surgeries were performed simultaneously on the couples with video streaming in a real time. The wife’s kidney was transplanted to the husband of the other person’s respectfully swaps have been placed earlier in the same hospital at Mumbai, but this is the first time to be done at two hospitals.

This may set a good precedent for increase in number of transplants. It is also an awareness I am giving to our investors where a lot of people are suffering with the kidney problems when there is a donor is not available, this method can be used. As regards new technology and equipment, I’m glad to inform you that we have installed ortho robots for total knee replacement and hip replacements at our KIMS Secunderabad and Kondapur. This technology will lead to increased precision and reduced recovery period and we hope that it’ll be extend for all our units when the need arises.

Academics, now that the COVID is behind us, our academia is in full swing. Our doctors from various departments participated in number of international forums and presented their papers and won projects and prizes. Dr. Sita Jayalakshmi, Senior Consultant Neurologist has been awarded the prestigious A.B. Baker Teacher Recognition Award by the American Academy of Neurology. She’ll be honored with the award of the 75th annual meeting of American Academy of Neurology scheduled to be held in April 2023 at Boston.

Department of Rheumatology, KIMS Secunderabad represented India at the American College of Rheumatology Annual Conference at Philadelphia USA November 2022. This conference is attended by over 20,000 rheumatologists from around the world and is the most prestigious rheumatology scientific meeting in the world. Our residents were the only rheumatology postgraduates from India to a oral presentation. This is the first time in India is presented in these esteemed scientific sessions in Asia. Department of Rheumatology KIMS Secunderabad diagnosed a patient with VEXAS syndrome in 2022. This is a new and extremely rare disease discovered in ’21 with less than 30 patients worldwide. Our case was first in South India.

KIMS organized International Convention of Neuroengosy and Heart and Lung Transplant at Hyderabad with overwhelming participation of experts in respective fields from across the world. This kind of involvement in global forums will enrich professional expertise and help us serve the patients better and provide enhanced medical care. Apart from the tremendous work our consultants and residents do, we emphasize and encourage them to take part in academic and research work also, since it’ll leap a good quality care to our patients this is a continuous journey.

We encourage our students as well as to participate in national, international conventions these will upgrade their passion and ambition, and the return to provide world-class healthcare to the patient. Not only do we participate in such forums, but also organize and host international events like International Conventions of Neuro Endoscopy and Heart Lung Transplantation mentioned earlier wherein we invite world-renowned experts in respective fields to stimulate exchange of information. We show them our hospitals and get their inputs to continuously improve patient care, which ultimately gives us a lot of mileage in reaching more number of patients.

Why I’m mentioning all these clinical achievements and academia contribution is because we firmly believe that the best clinical care given to the patients will bring in more number of patients. The revenue growth has to be generated from increased by volume and not by charging heavily, volumes and not tariff should lead the growth. Under the ages of KIMS various programs are conducted to create a breast awareness program during the month of October 2022. The breast cancer day is observed on 13th October every year. I thank you for your continued trust and support. I assure you that we’ll keep going with all the passion in serving the patients and protecting the interest of investors. As I keep saying, you all our growth engine enabling us to sustain our relevance, progress and vitality. Thank you. Over to Rahul.

Rahul Jeewani — IIFL Securities Limited — Analyst

Sir, should we start the Q&A session?

Operator

Dr. Bharkar Rao?

Bhaskar Rao Bollineni — Founder and Managing Director

Yeah, we can start, yeah.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from the line of Mr. Cha with Phillip Capital p c g. Please go ahead.

Sagar Shah — Phillip Capital — Analyst

Good afternoon, sir. Thank you so much for the opportunity actually, First of all I would like to congratulate for a decent actually. So my first question was related to our Sunshine performance actually, and I was curious to know, but since you have already discarded the Karimnagar hospital and you said in the third quarter of this FY ’23, you are going to shift your existing Secunderabad hospital to the newly complete hospital. So, first of all, I wanted to know about that progress? And secondly, an overview that going ahead in FY ’24 and even ahead because since Sunshine is a major growth driver for us, what kind of performance are you expecting from the overall unit as a whole? That is my first question.

Abhinay Bollineni — Executive Director and Chief Executive Officer

Is that the only question? Or do you have a follow up question on that?

Sagar Shah — Phillip Capital — Analyst

No, no, I have follow up questions also, sir.

Abhinay Bollineni — Executive Director and Chief Executive Officer

So as far as Sunshine performance is concerned, we are pretty optimistic on the overall growth. It’s just that there are two facilities, one in Secunderabad and one in Gachibowli. [Technical Issues] able to make good progress in bringing new consultants. But why you see the growth kind of, stable and not significantly improving is because we’ve replaced a lot of the high-cost consultants who were there at the time of acquiring the hospital with younger consultants and consultants that come in at a reasonable cost.

So I think that exercise has more or less been completed and now there are only one or two departments that we have to fix and few more consultants that are due to join. And once that happens, which should be completed in the next two quarters, we will then be able to see incremental progress as far as the Gachibowli facility is concerned, which is currently at a 30%, 40% occupancy with these incremental departments getting added soon it should get to a 60%, 70% kind of an occupancy, which we foresee will happen in the considerable — probably in FY ’24.

As far as Begumpet or Secunderabad is concerned. Like we always mentioned in our previous calls, the current facility is not in a position for us to attract good talent and it’ll not be able to scale the hospital in the current address form. Hence, we decided to go and build a new facility, which we will move in from April 15th and completely move in by [Technical Issues]. And once that is complete, the occupancy in the Begumpet facility is around 40%, 45%, but has considerable chance to go up to 65%, 70% over the next 18 to 24 months, once we move into that facility.

We have identified the gaps in the clinical talent. We have already identified some clinical talent who are also going to join only once we move into the new facility. So with these two leverages being utilized, I think the occupancy will go up and once the occupancy goes up, I think the margins will be very similar to what we are seeing in our Telangana hospitals or AP-matured hospitals. We are pretty confident once it hits that 60%, 70% kind of an occupancy, we will be delivering similar margins. We are pretty confident that Gachibowli we will get there in the next 18 months and Begumpt once we move in, which is anticipated to happen by mid-April and or end of April. And then from there 18 to 24 months, we should hit that kind of occupancy and margins.

Sagar Shah — Phillip Capital — Analyst

Okay. So, basically, we are going to move to the — as I heard it right, we are going to move to the new facility in Begumpet by April ’24, right?

Abhinay Bollineni — Executive Director and Chief Executive Officer

This year, April. So in another two months we should move into the new Begumpet facility. It’s slated for April 15th to 30th. So I think in the first quarter we will lose in transitioning into the new facility and from then on we can start the [Technical Issues].

Sagar Shah — Phillip Capital — Analyst

So basically can we assume for at least for the entire FY’ 24, from currently you have 49% occupancy rate, we can at least expect — at least we can move the occupancy rate to anything between 50% to 60%. Can we assume? Is it right?

Abhinay Bollineni — Executive Director and Chief Executive Officer

So I think if you look at it on a quarter-on-quarter basis the last quarter, you can see hitting close to 50%, 55% occupancy. But if you have to look at it for the full year occupancy, it maybe a little unlikely because we will transition into the new facility, then, we will start bringing new doctors on board and it’ll take that much time for the ramp-up to happen.

Sagar Shah — Phillip Capital — Analyst

Okay. Okay. Got your point. And basically, we are at least looking for — the recovery will take even longer than FY ’24, if I heard it correct?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Sorry, could you come again?

Sagar Shah — Phillip Capital — Analyst

So basically the recovery for Sunshine occupancy, so basically will go even later than FY ’24, right?

Abhinay Bollineni — Executive Director and Chief Executive Officer

We’re in FY ’24 and FY ’25 you will see the Sunshine Hospital peaking to how it is currently in Telangana for KIMS or our AP mature, that kind of occupancy and that kind of margins, you will see in FY ’25, in the full year. You will see considerable progress in the coming quarters, but you will see the full year peaking happening in FY ’25.

Sagar Shah — Phillip Capital — Analyst

And obviously the ARPOB will be less as you are including the multi-specialty mix over there, right?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Yeah, it’ll be in line with our Telangana hospitals, maybe actually little higher because it’ll still have considerable revenue coming in from orthopedics.

Sagar Shah — Phillip Capital — Analyst

Got your points. Sir, got your point in that. Okay. Now my second question was regarding Kingsway. So Kingsway, we are at very initial stages, if I exclude the one-off we are at almost at 11.4 percentage EBITDA margin and the utilization levels are very high. So I wanted the outlook that what exactly do we intend to do with the Kingsway Hospital? Where do you see Kingsway Hospital in the next one year or two years?

Abhinay Bollineni — Executive Director and Chief Executive Officer

So, currently, the operational beds are still lesser than the total bed capacity that we have. So when you look at the occupancy, the reference is to the operational beds and not the total bed capacity. So what we believe is Kingsway in the current shape and form without further capital deployment we’ll be able to scale to around INR20 crores, INR22 crores of revenue per month, which is around INR240 crores to INR260 crores of revenue per annum. Now, we are currently at an average of INR13 crores, INR13.5 crores.

So we’re addressing around INR6 crores, INR6.5 crores. And the way we believe that will happen is by bringing in new clinical teams and new clinical departments that are not currently present. So we have, in the last quarter seen three people join of the 15 doctor plan that we have, 15 to 20 doctor plan, we have three people who have joined. We believe by end of this quarter, or actually the end of first quarter, we should have signed off on most of the doctor recruitments, and we will see them join in the second quarter. And from then on, you can start seeing incremental growth.

So, I think in the next 18 months, we should — 18 to 20 months, we should get to a INR20 corre kind of a number as far as Kingsway is concerned. That will happen because our operational beds will move to the full utilization in bed capacity, though the occupancy percentage may remain the same. And at typically at a INR20 crore, INR22 crore kind of a revenue, we anticipate that the margins will move up because we are now sitting on an operating leverage Every incremental revenue that flows in a significant part of that will flow back into the EBITDA.

Sagar Shah — Phillip Capital — Analyst

Okay. Okay, sure, sir. So basically, as you said for Kingsway, our operational beds are at around 250 beds out of our 334. So do you intend to increase your operational beds in Kingsway?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Yeah, so, the beds are fully installed, it’s just that we have to equip with the right manpower and then, start work. So as new doctors start joining us, we will start — and the volume and occupancy start increasing, we will do the ramp up.

Sagar Shah — Phillip Capital — Analyst

Okay. Okay. So basically — so on EBITDA — you can say on EBITDA our future operating leverage will play out, since you add more clinical trials into this. So any ballpark number in Kingway, are you targeting anything like currently at 11.4%? So are you targeting at least 20% plus EBITDA margins in the next 18 months?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Yeah, yeah, absolutely. So, like I said, we are in that operating leverage at this point in time on INR13 crores monthly revenue, we are delivering 11%, 10% kind of a margin. One, there is operational efficiency that we will bring in at the INR13 crores revenue base, but from now on every incremental revenue or significant part 50% to 60% should get added to the EBITDA.

Sagar Shah — Phillip Capital — Analyst

Okay, okay. Got your point.

Abhinay Bollineni — Executive Director and Chief Executive Officer

At the INR13.5 crore, we will do a lot more operational optimization, which will happen over the next two quarters plus the incremental revenue will further optimize the EBITDA margin.

Sagar Shah — Phillip Capital — Analyst

Okay. Okay. Okay, sure. My next question was related to our NCDs. Actually, we raised around INR300 crores in this recently. So wanted to have a clarity on that, that what exactly are we intending to do, use this money actually, which are we looking for acquisitions, further acquisitions? And if yes, in which states, have you shortlisted anything?

Vikas Maheshwari — Chief Financial Officer

Sagar, Vikas Maheshwari this side. INR300 crore NCD proposal is the proposal which we have taken is the enabling provision because to raise the funds through NCD, you need to have shareholders approval. So we are keeping this approval ready. So we are doing the capex and expansion program at Bangalore and Nashik, and we are keeping those funds. If it is required, we will raise the amount from the approved amount of NCD, which is INR300 crore. So as and when the funds are required in the multiple tranches, we may raise this fund. So as on date, we are just keeping it as a enabling provision. And as and when the funds are required, we will raise from that. At the same time, since we are the growing company, and if any opportunity comes, which is available at a reasonable price, we can use that amount also for those acquisitions.

Operator

Thank you. Sorry to interrupt. Mr. Sagar Shah, may we request that you return to the question queue for further questions.

Sagar Shah — Phillip Capital — Analyst

Okay.

Operator

As we also have other participants waiting for their turn. Thank you. [Operator Instructions] Our next question is from the line of Mr. Piyush, [Phonetic] Individual Investor. Please go ahead.

Piyush — Individual Investor — Analyst

Hello? Am I audible, sir?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Yeah, yeah, you’re audible, Mr. Piyush.

Piyush — Individual Investor — Analyst

Yeah, sir. Just wanted to check on the new hospital, which currently we are doing capex in Chennai, Mumbai and all, what is the current development on those hospitals?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Sure. So I think, pretty much all the hospitals are on the scheduled timeline that we have circulated in the presentation. But Banglore both — the hospital is going on track. I think we should be operational by the first quarter of next year, much sooner than what we had originally anticipated. Nashik also should be operational by the end of the coming financial year, again, sooner than what we had anticipated. Chennai, at this point, the Greenfield project has been put on hold, but we are looking at some acquisition opportunities, nothing concrete yet, but if anything happens, then that’ll be a good starting point for a 250 bed hospital in Chennai.

Piyush — Individual Investor — Analyst

And this new hospital, whenever they will start. So from the day one or maybe a six months or a year, they will contribute to the margin of the KIMS and AP mature assets, which is like 27%, 28% type of margin? Or initially one or two year the margin will be subdued, and once the ramp up happen, then only they’ll able be to contribute those type of margin?

Abhinay Bollineni — Executive Director and Chief Executive Officer

So Banglore, Nashik, Chennai ery difficult to get to that kind of margin within the first 24 months. But hopefully after 24, 36 months, we should be able to, trickle towards those kind of margins. Maybe low 20s kind of a margin.

Piyush — Individual Investor — Analyst

Sir, last year, overall we were doing a EBITDA margin of around 30%, 31% or something. Now we are doing this 27%, 28%. So is it something 27%, 28% is the base and the last year margin were one-off or some good quarters or good numbers? Or can we think there is a room for expansion to the margin to again come back to reach that 30% level?

Abhinay Bollineni — Executive Director and Chief Executive Officer

No, no, so I think we are pretty confident about maintaining that 30% level. That’s why in the presentation it is very clear. If you look at last year, we only had KIMS with us, we didn’t have Sunshine and Nagpur. If you look at KIMS even today, we have been sustaining the 30% kind of margin. Now because Sunshine and Nagpur got added, revenue came in first, EBITDA expansion will happen over a period of time. That is why you see a dip in the EBITDA margin at a consolidated level. But what you should appreciate is both AP acquired, AP mature and Telangana have been sustaining the margins that we have delivered in FY ’22. Once Sunshine and Nagpur scale up, you will see the similar profile for the entire group. But again, you’ll start seeing Bangalore Nashik and these hospitals come in. So I think it’s better to break up and look at the acquired, the mature ones and the turnaround one, as long as we’re in the trajectory to get to that 25%, 30%, we should — that’s the right way to look at it than to look at it at a consol level.

Piyush — Individual Investor — Analyst

But Nagpur, Kingsway, Sunshine are in the lower margin because of that the blended is going down from 30% to 27%, correct?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Yes. Yes. Because if you look at the Kings portfolio prior to the acquisition continues to maintain the 30% margin.

Piyush — Individual Investor — Analyst

Yeah. One more thing, there were some promoter pledge with respect to real estate business, there in last phone call also, it was said promoter are in the process of selling some assets and reducing that pledge. Any update on that?

Abhinay Bollineni — Executive Director and Chief Executive Officer

It is actually on the job, I think, maybe another next two, three quarters that will be taking into one of the sales process as soon as the sales process…

Piyush — Individual Investor — Analyst

So my point is only not about the pledge. My point is the only thing this separate real estate business will not impact this KIMS hospital business. That’s the assurance type of thing, which we want to just take.

Bhaskar Rao Bollineni — Founder and Managing Director

No, no, not at all. There is no time spend by the KIMS team into that real estate.

Piyush — Individual Investor — Analyst

Okay. Okay. One thing on this special mix, sir, this organ transplant business has reduced in this nine months or something of this current quarter, because earlier what I remember, it was contributing around some 5%, 6%, maybe because of some abroad specific treatment was happening or something.

Abhinay Bollineni — Executive Director and Chief Executive Officer

Transplant as a percentage, the contribution has come down. Is that the question?

Piyush — Individual Investor — Analyst

Yeah, yeah. Just trying to understand, is that come down to 2% for nine months, is it reduced in the current quarter or something? It’ll again, come back to level of 6% to 8% or what type of growth you are seeing in people coming from abroad for surgery and all.

Abhinay Bollineni — Executive Director and Chief Executive Officer

So as far as international patients with transplant are concerned, that is regulated completely by the government. So even historically, we’ve had very little — I mean, we had no international footfall for transplants are concerned. Most 99% of the work is only domestic, because it’s highly regulated on how it needs to be handled by the government. So the transplant program, this financial has been going good. These difference you’ve probably seen in FY ’22 and in this financial year is that last year the number of transplants that happened remains the same, but the medical management of cases that happened prior to transplant because of COVID or the ECMO-related cases that happened during COVID were substantially higher than what we were seeing this year. That is why… [Technical Issues]

Unidentified Participant — — Analyst

Yes, yes.

Abhinay Bollineni — Executive Director and Chief Executive Officer

So, the quarter in which we shift, there will be some disruption in terms of revenue and cost because we will be maintaining costs on both centers for two, three months before the full transition happens. So that quarter there will definitely be some disruption, but after we settle in, that is from Q2 of FY ’24, we don’t see — it should continue to be very similar to what it is today.

Unidentified Participant — — Analyst

And in terms of occupancy, how the occupancy would move because that’s shifting to new facility you would have the larger number of beds, I believe.

Abhinay Bollineni — Executive Director and Chief Executive Officer

One, larger number of beds. It’s a more prominent facility from what the current Sunshine facility looks like. It’s a new facility. The look and feel of the hospital will be much better than the current hospital. All of this will enable us to attract more clinical talent. So we have identified the requirement of close to 20 clinicians that have to be joining Begumpet Sunshine once the new — once the facility is ready. And that 20 doctors will be onboarded within 12 months after the hospital is fully operational. And we can see a full ramp-up of those doctors or full utilization of doctors once they join, it’ll take 12 to 24 months for us to see that.

So that’s how we are saying in the next 12 to 24 months, we will start seeing significant growth in terms of the ramp-up that happens at Sunshine. And lot of the insurance companies have agreed for a price renewal, which is similar to that of KIMS, only when Sunshine moves to the new facility, because otherwise, they don’t see why they should do a price in the current facility. So that will also further increase the RPOB and pricing.

Unidentified Participant — — Analyst

No. So current bed capacity of roughly 600 would be expanded after shifting.

Abhinay Bollineni — Executive Director and Chief Executive Officer

No, it’ll remain more or less the same. It is not about the bids, it’s more about the support infrastructure is currently lacking at Sunshine, which is what we are fixing in the new facility. And it’s — because it’s at much more prominent location, it’ll just enable to attract good talent, clinical talent.

Bhaskar Rao Bollineni — Founder and Managing Director

And also this Karimnagar we have divested this 75-bed facility. So accordingly, you have to adjust the beds going forward.

Unidentified Participant — — Analyst

Okay, because in Sunshine, we have ARPOB more than double what at consolidated level we are achieving despite our EBITDA margin has been lower. So what I want to understand that after shifting, whether on EBITDA side, I can understand that initially there may be some disruption, but going forward, can we expect that with the new facilities or new technology there, our EBITDA margin will have some significant improvement after, may, for example, for one year or after a gap of one and a half years.

Abhinay Bollineni — Executive Director and Chief Executive Officer

After we move to the new facility, you will see over a period of time that is over the next 18 to 24 months, the margins are trickling up and it’ll over a period of time reach the Telangana KIMS kind of a margin profile.

Unidentified Participant — — Analyst

Okay, understood. And in Nagpur what kind of occupancy we can expect next year?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Next year, the usual time it takes for us to go in and settle in is usually a — it takes a year’s time before we can actually show significant improvement. Because by the time we go meet with the existing doctors, talk to them, they come back to us on whether they want to continue services, they want to move on, we identify new clinical talent, they consent to come onboard. It’s a process that usually takes with Sunshine we have seen, and in the past hospital… [Technical Issues] Nagpur it’ll take us that 12 months time before we start being able to recruit the right clinical talent. Once the clinical talent is onboarded, it takes anywhere between 12 to 24 months for us to really see a good turnaround there.

Unidentified Participant — — Analyst

Why I am asking that already 70% occupancy in Q3 we had in Nagpur so max-max we can increase it to 80%, 90% and…

Abhinay Bollineni — Executive Director and Chief Executive Officer

So, what is there is the bed capacity is 334 beds. What is operational is 250 beds. On 250 beds, we are at 137 occupancy. That 137 can actually go up by an incremental 80 beds being occupied. So 80 beds at a 30,000 ARPOB is significant growth.

Unidentified Participant — — Analyst

Okay, understood, understood. Fine. Fine. That’s it from my side. Sorry, one more question. If you could allow, on capex side this year, how much capex we are doing, because your presentation show some INR400 crore towards the ongoing projects or Brownfield projects. So how much has been spent and how much remains to be done in FY ’23?

Abhinay Bollineni — Executive Director and Chief Executive Officer

So there is two ongoing projects right now, which is Bangalore and Nashik, and we expect on those two projects to spent at around INR250 crores of the amount, INR250 crores plus some gastro projects and other equipment, etc., which is going on. So it should be at around totaling to INR75 crores. So that is the amount which looking at INR325 crores to INR350 crores of the capex this year.

Unidentified Participant — — Analyst

And for next year?

Abhinay Bollineni — Executive Director and Chief Executive Officer

It should be of the similar amount coming up.

Unidentified Participant — — Analyst

Okay. So what we look at the free cash flow, it seems that there would be some elevation in debt if you go at this rate of expansion or you will — internal approval would be sufficient to manage this?

Vikas Maheshwari — Chief Financial Officer

So we are generating something like that INR400 crore of the internal cash every year. And you should take the view of the three years, because the company is still young, very solid balance sheets, the clean balance sheet, very low debt right now. And we are generating very healthy cash flow for the next leg of the growth. We are looking at Bangalore, Nashik and other opportunities, which we have listed in the Western, Central India or Chennai whenever it clicks. So if you look at that trajectory, I think, we will be generating something like that INR1,200 crore of the cash. And that is what is the capex plan. Though right now the firm plan is Bangalore and Nashik for which the capex is going on.

The balance, as and when it materializes we will be taking up those projects. It may be a greenfield, it may be a semi-brownfield or it may be acquisition. So based on that, we will be doing the capex. So we are not looking at very high increase in the debt. It’ll be a very reasonable type of debt if it comes because the capex happens first. If it is a ready project or the semi-brownfield, the land and building cost will be incurred first. So depending upon the projects which we are taking, whether it is a greenfield or semi-brownfield, the debt will come.

Unidentified Participant — — Analyst

Okay. Nice. Nice. Thanks for explanation. Thank you. That’s it for much.

Vikas Maheshwari — Chief Financial Officer

Thank you.

Operator

[Operator Instructions] Our next question is from the line of Mr. Raul Giovanni with IIFL Securities Limited. Please go ahead.

Rahul Jeewani — IIFL Securities Limited — Analyst

Yeah. Hi, sir. Sir on Sunshine, if my numbers are correct, then our IP volumes for the quarter have declined 20% sequentially. So what has driven that decline in IP volumes at Sunshine? Is it the closure of the Karimnagar facility?

Abhinay Bollineni — Executive Director and Chief Executive Officer

One, certainly the closure of Karimnagar facility, Rahul. But, like I said, as a process when we get into hospital, there are few high cost doctors that we want to talk to. There are some listing consultants, which is against the practice of KIMS, which we want to let go of just to bring in a system and process. So that is what we have started doing at Sunshine after multiple rounds of discussion with the clinical teams to decide to either come full-time or to continue part-time. So some of those initiatives and we have let go of some credit companies where we are not seeing a fair tariff being given to the company, which is what we receive at KIMS.

So those are few of these — because of those initiatives and steps, we have seen this decline. But after that — after those steps have been taken, we have seen that some of these agreements got renewed. Number one. Some of these doctors have decided to come on a full-time model. So, the January month, has been good. The December month also has been good. There has been some disruption in October and November that has been, I think, when the Q4 results are out, you will see that level of correction happen.

Rahul Jeewani — IIFL Securities Limited — Analyst

Sure, sir. So, sir with you moving to the new Begumpet facility from April, you think the current muted performance, which you are seeing on Sunshine that should start reversing?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Yeah, because we have not been able to take, except for Gachibowli, which is only 20% or 30% of the sunshine revenue, we have not been able to take considerable steps at Begumpet at all, given the limitation of the facility and the timeline to move the facility. Once that happens, you will start seeing growth happening from this — once we shift that is in April, May.

Rahul Jeewani — IIFL Securities Limited — Analyst

Okay. And what happens to the existing campus of Sunshine at Begumpet? So you would divest that off?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Yeah, we will. It’s our leased premises, so we will move on from there.

Rahul Jeewani — IIFL Securities Limited — Analyst

Okay, sure, sure. And sir, now if we look at a base business occupancies, which is excluding sunshine and Nagpur, our occupancies this year have been, let’s say, 400 to 500 basis points below what we were trending in FY ’22. So what has led to this some sort of mess in our existing base business occupancies? And how are you looking at your base business occupancies going into FY ’24?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Like we said, Raul, like we’ve always communicated. For us, the occupancy as a percentage is irrelevant parameter, mainly because that’s what is expected. But if you look at the dip in ALOS, there has been a considerable dip close to 10% dip in ALOS, because of which, you will see dip in the occupancy. But the volume growth have been considerable and have been consistently growing year-on-year. I think that is what, we are more worried about. And this is what we track as a parameter. So if you annualize this year we should be at least at around, 58,000 to 60,000 kind of occupancy at — sorry, volume — IP volume at Telangana KIMS, which is a very strong indicator that we are growing by volume and not by pricing.

So, as far as occupancy is concerned, it’s a function of multiple parameters. Usually it could be the case mix could change or the ALOS comes down or several of those factors.

Rahul Jeewani — IIFL Securities Limited — Analyst

Sure, sir. So what has driven the sharp reduction in ALOS for you?

Abhinay Bollineni — Executive Director and Chief Executive Officer

We have always been consistently working at trying to reduce the, ALOS, right? And we are a little more cognizant of the fact, and as in when the season picks up automatically, there’s pressure on the system and the ALOS comes down at a point in time. But otherwise, we are also taking cautious effect to see how we can bring down the occupancy of the hospital occupancy — or occupancy per patient of the hospital.

Rahul Jeewani — IIFL Securities Limited — Analyst

Sure, sir. And last question from my end, before you join back the queue, can you update us on your plans with respect to the Maharashtra or the Thane market, the asset which you have been looking there?

Abhinay Bollineni — Executive Director and Chief Executive Officer

The answer remains the same, Rahul, we have not been able to make much progress there yet. Like we said, it’ll take two quarters even in our previous discussion. Hopefully by end of this quarter we should see progress there.

Rahul Jeewani — IIFL Securities Limited — Analyst

Sure, sir. So if you can just let us know where is this process start, because we have been hearing about this thing for past two to three quarters now. So where are the bottlenecks line?

Abhinay Bollineni — Executive Director and Chief Executive Officer

The bottleneck is supposed to receive authorization or a letter from the government, which is a condition still for the transaction to move forward. We are waiting for that document to be — we are waiting to receive that document. And given that it is beyond our purview to be able to control a few of these things, we are also just having to wait for it. And there is a commitment that it’ll be delivered by end of this quarter, but we have seen that commitment in the past also, but let’s just give it some more time and see that if it happens.

Rahul Jeewani — IIFL Securities Limited — Analyst

Sure, sir. Thank you.

Bhaskar Rao Bollineni — Founder and Managing Director

And we are planning to evaluate a lot of parameters are there on this one final project. We’ll come back to the next quarter results with 100% decision.

Rahul Jeewani — IIFL Securities Limited — Analyst

Sure, sir. Thank you.

Operator

[Operator Instructions] Our next question is from the line of Pritesh Chheda with Lucky Investments. Please go ahead.

Pritesh Chheda — Lucky Investment Managers — Analyst

Sir, thank you for the opportunity. What growth drivers do you have in your base business of Telangana and AP mature?

Abhinay Bollineni — Executive Director and Chief Executive Officer

So as far as AP mature are concern now both AP acquired and mature have reached a point where there very similar in terms of the revenue contribution from each department, but there are some small fixes that need to be done, which will be done in course of time. But where we are seeing significant growth that will help us to double the bed capacity, double the revenue over all the facilities over the next three to five years is the addition of new specialty. So we have — if you compare Telangana profile of clinical specialties to Andhra, we have seen a big vacuum in oncology. We have seen a big vacuum in mother and child, vascular surgery, interventional pulmonology and few other clinical therapies.

So our agenda now for growth to happen in AP is a lot of these new clinical therapies, introduce them in those existing hospitals, bringing the right clinical talent and then be able to scale-up those hospitals. In addition to the marginal growth, that will happen in the current specialties that are already there in AP. We want to add these new specialties that will help us continue to grow for the next foreseeable future.

As far as Telangana here, again, it’s between Kondapur and Secunderabad. So our aspiration is to see how we can bring Kondapur to the level of KIMS Secunderabad because of limitation in space in the current hospital, we have not been able to add lot of doctors, a lot of new clinical therapies that are existingly present in KIMS Secunderabad. So once we introduce those specialties. Once the new facility is onboarded, we will then be able to see growth happening in the Kondapur facility.

As far as Secunderabad facility is concerned, again we have — again, if you benchmark even within our hospitals mother and child is not a very big specialty in KIMS Secunderabad, not even as because what it is in KIMS Kondapur. So now we are taking steps to address that and increase the footfall in this hospital. Vascular surgery, pulmonology a few departments that we have identified where there is vacuum in Secunderabad also today, we are bringing the talent and we’re onboarding them, so that we are able to grow by volume in this facility.

Pritesh Chheda — Lucky Investment Managers — Analyst

Do you have the infra to do all this? Or the infra is fully utilized? Because one is you can add all these services. But then when I look at the bed capacity or operational beds is, or maybe the OR then from that angle is there a scope?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Yeah. So as far as Andhra is concerned, there is absolute scope in all our hospitals, where we can add all of these facilities. In fact, in few of the hospitals the capacity addition is happening as we speak and reduction of cancer will also happen over the next 12 months. As far as Kondapur very clearly a new 500 bedded — incremental 500 bedded hospital getting added. As far as Secunderabad is concerned, there is headroom for growth. However, we are in the pipeline of finalizing or adding an incremental 300 to 400 beds in the Secunderabad hospital campus itself we should complete the ideation in the next three to five months. Once it is done, we will probably announce that to the market if we decide to go forward with that.

Pritesh Chheda — Lucky Investment Managers — Analyst

So before the bed addition comes in, you can grow double-digit EBITDA in this portfolio.

Abhinay Bollineni — Executive Director and Chief Executive Officer

So, I think we’ve been very clear in our communication always Telangana and AP, very difficult for it to grow in double-digit. Even with capacity addition, it will only grow at a single-digit. Where we are confident that the growth will come from is Sunshine and Nagpur, which is on the table today. So the next 24, 36 months, AP, Telangana will grow at single-digit. The balance growth we’ll get from Telangana and Nagpur — sorry from Sunshine and Nagpur. Subsequently, after 24 to 36 months, you will start seeing a lot of the contribution that will come in from Nashik, Bangalore and so on and so forth.

Pritesh Chheda — Lucky Investment Managers — Analyst

So your new assets will come 24 months down the line, the Nashik and the Bangalore will get operational.

Abhinay Bollineni — Executive Director and Chief Executive Officer

Both of them will be operational in FY ’24 or the last month of FY ’24 or the early part of — sorry, yeah, the last month of FY ’24 or the early months of FY ’25. But it will take some time to stabilize. So hence, we are not expecting any incremental contribution for EBITDA for the next 24 to 36 months.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. And lastly, sir, what is your pro-rata share of the EBITDA, which is reported in the nine-month? So adjusting for minority? Share in the EBITDA 80% or more than that.

Abhinay Bollineni — Executive Director and Chief Executive Officer

It is 12.7% for the minority interest, Pritesh.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. So 88% of the EBITDA, which is reported, let’s say, the EBITDA reported was nine-month is INR420 crores in that 88% is the KIMS share, right?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Correct.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay, thank you very much, sir. Thank you.

Abhinay Bollineni — Executive Director and Chief Executive Officer

Pritesh, see the Slide number 31, we have disclosed that 12.7%.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay, okay. Sorry, I didn’t see it.

Abhinay Bollineni — Executive Director and Chief Executive Officer

No-no problem, Pritesh.

Pritesh Chheda — Lucky Investment Managers — Analyst

Thank you, sir.

Operator

Thank you. Our next question is from the line of Sagar Shah with PhillipCapital BCG. Please go ahead.

Sagar Shah — Phillip Capital — Analyst

Okay. Sir, I just had one for follow-up question actually. The gastro unit, which we are looking to build in 2024 in Vishakhapatnam, can you have a overview regarding what is the bed capacity and how much will it contribute?

Abhinay Bollineni — Executive Director and Chief Executive Officer

So it’s — I’ll just give you a little bit of background in Vizag, we have one hospital, so Vizag has two big micro markets. One is where we are currently present and we’re doing extremely well. The other side is where we want to be present in the future. Now in anticipation of being able to build a good flagship facility in the newer part of Vizag. But it’s a long-haul. It will take at least four-five years even before we start that facility, we’re still in the ideation phase and looking for land phase. But we still have — but we have a good clinical team, which has a very strong potential to be able to scale things up and be able to grow.

So we said, we will make this small investment in being able to start this gastro unit, because we believe there is huge potential in that micro-market. And before our larger campus is ready over the next four-five years, this will — we will be able to capture a significant share of the gastro market there. And once the new facilities there, we can then look at incrementally moving this into that new facilities. So that was the intent for starting this.

It also acts as a feeder into our other facility, which is in Vizag for the other specialties other than gastro. So it’s just a 35 bedded hospital with special focus on gastro, but it also gives some support to the other facility to be able to see some incremental volume.

Sagar Shah — Phillip Capital — Analyst

Okay. So actually my final question was related to your acquired assets your niche assets in AP. So, are you sensing any — you had said before on the concall that your mix is changing from the Arogya starting patients to the normal cash and insurance patient over there. So, are you sensing that in you acquired and matured assets. So can we expect at least an improvement in ARPOB for these two or rathr Andhra Pradesh assets in the next two years?

Abhinay Bollineni — Executive Director and Chief Executive Officer

So Sagar as far as the AP acquired assets are concerned so they are delivering something like that 20% of the margin, and we expect those margins to grow to the AP matured trajectory in next 12 to 18 months time, as the revenue grows up. And we do the rationalization in terms of the addition of these facilities and the payer mix, both.

Sagar Shah — Phillip Capital — Analyst

Okay. So you are not expecting any improvement in ARPOB? Or do we expect the ARPOBs to remain the same?

Vikas Maheshwari — Chief Financial Officer

So the transplant program and other mother and child program and other intervention chronology program, etc., whatever that Dr. Abhinay has just told, once we add that you will see the ARPOB and ARPP both going up.

Sagar Shah — Phillip Capital — Analyst

Okay, got it. Thank you so much. All the best.

Vikas Maheshwari — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is from the line of Rishabh Sisodia [Phonetic] with Sameeksha Capital. Please go ahead.

Rishabh Sisodia — Sameeksha Capital — Analyst

Hello. Thank you, sir, for the opportunity. Am I audible?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Yes.

Rishabh Sisodia — Sameeksha Capital — Analyst

Sir, just on the IP volume side. So given you already mentioned on the Telangana and AP there would be a mid-single-digit growth that is what we are expecting. So over a [Technical Issues] Sunshine and Nagpur will be taking the lead. So on a blended basis, should we assume that the margins to sustain these levels for the foreseeable future? Because after Nagpur and Sunshine get higher margins, you would be adding, Bangalore and Chennai and probably Thane as well. So our blended basis should stay in this ballpark number is better a sense?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Very difficult to say that it depends on how the ramp-up in those hospitals happen. I think what we will appreciate is, if you can actually break down these into clusters and maturity profiles and look at whether the hospitals that we’ve been able to start within 48 to 60 months have been able to get to a stable EBITDA margin is what we would want all of you to pay attention to or focus to. At a group level, it may be — therewill always be ifs and buts, right. So I think, it’s better to look at micro details than at a very group level. And hence the reason why we kind of bifurcated into these many clusters when we showed the data.

Rishabh Sisodia — Sameeksha Capital — Analyst

That’s it from my side. Thank you.

Abhinay Bollineni — Executive Director and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from the line of Mr. Piyush, Individual Investor.

Piyush — Individual Investor — Analyst

Sir, two things from my side. Sir one is Sunshine is having average revenue per patient is some INR2 lakh. And in the ALOS is also on the 3 point something, which is lower than the overall average, but still this makes a 20% of margin. Any specific reason the overall average revenue per patient is higher than all the other hospitals?

Abhinay Bollineni — Executive Director and Chief Executive Officer

It’s because the occupancy is low Mr. Piyush. So it’s a very heavily orthopedic dependent brand, even today 50% of our volume comes from orthopedics. So the length of stay is usually two days, one and a half to two days. And the pricing because of the implant and all is high, hence the ARPP is high and the ALOS is less. But because majority of the volume is still ortho and they’re only at a 40% occupancy they have not been able to progress, in fact, this is after KIMS got in. When we had acquired, it was only at a 10% kind of a margin. So we fixed that and we brought it to 20%. Now as occupancy goes up, our operating leverage will play.

Piyush — Individual Investor — Analyst

Okay. So the average revenue per patient is higher because of the implant costs and all, which is actually a passthrough cost that’s why the overall number look higher side, is this correct?

Abhinay Bollineni — Executive Director and Chief Executive Officer

Correct,correct.

Piyush — Individual Investor — Analyst

Okay. Second thing on overall, sir, what is our thought process with respect to addition of new hospital? Because we are acquiring hospital also with the collaboration and stake of around 50%, 60%. We are doing greenfield expansion also at Bangalore and Mumbai, Maharashtra, and Chennai is on hold. So what is overall perspective to free cash flow and the payback period of hospital, how do you see which is the more suitable thing KIMS to go into the partnership collaboration model or a greenfield model? Because the greenfield assets will also take time for giving the same level of EBITDA and the free cash flow generation and payback period will also start a little bit of late? Just color on this, what is the thought process?

Abhinay Bollineni — Executive Director and Chief Executive Officer

From cash flow point-of-view I’ll let Vikas speak, but from a strategy point-of-view, see our approach is now that we have presence in AP, Telangana, we want to create a mark in Maharashtra, Karnataka. There are few micro markets that we want to definitely do a hospital because we believe it will do well. So when we look at those micro markets, we will first look at an acquisition opportunity, but after we exhaust opportunities of getting something in an acquisitive nature, we would then definitely want to go in a greenfield format because if not we will lose out on that opportunity.

So that is how we usually thought through and have in the past executed all the acquisitions. But our first preference is definitely to do an acquisition, if we get the right facility right-size and the right clinical team along with it. But if we are not able to after a considerable time, we will then pursue the greenfield route in that geography.

Vikas Maheshwari — Chief Financial Officer

I think a good mix of greenfield land acquisition is healthy because there is certainty on what you’re doing and acquisitions are always uncertain whether they’ll happen not happened. But with this pipeline you’re certain as to how the growth will happen in the year.

Piyush — Individual Investor — Analyst

Okay. Last thing from my side, sir. We are also trying to go into the Central and Eastern market like indoor, Raipur, we are having this of Odisha and Bhuvaneshwar and all. And there are some pipeline also there. So when we can think this, right now we are doing a INR500 odd crore of quarterly run rate revenue. In two-three years, can we say we can be able to touch the INR1,000 crore revenue run-rate, not a guidance wise, but just what is your thought? In three years, four years with hospitals right now in the development-stage maybe FY ’25, ’26 all will come and all will contribute to the revenue.

Vikas Maheshwari — Chief Financial Officer

Right now we are doing one INR180 crore revenue per month, Around INR180 crore per month.

Piyush — Individual Investor — Analyst

Correct. So that is what around INR560 odd crore we did last quarter and September and December also we touch around INR560 crore revenue number.

Vikas Maheshwari — Chief Financial Officer

Correct. I think with 30% occupancy leverage in Sunshine and Nagpur that itself will help us the currently run rate to go up by at least 10%, 15%. And then with incrementally Nashik, Bangalore facilities coming on board I am certain we should be there in the next three-four years.

Piyush — Individual Investor — Analyst

Okay, thanks a lot, sir. Thank you.

Operator

Thank you. That was the last question for today’s conference. I now hand the conference over to the management for closing comments.

Bhaskar Rao Bollineni — Founder and Managing Director

I thank you all for your valued presence. I would like to tell you that the questions raised by you in these meetings are very, very valuable and vital to help us in steering the growth of our organization from time to time. There has been a construct and a positive contribution from your end in these meetings. I thank you for all your vibrant participation. Thank you very much.

Abhinay Bollineni — Executive Director and Chief Executive Officer

Thank you, everybody.

Operator

[Operator Closing Remarks]