Krishna Institute of Medical Sciences Ltd (KIMS) Q2 FY22 Earnings Concall Transcript

Krishna Institute of Medical Sciences Ltd (NSE:KIMS) Q2 FY22 Earnings Concall dated  Nov. 11, 2021,

Corporate Participants:

B. Bhaskar Rao — Managing Director

Abhinay Bollineni — Director & Chief Executive Officer

Vikas Maheshwari — Chief Financial Officer

Analysts:

Rahul Jeewani — IIFL Securities — Analyst

Praveen Sahay — Edelweiss Financial — Analyst

Devesh — Individual Investor — Analyst

Ashish Gabra — Fairdeal Traders — Analyst

Anandha Padmanabhan — PGIM India Mutual Fund — Analyst

Mehul Sheth — Axis Capital — Analyst

Marvin Patel — Individual Investor — Analyst

Sumit Choudhary — Zaaba — Analyst

Ashok Kumar — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q2 FY22 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. Thank you, and over to you, sir.

Rahul Jeewani — IIFL Securities — Analyst

Yeah. Thanks. Good morning, everyone. I welcome you to the earnings call with KIMS management. So from KIMS we have with us Dr. Bhaskar Rao Bollineni, Managing Director; Dr. Abhinay Bollineni, CEO and Executive Director; and Mr. Vikas Maheshwari, CFO.

Over to you, sir for your opening comments post which we can open the floor for Q&A. Thank you.

B. Bhaskar Rao — Managing Director

Good morning to all of you. I extend a warm welcome to all of you. Meeting with you always fills me with new energy and enthusiasm as you are the engines of our growth. While patients are our driving force your support enables us to access our services to more and more patients. As you are aware vaccination drive [Technical Issues].

Operator

[Operator Instructions] Ladies and gentlemen, thank you for being on hold. The line for management is now reconnected. Thank you, and over to you, sir.

B. Bhaskar Rao — Managing Director

Good morning to all of you. I extend a warm welcome to all of you. Meeting with you always fills me with new energy and enthusiasm, as you are the engines of our growth. While patients are our driving force your support enables us to access our services to more and more patients. As you are aware, vaccination drive is in full swing across the country and recently crossed thousand crores of population and still surging ahead.

This keeps us in a relatively safe zone. Of course, there is no room for any kind of complacency. It will be prudent on our part to continue with the basic protocols like wearing masks, sanitizing, and maintaining social distances. Even if third wave were to occur there may not be much serious complications unlike in the past.

Let us hope that this [Indecipherable] COVID will be behind us sooner than later. As you know, KIMS is the largest corporate hospital in Telugu states having branches in most backward areas like Srikakulam also. The objective is to reach as many people as possible in the far off areas where medical facilities are not much accessible. We have had a litany of clinical achievements during the quarter at our various branches. I propose the highlights of two such clinical achievements: the first our kidney transplant done in KIMS Kurnool, rare neurosurgery performed to remove an advanced tumor at KIMS Kurnool, advanced thoracoscopy and dialysis patient at KIMS Kurnool. A three-year old with a rare lung cancer treated successfully in KIMS Kurnool; nail from one year via intestine successfully removed in KIMS Kurnool. Rare heart problems successfully operate in a high-risk surgery at KIMS Kurnool.

First ur kidney transplant performed in Ananthapur at KIMS Ananthapur. First our cochlear implant surgery in Ananthapur done at KIMS Ananthapur. Rare nocardia infection treated successfully in a 60-year old woman at KIMS Vizag. A rare cancer of the neck treated successfully at KIMS Vizag. I highlighted the cases at our Kurnool, Ananthapur and Vizag because earlier people of these areas were required to go to Bangalore, Chennai, or Hyderabad in such situations.

Now they can avail the treatment in their respective business itself. Of course, treating such critical case is a regular affair at our other branches center. Successful treatment of such critical cases is a matter of great professional satisfaction and speaks volumes about the professional expertise and medical infrastructure available with us across the two states.

Having spoken about clinical achievements, I will now proceed to appraise you of the financial and operational highlights and other initiatives. The financial highlights, the performance of Q2 is to be viewed in a special way against the backdrop of the pandemic. As you know, during Q2 of FY’21 COVID was rampant and most of the beds were occupied by COVID-related cases.

There was overall decline of the pandemic across the country in Q3 and becomes — it became almost insignificant in Q4 FY ’21 bringing back footfall of operations to pre-COVID levels. But unfortunately the pandemic struck again in Q1 FY ’22. And beds were again predominantly occupied with COVID-related cases in FY ’22 Q1. The vaccine drive was also high in Q1, leading to spurt in revenue. Q2 of FY ’22 witnessed insignificant COVID cases and the position of occupancy on the footfalls came back to pre-COVID levels similar to Q4 of ’21.

Therefore Q2 FY ’22 cannot be compared with Q2 of previous year and Q1 of FY ’22 due to high occupancy of COVID cases. Comparison between two incomparable situation does not reflect the real picture. So, a somewhat realistic comparison can be made with the Q4 of FY ’21 and not with Q2 of FY ’21 as we would have done in the normal course. Consolidated operating revenue saw an increase of 15% against Q4 of FY ’21 standing at INR4,118 crores. Increase in patient flow, induction of additional expert doctors in existing specialties, consistent growth in Heart and Lung Transplant Program and increasing normalization of business to pre-COVID levels contributed to this growth.

Against Q1 of FY ’22, it saw a decrease of 13%. A consolidated EBITDA for Q2 of Fy ’22 stood at INR134 crores, growth of 27.7% against Q4 of FY ’21. EBITDA margins expansion was driven by a specialty mix change of our Q4 FY ’21 last year and operational leverage. EBITDA margins grew 32.2% in Q2 FY ’22 from 31% in Q1 of FY ’22 primarily led to tightened control on medical consumption cost.

Consolidated PAT of INR84 crores in Q2 FY ’22 at 20.2%. PAT margin compared to Q4 of FY21 was 16.2% in — and in Q1 of FY ’22 was 19.3%. As on September 30, 2021, on consolidated basis we are net debt free out of [Indecipherable] proceeds. Group has repaid the term loans to the tune of INR150 crores. We have compared to Q2 FY ’22 against Q4 FY ’21 as Q2 FY ’21 and Q1 FY ’22 was COVID-19 impacted quarters.

Operational highlights. Q2 FY ’22 occupancies stood as 59.8% against 60.1% in Q4 of FY ’21 and in Q1 FY ’22 was 62.2% based on our bed capacity. IP discharged volume has increased to 36,000 plus in Q2 FY ’22 against 32,000 in Q4 FY ’21 transplanting to a growth of 11% and it is increasing from 31,000 in Q1 FY ’22 as volume of major specialities has increased on account of normalization. OP consultation volume has increased from 2.8 lakhs in Q2 FY ’22 from 2.62 lakhs in Q4 FY ’21 and also increased from Q1 FY ’22 from 1.82 lakhs. Average length of stay has improved from 5.06 days in Q4 FY ’21 and 5.47 days in Q1 of FY ’22 to 4.61 days in Q2 FY ’22.

Our average revenue per patient has increased from INR1.09 lakhs in Q4 FY ’21 to INR1.15 lakhs in Q2 FY ’22 which is a growth of 5% and decreased from Q1 FY2 ‘2 from INR1.49 lakhs. Our average revenue per operating bed in Q2 FY ’22 has improved from INR24,877 against INR21,591 in Q4 FY ’21. This is driven by better payer mix, an increase in complex surgeries and procedures.

You can see the result that the results are encouraging and the growth trajectory will be maintained and improve still further in spite the previous quarters were dominated by the COVID. We have our digital initiatives, KIMS hospital has embarked on a journey of digital transformation across financial, clinical, operational, patient engagement with the initiatives as below. Realized phase of S/4HANA deeply integrated hospital information system and other core applications has been completed, user acceptance testing is under progress this quarter.

Digital clinical applications have been deployed for nurses and doctors along the care team to access and update patient records on a mobile phone or a tablet, resulting in a better collaboration and timely action for admitted patients. Digital applications have been deployed for the operations team to expedite admissions through management and counsel patients.

Patient experience is being improved by service management application. The traction resolves patient feedback of services provided by the hospital. Patient mobile application is under development. KIMS is building a digital platform using an API basic technology model to integrate production applications with digital that will result in a modern userfriendly experience for knowledge workers in the hospital and patient-centric approach to engage with the patients and their families.

By doing this digitalization, we have helped a lot of patients by cutting down their waiting list in the — during the time of pre-waiting for surgery, as well as for investigations and as well as they can also improve to facilitate the discharge process with all these things we could able to achieve much better than compared to the pre-digital era.

We have some ESG initiatives. KIMS Secunderabad has partnered with Smart Joules Private Limited, a prominent energy service company in 2018. A new and innovative model known as Joule PAYS was executed wherein KIMS makes capital investment to implement various energy conservation measures across the hospital and gets a guaranteed energy savings of minimum 10% annually over the baseline energy. With this, we could able to save lot of electricity, LPG savings, diesls and the carbon dioxide also save much better nearly Q2 669 tonnes.

In the total revenue, Telangana as a cluster contributed about 65%. Other acquired assets such as KIMS Ongole, KIMS Anathapur, KIMS Vizag has stabilizing their occupancy level similar to or matured units. The EBITDA margins also stabilized at 20% and they are expected to grow further. As we presented in earlier meeting the other expansion plans are also on track and are moving as per schedule. Let me now speak about our latest acquisitions of the prestigious Sunshine Hospitals, which is a landmark hospital in orthopedic care founded by Dr. Guruva Reddy, who is a renowned personality in the field.

Sunshine has a network of three hospitals in Telangana. The total bed capacity of 600 beds with the primary focus on orthopedics. Sunshine Hospitals has become the second-largest joint replacement from Southeast Asia. It is only the second hospital in Asia to have a full membership of the prestigious society — International Society of Orthopedics Centers.

Sunshine enjoys certain other unique accomplishments like first hospital in India with ISOC membership. Only two from India have this membership. 4,000 total joint replacements performed on average every year. More than 10,000 surgeries annually all the orthopedics subspecialties. More than 700 robotic knee replacements done in less than 18 months, fastest in the world.

Together, KIMS and Sunshine hospitals in Hyderabad have 1,725 beds, which further strengthens our prime position in healthcare sector. KIMS is an established leader in providing cardio, neuro, and renal care oncology. Now with Sunshine in our pool, we’ll be making a vital contribution to the field of orthopedics as well. The current occupancy at Sunshine is 40%. We are confident of scaling it up substantially, which will enhance the revenues. We are very confident that this new acquisition of Sunshine will augur well for the future with handsome results.

Dear investors, I have a very positive and optimistic vision of our future and I’m sure we’ll reach greater heights in the days ahead with your support. Thank you, one and all.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Praveen Sahay from Edelweiss Financial. Please go ahead. Sir, your line is unmuted. Please go ahead with your question.

Praveen Sahay — Edelweiss Financial — Analyst

Yeah, hi. Thank you for taking my question and congratulations for a good set of numbers. So the first question is related to the COVID, can you share the COVID numbers for the quarter? How much is the revenue or EBITDA?

Abhinay Bollineni — Director & Chief Executive Officer

Yeah. So I think in Q2, the numbers were to the tune of 5% to 7%, which is similar to what it was in Q4 across all our hospitals.

Praveen Sahay — Edelweiss Financial — Analyst

Okay. And also on the operating beds this time you had not given; how much is the operating beds?

Abhinay Bollineni — Director & Chief Executive Officer

It remains the same at 2,500 beds — 2246, sorry.

Praveen Sahay — Edelweiss Financial — Analyst

Okay. And sir, yeah — so, and the next portion is related to the occupancy in the matured facilities we had seen a significant jump there in the occupancy. So I can assume that’s what you had also mentioned that elective surgeries are picked up significantly, so is that a sustainable what we had reported for a quarter, or is just now opening of the — post-COVID it just a one-quarter of higher occupancy we are seeing?

Abhinay Bollineni — Director & Chief Executive Officer

No, I think like we said in the call Q4 was something that was completely we saw is pre-COVID levels. Q2 also has similarly reflected, in fact even post Q2 it remains — it continues to remain the same. So we don’t see any substantial impact to what we have seen in Q2 moving forward except for some seasonal changes, but nothing beyond. I think these are numbers moving forward that will sustain.

Praveen Sahay — Edelweiss Financial — Analyst

Okay. And lastly on the expansion side, so you had also given that Bangalore, Chennai, and the West India expansions and some timelines, so like the earlier ones. So there are Kondapur, Vizag there is a timeline, so from where we can consider the timeline, like from here onwards 36 months or how is that actually when you are going to start the Chennai one from there the 36 months or what?

Abhinay Bollineni — Director & Chief Executive Officer

As mentioned in the presentation, we had said starting from April 2021. So we are saying that is the base and from there 36, 24months whatever timelines we have given.

Praveen Sahay — Edelweiss Financial — Analyst

Okay, okay, okay. And secondly, related to that, the Chennai also you had mentioned that INR400-odd-crores of capex. As I understand we have a — Chennai we have land already. So over that you are expecting INR1 crore per bed of capex?

Abhinay Bollineni — Director & Chief Executive Officer

So in — so this Chennai, we are, we have already procured land. So this project cost is including the cost of the land that we have factored. And over a period of time this is not just a 400 bedded facility, it can scale beyond. So initially because we are building up the structures for a larger facility, we are also procuring land for the entire facility. The cost per bed will be slightly higher, but moving forward, it will come down as you add incremental beds.

Praveen Sahay — Edelweiss Financial — Analyst

Okay. Okay. Got it. I’ll come in the queue. Thank you.

Operator

Thank you. [Operator Instructions] The next question from the line of Devesh [Phonetic] an Individual Investor. Please go ahead.

Devesh — Individual Investor — Analyst

Yeah. Hi, good morning, and congratulations for good set of numbers. I had two quick questions; one is around your digital transformation initiative, which is a great step by the way. I just want to understand that, how do we track the success of it, one is in terms of operational efficiency? And secondly, is it going to contribute in the growth of business or it’s primarily for operational efficiencies? That’s the first question.

B. Bhaskar Rao — Managing Director

We will contribute to both. Basically once we have been seeing these are all interlinked. Once the patient — happy patients are going from hospital whatever is the — these are the patients who keep coming in the last two decades. And they say that improvement they will go and spend. Apart from improving the patient quality care by digitalization here we also find out some value-added things how we can able to attract and more and more patients from other areas. Some we can able to get the pre-operatively, we can able to get the — all the data, all these years they are coming and they may or they may not go, sometimes they might not able to come here. By interacting with us that will definitely help to improve your footfalls.

Devesh — Individual Investor — Analyst

Got it, sir. Thank you. Second one was a more tactical piece, this Sunshine acquisition, when do we see this getting completed and reflected in our numbers? And what is the approximate timeline when you see they can start contributing to the same margin that we have at a consoled level currently? Just a ballpark range would be good.

Vikas Maheshwari — Chief Financial Officer

So, Devesh, I am Vikas Maheshwari. So Sunshine as a structure we have — is a little bit structured where we have acquired the partly paid-up shares and the fully paid-up share. So right now we are holding 17.57% of the fully diluted equity with us. And whatever these partly paid-up shares are there, that will get fully paid up by April ’22. So till March ’22 in this financial year, it will be an associate with us where we will just have a one-line item in our P&L for the share of the profit from the associate. From April it will get fully consolidated line-by-line and we will hold 51.07% stake on that company.

Devesh — Individual Investor — Analyst

Okay, great. And when do you expect them to sort of improve productivity to come at our EBITDA levels one year, two years down the line?

Vikas Maheshwari — Chief Financial Officer

Yeah, I think we have a 24-month timeline, 24 to 36 months timeline. The way we’ve looked at Sunshine is the current occupancies, one is they are strategically located in micro markets that we don’t currently operate in. So it gives us entry to those new micro markets. Their current occupancy is around 40% and given that there are — as a brand, we are well established, we are well connected to clinical, our ability to bring a lot more talent and retain the current talent is quite superior.

So we are hopeful to start engaging with new consultants and bring them on board, so that we can do a revenue ramp up over a period of the next 24 months. So this will bring in lot of operational leverage from the current level. And the other synergies that we are seeing — other two synergies that we’re seeing is in consumable optimization, given that our scale is substantially bigger than Sunshine, our procurement cost is very different from what they are currently procuring.

So there is a substantial saving that we foresee and we will implement that in the next six to nine months. And the other costs that we see synergies is in HR cost. Though our corporate cost has always been very lean, I think it will — by the synergies given that we are operating in the same market, we can bring in a little more more synergies.

Devesh — Individual Investor — Analyst

Okay. Thank you. Thank you for the response.

Operator

Thank you. [Operator Instructions] The next question is from the line of Rahul Jeewani from IIFL Securities. Please go ahead.

Rahul Jeewani — IIFL Securities — Analyst

Yeah. Sir, I had a few queries with respect to the Sunshine Hospitals acquisition. Now this 40% occupancy for Sunshine, is there a component of one-off COVID component sitting in that number? And which are the key specialties which you will focus on apart from orthopedics to drive a ramp-up in occupancy in Sunshine?

Abhinay Bollineni — Director & Chief Executive Officer

So the current occupancy — so even if you look at FY ’20, their average occupancy has been around 30%, 40%. So there is no one-off COVID sitting even in FY ’21. It has normalized over a period of time. Now the focus currently, if you look at Sunshine almost 50% of their revenue is driven from cardiac, sorry from orthopedics, 15% is driven from cardiac, and the rest of the specialties contribute the rest of 35%. Our idea is to bring down orthopedics to as low as 30% and focus — and make it a truly multi-specialty hospital by bringing in more consultants in other specialties other than ortho and cardiac. So there is a lot of clinical talent that we want to bring together in the other specialty rather than these two.

Rahul Jeewani — IIFL Securities — Analyst

Sure, sir. And with respect to margins at Sunshine Hospitals so we have seen that the margins have significantly improved in FY ’21. So ’20 their margins were around 9%, which improved to 18% in ’21. So what led to that margin improvement? And within that EBITDA number, which has been reported by Sunshine is — what would be the contribution of the COVID business in FY ’21 EBITDA numbers?

Abhinay Bollineni — Director & Chief Executive Officer

Sure. So in — if you look at the growth in revenue from FY ’20 to FY ’21, it is close to INR40 crores and the EBITDA also grew by close to INR35 crores. Now it is — so Sunshine is completely sitting on a lot of operating leverage. In FY ’18 or FY ’19 they happen to open a new project in Gachibowli, which was just turning around and in FY ’21 it’s kind of reached quite a substantial improvement in the occupancy.

So whatever growth you have seen in revenue has directly contributed significantly to the EBITDA margin because of operating leverage. And the other thing that they have done is, there is — they had a loss-making entity in Bhubaneswar which kind of had a drag of almost INR5 crores to INR6 crores on FY ’20 numbers. So that was closed in FY ’21 and sold to some other party so that numbers are also reflecting.

Rahul Jeewani — IIFL Securities — Analyst

Sure. So this Bhubaneswar asset is no longer in the FY ’21 numbers as such?

Abhinay Bollineni — Director & Chief Executive Officer

Correct. Correct. It got shut down in FY ’20.

Rahul Jeewani — IIFL Securities — Analyst

Okay, thanks. And you spoke about the fact that you will have operating synergies on the consumable side as well as some of the other operating line items, but what kind of a scope do you see an improving EBITDA margins for Sunshine because in matured hospitals we make almost 30% kind of a margin. And for Sunshine Hospital among the three hospitals which they operate only one is a recently opened facility, whereas the other two facilities have been operating for quite some time. So do you think that we can achieve 25%, 26% kind of a margin on Sunshine over the next two to three-year period?

Abhinay Bollineni — Director & Chief Executive Officer

The one difference is Sunshine operates out of rented premises. Unfortunately, all three of them are in a rented premises so achieving the same margin that we typically achieve in our mature facilities is a little unlikely. But I think what we are achieving in Kondapur, which is again a rented facility to the tune of 23% to 25% in the next 24 to 36 months is certainly doable.

Also given the fact one of the facility, which is located in Karimnagar is a small facility — more like a secondary care facility. So I don’t think that facility will have a move the needle towards 20% kind of a margin, but it’s not a significant contribution to the revenue currently or the EBITDA currently. So our focus will continue to remain only on the Gachibowli and Secunderabad hospital which are present in the city of Hyderabad.

Rahul Jeewani — IIFL Securities — Analyst

Sure, sir. And with this to some of our other acquisition plan, so last quarter we had indicated that we are looking to acquire some asset in Western India as well. So where are we with respect to M&A in some of the other markets?

Abhinay Bollineni — Director & Chief Executive Officer

So we have been looking at opportunities in Central India and Western India and we have been doing some work around a transaction that we have very closely following up. We should probably bring it to the table in the next 30 to 45 days if legally things come through.

Rahul Jeewani — IIFL Securities — Analyst

Sure sir. And so, so some of these other assets, which you are looking in Central and Western India would these assets be as big enough as Sunshine or what kind of a strategy would you have on the M&A side in some of these other markets?

Abhinay Bollineni — Director & Chief Executive Officer

Yes, I think our minimum scale is we need 200 beds to 250 beds to begin with with the opportunity to scale to beyond 350 beds. So whatever acquisitions that we are looking at are typically on the similar size and scale.

Rahul Jeewani — IIFL Securities — Analyst

Okay. Okay. And just one last question from my end. So with respect to our greenfield projects in Bangalore and Chennai, so last quarter we had indicated that there has been some delay with respect to initiating construction at these hospitals. So where are we with respect to the Bangalore and Chennai hospitals?

Abhinay Bollineni — Director & Chief Executive Officer

So as far as Chennai hospitals is concerned, we have already procured land. We are permission phase. We have already factored nine months for this financial year to just go for commission approval and then another 25 months — 25 months to 30 months for construction. I think we should receive permission for that land parcel in the next three months. And if we do so, we can then start construction activity.

Rahul Jeewani — IIFL Securities — Analyst

Okay. And with respect to Bangalore?

Abhinay Bollineni — Director & Chief Executive Officer

Bangalore also on the similar lines. We had anticipated to complete the transaction last month, but I think we will table it in the next 30 days and we should be able to complete the transaction then. We can achieve it within the 36-month timeline that we had earlier forecasted.

Rahul Jeewani — IIFL Securities — Analyst

Okay, so then ideally speaking Bangalore and Chennai hospitals would not contribute to our financials before FY ’25 as such?

Abhinay Bollineni — Director & Chief Executive Officer

Correct. You’re right.

Rahul Jeewani — IIFL Securities — Analyst

Yeah. Okay. Thanks, sir. Thanks.

Operator

Thank you. [Operator Instructions] The next question is from the line of Praveen Sahay from Edelweiss Financial. Please go ahead.

Praveen Sahay — Edelweiss Financial — Analyst

Yeah, just to follow up on the previous participant’s question. So as you have good expansion plans, what kind of debt you are expecting in the coming years to be comfortable on?

Vikas Maheshwari — Chief Financial Officer

Praveen, thanks for asking this question. As you saw our financials, we are sitting on some cash as on September 30 but that cash is more or less is committed for completing the Sunshine acquisitions, so INR230 crore upfront payment has been done and the balance INR132 crores will go over a period of time.

So with this, the existing cash which we have with us is almost completed with that, so the transactions with respect to the other project which is Bangalore Chennai and other Central India, that is something like that in — next 24 to 36 months. We are seeing the outlay or something like that INR1,100 crore rupees on these three projects and the only thing is that the land part, which is the lumpy part which comes first and then the balance, the progress in terms of the constructions happens over a period of time and medical equipment, etc, happens over a period of time. So if you take a larger view of the three years. If you look at our financials we are generating something like that INR350 crore, INR400 crore piece of the cash on the existing business, and if you take off take it on the same basis for the next three years we have something and generating INR1,100, INR1,200 per piece of the cash. So this will supplement and finish our project, which we are anticipating for Bangalore, Chennai, and Central India.

Obviously, there will be, have some, which will be taking. But I don’t think even if we are taking some INR200, INR300 copies of the debt for the funding initial cost of the project it will cross one. So, debt to EBITDA will not cross one. We are something like that looking at the clarity of if we analyze the quarter-second numbers, I don’t think we will be able to cross-one, two, one is to one to the debt to EBITDA. So we are comfortable position the financials are very strong, the financials, which we have built, this is a strong foundation to take this company to the next growth level by with these acquisitions are the greenfield projects.

Praveen Sahay — Edelweiss Financial — Analyst

Okay. Thank you for such a lucrative answer. The second is related to this expansion, because the last, the previously and in the recent Sunshine acquisition also done in the Andhra and Telangana region and your mix of Tier 2 versus the one metro city is quite very defined. But now you are going to Bangalore and Chennai, and also in Western India. So how you will, because they’re the cost, the capex made versus your pricing is in a very important. So how you will actually mitigate those risk because you are going from one region to us totally different region. So like Bangalore Chennai then Western India. So what’s your strategy or you can just highlight in some little more on that whether in Western India only with the M&A yesterday you will go — how is that planned to tackle those?

B. Bhaskar Rao — Managing Director

Thanks for asking this question. See basically what we are looking in the last few months we are inputting this idea across our medical community and we got a very good response from the consultants who are willing to come and join with us and then we idenfitied a few of them in most of the places. So the hospital business is very easy business provided if you are able to understand the business. The only thing is to carry a good amount of financial support, which can build the technology and infrastructure.

The second important thing is you need to get the right talent the especially the medical talent. Once that comes and I think we are able to move forward in a better way. That’s what is the recent a few hospitals has been shown and we were also following that. So as far as all these three places are concerned there will not be an issue of getting the talent, both the medical and the top management of the non-medical side, and we already identified and moving forward then we are also looking at better places. So I think it’s not a big issue at all. We have a stable financial thing and we may not able to require huge amounts of financials to be taken to finish these three projects or four projects put together and talent is already there.

Praveen Sahay — Edelweiss Financial — Analyst

Okay, thank you. And the next on your comment, you had mentioned in the presentation of a new doctor addition in the existing specialty. So will that increase your employee expenses or how to treat this?

Abhinay Bollineni — Director & Chief Executive Officer

I mean. Yeah, it will certainly increase employee expenses, but it will also bring in a lot more revenue. At the same time, there is this whole. So the employee expenses may go up by 15%, 20%, but the revenue comes up much higher and there is a lot of operating leverage synergies that we will get because of the incremental department we bring in.

Praveen Sahay — Edelweiss Financial — Analyst

Okay. And any, if you can highlight. We have had added?

Abhinay Bollineni — Director & Chief Executive Officer

So we have added across all hospitals, but significant numbers have been added or change has been brought in Kondapur hospital. We are talking about some significant addition in Secunderabad hospital and Vishakhapatnam hospital.

Praveen Sahay — Edelweiss Financial — Analyst

Okay. Okay. And as I can see in this quarter, your average revenue per patient has been down significantly on Y-oY and sequential basis as well. So my question is should we consider this level as a stable level the way forward, because now — as you had also mentioned that the COVID business is almost over. So this is stable numbers INR1.14 lakh or INR1.15 lakh?

Abhinay Bollineni — Director & Chief Executive Officer

Yeah, that should be the stable of moving forward between INR1.14 lakh or INR1.15 lakh.

Praveen Sahay — Edelweiss Financial — Analyst

Nothing to do with the payer mix change like there also we had some changes in the payer mix. So like of other contribution, increase our corporate contribution. Is that going to be at this level or there also we will see some variation?

Abhinay Bollineni — Director & Chief Executive Officer

So I think though, you will see these numbers sustaining moving forward. There is some changes that we have made in a few of the hospitals that is largely Secunderabad on the corporate and Arogyasri mix. We have changed some of that mix and this is something that we foresee that will sustain moving forward.

Praveen Sahay — Edelweiss Financial — Analyst

Change towards increasing like this or decreasing?

Abhinay Bollineni — Director & Chief Executive Officer

Increase in cash and insurance.

Praveen Sahay — Edelweiss Financial — Analyst

Okay. Thank you. Thank you. Thanks a lot and all the best.

Abhinay Bollineni — Director & Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Ashish Gabra [Phonetic] from Fairdeal Traders. Please go ahead.

Ashish Gabra — Fairdeal Traders — Analyst

Yes, sir. Thanks for taking my question and congratulations for a good set of numbers. So, basically, I have two questions.

Operator

Hello. Hello. Ashish Gabra, your line is unmuted. Please go ahead with your question. May we request you to unmute yourself if muted from the handset.

Ashish Gabra — Fairdeal Traders — Analyst

Yeah, hello.

Operator

Sorry, we can’t hear you, sir, your voice is breaking.

Ashish Gabra — Fairdeal Traders — Analyst

Like for the FY ’22 second quarter that was 60%.

Abhinay Bollineni — Director & Chief Executive Officer

Sir, your voice is breaking and we are not able to understand the question.

Operator

As there is no response we move to the next question. The next question is from the line of Anandha from PJM India Mutual Fund. Please go ahead.

Anandha Padmanabhan — PGIM India Mutual Fund — Analyst

Thanks for taking my question. Am I audible?

B. Bhaskar Rao — Managing Director

Yes, yes. You are audible.

Anandha Padmanabhan — PGIM India Mutual Fund — Analyst

Yeah. So with regard to your capacity expansion plans. So at least for FY ’22 and FY ’23 only bed addition to being that it would be coming would Sunshine acquisition that all the other expansion plan in terms of impact on your P&L it will happen only from FY ’24 or FY ’25 onwards. That could be a fair way to understand?

Abhinay Bollineni — Director & Chief Executive Officer

Correct. So we will also — our current operational beds are 20% lower than the overall capacity we are going to effective from this month we will operationalize lot more beds in our current capacity. So there is some opportunity for growth in the current bed capacity itself and the incremental bed addition will be the Sunshine hospitals for this, for the coming financial year.

Anandha Padmanabhan — PGIM India Mutual Fund — Analyst

Okay. And in terms of your peak occupancy theoretically, what is the kind of peak occupancy that you can reach for your current assets, for your current consolidated basis what could be the peak occupancy that one — you can achieve?

Abhinay Bollineni — Director & Chief Executive Officer

Most of the banks that are not operational are in the acquired assets. If you look at our mature hospitals, we’ve been able to scale up to 75%, 80% kind of an occupancy. So in our acquired assets, we are currently at 60%. I think there is an opportunity for us to further scale-up in those.

Anandha Padmanabhan — PGIM India Mutual Fund — Analyst

Okay. So basically the way the growth in terms of your volume growth if I were to understand that would be basically your total increasing your total operational beds and also increase the occupancy of other acquired assets from 60%, 65% to 70%, 75%?

Abhinay Bollineni — Director & Chief Executive Officer

Currently acquired are largely around 60%, 58%, 60% We want — we will aspire to scale it up to the mature hospital average.

Anandha Padmanabhan — PGIM India Mutual Fund — Analyst

Okay. And with regard to your expansion plans apart from these expansion plans that you have mentioned across say Kondapur, Vizag, Ananthapur, Bangalore, Chennai and Central India so largely for the next three to five years this is what you would be up latest in terms of your overall aspirational target in terms of expansion or our industrial gap in the portfolio, either in terms of specialty therapies or in terms of micro markets where you would continue to look for expansion?

B. Bhaskar Rao — Managing Director

I think these are plans that are concrete and we will certainly execute in the timeline that we have defined. We are also given our current debt position and our ability to raise debt we are also looking at opportunities within AP, Telangana and within the new micro markets that we are expanding to, let it be Tier 2, Tier 3 markets are in the metro cities. So we will not breach the one is to two debt to EBITDA, kind of a number, but we will, we are still looking for more opportunities either through semi brownfield or acquisition of current running hospitals.

Anandha Padmanabhan — PGIM India Mutual Fund — Analyst

Okay. But the current expansion plans. So if you don’t go beyond the current expansion plans your debt to EBITDA would be restricted to one is to one. Only in case you would look at any further new inorganic acquisitions or expansion plan that’s when it would go beyond one is to one. That’s why one should understand it?

B. Bhaskar Rao — Managing Director

Yes, yes.

Anandha Padmanabhan — PGIM India Mutual Fund — Analyst

Okay. And in terms of specialties. Are there any gas that you would want to sell or there. I think that one Industrial is our next couple of years?

Abhinay Bollineni — Director & Chief Executive Officer

If you look at the expansion plan. We are talking about adding cancer in Vizag and Ananthapur, and Ongole. So we are adding mother and child in Ananthapur. We see a clinical gap debt. So we are — time and again taking assessment of each of our current hospitals and the clinical work that we’re doing that. And we are adding a lot of this a new specialties largely on the cancer oncology front.

Anandha Padmanabhan — PGIM India Mutual Fund — Analyst

Okay. And last year, government had also announced some attractive funding rates for capex related to the healthcare sector. So would you be availing any of these attractive funding rates that government had announced for your expansion plans?

B. Bhaskar Rao — Managing Director

Yes. Certainly, yes.

Anandha Padmanabhan — PGIM India Mutual Fund — Analyst

Okay. Thank you. So I think that’s all from my end.

Operator

Thank you. The next question is from the line of Mehul Sheth from Axis Capital. Please go ahead.

Mehul Sheth — Axis Capital — Analyst

Yeah, thank you for the opportunity. Sir, one question on like now the things are getting normal like most of like a post COVID scenario. So how do you see the following quarters or the year moving like for the — in all terms like in giving you margin as well as on your occupancy side how you are seeing the trend going ahead?

Abhinay Bollineni — Director & Chief Executive Officer

I think Q2 was it was a very normal quarter for us. We had very little work of COVID like I mentioned 5% to 8%. I think that will continue to be there moving forward, even in Q3 and Q4 and subsequent years to come forward. So I don’t see any change that will happen from Q2 to Q3 and Q3 to Q4 except for some seasonal variation. But other than that we’ve already experienced complete pre-COVID level and normalcy in most of our locations that we operate in.

Mehul Sheth — Axis Capital — Analyst

So, I guess in your Q1 call you guided EBITDA margin somewhere in the range of around, it’s 27% to 28% that will be more of a sustainable margin but already you are 30% plus margin. So where do you see this EBITDA margin moving from now?

Abhinay Bollineni — Director & Chief Executive Officer

Yes, we anticipated it would be around 27%-28% but also a lot of the acquired assets turned around sooner than we expected it to. I mean, given that we were transitioning from the post COVID levels and we are seeing those numbers sustain, and I think what we are currently seeing in this quarter looks like will sustain for the foreseeable future?

Mehul Sheth — Axis Capital — Analyst

And sir, one last question on your payor mix so, last quarter cash plus insurance was somewhere in range of around 87% and now it has come down to 78%. So where do we see this payer mix is will be in coming quarters in all?

Abhinay Bollineni — Director & Chief Executive Officer

Whatever you have seen in Q2 is what is going to sustain in the subsequent quarters. If you look at Q4 and Q2, they are very similar. So these are the numbers that will sustain moving forward.

Mehul Sheth — Axis Capital — Analyst

So we can consider this cash plus insurance, can be like 70% — nearby 75% to 80% range. That will be more of us.

Abhinay Bollineni — Director & Chief Executive Officer

That is more sustainable and this is right now KIMS level. But when you add Sunshine it will further go up.

Mehul Sheth — Axis Capital — Analyst

Yeah. Also on the occupancy sense where do you see your margin. I mean sorry, the occupancy is moving with the increase in the electives and all. So where do you see your occupancy over next few quarter like will there be a like any specific target date that you are having some specific occupancy number?

Abhinay Bollineni — Director & Chief Executive Officer

I think we are currently in our mature hospitals at around 75% kind of an occupancy. We are working on optimizing on the loss, we are trying to reduce it in few of our mature hospitals. One, we believe that there is a lot of headroom for growth in the current acquired hospitals that at a 60% kind of an occupancy there is opportunity for it to scale up to 70%, 75% given a period of time. Given that there are only four years and we launched a year and a half only in COVID. So that’s one opportunity and in the current hospitals we believe that the 75% can scale up to 80%, 80% to 85% kind of an occupancy over a period of time.

Mehul Sheth — Axis Capital — Analyst

Okay, sir. Thank you. Thank you for your time, sir. Thank you.

Operator

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

Rahul Jeewani — IIFL Securities — Analyst

Yeah, hi, sir. So you mentioned that on the acquired hospitals you have seen better turnaround. With respect to the operations and these acquired hospitals ramping up. Now, my understanding was that some of these acquired hospitals in Tier 2, Tier 3 markets would have benefited from patient leakages which typically happens from Tier 2 markets into metros, which wasn’t there during the COVID period. So now with markets gradually opening up across the country, have you seen any early trends that may be the patient volumes which you were having in these acquired hospitals in Tier 2, Tier 3 markets, there is some sort of a leakage, which is again happening into metros?

Abhinay Bollineni — Director & Chief Executive Officer

No. So, if you heard my conversation in the past, even in FY ’20 the last quarter, the numbers that we were doing in the current quarter for these acquired assets, we kind of reached those kinds of levels before the first wave of the pandemic hit. So I don’t think it has anything to do with the lockdown scenarios and the travel scenario, but things have improved and then it took a year and a half because a lot of ups and downs. We believe that most of the numbers that we achieved in the acquired assets are sustainable and will continue to sustain and grow from there.

Rahul Jeewani — IIFL Securities — Analyst

Okay. So on the acquired hospitals the occupancies of 60% and margins of 21% are largely sustainable?

Abhinay Bollineni — Director & Chief Executive Officer

Yes, yes.

Rahul Jeewani — IIFL Securities — Analyst

Okay. So, and with respect to the heart and lung transplant division we were trending at around INR6 crore to INR7 crore of monthly revenue on that business. So where are we now on the heart and lung transplant division? And are you looking to further scale up that part of the portfolio?

Abhinay Bollineni — Director & Chief Executive Officer

So, we are sustaining the same number, even in quarter two, but yeah, this is completely dependent on donor availability across the country, donor calls, the quality of the donor that we receive. So this is one specialty, which is very difficult to predict in a month we can do 10 transplants in a month we’ll land up doing just doing two transplants. So it’s a very fluctuating scenario. But in Q2 we have been able to sustain what we have done in the previous quarters.

Rahul Jeewani — IIFL Securities — Analyst

Sure sir. Okay, thanks.

Operator

Thank you. The next question is from the line of Marvin Patel [Phonetic], an Individual Investor. Please go ahead.

Marvin Patel — Individual Investor — Analyst

Thank you, sir for the opportunity. And first of all, congratulation for a good sets of number and recent acquisition. Now, my question is on the telemedicine front in two part. First is, what is the approx revenue percentage up telemedicine front as a total revenue of the company? And secondly, what is our expectation on this front like, are we looking to grow on this front, like are there any definitive plans on this front, like marketing new infrastructure for telemedicine, etc? Thank you.

B. Bhaskar Rao — Managing Director

So, currently revenues from telemedicine is very, very insignificant. And our intent is to scale up the platform, but not — it is a service as an extension to our current in patients. So, patients who get discharged from the hospital, we don’t need them to come back to the hospital for review, we can provide an online consultation platform for them to visit the doctor it saves time for the patient as well as, as well as the doctors. So that is an operational efficiency parameter that we’re bringing in, but nothing from a revenue standpoint of view. I think it’s a complete different business in itself any good rather different skill set to run that business, our focus is to build tertiary care hospitals.

Marvin Patel — Individual Investor — Analyst

Okay, sir. Thank you.

Rahul Jeewani — IIFL Securities — Analyst

Hello, Jacob, you can take the next question.

Operator

Can you hear me?

Rahul Jeewani — IIFL Securities — Analyst

We can hear you now, yeah.

Operator

The next question from the line of Sumit Choudhary from Zaaba. Please go ahead.

Sumit Choudhary — Zaaba — Analyst

Yes. Hi, Dr. Bollineni and team. Thanks for taking my question and congrats on a good set of numbers. Couple of questions, one just on the transplant but just wanted to add a sense of how big is that Transplant specialty revenue in the quarter gone by? And if I understood it correctly. It obviously the number, the revenue that you a number of procedures that you undertake in a quarter is a function of donor availability, etc. So if I could just understand about the predictability of the guidance. So that the current run rate of revenue and EBITDA should sustain. How do you get comfort in that?

Abhinay Bollineni — Director & Chief Executive Officer

I think the Transplant historically in at least the last three quarters have been contributing to almost 4% to 5%. I’m referring to just the heart and lung transplant of the overall revenue and then we have liver transplant as well as kidney transplant program which also contributes to a substantial number. So moving forward, I think it should sustain because transplant is not just all about transplanting the patients is a lot more care that is provided, there is a lot of ICU work that is done for patients who require a transplant of post-transplant. So the core transplantation work there could be fluctuation based on availability. But the respiratory intensive care Work and the other work will continue to remain.

Sumit Choudhary — Zaaba — Analyst

Okay. Okay. So it sounds like you’re at least you for the current run rate should be fairly predictable even despite that, it sounds like it’s about 10% with if transplant driven revenue for you it should be at least maintained. It sounds like?

Abhinay Bollineni — Director & Chief Executive Officer

So, currently, it is around 5% including heart-lung liver and kidney.

Sumit Choudhary — Zaaba — Analyst

Okay.

Abhinay Bollineni — Director & Chief Executive Officer

Including all of that.

Sumit Choudhary — Zaaba — Analyst

Okay.

Abhinay Bollineni — Director & Chief Executive Officer

Moving forward. It’s objective to donor availability. But I think it will sustain after 2% to 3% kind of a number that’s the made a minimum that it will certainly do the upside is purely based on availability and stuff.

Sumit Choudhary — Zaaba — Analyst

Understood. And just, just to clarify on the Sunshine acquisition, so that you have mentioned INR730 crores of EV and you’re buying 51% of that. So, two parts to question one, any reason for it. The deal is to be structured the way it is, in terms of partly paid and then up in April. Any particular reason for that to have been the case. And second, just to clarify your total outgo will be basically INR730 crores into 51% for this?

Vikas Maheshwari — Chief Financial Officer

So, Sumit because financially — So once we were discussing with the company they have already done the right issue and there was the partly paid-up shares. So we didn’t had any other option, but to go with this structure and nevertheless, we reach to our target of 51% our print which meets our requirements. So there is nothing on that, that we have restructured this way. This is that what the company had at that time we engaged with them and close the deal.

So we have gone ahead with that it and it’s also or something like that it did going the full cash out of the system and it helps both the sites. So this is where we have a structure the deal and the enterprise value, which we have listed is roughly INR730 crore rupees out of debt roughly net debt was roughly INR20 crore on Sunshine, so the equity value is something like that INR710 crore odd amount. And on that 51% is roughly INR362 crores, which we have to pay to INR230 crores, we have already paid and the balance will go. As per the even as and when the company raising is a mostly is on the monthly basis and by uprate will get completed.

Sumit Choudhary — Zaaba — Analyst

Understood. Okay, thanks, and good luck.

Abhinay Bollineni — Director & Chief Executive Officer

Thanks.

Operator

Thank you. The next from the line of Ashok Kumar [Phonetic], an individual investor. Please go ahead.

Ashok Kumar — Individual Investor — Analyst

Yeah. Am I audible?

Abhinay Bollineni — Director & Chief Executive Officer

Yes.

Ashok Kumar — Individual Investor — Analyst

Yeah. Good afternoon to the entire management team and congratulations for this great set of results. Yeah, so my question will be on the new acquisition of Sunshine. As you can see from the financial statement that the PAT as and as well as the EBITDA margin has also gone up from 9% to 18% but still if you see that the EBITDA margin is lesser than the EBITDA on a consolidated basis, do you think that the blended EBITDA margin will be lesser than what current KIMS is doing?

Abhinay Bollineni — Director & Chief Executive Officer

Yeah, I think it will certainly be lesser because of two reasons. One is the scale at which is operating is different. Number two, they operate out of rental premises and almost 4% to 5% of the revenue goes straight to as rental costs. So, it will never be able to get to the levels of, but I think what is certainly sustainable is anywhere between 23%-26% or 24% to 26% kind of an EBITDA margin.

Ashok Kumar — Individual Investor — Analyst

For Sunshine, you are saying, right?

Abhinay Bollineni — Director & Chief Executive Officer

Correct.

Ashok Kumar — Individual Investor — Analyst

And when can we able to be achieved that that kind of a margin that 23%, 22% because now integration things and other synergy benefits will come into picture. So how soon you think that is suitable to achieve that margin guidance of 23% to 26% is going to so?

Abhinay Bollineni — Director & Chief Executive Officer

I think we will take around six months to stabilize things and integrate all the systems and from there. Around 18 months is there looking to get to full maturity. I think 24 months from today to 36 months is that we will be able to mature. This effect in this of occupancy. And since we don’t have any further detail of I’m just wanted to understand how the business are going on on FY 22 and how are your expectations on EBITDA as well as on the tax band, if you can give some idea. So just wanted to understand that, how this we looked in your FY 22 this I think the revenue ramp-up has been fairly good in Sunshine. They have also added and a lot of new commissions and they have seen the Gachibowli unit, which is recently a new unit turnaround to healthy numbers a healthy occupancy and healthy margins. So I think overall, they will certainly exceed their FY21 numbers and do substantially better than what they have done in FY20.

Ashok Kumar — Individual Investor — Analyst

So, and lastly, if I see the occupancy level up something in last two financial year almost remained flat near 30%-40%. So now you’re saying that occupancy are now been moving up for as well. So what is the level of occupancy that you’re experiencing on — in FY 22 for Sunshine?

Abhinay Bollineni — Director & Chief Executive Officer

FY ’22 I think the occupancy is around 45% so far.

Ashok Kumar — Individual Investor — Analyst

Okay. Okay. And since now the integration happens with KIMS with Sunshine how would that affect on your operational cost saving for the entire group now?

Abhinay Bollineni — Director & Chief Executive Officer

And I guess our corporate cost is a little lean. So there are some synergies but not many materialistic to the P&L. What is more material is the cost of consumables and the optimization that we will bring in, in consumers, so we are to the tune of almost 10% of FY21 EBITDA is how much we are anticipating a savings from consumable optimization moving forward.

Ashok Kumar — Individual Investor — Analyst

Okay, thank you. So all the best for the coming quarters here.

Abhinay Bollineni — Director & Chief Executive Officer

Thank you.

Operator

Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

B. Bhaskar Rao — Managing Director

So thank you very much for the questions place since you have been asked. And then we were geared up to continue to grow and continue to show good quality work for patients and also as I mentioned in the my software during May shows and so we are very keen that the investors and the doctors and the patients of the key being prudent.

We are continuing to do the same thing and we will — this plan of action and the very judiciously, we are going to deploy the creature expansion plans, maybe we’ll be do much better than what we promise and during May Investors show and even this financial year, we have done better than what we promised and that is our strategy. So far, so thank you very much for joining us and continuous support from all of you.

Operator

[Operator Closing Remarks]