Max Healthcare Institute Ltd (MAXHEALTH) Q4 FY23 Earnings Concall Transcript

Max Healthcare Institute Ltd (NSE: MAXHEALTH) Q4 FY23 earnings concall dated May. 17, 2023

Corporate Participants:

Abhay Soi — Chairman and Managing Director

Yogesh Sareen — Chief Financial Officer

Analysts:

Suraj Digawalekar — Analyst

Ashwin Agarwal — Akash Ganga Investments Private Limited — Analyst

Damayanti Kerai — HSBC — Analyst

Nikhil Mathur — HDFC AMC — Analyst

Lavanya Tottala — UBS — Analyst

Andrey Purushottam — Cogito Advisors — Analyst

Prakash Agarwal — Axis Capital Ltd. — Analyst

Tushar Manudhane — Motilal Oswal Financial Services Ltd. — Analyst

Raj Rishi — Dcpl — Analyst

Neha Manpuria — Bank of America Merrill Lynch — Analyst

Amit Dhavani — Private Investor — Analyst

Alankar Garude — Kotak Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Max Healthcare Institute Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Suraj from CDR India. Thank you. And over to you.

Suraj Digawalekar — Analyst

Thank you. Good morning, everyone, and thank you for joining us on Max Healthcare’s Q4 FY ’23 Earnings Conference Call.

We have with us today, Mr. Abhay Soi, Chairman and Managing Director; and Mr. Yogesh Sareen, Senior Director and Chief Financial Officer of the company. We will begin the call with opening remarks from the management, following which we’ll have the forum open for an interactive question-and-answer session.

Before we start, I would like to point out that some of the statements made in today’s call may be forward-looking in nature and a disclaimer to this effect has been included in the earnings presentation shared with you already.

I would now like to invite Abhay to make his opening remarks.

Abhay Soi — Chairman and Managing Director

Thanks. A very good morning to everyone. I’m pleased to welcome you to Max Healthcare’s Fourth Quarter Earnings Call.

At the outset, I would like to state that this has been a seminal year for Max Healthcare on many accounts. An important one of them being the overall translation of INR1,636 crores of EBITDA to INR1,281 crores of free cash flows. Consequently, in spite of a decadal opportunity for investment in the hospital sector, we have been encouraged to declare our maiden dividend.

Now, I want to sort of go back into proceedings of Q4. Q4 was a robust quarter for us and exhibited results of commendable execution of our strategy by teams on the ground. This quarter once again reflected our best ever performance across nearly all the financial and operating parameters, recording a significant growth year-on-year. We commissioned and operationalized 92 beds oncology block at Max Shalimar Bagh from 1st March. This contributed positively to both revenue and EBITDA in its very first month of launch. EBITDA margin on the incremental revenue was in the range of 35% to 40% due to operating leverage and overall occupancy at the hospital was 83% in Q4. We expect this to contribute to improvement in EBITDA, both in absolute and margin terms in the ensuing quarter.

Now coming to the key highlights of our Q4 performance. Occupancy for the quarter improved to 77% from 68% in Q4 last year and remained at the same level as in the previous quarter. However, it is pertinent to note that operating capacity moved up by 100 beds in March 2023 compared to December ’22. Institutional bed share fell to 29% compared to 33% in Q4 last year, and remained flat compared to the previous quarter. But again, there was a higher capacity in the current quarter as well.

PSU tariff for room rents and consults have been revised in mid-April. Further discussions are ongoing to increase tariffs for packages in diagnostics, etc. In view of these developments, we have not taken a hard call yet for some of the major accounts. At the same time, all our hospitals have been tasked with improving their operating occupancy thresholds to accommodate growth in the preferred channels.

Network gross revenue was INR1,637 crores compared to INR1,298 crores in Q4 last year and INR1,559 crores in the previous quarter. This reflects a growth of 26% year-on year and 5% quarter-on-quarter. Year-on-year increase was driven by growth in ARPOB and occupied bed days. Revenue from international patients grew by 43% year-on-year and 10% quarter-on-quarter, which now accounts for around 9.1% of the revenue from hospitals and amounts to 120% of pre-COVID levels.

Digital revenue grew to INR292 crores and accounted for 18% of overall revenue. Led by improvement in channel mix and specialty mix, ARPOB for the quarter rose to approximately INR70,700, reflecting a growth of 11% year-on year and 6% quarter-on-quarter. We reported our highest-ever network operating EBITDA of INR437 crores compared to INR304 crores in Q4 last year, and INR419 crores in the previous quarter, reflecting a growth of 44% year-on-year and 4% quarter-on-quarter.

The network operating EBITDA margin stood at 28.2% versus 24.8% in Q4 last year, and 28.3% in the previous quarter. Annualized EBITDA per bed, most importantly, rose to INR70.3 lakhs, yet again our highest-ever, clocking a growth of 25% year-on year and 5% quarter-on-quarter. Profit after tax was INR320 crores versus INR172 crores in Q4 last year, and INR269 crores in the previous quarter. Year-on year growth to 85% was primarily attributable to improvement in operating metrics of all the hospitals and lower finance costs.

Free cash flow from operations stood at INR425 crores, of which INR65 crores was deployed towards ongoing capacity expansion projects. The net cash position improved to INR733 crores at the end of March 2023 compared to net debt of INR441 crores last year. Continuing our efforts to give back to the community, we treated approximately 36,600 OPD and 1,200 IPD patients from economically weaker sections of society free of charge. Both our strategic business units continued to maintain the growth momentum. Max@Home reported a top line of INR37 crores, reflecting a growth of 26% year-on-year and 2% quarter-on-quarter. Max Lab reported a gross revenue of INR31 crores, reflecting a like-to-like growth of 57% year-on year and 10% quarter-on-quarter.

Now coming to the overview of the company’s financial performance for the full year ended 31 March, 2023. Network gross revenue stood at INR6,234 crores, reflecting a growth of 18% on a like-to-like basis. Network operating EBITDA stood at INR1,636 crores, registering a growth of 25% on a like-to-like basis, while ARPOB improved by 15% due to price and improvements in payer mix and case mix, leading to margin expansion by 152 basis points.

EBITDA per bed grew by 22% year-on year and touched a new high of INR65.9 lakh. The current status of expansion projects coming on stream by FY 2025 is as follows. We have recently signed and ATS for purchase of land to enable expansion of Max Vaishali, which is consistently operating at more than 80% occupancy. If and when the deal is consummated, it has the potential to add 100 brownfield beds to our network.

For 300 beds at Dwarka, interior work is in progress, lifts are under installation and external development has started. Medical equipment has been ordered and as communicated earlier, we expect to commission the hospital by end of Q2 FY ’24, subject to the developer obtaining occupation certificate by that time of which we are quite certain. For 329 beds at Nanavati, the work is in full swing at the site. Foundation and column work have already begun. As you may be aware, Larsen & Toubro, L&T, is handling the project and we expect to commission the facility by end of FY ’25. For 300 beds at Sector 56, Gurgaon, in Phase 1, D-wall work is complete and excavation is underway, while the civil contractor mobilizes for starting construction by end of June.

In order to obviate the delays at Max Smart caused due to three transplantation issues, we are fast tracking the construction at Vikrant site, which is part of the same complex. We have received in principle environmental clearance approval and are expecting other approvals over the next six weeks to eight weeks. Lastly, we continue to actively, but prudently evaluate inorganic growth opportunities for strategic deployment of our cash surplus from operations.

With this, we open the floor for Q&A.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] We have a first question from the line of Ashwin Agarwal from Akash Ganga Investments. Please go ahead.

Ashwin Agarwal — Akash Ganga Investments Private Limited — Analyst

Congratulations to Abhay and the entire team for delivering industry-leading numbers. We could not have thought three years back that you could have delivered these kinds of EBITDA margin and grown from here on also. So heartiest congratulations for that. Abhay, could you highlight what is your vision going beyond three-years to five years beyond what have you announced in terms of organic opportunities and whether you would be looking at the South and the other regions in the country? And secondly, could you — you won around 24% stake now. So would you like to increase your stake, so that you can use the stock as an option in terms of acquisition else you get diluted?

Abhay Soi — Chairman and Managing Director

So let me start with the last one first. The consequence of this performance has been — firstly, thank you for the compliment. Three years back when we were listing the company, one of the biggest critiques of the Indian healthcare or the hospital sector was that there is no free cash flows. You have to keep redeploying. I think with INR1,281 crores of free cash flows translating from INR1,600 crores of EBITDA, which was 80% translation of EBITDA to free cash flow, I think we’ve sort of answered that question. So that is as far as I’m concerned right up there as far as our achievements in the current year.

Now with respect to my vision over the next three years to five years, I think there is a multi-decadal opportunity in the hospital sector. The kind of infrastructure, which is required to be created, okay, simply because, okay, you need to address that demand and we are seeing this everyday. So all the cash flows flows that we have sort of generating, we would be redeploying it into this and we will be looking at pretty much every part of India. We have been very clear about two things, that we will only look at places where at least a few of our competitors have proven viability. We will go there and we’ll do it better, like we do in each one of the micro markets that we currently operate in. We have not been the first anywhere, but we are the first wherever we operate. So, I think that is the sort of strategy that we want to employ. So that doesn’t sort of preclude any place but, of course, we like a cluster approach. If I have to just do one hospital in Kerala or just one hospital in Chennai or something, I will do it. We prefer clusters. So, we are looking at chain and we looked at clusters.

Ashwin Agarwal — Akash Ganga Investments Private Limited — Analyst

Anything on your stake in terms of using the stock as an opportunity in terms of M&A?

Abhay Soi — Chairman and Managing Director

So look, I think my stock — one of the consequences of our success is it reflects on the market cap and the stock price. If to buy anything meaningful, I would effectively have to leverage my current stock, which I’m not interested in doing because I don’t leverage my stock at all. Yeah. So, I think 1% of the stock will cost me INR500 crores, so pre-tax that money is about INR800 crores. As my only formal employment is Max Healthcare, my salary doesn’t permit me to buy more stock.

Ashwin Agarwal — Akash Ganga Investments Private Limited — Analyst

Lastly, sir, do you [Speech Overlap]

Abhay Soi — Chairman and Managing Director

But I would not be afraid of diluting it, if there is a great opportunity. Let me just put it this way. When I say diluting, if there is a opportunity for a merger or an acquisition, okay, for the growth of the company, I would not shy away from that.

Ashwin Agarwal — Akash Ganga Investments Private Limited — Analyst

Yes. That is what I was wanting to know.

Abhay Soi — Chairman and Managing Director

No. So there has been issue as far as that is concerned,

Ashwin Agarwal — Akash Ganga Investments Private Limited — Analyst

Would you be only city-centric in next three-years to five-years in terms of opportunities or you would also look into Tier-2 opportunities? And do you have opportunities like Nanavati, which give you a gateway to any big city?

Abhay Soi — Chairman and Managing Director

Absolutely. So, I think, firstly, we are very happy doing Tier-2, Tier-3 cities also. Our highest ROC business is Mohali, second highest is Uttarakhand, is Dehradun. It’s not again Bombay. And like I said, we will go to any city where any of our competitors, two or three competitors have proven viability. We have, I believe, a list of 21 such cities.

Ashwin Agarwal — Akash Ganga Investments Private Limited — Analyst

All the best, sir. Thank you.

Abhay Soi — Chairman and Managing Director

Thank you.

Operator

Thank you. We have our next question from the line of Damayanti Kerai from HSBC. Please go ahead.

Damayanti Kerai — HSBC — Analyst

Hi. Good morning. Congratulations for a good set of numbers. Abhay, my first question is on your payer mix change plan. So, you mentioned, we have seen upward revision in PSU tariffs, etc. Because of that, is there any rethinking from your side to bring the institutional bed share to 15%, 16%, which you highlighted earlier from 29% currently?

Abhay Soi — Chairman and Managing Director

Sorry. So what’s the question? So, look, I think the trajectory is changing on account of two or three things. One is that we are finding marginally more capacity. We are operating at higher levels than what we were thinking of previously. So, we are able to sort of keep that business and being able to do more and you’re seeing that in your margins month-on month. So the best thing is that, if you can, we were pushing down that business because we wanted to accommodate our preferred channel of CTI. Now necessarily, you’re always going to find some elasticity towards the end. So, you see the operating levels becoming higher.

Secondly, we’ve added more beds. So 100 beds is on — 110 beds is about 3% more capacity that has been added. Yet you see the number sort of still come down marginally. The third thing is that they’ve been an increase in rates as far as PSU is concerned, increase in tariffs, which will work well for us in the current year. And that’s about 20% or 30% of the total that tariffs that they will further revised. They’ve revised it quite significantly by about 70%.

Yogesh Sareen — Chief Financial Officer

Around 70%.

Abhay Soi — Chairman and Managing Director

Sorry? Only four line item. Yeah. So four line item, but that amounts to about 20% of the total. 20%? So, overall increase would be around 4% to 5% on the billings to the case mix. But the rest of the tariffs are looking to be revised in — they are saying by July. So, I think we have a little bit of a wait-and-watch here. We have the same sort of increase by July, because I believe the — it has been proposed that less of the packaging [Phonetic] and everything else has been revised. And July is the time, which we’ve been sort of informing.

Damayanti Kerai — HSBC — Analyst

Okay. Just to clarify, this 4% to 5% tariff hike is for the PSU contract so far and you are expecting further [Speech Overlap]

Abhay Soi — Chairman and Managing Director

No. So what I’m saying is that the line items that we have raised prices on the — average price is around 70%. But those line items, in a way, the contribution of the line items is around 10% to 12%. So that means the overall raise would be 4% to 5%.

Damayanti Kerai — HSBC — Analyst

Okay. And in July another round of [Speech Overlap]

Yogesh Sareen — Chief Financial Officer

Yeah. We are expecting another round of price hikes. They haven’t touched the diagnostics. They haven’t touched the specialties. They haven’t touched the other elements of the blood banks, etc. They haven’t touched that. They just touched four items. One is room rents. For ICU, room rent for single and then the IT consult or OT consult. Only four elements have been changed.

Abhay Soi — Chairman and Managing Director

And whatever they’ve touched has gone up by 70%.

Yogesh Sareen — Chief Financial Officer

On an average.

Damayanti Kerai — HSBC — Analyst

Okay.

Abhay Soi — Chairman and Managing Director

So let’s say there are 100 things. 100 — if the revenue is 100, 12% of the revenue is being touched by them. They’ve increased that 12% by, let’s say, about 70%. The balance, 88%, okay, we’re expecting something to be done by July.

Damayanti Kerai — HSBC — Analyst

Got it. Okay. Great. So, my second question is on your average revenue per occupied bed. Again I think you have surprised positively quarter-after-quarter. In last two years, we have seen around 15% increase. And I understand specialty mix s a big driver of it. So can you explain that like what has changed significantly in last two years, three years that you continue to see better and better specialty mix and how should we see this part moving ahead?

Abhay Soi — Chairman and Managing Director

I think — look, ARPOB is being generated by payer mix and specialty mix. It’s not only purely payer mix. We’ve also seen a massive increase in international business, which is on the ARPOB. So it’s a combination of factors. And specialty mix, now you’re looking at COVID in the middle, right? So, I think your ARPOB vis-a-vis of COVID year is going to be higher. You need to look, compare it to a pre-COVID period, pre-COVID years, then you take up perhaps the cost increases over this nascent period of COVID, because you know the disease burden comes back — has come back after COVID. So in the middle, you’re looking at COVID business, which was high occupancy, but lower ARPOB and now you have business which is essentially high ARPOB. But the occupancy sort of moved up because there wasn’t any capacity creation for COVID years. So, I think you’re going to see this sort of move up, but obviously you can’t do a comparison with the COVID year.

Damayanti Kerai — HSBC — Analyst

Not even with COVID years? So if I look at the period of FY ’19 before COVID, you had committed 46,000, 47,000 ARPOB and now it has moved up to, say, 70,000 plus. So, I’m asking from that perspective.

Abhay Soi — Chairman and Managing Director

What was the ARPOB in — I will let you know what the ARPOB was. But, look, I think, as you move up the occupancy curve, right, you’re going to distill your payer mix. Now, you’re talking about a time when my payor mix again, I think 40% plus was PSU. Now it is 29%, right? I think as you go up the curve, you start getting that sort of operating leverage when you start getting that better quality of business, okay. This thing is — we still have hospital where portfolio, which are doing a 90,000 ARPOB.

Damayanti Kerai — HSBC — Analyst

Okay.

Yogesh Sareen — Chief Financial Officer

So our ARPOB was INR50,300 right?

Abhay Soi — Chairman and Managing Director

It was INR50,000, which went up to INR70,000 in three years now.

Yogesh Sareen — Chief Financial Officer

So average is INR67,000 for FY ’23. So you take the year-to-year average. So it will be 10%, 11% IRR.

Abhay Soi — Chairman and Managing Director

So it’s a 10%, 11% increase, right, to INR50,000 to INR67,000.

Damayanti Kerai — HSBC — Analyst

So going ahead also, say, since we continue to see a better mix, both the payer and specialty part. [Speech Overlap]

Abhay Soi — Chairman and Managing Director

I think from a payer mix itself from distillation of payer mix, you should see a increase in this. And mix, of course, like I said, there are always innovations sort of going on. It’s not only at Max, but we have plenty of single hospital Mumbai, for example, which had been there for 20 odd years, which haven’t sort of — there is no payer mix sort of saturated. There is no extra bed, not a square inch that they’ve been able to add, yet the clinical mix sort of drives ARPOB up. I mean there are lovely examples of that, Hinduja Hospital and so on and so forth.

Damayanti Kerai — HSBC — Analyst

So comfortably, we should be seeing, say, high-single-digit growth, double-digit growth in the ARPOB going ahead also.

Abhay Soi — Chairman and Managing Director

I’m not — I avoid giving any forward-looking projections. You know that.

Damayanti Kerai — HSBC — Analyst

Okay. And my last question is on your view on the competitive landscape in Delhi-NCR market, given we have seen many of your competitors trying to step up their presence. So is there any possibility of bed oversupply in the foreseeable future, if not now?

Abhay Soi — Chairman and Managing Director

I haven’t seen any new bed come up in Delhi-NCR, or even under construction.

Damayanti Kerai — HSBC — Analyst

Actually, I think, Apollo has a facility coming up in Gurugram.

Yogesh Sareen — Chief Financial Officer

I’m told there is some.

Abhay Soi — Chairman and Managing Director

Yes. This will all be there by the way. All this is structured. I think Apollo has just done a — I mean, it was not operating. But I think this building is there for quite some time. So, let’s see when it starts to operate. It’s not yet operational, right?

Damayanti Kerai — HSBC — Analyst

Yeah. Okay.

Abhay Soi — Chairman and Managing Director

That’s a separate issue.

Damayanti Kerai — HSBC — Analyst

Okay. Thanks for your answers. I’ll get back in the queue.

Operator

Thank you. We have our next question from the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead.

Nikhil Mathur — HDFC AMC — Analyst

Yeah. Hi. Good morning, everyone, and many congratulations. Congratulations to the management on a superb execution. My first question is kind of a clarification. When I look at the audited cash flow statement, the capex incurred under the line item of purchase of property is around INR335 crores, whereas in the pro forma numbers that we talk about in the executive summary, the company has given a capex number of INR208 crores. I guess, there might be some technicality. Can you please explain me why it is different from audited and executive summary?

Yogesh Sareen — Chief Financial Officer

So just to clarify that point, so I think when we report the INR208 crores spend, that spend is on the capacity expansion, right, these are on the projects, INR208 crores. So whatever is the routine capex, in the cash flows are coming in the property line, but eventually when we report numbers to investors, we take it out from the free cash flows, right?

So when Abhay says that we have INR1,281 crores of free cash flow against INR1,637 crores of EBITDA, in that INR1,281 crores, that whatever amount that we spent, the total net worth spend is around INR211 crores on the routine capex. That amount is taken out of the free cash flows, and we only report the number of INR208 crores, which is on capacity expansion, which is basically ongoing projects. Does that clarify?

Nikhil Mathur — HDFC AMC — Analyst

Yeah. So INR335 crores is the right number to look at?

Yogesh Sareen — Chief Financial Officer

One is the routine capex, right? There is a replacement happening in the running hospitals. And one is the capex, which is for the capacity expansions, right. So INR208 crores is the number for the capacity expansion. Whatever is the number on the routine replacement in the hospital — running hospitals, that is taken out from the operating cash flows. So when we say cash from operations, that number is already getting there. But in the audited financials, that number by virtue of the fact that if cash flow is as per a particular — in this requirement, that number also — both numbers flow into that number.

Nikhil Mathur — HDFC AMC — Analyst

Okay. So INR335 crores is the right number to look at when we’re looking at on a pro forma basis?

Yogesh Sareen — Chief Financial Officer

Pro forma would be around INR419 crores vis-a-vis. What you see is only the consolidated financials, right? So, these consolidated financials don’t have the PHF numbers, the Partner Healthcare Facilities numbers. The overall numbers, if I take the net worth cash flow will be INR419 crores, of which INR211 crores would be routine capex, INR208 crores would be capacity expansion.

Nikhil Mathur — HDFC AMC — Analyst

Okay. INR419 crores. Okay.

Yogesh Sareen — Chief Financial Officer

Yeah.

Nikhil Mathur — HDFC AMC — Analyst

And sir, in the cash balance, there is a difference of INR100 crores again in the audited and the pro-forma balance sheet that you have given. Some technicality here as well. Can you explain that, please?

Yogesh Sareen — Chief Financial Officer

If you read the very first page that we put out there in our Investor Update, you will find what the difference is for, right? So basically, we have this CGHS, where we control the metro operations through the hospital management committee, right? So, we have a 3:2 ratio. We control the operations. But since it is a medical services agreement, we are not able to consolidate the financials — in the financials, right? So what we do is that we do a [Indecipherable] consolidation that is certified, and that’s how we report numbers to the investors, right? So if you read the very first sheet, that would clarify this doubt that you are rasing.

Nikhil Mathur — HDFC AMC — Analyst

Understood. Got it. Sir, on the bed expansion plans, I think in the last investor presentation, there was the bridge that you share regularly. Now that Shalimar Bagh has come on stream, we should refer to that bid expansion plan in the previous investor presentation, that still holds? How should we look at the expansion plan?

Yogesh Sareen — Chief Financial Officer

That’s right. [Technical Issues] which we said is a little bit of delay, okay? Everything else is going to be online.

Nikhil Mathur — HDFC AMC — Analyst

Okay. And what’s the capex plan for FY ’24, both routine as well as ongoing projects?

Yogesh Sareen — Chief Financial Officer

See, routine is about INR150 crores.

Abhay Soi — Chairman and Managing Director

INR170 crores.

Yogesh Sareen — Chief Financial Officer

INR170 crores. And capex would be INR900 crores?

Abhay Soi — Chairman and Managing Director

INR900 crores.

Nikhil Mathur — HDFC AMC — Analyst

So INR900 crores plus INR170 crores?

Yogesh Sareen — Chief Financial Officer

INR900 crores would be for the capacity expansion, which is on the online projects and around INR170 crores would be on the routine.

Nikhil Mathur — HDFC AMC — Analyst

Okay. Understood. On the international footfalls, how should we look at growth in this business in the coming two years, three years? Now FY ’23 has been pretty strong at 43% kind of a growth, do we expect to grow in FY ’24 as well on this particular pace? And not just short term, what are your thoughts on two years, three years riding as well, what kind of growth in international business?

Abhay Soi — Chairman and Managing Director

I think like I’ve said, numerous occasions before, there’s an exponential opportunity, okay? What we are seeing is only incremental. And now the government has sort of put its weight behind it. So hopefully, we’ll be able to tap it in the medium run. But in the short run, we will still see incremental game. I’m going to avoid giving you any sort of guidance on the numbers, like I’ve sort of avoided in every other financial parameter as well. But yeah, so we are — we believe this is a space which is — we’ve not even hit the tip of the iceberg.

Nikhil Mathur — HDFC AMC — Analyst

Okay. Understood. I also read somewhere — I don’t know how to put it, that Delhi-NCR accounts for almost 70%, 80% of international footfall that come into the country. Is it the — sorry?

Abhay Soi — Chairman and Managing Director

40%.

Nikhil Mathur — HDFC AMC — Analyst

4-0. Okay. Okay. Got it. And one final question. The tariff hikes, whether on the PSU front or whatever you’re contemplating on the packages side, is it a reflection of supplier demand balance being in favor of private hospitals at this point in time in Delhi NCR? And do you think — do we foresee that this is likely to be an industry phenomenon, not just specific to Max?

Abhay Soi — Chairman and Managing Director

No, industry phenomenon. That’s why our rates are for the whole country.

Nikhil Mathur — HDFC AMC — Analyst

This is in response to the new store that had come in, that government has allowed some price hikes on the CGHS side.

Yogesh Sareen — Chief Financial Officer

And by the way, this is after — the last price was fixed in 2014. So it’s risen after nine years in a way by CGHS authorities.

Nikhil Mathur — HDFC AMC — Analyst

Okay. But you’re also considering revising prices for the packages, right, I mean, which is on the [Speech Overlap]

Yogesh Sareen — Chief Financial Officer

The government involvements [Phonetic].

Nikhil Mathur — HDFC AMC — Analyst

So that was on the government side?

Yogesh Sareen — Chief Financial Officer

Yes, yes. So just to raise the price for four elements, other lean items on technology, radiology, blood banks and packages, certain [Indecipherable]. All those things are under package.

Abhay Soi — Chairman and Managing Director

Lot of these will go under package, right. It’s not itemized billing.

Yogesh Sareen — Chief Financial Officer

We’ll say CBG, okay, or whatever. They haven’t increased the C section of the CBG. They’ve increased the room rents, the doctor visit charges, etc., etc.

Nikhil Mathur — HDFC AMC — Analyst

Okay. Understood. Thank you so much, and all the best.

Abhay Soi — Chairman and Managing Director

Thank you.

Operator

Thank you. We have our next question from the line of Lavanya from UBS. Please go ahead.

Lavanya Tottala — UBS — Analyst

Hi. Thanks for the opportunity, and congratulations on good set of numbers. So most of my questions are already answered. And I just wanted to get a clarification on these packages. So is the tariff hikes only related to CGHS packages? Or is it something related to diagnostic business of Max also?

Abhay Soi — Chairman and Managing Director

No. So right now, they have not increased the diagnostics, okay? Like Yogesh mentioned, out of — only 12% of the revenues, okay, or line items, which account for 12% of the revenues have been price increases happened over there. It’s up to 70%. 88%, which includes diagnostics, includes packages, includes a lot of other things, okay, has not happened, which is under consideration by the government. And we are told by July, there may be some visibility on this.

So ma’am, don’t mix the CGHS price increase with the other price increase, right? So, there’s a 29% bed share is by PSU, where the tariff is given to us by the state, right? Central Governments actually. So we are talking about that element of the business. The other business, we do increase prices. We have increased prices from 1st of April. We also increased prices especially between insurance companies as and when the contracts become due. So, don’t mix the two, right?

Lavanya Tottala — UBS — Analyst

Yeah. Yeah. So that’s the reason I’m just asking for a clarification that this is everything the discussion is related to CGHS and nothing related to the Max Diagnostics? That’s different, right?

Abhay Soi — Chairman and Managing Director

That’s right. Yeah.

Lavanya Tottala — UBS — Analyst

So Max Diagnostics, are we expecting any — I mean, are we planning to put any price increases for just diagnostic business?

Abhay Soi — Chairman and Managing Director

So [Indecipherable] CGHS or in generally?

Lavanya Tottala — UBS — Analyst

In general, general Max diagnostics business.

Yogesh Sareen — Chief Financial Officer

So, there are two elements to the diagnostics. One is in-hospital diagnostic. The other is the outset. The in-hospital diagnostics, we do increase prices every April, and we’ve done some bit of it in this year also. The non-captive pathology business, radiology business, we haven’t increased any prices yet.

Lavanya Tottala — UBS — Analyst

Got it. So thank you there. And on the ARPOB, I understand that increase in ARPOB is supported by a higher international contribution this quarter. So do you expect increase in international business in the coming year FY ’24? Or do you think that we have reached the optimal level in Q4?

Abhay Soi — Chairman and Managing Director

So, I think I answered the question in the last, this thing, mix. Like I said, there’s an immense opportunity, exponential opportunity in the medium run. In the short run, it is still incremental. Nevertheless, I think it’s clearly — it’s really incremental.

Lavanya Tottala — UBS — Analyst

Okay. Got it.

Abhay Soi — Chairman and Managing Director

Nowhere near is coming with sort of competitive advantage that we have. There’s no reason for it to sort of go down. It should only snowball and become much, much larger.

Lavanya Tottala — UBS — Analyst

Got it. So I just wanted to check because we have already crossed the pre-COVID level. So it should be incremental from here, but not a jump or significant jump that we have seen over last few quarters. So, I just wanted to check that.

Abhay Soi — Chairman and Managing Director

It’s a 10% growth quarter-on-quarter, right, in international. Even pre-COVID, you had a very good tip of growth. If you look at what the — even pre-COVID levels, okay, the growth rate will not slow. I mean, actually two years data to go up 20% over pre-COVID level, you still haven’t got up to the rate of growth.

Lavanya Tottala — UBS — Analyst

Okay. Got it. Got it. Thank you. Thank you so much for the opportunity.

Operator

Thank you. We have our next question from the line of Sangeeta Purushottam from Cogito. Please go ahead.

Andrey Purushottam — Cogito Advisors — Analyst

Hi. This is Andrey, Sangeeta’s partner. Congratulations for a great set of numbers. I just [Technical Issues] 87% increase in PAT on Q4 ’23 compared to ’22. I can make out that there’s been an increase in international business. I can make out that there’s been a decrease in institutional business. I can make out that there’s an increase in occupancy. Could you give us some more granular insight as to what is the — what are the elements of the channel or payer mix that have contributed to this 87% increase? And if you think that many of these profit drivers will remain in the future?

Abhay Soi — Chairman and Managing Director

You want me to describe this 87% increase in PAT?

Andrey Purushottam — Cogito Advisors — Analyst

Yeah.

Abhay Soi — Chairman and Managing Director

And item before that?

Andrey Purushottam — Cogito Advisors — Analyst

No, not every line. I’m just saying, I have identified as I said, three of those factors. Could you just give us a broad sense of what — which are the other specific sectors when you say channel mix and payer mix that has contributed — that has additionally contributed to this 87% increase.

Abhay Soi — Chairman and Managing Director

It is a payer mix. It is a clinical mix. It is better cost management, lower consumption ratios. The lower finance cost, lower — I mean I think it’s pretty much everything. But cost management other than payer mix and channel mix. And — yes.

Andrey Purushottam — Cogito Advisors — Analyst

Anything specific in payer mix apart from what I outlined? What channel?

Abhay Soi — Chairman and Managing Director

Payer mix is a reduction of the — reduction of PSU increase in international and CTI business.

Andrey Purushottam — Cogito Advisors — Analyst

Sorry?

Abhay Soi — Chairman and Managing Director

The cash insurance and international business has grown.

Andrey Purushottam — Cogito Advisors — Analyst

Okay.

Abhay Soi — Chairman and Managing Director

Effectively it’s that. It’s not about reducing PSU, but it’s about increase of these three elements.

Andrey Purushottam — Cogito Advisors — Analyst

And do you think that the operating margins of 28.2% or so are maintainable in the future?

Abhay Soi — Chairman and Managing Director

Look, I focus more on EBITDA per bed, not operating margin. Because we would rather do a $10,000 surgery and have a 20% margin, then do a $2,000 surgery and have a 50% margin, right? Okay. So, I think the question really is the EBITDA per bed, okay, even if it means lower margins tomorrow, is EBITDA per bed would increase or not? Because that’s really what matters from EBITDA overall standpoint, growth standpoint as well as ROCE standpoint, right, that in my mind will grow. We continue growing.

Yogesh Sareen — Chief Financial Officer

And also we have the numbers. Quarter one was 26.6%. Quarter 2 was 27.7%. Quarter 3 was 28.3%. This quarter it’s 28.2%. So obviously, that means it’s consistent, right?

Andrey Purushottam — Cogito Advisors — Analyst

Okay. Great.

Abhay Soi — Chairman and Managing Director

Over last quarter, there’s been an increase in EBITDA per bed, right? But if you see a margin, it’s marginally lower actually. But we are happier about the EBITDA per bed, right? That’s why overall EBITDA has increased.

Andrey Purushottam — Cogito Advisors — Analyst

Okay. Great. Thanks. And congratulations once again for a great set of numbers.

Abhay Soi — Chairman and Managing Director

Thank you so much.

Operator

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

Prakash Agarwal — Axis Capital Ltd. — Analyst

Yes. Good morning, and thanks for the opportunity. And congrats on very good set of numbers.

Abhay Soi — Chairman and Managing Director

Thank you.

Prakash Agarwal — Axis Capital Ltd. — Analyst

Yeah. Sir, just trying to understand this, the 4% to 5% price increase is limited to the 17% to 20% of the total mix, right? Is that right?

Yogesh Sareen — Chief Financial Officer

No, no. Prakash, 29% of the beds are occupied by the PSU, which constitute around 17.5% of the revenue, right?

Prakash Agarwal — Axis Capital Ltd. — Analyst

Exactly. Okay. So 17.5% moves up value term wise by 4% to 5% in terms of pricing?

Yogesh Sareen — Chief Financial Officer

Yes. So, I would say, if nothing else happens, then there’s a 4.5% — 4% to 5% increase in the price. Now, we do expect the price increase in the other elements. The [Indecipherable] equipment between the surgery, open surgery, you have to increase the packages, right? The moment you admit that the due date has to go up, that means that [Speech Overlap].

Prakash Agarwal — Axis Capital Ltd. — Analyst

So the current one is 4.5% on 17.5%? Is that right?

Yogesh Sareen — Chief Financial Officer

Yes, yes. That’s what I was saying.

Prakash Agarwal — Axis Capital Ltd. — Analyst

And you also mentioned that in some of your — every year, you take some price hike around April. So that is more standard across the board in the hospital business?

Yogesh Sareen — Chief Financial Officer

Yes, that’s right. Yes.

Prakash Agarwal — Axis Capital Ltd. — Analyst

So that is 2%, 3%, or is like a high single-digit kind of?

Yogesh Sareen — Chief Financial Officer

No, no. That’s 2%, 2.5%.

Prakash Agarwal — Axis Capital Ltd. — Analyst

Okay. So what I’m trying to understand, we had fairly good ARPOB increase last year and couple of years. Just in terms of headroom of growth, we do have international lever, we do have case mix, payer mix lever. So that 10%, 12% is not way too off to model for this year as well. Would that be right?

Abhay Soi — Chairman and Managing Director

I’m going to avoid giving you a guidance on that, Prakash. That’s always there. But there is no reason for it to not climb.

Prakash Agarwal — Axis Capital Ltd. — Analyst

Okay. Perfect. And secondly, on the volume side, occupancy side. So we, on a blended basis is 77%, and we would be having few hospitals which are 80%, 85%. So, I’m just trying to understand the headroom in terms of — you mentioned that the — you have a focus on growth in the preferred channels, A, which is more on the pricing. But immediately there — how can we improve the occupancy or we are already operating at an optimal level of occupancy?

Abhay Soi — Chairman and Managing Director

No, look, I think certain places, okay, where you have absolutely hit the capacity sort of this thing, over there, you will automatically start distilling. So the levers that we have are the following. One is that at the very sort of end when you start pushing the envelope, there is some elasticity, right, in terms of operations. So what we were earlier, 75%, 76%, now 77%, 78%, we also operated at 80%, 81%. Each one of these facilities will have a sort of more efficient system of discharging and so on and so forth when it starts coming to the edge.

Second is, we have mentioned there are about close to 100 odd beds, okay, internally that we’re unlocking, 10 beds here, 20 beds here, 30 beds here, so on and so forth. So 100 beds is about 3% of total capacity, okay. A couple of percentage points through occupancy that gives you about, let’s say, 4% to 5%. On top of that, we also have the payer mix sort of distillation that we give as and where necessary. Third, finally — but what you want to do is, first, you want to maximize on the first two, then you want to move to the payer mix distillation. And then, finally, you have another 300 beds coming in then — by next year, every hospital will charge for its own beds coming through.

Prakash Agarwal — Axis Capital Ltd. — Analyst

Got it. And this case, this Hyderabad one is finally not happening, right?

Abhay Soi — Chairman and Managing Director

Well, I wouldn’t say that because we’ve stood for specific performance and matter is in arbitration. So it won’t go into existing [Phonetic], but we have asked for specific performance over there.

Prakash Agarwal — Axis Capital Ltd. — Analyst

Okay. Because I read Blackstone getting into that. So, I was just checking on that, okay. And lastly, on the regulatory side, Of late, there’s been a lot of news flows on having reservations for the government as well as the poor and the needy. I mean there’s too much, I mean, unverified information. So is it happening some bit? Has it already happened? It has already happened in the past, and it’s just a rehash or if you could just [Speech Overlap].

Abhay Soi — Chairman and Managing Director

I think you rightly put it. Firstly, I think the way too much has been made out of something way, way too little. Because first and foremost, please understand there is already a write-off health across the country, okay, through a Supreme Court sort of this thing. If a patient comes, is dying of trauma, patient comes into a hospital, you can’t say show me your wallet first? You have to take him in and stabilize it. That is right to health even as per Supreme Board. And no hospital would ever even think of not doing that.

You don’t — I mean, it’s really — if somebody was to do that, you’ll read it in the papers. That’s how rare it is. And you’ve seen those situations before in the papers, etc. No proper hospital will — let’s say, somebody comes to a hospital, okay, is an accident patient, number of these patients come year-on-year. I mean, if we were to actually reject that patient, firstly, it’s against our own policy, okay? It’s against Supreme Board’s strictures. And more importantly, do something like that, the media will spring you, will hang you, I mean inconceivable any of these listings.

Secondly, most states like Delhi-NCR, Delhi already for the last 10 years as it is Delhi [Indecipherable], which basically means that, look, any accident victim comes over there, we will pay you some money for it. Now the fact is the government sort of — in any case, we were doing it free. The government rides on it because they get political sort of mileage by saying, no, we are actually buying your health care sort of thing, okay. And therefore, we are paying people for the emergencies. Now, Rajasthan, we are putting a rehash of the same thing. And this is our right to help, right to help in emergency, which already exists.

Prakash Agarwal — Axis Capital Ltd. — Analyst

So, this is limited to emergency and not routine surgeries, etc.,?

Abhay Soi — Chairman and Managing Director

No. Purely emergency. Even in Rajasthan, it is purely emergency. In fact, they’ve diluted it down by saying it’s not through the private sector. It’s only through the hospitals, which have been funded or subsidized by the state government.

Prakash Agarwal — Axis Capital Ltd. — Analyst

And also the trust hospitals.

Abhay Soi — Chairman and Managing Director

Rajasthan government, which itself doesn’t make sense because it’s not as if a private hospital somebody goes, okay, you are going to reject the patient. You would still do it free.

Prakash Agarwal — Axis Capital Ltd. — Analyst

And just one last one on the trust hospitals. We also do a set reservation for the poor and the needy, is that right?

Abhay Soi — Chairman and Managing Director

That’s right. That’s right. That’s right. So every quarter when you see our results, you’ll see those number being announced. So not only first hospitals, but some of the hospitals where we have this option — we bought the landing option in the company, in the listed company. And there was some ordination [Phonetic] to have 10% beds free and we do provide for them.

Prakash Agarwal — Axis Capital Ltd. — Analyst

Okay. Okay. And lastly, congratulations for Shalimar Bagh turning it EBITDA positive in month one itself in March.

Abhay Soi — Chairman and Managing Director

EBITDA positive in the first month and giving us 35% to 40% EBITDA margin on the incremental revenue. And this is something we’ve always spoken about. Brownfields do not suppress your EBITDA. They are accretive almost — we’ve always said breakeven in the first quarter or two. And obviously, we are going to give you a more conservative sort of this thing. But you’ve seen that. You’ve seen the operating leverage coming.

Prakash Agarwal — Axis Capital Ltd. — Analyst

No, that is great. Thank you. And all the very best.

Abhay Soi — Chairman and Managing Director

Thank you so much. Thank you, Prakash.

Operator

Thank you. We have our next question from the line of Tushar Manudhane from Motilal Oswal. Please go ahead.

Tushar Manudhane — Motilal Oswal Financial Services Ltd. — Analyst

Yeah. Thanks for the opportunity, and congrats on good set of numbers. Sir, on PSU tariff revision, will that — I mean, how much of the spread would get reduced in terms of EBITDA per bed with this price hike compared to, say, non-PSU or non-institutional patient EBITDA per bed.

Abhay Soi — Chairman and Managing Director

[Foreign Speech] EBITDA per bed.

Tushar Manudhane — Motilal Oswal Financial Services Ltd. — Analyst

No. The perspective here was that we are already in the hospitals where we are already running up at a very high occupancy. So that way, we have a choice in terms of selecting the patient or distilling the patient, as you pointed in your commentary. So just trying to understand, we’ve been sufficient enough to reduce that spread for EBITDA per bed through the patient payer mix?

Abhay Soi — Chairman and Managing Director

No, it will not. Answer is it will not. But what happens is that, look, if tomorrow, I want to switch off 100 beds right? Yesterday, I only needed to fill hundreds of PSU beds. Yesterday, I only needed to fill 40 of those beds to breakeven to make back the money that I’m losing by switching off 100. So, I get 60 more beds to sort of distill. Now the number from 40 is going to, let say, 55. Okay, tomorrow, that number will go to 70 or 80.

So what happens is it becomes marginal. But does it get to the same amount? No. So yes, I think what you will do is your trajectory sort of changes, but directionally, you’re going the same direction, albeit you’re doing it without impacting. It was actually a more preferred sort of — obviously, you are taking a fiscal call basis that, look, it is going to be more accretive with the new numbers rather than less.

Tushar Manudhane — Motilal Oswal Financial Services Ltd. — Analyst

Understood. And if you could also clarify this. So this PSU tariff or PSU patient pool is — the proportion of PSU patient pool is higher in which hospitals or rather, which cluster of hospitals in Max Healthcare?

Abhay Soi — Chairman and Managing Director

We don’t normally give — so we don’t give hospital cluster data. You can understand the hospitals, which are more fuller, there the proportion would be lower and where it is less full, they would be having more. Higher occupancy, we’ve always moved away from that, right? The lower occupancy places is where, like Yogesh said where you have a higher amount of listing. So anywhere where occupancy is getting higher to 80%, 85%, you start moving away from this business, right? You start distilling it over there. You do the business where you have idle beds.

Tushar Manudhane — Motilal Oswal Financial Services Ltd. — Analyst

Understood. And sir, lastly on this Gurgaon thing. Is any more land coming up for auction? Because we’ve seen other hospitals also having some land parcel in this area. So, is there more area available for hospital expansion as such? Or this is more or less done from the government side?

Abhay Soi — Chairman and Managing Director

No. Look, I think it’s like a Bombay, Bombay, Bombay right? I think you can have Central Bombay, you can have some taste in Mumbai also [Phonetic]. If you look at Gurgaon, the question is Gurgaon extension, northern extension or the extension to the extension, etc., but where? But on the main Golf Course and the main this thing, etc., there is no land available.

Tushar Manudhane — Motilal Oswal Financial Services Ltd. — Analyst

I understood. So the intention to understand was within that particular area where the hospital space is supposed to be sort of premium. So in that space, there is no land parcel available?

Abhay Soi — Chairman and Managing Director

Not that we know of. Yeah.

Tushar Manudhane — Motilal Oswal Financial Services Ltd. — Analyst

Okay, sir. Thanks. That’s it from my side.

Operator

Thank you.

Abhay Soi — Chairman and Managing Director

Thank you.

Operator

We have our next question from the line of Raj Rishi from Dcpl. Please go ahead.

Raj Rishi — Dcpl — Analyst

Hi. Just wanted to find out, presently, obviously, the situation is great for you guys. How long do you think this supply won’t come in looking at the present fantastic scenario?

Abhay Soi — Chairman and Managing Director

Sorry. Which supply?

Raj Rishi — Dcpl — Analyst

Like right now, the demand-supply gap is huge, right? That’s why our occupancy is what it is. So whenever the situation is so robust, obviously, new supply is going to come in, in various geographies. So how do you [Speech Overlap].

Abhay Soi — Chairman and Managing Director

Not necessarily. I mean, no new hospitals come up in Mumbai 20 years, right, because there’s no land available. No new hospitals come up in Delhi for 12 years. Maybe one, okay. Because no land is available. How do we get land in these metros? And land at viable costs, right? Because if you want to buy — you have to understand, there is a height limit of 45 meters when you set up a hospital. So if you want to set up a 400-bed hospital, you need 4 to 5 acres of land, contiguous land. Where do you get in Delhi and Bombay?

Raj Rishi — Dcpl — Analyst

That’s right.

Abhay Soi — Chairman and Managing Director

That is like saying putting up hospitals — so, one of the biggest plus points that we have is that we have this land in our network, in our system.

Raj Rishi — Dcpl — Analyst

Okay. Okay. And Abhay, like — you had mentioned about medical tourism going up many times by 2030. So how do you see it? Like what is the size presently and where do you see it in 2030 for the sector, I’m asking?

Abhay Soi — Chairman and Managing Director

If you were saying 2030, I think we can — there is such a massive competitive advantage that we have in India. I mean, we are less than 5% of the cost of the U.S. We are less than 30% of Singapore. We are less than half of Thailand. I mean, it’s not like [Indecipherable] U.S. will start coming to India. But in my case, it’s the largest part of the world pyramid, okay. So the bottom is now sell space, right? And for them, affordability is an issue.

Raj Rishi — Dcpl — Analyst

Yeah. That’s true. And another thing [Speech Overlap].

Abhay Soi — Chairman and Managing Director

Competitive advantage — I mean, look, this should — this has a potential of surpassing the IT sector. That’s the amount of competitive advantage that we have. And no other country.

Raj Rishi — Dcpl — Analyst

Can you just repeat the last bit?

Abhay Soi — Chairman and Managing Director

Sorry?

Raj Rishi — Dcpl — Analyst

Just repeat the last bit. I didn’t get it. It has the potential to surpass the IT sector?

Abhay Soi — Chairman and Managing Director

Absolutely. I think because the competitive advantage that you hold in this, no other country even comes close. Whilst in IT, other countries, we come close. Here there’s nothing. I mean, the sheer volumes and complexities our doctors handles. What they do in a year, the west can do in a decade. Our skillsets are right up there. Our cost is a fraction of global costs. Aging population, rising cost, most governments going bankrupt. You see, this is going to be a — I mean this is going to be something else. We haven’t even — this is not even the tip of the iceberg right now.

Raj Rishi — Dcpl — Analyst

And Abhay, another thing, just a thought. Like generally, when private equity guys are so heavy on sector, it seems that it’s sort of topping out when smart guys like Emami or Manipal, they dilute and private equity guys buy, it’s just a thought, what are your comments on that?

Abhay Soi — Chairman and Managing Director

No, I don’t disagree. I think you had hospitals and hospital chains hang many times. So Manipal, I think has — this is the sixth or seventh private equity round that they’ve done in Manipal hospitals over the last 10 years, 12 years. If I look at — it’s not as if Max was in — of course, they would have bought Max, right? It’s not as if hospitals were not up for sale. Those transactions also happened in the past. I don’t think it’s a question of tapping out.

I think there is very clearly a multi-decadal opportunity, okay, to invest in this sector, okay, in India, which has never been actually — it’s much more true today, but it’s not something which was lost in the past either. Only difference was the biggest city. And I remember when we were listing the company in 2020. Most of you will bear this out, right? The biggest critique of this sector was the Indian health care sector is a great listing, but it’s a mirage. Because there are no free cash flows. How do you invest? You have to keep raising money and keep reinvesting.

We have INR1,281 crores free cash flow coming over INR1,630 crores at 80%, almost 80% of free cash flow. And we are seeing this. We have not raised any capital. My entire 2,900 beds, okay, is at a cost of INR4,500 crores. That shouldn’t even be 50% of our free cash flow over the next four years, five years. And it’s a debt-free balance sheet. Today, look, this is a compounding. There is a massive multi-decadal opportunity to invest, I think — and to create infrastructure. So PE in all sorts of funds are going to be coming in.

Raj Rishi — Dcpl — Analyst

Okay. Okay. And Abhay, just one last question. How do you see this asset-light model? How heavy can it be for you guys?

Abhay Soi — Chairman and Managing Director

Sorry. Just to understand one thing. A PE puts in money, okay, at valuations with and they need to underwrite — any private equity will need to underwrite a 20% to 25% IRR in dollar terms, okay, so only because they are seeing this opportunity. And I believe Manipal, for example, who has done this 50 times 2024 EBITDA. And those guys are expecting to do a 25% CAGR from there on dollar. I mean, on the contrary, I think when PEs come in, they see opportunity.

Raj Rishi — Dcpl — Analyst

Okay. Okay. Okay. Abhay, one last question about the asset-light model. How heavy can it be for you guys? Like are you thinking of increasing that part of the business?

Abhay Soi — Chairman and Managing Director

Well, it can be light, you mean. You mean asset-light business being heavy? I think quite early from that standpoint. And I think over the next couple of quarters, you will be coming across some announcements from us on this front. This is really the way for us to grow, particularly with any form of greenfields that we’re looking at. We don’t like to build on our own. We’d like to collaborate because it degrades the construction and the development risk particularly in geographies that we’re not currently present in. So, I think you’re going to see some of those come through now. But that’s going to be a big focus area for us. We have a 36% cash-on-cash ROC. So, we can afford 8% yield to developers.

Raj Rishi — Dcpl — Analyst

That’s right. Thanks a lot, Abhay. Thanks.

Abhay Soi — Chairman and Managing Director

Thank you.

Operator

Thank you. We have a next question from the line of Neha Manpuria from Bank of America. Please go ahead.

Neha Manpuria — Bank of America Merrill Lynch — Analyst

Thanks for taking my questions. Abhay, you mentioned improvement in specialty mix quite a few times. And if I were to look at the chart or the profile, obviously, there’s improvement in oncology, a little bit in neuro, cardiac. So are the beds that we are adding essentially focusing on doing more higher ARPOB work like adding more onco beds, etc.,? Or are we seeing the kind of work that we do within cardiac, within neuro itself increase that is improving this specialty mix. So how do I differentiate between the two?

Abhay Soi — Chairman and Managing Director

So okay, I think it’s a combination of the two, obviously. So first and foremost, if I look at capacity spreads, right, I mean, and you look at the overall ARPOB. Your ARPOB that you see of INR70,000 odd is a submission of ARPOB, right? Like when you see a occupancy of 77% is a summation of various. It’s a weighted average. It also means there may be some hospitals which is operating at 70% occupancy. There’s another one, which is operating at 90% occupancy.

Similarly, in ARPOB, okay, you’ll have certain departments, which are low ARPOB. You’ll have certain payer mix, which is lower ARPOB and yet you’re hitting listed capacity thresholds. Firstly, if you are hitting capacity thresholds, okay, you are going to look at expanding over there, okay? What you would seek is that, look, if today I am creating more capacity, okay, and if I was to take my lowest payer mix and my lowest ARPOB specialty, that’s really what I’m creating it for. Are you with me? Because any expansion that you’re doing is sort of serving the lowest common factor because that is what you’re doing it for. Otherwise, if you will not do the brownfield expansion, what you’re going to do is you are going to tap out, you are going to distill your payer mix and you are going to distill your clinical mix.

Neha Manpuria — Bank of America Merrill Lynch — Analyst

But it could also be — I’m asking this, okay, one is, let’s say, I’m adding more onco beds or I’m adding more OT or ICU beds because of the improvement in the clinical [Speech Overlap].

Abhay Soi — Chairman and Managing Director

What’s the onco bed? What’s the onco bed? There are lot of — this thing is fungible except for some decorous status that you have, but the beds are similar. I mean, for cardiac, for example, there may be some cath labs, but OTs are similar.

Neha Manpuria — Bank of America Merrill Lynch — Analyst

Correct.

Abhay Soi — Chairman and Managing Director

It’s sort of quite fungible within the hospitals. You have to understand that. Yes, I may segregate it and we may do some clinical programs. But the way I will value it, please understand this, right? I mean, if I have 100 beds, okay, of which, let’s say, 50% beds are very high ARPOB and 50 beds are low ARPOB and it’s fully occupied. When I look at creating another 50 beds, the way I calculate it is that, look, if I was to take my lowest ARPOB of 50 beds to put it over there, alternatively my opportunity is to just place the lower ARPOB out and occupy my current facility.

Neha Manpuria — Bank of America Merrill Lynch — Analyst

Correct. So essentially, that would mean you either add a new specialty or add doctors, which will allow you to remove that lower ARPOB work, right?

Abhay Soi — Chairman and Managing Director

No, no. You see — even if you don’t do that, there is a certain — a lot of that stuff is aspirational, right? But today, when you have a waiting list for three days or four days or two days or three days in your ER for patients, okay, you know this is an unsatiated demand at your door step. Let me take Shalimar Bagh case in point. Now I put up a onco block over there, right? But immediately, what happens is my oncology patients from my current facility or the pre-existing facility move into the new onco block, right?

Neha Manpuria — Bank of America Merrill Lynch — Analyst

Correct. Yeah.

Abhay Soi — Chairman and Managing Director

So what happens to the old block? Now my high ARPOB business may have worn out, but the lower ARPOB starts climbing in over there, right? So when I evaluate setting up the 100 beds, the new block, I have to evaluate vis-a-vis the low ARPOB business, not the high ARPOB business, although I may be doing it for the high ARPOB, Okay. But yes, what you see is without adding much doctors, etc., within the first month you breakeven and you hit a 40% EBITDA margin. And you have overall occupancy. And now this is what matters of this incremental facility as well as existing facility of the entire hospital of 83%. I mean, I’m not saying 83% of the new 100 beds. I’m saying 83% of the 300 beds.

Neha Manpuria — Bank of America Merrill Lynch — Analyst

Sir, the reason why I’m asking this is, for example, we added the new onco block. So that’s not necessarily increasing my entire onco contribution quarter-on-quarter. It could just be moving patients to the new block to unlock to sort of free capacity to move up?

Abhay Soi — Chairman and Managing Director

And there is some increase, but really, it’s not a jump increase, which happens when you open a new block.

Neha Manpuria — Bank of America Merrill Lynch — Analyst

Got it. Got it. Okay. Got it. Understood. Okay. Thank you.

Abhay Soi — Chairman and Managing Director

The overall business is — of course, the new onco block will have a disproportionate increase, right, in oncology. But it’s not as if other services are not increasing.

Neha Manpuria — Bank of America Merrill Lynch — Analyst

Okay. Understood.

Abhay Soi — Chairman and Managing Director

Let me put it this way. When the facility had changed, let’s say, a hospital of mine has 50% PSU business and 50% distill, and running at full capacity. When the question comes about expanding over there, okay, when a note is put up, let’s expand, my first question is who are you expanding for? Are you expanding for PSU, right? Because alternatively, you should be distilling the PSU.

Neha Manpuria — Bank of America Merrill Lynch — Analyst

Correct. Yeah.

Abhay Soi — Chairman and Managing Director

So that expansion, whatever specialty goes there is relevant. You’ve obviously put up facility with the highest ARPOB, which can sort of — which will be more accretive. But have you evaluated looking at the lowest opportunity? So Neha, basically, the ARPOBs are fast on both fronts. One is that within the specialty, they have to — they have to work on increasing the quantum of procedures, which are high-teen procedures, number one. And they are also supposed to allocate more beds and fill up more beds for high ARPOB specialty, right? So both can play and that’s what the hospitals job is, right?

Neha Manpuria — Bank of America Merrill Lynch — Analyst

Okay. And is there any way for us to sort of segregate as to how much of our ARPOB increases come, let’s say, from an improvement in specialty mix versus other factors?

Abhay Soi — Chairman and Managing Director

I can tell you for the quarter four. Let’s say the quarter four increases 5%. Around 2% is because of the procedures within the specialty. That means with the same number of beds for each specialty, the specialty ARPOB has gone up and around 2% is because of relative change in the OPDs to the specialty, right? So the occupancy contains of oncology and cardiology, etc., has gone up, which means that they are high ARPOB specialties. So the mix has changed on the beds. That’s 2% beds. 2% beds is within the specialty, the ARPOB has gone up overall, I’m talking about. Yeah.

Neha Manpuria — Bank of America Merrill Lynch — Analyst

Okay. Understood. Okay. The entire quarter-on-quarter increase?

Abhay Soi — Chairman and Managing Director

Yes. 5% increase. 2% is from here. 2% is from there.

Neha Manpuria — Bank of America Merrill Lynch — Analyst

Got it. Thank you so much.

Operator

Thank you. We have our next question from the line of Amit Dhavani [Phonetic], an Individual Investor. Please go ahead.

Amit Dhavani — Private Investor — Analyst

Hi. Thank you for taking my question. My first question is, can you tell me what’s the price increase that we have got in by the PSUs?

Abhay Soi — Chairman and Managing Director

70% on 12% of the [Speech Overlap].

Yogesh Sareen — Chief Financial Officer

So Amit, there are four elements on the price — on the PSU prices on fees. One is on the ICU beds charge. Other is the normal bed, D-wall bed charge. Second is the IT — this is the IT consult. Fourth is the OPD consult, right? So OPD consult has gone up from 150 to 350, IPD from 300 to 350. Other than that, those are price changes. So overall, average if I take, it’s a 70% price hike we got. This is after nine years, right? This hike in price was last done in 2014, right.

Now the point is that this is only a small quantum of three line items, which are built for the patients in the PSU. So, we do expect that there will be further prices increases by the government because if the room rent prices increased, that means that the room rent, which is part of packages will also go up, right? Let’s say, heart surgery, there are 12 days stay and there’s a package charge that we charge to the [Indecipherable] patient, that should also go up, right? So that — so government is, I would say, the CGHS authorities — I have put up a note to finance ministry, etc., so we expect that there should be a decision on that by July.

Amit Dhavani — Private Investor — Analyst

So just try to understand, the institutional business is 20% of our sales. So how much [Speech Overlap]

Yogesh Sareen — Chief Financial Officer

In bed share. Understand. Bed share is 29%, revenue 17%, right? 17% of revenue. 12% of that 17% will go up by 70%. So, that’s a net impact of 4% to 5% on the institutional part.

Amit Dhavani — Private Investor — Analyst

Okay. That’s fantastic. That’s fantastic. My second question is the digital revenue is about 18% of our overall sales. Just trying to get a sense of what the margins on that digital revenue are. Is it higher than the overall margin of the company? Or is it lower?

Abhay Soi — Chairman and Managing Director

No, no. It’s just a channel. It’s a channel. People need to call up earlier. People will come to hospitals walking. Then they need to call up call centers. Now they choose the delivery platform. They’re booking. Your margins doesn’t change. You can go into customer acquisition cost and advertising, etc., etc., but doesn’t mean this year.

Amit Dhavani — Private Investor — Analyst

No. So the press release said digital revenue from online marketing activities.

Abhay Soi — Chairman and Managing Director

That’s right. Digital revenues means — no, it’s digital booking. I mean, it’s your basically your — if you book a liver transplant, okay, through this thing, then that is a digital revenue. If you come on the website and then the — we track the patient footfall on the website and then we see conversions in there. So if there are conversions from the website, that is counted as a digital revenue.

Amit Dhavani — Private Investor — Analyst

Got it. Got it. Got it. My last question is on the contribution of ALOS to ARPOB. We saw the ALOS go up this quarter. So can you [Speech Overlap].

Abhay Soi — Chairman and Managing Director

Look, ALOS is meaningless, right? I mean, a hospital, which does more complex surgeries will have a longer ALOS. Say, if I do a bone marrow transplant, then ALOS is 20 days. If I have a liver transplant — and that’s the business you want actually, the ALOS is longer than doing non-surgical work. When you do more surgeries, you have more ALOS. But all of it plays out in ARPOB. Eventually, what is it that you have? You have inventory, right? And you want to earn the maximum in a day from there. All is based on the ARPOB. No point having a very, very short ALOS and having a lower ARPOB. You’d rather have a higher ARPOB.

Amit Dhavani — Private Investor — Analyst

Got it. Got it. Got it.

Abhay Soi — Chairman and Managing Director

Because they are into days in a year, okay. What you want is the higher amount of revenue from each of the days.

Amit Dhavani — Private Investor — Analyst

Perfect. Perfect. Got it. Thank you so much, Abhay. Thank you so much.

Abhay Soi — Chairman and Managing Director

Thank you.

Operator

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

Alankar Garude — Kotak Securities — Analyst

Yeah. Hi. Good morning, everyone. Abhay, assuming the Care acquisition does not go through, can you help us understand whether there are any meaningful acquisition opportunities of hospital chains left in India, which fit your criteria?

Abhay Soi — Chairman and Managing Director

There is 20.

Alankar Garude — Kotak Securities — Analyst

And we don’t have any preference on geography, right? Just the criteria which you have of two players being successful and you preferring a cluster approach?

Abhay Soi — Chairman and Managing Director

That’s right. I mean, a little more sort of less casual. We’ve worked out a list of about 20, 21 cities. So that’s pretty much. Yes. But that is the important criteria. What we find is, at the umbrella level, if a couple of listing goes up places which typically will have the demand supply, doctors, etc. So, we feel comfortable over there. I mean, I’m putting it very simplistically by saying at least two or three of my competitors have proven viability. But yeah, in each one of these cases, this is what I find common. Which profile that we want to take, we typically don’t like to — we’re not pioneers. We don’t like to go to unchartered territories.

Alankar Garude — Kotak Securities — Analyst

Fair enough. And the other thing is, would it be fair to assume that most of these would be standalone assets now? Or if at all, just two, three hospitals per chain? Or there are still, say, chains operating five, 10 facilities across India, which are on the block right now?

Abhay Soi — Chairman and Managing Director

I think there’s plenty of conversations and you are all going to see consolidation. See, firstly, consolidation happen because there’s a requirement for those conversations, right? I mean, in case of Max Healthcare, you’ve seen INR1,630 crores of EBITDA translating into INR1,280 crores of free cash flow, okay? Now if you have an EBITDA typically of company and most midsized players that you would see have a INR500 crores to INR600 crores EBITDA. And their EBITDA translates to a INR200 crores to INR300 crores free cash flow at best. This is pre-Ind-AS post maintenance capex, post any increase in working capital and taxes. Now, this is a capital-intensive sector. If you have INR200 crores to INR250 crores [Phonetic], okay, you can build one 500-bed hospital every four years. That’s all you can do. One hospital every four years. And if you’re a listed company or unlisted, where do you go from there?

Alankar Garude — Kotak Securities — Analyst

Understood. So yeah, I mean my question was more from some of our peers, especially the unlisted peers being quite aggressive on the M&A front and also private equity interest in the space continues to remain quite high.

Abhay Soi — Chairman and Managing Director

Look, I’ll tell you something. There will always be people doing full variance, okay, and outbidding or whatever. What is it that we look at? Our criteria is very simple, okay? I want to look at a 20% ROCE three years or four years down the line, or four years or five years down the line. If we have a clear line of sight and visibility of that ROCE, okay, we will come in. Now a PE fund typically will be getting excited at the multiples that they’re paying. But our ability to underwrite the EBITDA of a business case, okay, four years down the line, five years down the line is much more pronounced, okay, than a PE.

I mean, for us to underwrite, let’s say, in a situation where we believe 2 times or 3 times or 3.5 times of EBITDA, okay, is very possible three years or four years down the line. For a PE to sort of underwrite that, it gets very difficult. Because when there is higher multiple, so the amount we are willing to pay at the outside, okay, is a derivative of that of where I believe I can take the business four years down the line. Do keep in mind, okay, our EBITDA per bed is the highest in the industry, you know that, by 50%, 55%. A PE can’t underwrite my case. He has to underwrite the industry case.

Alankar Garude — Kotak Securities — Analyst

Fair enough. Understood. And the second one is more of a quick clarification. So is it now fair to assume that while we may not reach that 15% institutional volume mix number by March ’24, but given that we are operating at high occupancies, the institutional volume mix will still gradually keep on coming down?

Abhay Soi — Chairman and Managing Director

No, it will come down, the returns. We’ve done a bit of a pause, like I said, because we’re expecting some increments, although it is coming down, okay? We’ve also found more capacity. We have more last minute decisions [Phonetic] in operations. The price is moving up. So look, it’s not going to be — but yes, your trend is going to keep sort of reducing over there because eventually, it’s finite, right? I can suffer that higher price for some time, but it’s still not the same in my CTI business.

Alankar Garude — Kotak Securities — Analyst

Fair enough. Great. So thanks and all the best.

Abhay Soi — Chairman and Managing Director

Thank you so much.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comments. Over to you, sir.

Abhay Soi — Chairman and Managing Director

Thank you so much for being on the call. I think this has been a seminal year for us on many, many counts. And we are happy to have most of you as our investors. And the rest of you, we look forward to them joining our cap table. So thank you very much.

Operator

[Operator Closing Remarks]