Shalby Ltd (SHALBY) Q3 FY21 Earnings Concall Transcript

Shalby Ltd  (NSE:SHALBY) Q3 FY21 earnings concall dated Jan. 11, 2021.

Corporate Participants:

Param Desai — Vice President, Elara Securities Private Limited

Mahesh Purohit — Corporate Strategy and Investor Relations

Shanay Shah — President

Prahlad Inani — Chief Financial Officer

Muraarie Rajan — Principal Advisor

Analysts:

Swechha Jain — ANS Wealth — Analyst

Pushkar Jain — Sequent Investment — Analyst

Vikram Shah — Chairman and Managing Director

Sabyasachi Mukerji — Centrum PMS — Analyst

Tushar Sarda — Athena Investments — Analyst

Mitesh Shah — ICICI Securities — Analyst

Ankit Pandya — Elara Capital — Analyst

Nishita Shukla — Group Chief Operating Officer

Ashish Thakkar — Motilal Oswal PMS — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Shalby Q3 FY’21 Earnings Call, hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Param Desai from Elara Securities Private Limited. Thank you, and over to you, sir.

Param Desai — Vice President, Elara Securities Private Limited

Thank you, Mallika. Good afternoon to all the participants in the Shalby Limited Q3 FY’21 earnings call, hosted by Elara Securities. Today, we have with us from the Shalby Management are Dr. Vikram Shah, our Chairman and Managing Director; Mr. Shanay Shah, the President; Dr. Nishita Shukla, Group COO; Mr. Prahlad Inani, CFO; Mr. Muraarie, our Principal Advisor to the CMD and other senior management from the Shalby.

I will hand over the call to Mr. Mahesh Purohit, who is a part of the Corporate Strategy and IR team. Over to you, Mahesh.

Mahesh Purohit — Corporate Strategy and Investor Relations

Thank you, Param. Good afternoon, everyone. Our earnings presentation is uploaded on the stock exchange website and our Company website shalby.org. We do hope you have already had the opportunity to go through the presentation.

Please note that some of the statements made in today’s call may be forward-looking in nature and may involve risks and uncertainties. Kindly refer to Slide number 23 of the earnings presentation for a detailed disclaimer.

Now, I would like to hand over the call to Mr. Shanay Shah, President, for his opening remarks. Thank you, and over to you, sir.

Shanay Shah — President

Thank you, Mahesh. Good afternoon, everyone and Happy New Year to each and everyone of you. A warm welcome to the earnings call of third quarter FY’21.

I am pleased to announce that the Company has recorded the highest-ever revenues and EBITDA in the Company’s history amongst such challenging times. During the quarter we saw beginning of normalization of the overall economic and business activity as the society develops a much better sense of how to deal with the pandemic in a more effective manner.

In Q3 FY’21, we continue to deliver sequential improvement in key financial and operational performance indicators for the Company. On a standalone basis, our total income for the quarter was INR1,317 million, registering a robust growth of 17.8% on a quarter-on-quarter basis, which is in line with the expectations. All our hospitals have contributed positively to the EBITDA and we expect this trend to continue going forward. The quarter growth was supported by both increase in elective surgeries performed and treatment of COVID-19 patients. Around 2,700 COVID patients were treated during the quarter. For the month of December ’21, around 616 COVID patients were treated out of the 2,700, contributing to only 13% to the bed occupancy, signaling a rapid decline of COVID work and substantial growth in the non-COVID and surgical counts.

Total number of surgeries performed were 3,082, a sequential growth from the previous quarter. During the quarter, share of arthroplasty surgeries to total surgeries count increased to 34% as compared to 27% in the previous quarter. Recovery in elective surgeries will be rapid as patients are no more postponing their surgeries and the backlog over the last nine months is quite significant.

Patient footfall has also increased on a quarter-on-quarter basis. Inpatients count was at 8,945, an increase of 18.1% on a quarter-on-quarter basis. Daycare patients was flat and outpatients at 68,310, showed an increase of 20.3%, compared to the previous quarter. We continued to see increase in bed occupancy levels. In Q3 FY’21, occupancy stood at 537 beds as compared to 456 beds in Q3 FY’20 and 489 beds in the previous quarter, driven by an increase in both of COVID-19 patients, as well as elective surgeries.

From the technology advancement point of view, our senior management remains fully committed in delivering highest quality of healthcare services with the use of the latest technology. Recently in one of our main hospitals, SG Shalby became the first hospital in Gujarat to use image intensified television in spine and orthopedic surgery. Furthermore, at our Mohali unit, we have recently collaborated with a renowned orthopedic surgeon, Dr. Manuj Wadhwa, to enhance our arthroplasty business over there. Overall, we have been taking various strategic initiatives at each hospital level to drive operational efficiency and occupancy level.

Now, moving onto our recent initiatives, I would like to update you that our Homecare services and Care Card are receiving good traction among patients, especially COVID-19 patients due to high-quality and cost-effective solutions. Development of franchisee business model is definitely one of our top strategic priority. However, the rollover is slightly delayed due to the ongoing pandemic. We have also set up a sizable in-house L&D team and focus of the team lies towards building people capability by ensuring continuous focus on patient care.

On the information technology front, we are also making great strides. We have recently concluded the SRIT, the new Hospital Information System implementation across all our units. Upcoming IT projects include, but are not limited to, the Jackpot [Phonetic], the CRM, a new call center, a brand-new website and a mobile app, as well as the implementation of SAP.

Now, I will hand over the call to Mr. Prahlad Inani, our CFO, to comment on the financial performance.

Prahlad Inani — Chief Financial Officer

Thank you, Shanay, and good afternoon, everyone. I’ll brief financial performance and key indicator of the Company for the third quarter as against [Phonetic] comparisons on both quarter-on-quarter, that is sequential basis, and also, on year-on-year basis, to present holistic assessment of Company’s performance.

On a standalone basis, the Company registered total revenue of INR1,317 million in Q3 FY’21, compared to INR1,118 million in the previous quarter, a growth of 17.8% quarter-on-quarter, and INR1,232 million in the same quarter last year, growth of 6.9% Y-o-Y — year-on-year.

The third quarter is usually subdued part of the fiscal year due to various holidays and festive seasons falling in this period. Yes, we were able to deliver growth on the — on both Y-o-Y and Q-o-Q basis. This growth was supported by increase in patient footfall, number of surgeries and higher bed occupancy level.

EBITDA for the quarter, as already mentioned by Shanay, that it is the highest-ever EBITDA in the history of Company, which is INR323 million, compared to INR314 million in the previous quarter and INR243 million in the same quarter last year. EBITDA margin were 24.5% compared to 28% in FY’21 — Q2 FY’21 and 19.7% in Q3 FY’20. The year-on-year margin improvement was due to higher occupancy from COVID-19 patients having lower uses of material and consumables. As the number of elective surgery increases, we’ve also seen an increase in the cost returning to the average level.

Net profit was INR163 million for the quarter, compared to INR242 million in the previous quarter, and INR83 million in the same quarter last year. PAT margin for the quarter stood at 12.4% as compared to 21.6% in Q2 FY’21 and 6.7% in Q3 FY’20. So it should be noted that there is a tax reversal in Q2 FY’21 while we file our tax return, and due to specified and non-specified that business categorization, which resulted in higher PAT margin during that period.

Our average occupancy rate was 45% with 537 beds occupied, which is also the highest-ever occupancy in this quarter or even till today. ARPOB was INR26,660 in the quarter and our annual average length of stay for the quarter stood 5.52 days, compared to 5.94 days in previous quarter. ALOS declined marginally due to change in the surgery mix as number of arthroplasty surgeries which require comparatively less time — less hospitalization time.

We continue to maintain a strong balance sheet with net cash of INR598 million at the end of December 2020.

Thank you very much. We can now open for the call to any questions you may have.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Swechha Jain from ANS Wealth. Please go ahead.

Swechha Jain — ANS Wealth — Analyst

Hi, sir. Thank you for giving this opportunity to me. I have couple of questions. Sir, first was with respect to the Asha Parekh Hospital. I think we are planning to do a capex of close to INR200 crores in that hospital. And also, there is some capex lined up for the set up in Nashik. So, can you throw some light as to how do we plan to raise funds for both these structures, sir?

Shanay Shah — President

Sure. Thank you. See, the thing is, I’d like to make a small correction there, we are looking at spending around INR150 crores in the Asha Parekh Hospital and another INR30 crores are basically put aside for the Nashik Hospital, right? As our CFO mentioned in the call earlier, we are sitting on INR60 crores of cash reserves as we talk, as of 31 December. And over and above that, we believe that because this investment will be in a stage wise manner, we will be able to fulfill most of the requirements through our internal accruals only.

Swechha Jain — ANS Wealth — Analyst

Okay. Okay. So, we don’t plan to take any debt for this?

Shanay Shah — President

It seems like it won’t be required with the way things are going on.

Swechha Jain — ANS Wealth — Analyst

Okay. Okay. And, sir, I think there is a revenue-sharing model with respect to Asha Parekh Hospital. So, can you share some more details about it, sir?

Shanay Shah — President

So basically, it is — we have signed an agreement. So, all our revenue share arrangements are such where there are — there it is a pure revenue share and there is no minimum guarantee payments that are required to our partners. So, most of the agreements are very low-single-digit numbers. So, across the hospitals, they are all lower single-digit numbers.

Swechha Jain — ANS Wealth — Analyst

Okay. Okay. Okay. Thank you, sir. That helps. Sir, another question I had was, can you throw — can you give us some guidance or some light on where are we with respect to reducing our promoter holding, sir?

Shanay Shah — President

So, we have received all the necessary approvals that are required to be taken from the Board. So, we are good to go with that. And we have also basically — the documents are also ready from the Company’s perspective, even the investment banker is on board. And whenever there is additional information, we will be reporting the same.

Swechha Jain — ANS Wealth — Analyst

Okay. And, sir, I have last question, then I’ll join back the queue, sir. Sir, on a Y-o-Y basis, if I look at the numbers for a daycare patient in OPD surgeries and ARPOB, all have reduced to a certain level. So, how do you see this trend going forward and could you throw some light on this, sir?

Shanay Shah — President

See, the daycare patients saw the lowest dip even during the quarter one and quarter two compared to some of the other works because most of it is very essential work that has to be done, like chemotherapy or the dialysis or something like that. So, essentially, what we have seen is that, we are at 90% levels compared to pre-COVID. So, compared to last year, we are at 90% already, so the dip has not been big compared to last year. So, even if you look at our quarter two, the previous quarter, we have done the same numbers as quarter three.

Swechha Jain — ANS Wealth — Analyst

Okay. Okay. Okay. And, sir, now most of our hospitals, like how many hospitals are dedicatedly taking COVID patients?

Shanay Shah — President

See, all our hospitals, except SG Highway, the main hospitals are taking COVID patients. However, as I mentioned earlier, the number of COVID patients that are admitted, as we talk, are not even 5% of the occupancy that we are having. So, basically, it is a very negligible number. So, we have reduced the number of COVID allocated beds, the reason being that the emergency footfall that has been coming to the hospitals in Q3 has been significantly higher, three or four times compared to quarter one and quarter two. And hence, all of these patients or most of them, in fact, require intensive care unit facilities. So, which is the reason why we’ve had to convert them.

Swechha Jain — ANS Wealth — Analyst

Okay. Okay. Thank you, sir. Sir, I’ll just join back the queue. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Divyansh Kalra from Perpetuity Ventures. Please go ahead. Mr. Kalra, your line is unmuted. Please go ahead with your question. Mr. Karla, I would request you to unmute yourself, if muted from the handset.

Shanay Shah — President

Can we request him to come back in the queue? And can we move on to the next question?

Operator

The next question is from the line of Pushkar Jain from Sequent Investment. Please go ahead.

Pushkar Jain — Sequent Investment — Analyst

Hi, sir. This is Pushkar Jain. So, my question is regarding, because of COVID, is there any shift from Tier-2, Tier-3 hospitals to branded hospitals like yourself as patients are more aware about the healthcare facilities and stuff like that? Any visible trend as such?

Shanay Shah — President

So, I’ll tell you what, most of — if you talk about Gujarat and if you take out Ahmedabad, Surat, Rajkot and probably Vadodara, the number of ventilators and the number of BiPAP machines across other districts are not sufficient for that particular population. So, your — what you said is absolutely true, that during the pandemic we treated a lot of patients from across Gujarat, Madhya Pradesh, Rajasthan, as well as Punjab from the other towns over there. And because of which it has given us a good branding across these five states where we have operated in.

Pushkar Jain — Sequent Investment — Analyst

Okay. Okay, sir. Thanks. Thanks a lot.

Operator

Thank you. [Operator Instructions] The next question is from the line of Swechha Jain from ANS Wealth. Please go ahead.

Swechha Jain — ANS Wealth — Analyst

Hi, sir. Just a couple of follow-up questions. Sir, can you give us a breakup of surgeries and OPD patients for nine-month FY’21 and nine-month FY’20? If I can have that figure?

Shanay Shah — President

Sure.

Prahlad Inani — Chief Financial Officer

So, yeah, we can just give that. Nine-month totally…

Shanay Shah — President

So, I think what we will do is, we will take this question offline.

Swechha Jain — ANS Wealth — Analyst

Sure. Okay, sir. Sir, and the second follow-up I had was, if you could give me a breakup of occupancy rate, if it is possible, between the COVID-19 and elective surgeries for nine-month? I know you said for Q3, I mean, currently it’s just 5% — less than 5% is occupied by COVID. But if I can have that breakup of 45%, which is for Q3, and if you could give me the same breakup for nine-month FY’21, sir?

Shanay Shah — President

See, quarter three it has been 65% non-COVID, 35% COVID, okay? And in terms of quarter two, it has been 55% non-COVID and 45% COVID.

Swechha Jain — ANS Wealth — Analyst

Okay. Okay. Okay. And, obviously, as we go ahead this will increase, right? I mean, non-COVID will definitely go up?

Shanay Shah — President

Non-COVID will increase, non-COVID — and quarter one we did not treat a lot of COVID patients. I mean, we did, but compared to quarter two and quarter three, the numbers were very small.

Swechha Jain — ANS Wealth — Analyst

Okay. Okay. And, sir, you mentioned in…

Shanay Shah — President

As I was saying, in the ongoing quarter, the COVID percentage of beds are, I would say, 4% or 5%, so that is very, very small compared to Q2 and Q3. And more importantly the absolute occupancy has been more than the entire year of FY’20. So, you can just imagine that some of this backlog that was created over the last nine months has started coming back in a big.

Swechha Jain — ANS Wealth — Analyst

Right. Right. Right, sir. Sir, and also in your commentary, you mentioned that there is — people are really not fearing now and they’re coming back for surgeries and there is lot of backlog. So, sir, do you see the proportion of pent-up demand being huge or do you see — like, how do you see the trend for next — you just have to — if you can share something, how do you see the trend for next two, three quarters? Do you think it’s going to be lot of pent-up demand or do you think the proportion of business as usual is going to be higher as compared to the pent-up demand?

Shanay Shah — President

See, what is going to happen over time is that, you will see that the backlog that was created over nine months will be well spread out over the next six months to nine months. So, you will see significant growth from the previous year, as well as the year before that in the ongoing year.

The other thing is, most of this influx will be driven by the fact that everything is opening up, flights have started, the railway system has opened up and a huge portion of our revenues used to come from the patients who are not living in the same town where our hospital is. So, now all these patients will be traveling, will be coming and availing the treatments.

Swechha Jain — ANS Wealth — Analyst

Right, sir. Right, sir. Sir, and one last question if I may ask. Sir, we had a Senior Doctor, Dr. Ranjit Singh. I believe he is no more associated with the organization. So, can you just let us know did he leave? Like, when did he move on from our organization and with which hospital he was associated? And do you see a impact of this?

Shanay Shah — President

So, he was not — the doctor that you mentioned was not kind of contributing a big deal to our top line. And what we have done is, as I mentioned in my commentary earlier, Dr. Manuj Wadhwa has joined us. And he basically — I just want to give you an idea that he is among the top five orthopedic surgeons in the country in terms of volume. So, the Mohali unit will be benefited by this in a very big way.

Swechha Jain — ANS Wealth — Analyst

Right. Right. Right. And, sir, can I ask one, like, final question, if it is okay?

Shanay Shah — President

Sure.

Swechha Jain — ANS Wealth — Analyst

Okay. There was a reading somewhere that in terms of technology, the knee replacement is happening more towards computer-navigated kind of a program, I think through robotics and all. Sir, how do you see this overall industry shaping up? Where do we see ourselves in this entire gambit of play?

Shanay Shah — President

That’s a good question. We have Dr. Vikram Shah with us also, so he’ll answer this.

Swechha Jain — ANS Wealth — Analyst

Yes, yes.

Vikram Shah — Chairman and Managing Director

Yeah. Good afternoon, everybody. Probably you might be aware that I am the pioneer of knee surgeries, hip surgeries in this part of the world, and we do highest number of joint replacement in entire world. And as far as computer navigation is concerned in the joint replacement surgery, it is a definite marketing tool and it has not reached to the level that it can surpass the surgeon’s skill. But in the coming time, in five to 10 years’ time, there will be some aid by artificial intelligence and actually, which we are — we have started to work on that and we will be again pioneering that. The present tools available are nothing more than marketing tools.

Swechha Jain — ANS Wealth — Analyst

Okay. Okay. Okay. Okay. Thank you, sir. So, that’s helps a lot. Thank you.

Operator

Thank you. The next question is from the line of Sabyasachi Mukerji from Centrum PMS. Please go ahead.

Sabyasachi Mukerji — Centrum PMS — Analyst

Yeah. Hi. Well, good afternoon. Thanks for the opportunity. I have a very basic question. When I see the Y-o-Y numbers, I think one of the earlier participants also asked, but I’m not very clear on this. Your inpatient count, daycare patient count, outpatient count, surgeries, ARPOB, everything has saw a decline on a Y-o-Y basis. But, I mean, your revenues and EBITDA, both — I mean, EBITDA margin as well has seen a jump on Y-o-Y basis. So, is it fair to assume that or fair to conclude that, my COVID ARPOB is little lower, that is what pulling the blended ARPOB down? But I earn higher margins when I treat a COVID patient, that is why my margins are better? Is it a correct understanding?

Shanay Shah — President

Yeah. So, I’ll tell you, essentially what you have noticed is right, but on the other hand, the ALOS is up by 30% compared to last year, right? So it was 4.3 last year and it is 5.5 in the ongoing year, right? So, essentially, which is why you see an increase in revenue, because even though the IP count has gone down slightly and ARPOB is also lower slightly, even then the revenue has gone up and that is largely due to the average length of stay, which is 30% higher.

Now, what you mentioned is right, that the COVID patients generally give you a much higher EBITDA and the ARPOBs are generally lower. So, which is why if you see the Q2, ARPOB was INR24,000, where the COVID contribution was about 50%. Now, when the COVID contribution is 35% in Q3, you are seeing an ARPOB of INR26,700, right? And as we basically see this COVID revenue coming down, we’ll continue to see the ARPOBs going up significantly, inching towards INR30,000. And you will see that the EBITDA margins from 28-odd-percent will basically consolidate at around 24%, 25%.

Sabyasachi Mukerji — Centrum PMS — Analyst

Okay. Okay. That’s helpful. Secondly, on — maybe this is just a bit understanding of your operations actually. So, I’m seeing your — when I look at the hospital business update with revenue contribution and number of beds occupancy that in this presentation that you mentioned. So, I see very — I mean, there are number of hospitals where the occupancy level is somewhere between 30%, 40% or 45%. In spite of they are into operations probably in five years, some are eight years. But, I mean, still they are into 45%, 46% kind of occupancy level, which is lower than the industry standard as far as my understanding goes. What am I missing here? I mean, why so much — so low occupancy level?

Shanay Shah — President

So, I think, first of all, all the hospitals have their own way of calculating the occupancy, number one. The other thing which is important to note is that, all the hospitals if you look at it, the majority wise beds as a percentage to total beds are different. We are one of the, I would say, youngest hospital group where about 1,000 beds out of the 2,000 have been added only three years back, right? And we all know that the gestation period of hospitals is typically longer, which takes around six years to seven years easily.

The other thing is that, the occupancy that you see is a night time occupancy. And generally, it should be seen as 20% higher because you have daycare patients who are getting treated during the day and then being — then they are allowed to leave by the end of the day. So that doesn’t get captured in the occupancy.

The other thing is, very important, which is the seasonal effects. There are times, because most of the corporate hospitals rely a lot on quaternary and tertiary care operation and because of which all of these can be planned, because most of them are elective. And because of this, also there are seasonal effects because of which the numbers go down. Having said that, I think we see this as an opportunity and we see this as an opportunity that we have such a big leeway to grow over the next three years to four years. What are we doing differently to ramp up this occupancy is something very important. So, we are now, as I mentioned in my call earlier, that we are now attaching ourselves to top consultants across all the different specialties over and above the full-time doctors who are already operating at the hospitals. So, this is going to drive the occupancy going forward from now.

Sabyasachi Mukerji — Centrum PMS — Analyst

Okay. Okay. Yeah. I mean, I kind of sense that probably from a longer-term outlook I was about to ask you that I wanted to understand that probably we have around 2,000 beds and 1,200 of that is operational and we have occupancy — I mean, occupied beds of 500 approx. So, there is — and we have done the capex. I mean, the major chunk of the capex is behind us, only two hospitals, roughly it’s probably INR150 crores plus INR30 crores, INR180 crores is there. So, major chunk of the capex is being done. I sense that a large amount of operating leverage is sitting idle, which will probably come into effect when we kind of ramp up all these hospital beds. So, to that point, my question here is, when do we kind of see this occupancy number to move somewhere between 60% to 65% of the total beds? How much will it take time and what kind of stable operating margin you are looking at on a blended basis?

Shanay Shah — President

See, across corporate hospitals in India, you will generally see a double-digit growth every year. Shalby has always been one of the highest EBITDA generators. So, we have the highest EBITDA margins in the industry, number one. The other important factor here is that, as I said, we are taking various initiatives to ramp up this current occupancy. So, I think it would be safe to assume that we will continue to grow at 15%, 20% year-on-year for next four years to five years. And this is without any additional capex that will be required because, of course, we already have the capacity to grow at that level.

Sabyasachi Mukerji — Centrum PMS — Analyst

And 24% margin would be fair to, I mean, factoring in my estimates for the stable long-term?

Shanay Shah — President

Yes, yes.

Sabyasachi Mukerji — Centrum PMS — Analyst

Thank you. Thank you so much. That’s all from my side.

Operator

Thank you. The next question is from the line of Tushar Sarda from Athena Investments. Please go ahead.

Tushar Sarda — Athena Investments — Analyst

Yes. Thank you for the opportunity. My question was on actually similar line to the previous participant and you have given a very detailed answer. So, I just want to know what is the return on capital employed in these hospitals which are in smaller towns, like Indore, Jabalpur or the one coming up in Nashik, Surat, Vapi, because the occupancies are low, contribution to revenue is low? So how much money we would have invested in this? And what is that return that we are earning on these hospitals?

Shanay Shah — President

See, at a Group level, we have shown you in the Investor Presentation where we stand in terms of ROCE, right? And essentially, I think what is important to note there is that, there was a major capital infusion into the Company in 2017, and which is why after that you see a dip in the ROCE. However, they are still at about 7-odd-percent in the last two years. The way we see things, we believe that we will quickly go on to double-digit ROCE numbers in FY’22 and further grow from there.

So, I think one thing needs to be appreciated that, even though, we are basically a cash-rich Company and even though we have, as I said, come out with good results over the last few years, we have not made any major addition over the last three years into our capacity, reason being that we do know that any additional capex will bring down the ROCE numbers. So, our focus will remain towards driving the ROCE and ROEs going forward. We believe that in the existing capacity, we have the potential to reach about 20% to 25% ROCE and ROE levels.

Tushar Sarda — Athena Investments — Analyst

No, that I understand. But at overall level you’ll achieve and that probably will be driven by your flagship hospital in Ahmedabad. I’m asking about the smaller towns, are they really viable? Because I’ve been — I spoke to another hospital group and they said in the smaller town, the issue really is you don’t get good doctors. Doctors don’t want to stay in smaller towns and therefore, those hospitals don’t generate so much revenue. So I’m actually asking from that point of…

Shanay Shah — President

That’s a valid question. That’s a valid question. But unlike some of the other hospitals, most of our hospitals are either in metros or Tier-1s or maximum Tier-2s and where, except for Vapi, of course. So, we have made our first acquisition in Vapi and that’s a very small town and we did find lot of challenges to attract good doctors over there. And henceforth, after that we have largely gone to the towns where the population is in excess of 2 million people.

Tushar Sarda — Athena Investments — Analyst

Okay. Because in this hospital, like the previous participant also asked, they have been in existence for seven, eight years, and I think eight years is a long enough time for hospitals to ramp up and start showing good occupancy, which has not happened. And therefore, this question on what is the really return earned on investment in these towns and now you are going into Nashik also, which is another small town. So from that point of view, if you can provide a little bit of clarity to the investor on how much money has been put in these hospitals and separate ROCE as compared to, say, your flagship hospital, that would be helpful. That’s all from my side. Thank you.

Shanay Shah — President

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Mitesh Shah from ICICI Securities. Please go ahead.

Mitesh Shah — ICICI Securities — Analyst

Thanks for taking my questions and congratulations for the good sets of number. I just have a one question about, you have said that you have — you can see the pent-up demand in your elective surgeries. But ARPOB last year, if I can see then, it’s just a 17% of total sales. I mean, even absolute amount, I can see then is a INR22 crore compared to a INR50 crore in Q3. So, can we see the normalizing the absolute amount of revenues in, at least arthroplasties from the next quarter onward as you see the pent-up demand on this?

Shanay Shah — President

So, I think as you see in quarter four FY’21 where the COVID number — the COVID count is very less and COVID occupancy is very less, you will now see that the arthroplasty number, which has itself been growing month-on-month since March, will now start contributing between 30% to 40% of revenue. So, we are already at, I would say, in the month of Jan, the way things are going, we are already at a 75% to 80% levels of pre-COVID.

Mitesh Shah — ICICI Securities — Analyst

Okay. Thanks a lot. That’s it from my end.

Operator

Thank you. The next question is from the line of Swechha Jain from ANS Wealth. Please go ahead.

Swechha Jain — ANS Wealth — Analyst

Hi, sir. Sir, just two follow-up questions. One was, I think in the last call or last two — or last to last call we had mentioned that we are setting up a — some equipment manufacturing facility and we had I think purchased the land already, for this, I’m not sure if I’m correct on the land piece. But I think we had spoken about setting up a subsidiary for this. So, can you throw some light on this as to where are we?

Shanay Shah — President

So Mr. Muraarie Rajan, who is the Principal Advisor to Chairman is also on the call, if he can please take this question?

Muraarie Rajan — Principal Advisor

Sure. So, with respect to this, what we are currently doing is we are evaluating opportunities. And there are some very interesting ones that we have now basically are looking at very closely. And I think most probably in the next couple of months we should have something to share with you with respect to this. I think this will be something, which will be very well received by the investors and more importantly, will place and differentiate Shalby from its competitors.

Swechha Jain — ANS Wealth — Analyst

Okay. Sir, can you throw some light as to, like what kind of investments are we looking to make into this? And where are we in terms of the entire structure? I mean, as in — the subsidiary structure is in place, I believe, but with respect to the land parcel. So, if you could just to share something about it, sir?

Muraarie Rajan — Principal Advisor

Right. So there are two different parts to it, right, one is something that we are looking with respect to overseas, where a subsidiary will be most probably set up at the appropriate time in order to capture this opportunity and acquisition. And with respect to the subsidiary in India, once we are able to identify and execute the transaction overseas, from there on through a technology transfer being the subsidiary in India will start to benefit from that. In all likelihood, that facility will be set up somewhere in Gujarat and will take into account the technology of the US to be used and for the manufacture in-plants [Phonetic] in India.

Swechha Jain — ANS Wealth — Analyst

Okay. Okay. Okay. Okay. Thank you, sir. And just one last thing, it’s to the follow-up question from a previous participant, with respect to even the hospital units and the revenue contribution and the occupancy rate. So, I think we did discuss about Vapi, but if you look at the other — one more hospital, which is the Vijay Shalby Hospital in Ahmedabad. I think it’s in existence for 26 years, but even if I look at the data, the revenue contribution that we have from this hospital is just 0.4% and the occupancy is just 11%. So, can you share some details around it, sir, as to what are our plans of this hospital and why do we see such low numbers?

Shanay Shah — President

See, Dr. Shah used to practice in this hospital from ’94 to 2007. And in the meanwhile he also started practicing at some of the other corporate hospitals. Now, once this hospital started operations in 2007, the SG unit, right, what happened is that, most of the work shifted here and that particular hospital acted as a feeder for some of our Ahmedabad hospital. So, Vijay Shalby is a feeder for SG unit, it is a feeder for Krishna, and it is a feeder for our Naroda Hospital in Ahmedabad.

Swechha Jain — ANS Wealth — Analyst

Okay. Okay. Okay.

Shanay Shah — President

Across all the specialties.

Swechha Jain — ANS Wealth — Analyst

Okay. Okay. Thank you, sir. Sir, that helps a lot. Thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ankit Pandya from Elara Capital. Please go ahead.

Ankit Pandya — Elara Capital — Analyst

Hi. Thank you for the opportunity. Sir, my — I have [Phonetic] two questions. The first question is, in the last call you had mentioned about the visiting doctors across all the facilities. Sir, can you give any update on that front?

Nishita Shukla — Group Chief Operating Officer

We usually are into multi-specialty. So, doing tie-ups with brand specialty also we go multi-specialty wise, either it is neuro or onco surgeon, which are leading doctors in market. So we are in — doing tie-ups with that specialty doctors.

Ankit Pandya — Elara Capital — Analyst

Okay. And the second question is on the cost front, now things are getting back to the normal, so how much of the cost is compared to second quarter in the first half, how much of the cost has come back in this quarter? And like — and what can we expect in the coming quarter also in the Q4?

Nishita Shukla — Group Chief Operating Officer

The cost for doctor payout?

Ankit Pandya — Elara Capital — Analyst

No, in gen, overall operating cost.

Nishita Shukla — Group Chief Operating Officer

Operating cost usually is as per the occupancy and the doctor payouts. I think the two would be remaining same. Once the occupancy is increasing and with the same doctors or adding few doctors, the operating cost remains the same. It won’t be going high.

Shanay Shah — President

So I’ll just add to that, the — in the current quarter, you have seen an increase in the material and consumable costs, reason being that a lot of elective work has come back. Also, you would have seen that the doctor cost also would have gone up because their contribution to the revenues, apart from COVID also, has gone up, right? And some of the other HR costs, so we had basically done a lot of streamlining in the operations. And essentially because of which we were one of the only companies in the healthcare sector to be EBITDA neutral in quarter one, whereas most of them suffered huge losses. And those efficiencies continue to remain with us.

Ankit Pandya — Elara Capital — Analyst

That is it. Thank you, sir. That will be it.

Operator

Thank you. The next question is from the line of Ashish Thakkar from Motilal Oswal PMS. Please go ahead.

Ashish Thakkar — Motilal Oswal PMS — Analyst

Yeah. Thanks for the opportunity. Sir, on the medical devices part, you had earlier said that, you are expecting commercial operations to start soon. And you had also given a guidance of around INR30 crore EBITDA coming from this part of the business. So, by what timelines can we get to see this contribution panning out?

Shanay Shah — President

Again I would request Mr. Muraarie Rajan to take this up, please.

Muraarie Rajan — Principal Advisor

Yeah. So, again, as I gisted [Phonetic] earlier with respect to the medical devices, we are in the process of finalizing an opportunity. And I think once that gets done, most probably we should look to, in the next two, three months to having completed that transaction. And at that point in time when that gets integrated into the Shalby Group, one will start seeing the revenues and profitability coming from that — from those operations.

Ashish Thakkar — Motilal Oswal PMS — Analyst

But would you — would it be fair to say that, in the first year of operation itself, you would be EBITDA positive?

Muraarie Rajan — Principal Advisor

Well, one would certainly hope that it would be EBITDA positive, because clearly we are looking at a situation where there is significant potential for operational efficiencies to be achieved. So, it should be a situation where it should be EBITDA positive, yes.

Ashish Thakkar — Motilal Oswal PMS — Analyst

Okay. This is very helpful. Sir, just one last question on the guidance, just wanted to course correct myself. You said 25% EBITDA margins and a double-digit ROE, ROCE. So that’s a vision you have for the Company, right?

Shanay Shah — President

Yeah, that’s right.

Ashish Thakkar — Motilal Oswal PMS — Analyst

Okay. And just one more if I may squeeze in. Sir, on the joint replacement side, if you could help, what kind of utilizations are we currently working at?

Shanay Shah — President

Sorry, can you repeat your question?

Ashish Thakkar — Motilal Oswal PMS — Analyst

On the joint replacement side, in terms of number of patients, what is the kind of utilization rates we are currently working at?

Shanay Shah — President

See, the hospital beds that are used for joint replacement are also used for some of the other specialties, right? So, as I said earlier, we are at around 70% to 75% pre-COVID levels when it comes to the number of joint replacements that are done. And we are very confident that in quarter four, we will inch towards almost the same levels as pre-COVID.

Ashish Thakkar — Motilal Oswal PMS — Analyst

Okay. This is helpful. Thank you so much and all the best.

Operator

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

Shanay Shah — President

So, thank you, everyone, for joining our quarter three FY 2021 earnings call. If you have any further questions, please feel free to connect with our Investor Relations team and please continue to stay safe. Wish you all a Happy New Year once again. Thank you.

Prahlad Inani — Chief Financial Officer

Thank you.

Nishita Shukla — Group Chief Operating Officer

Thank you.

Operator

Thank you. On behalf of Elara Securities Private Limited, that concludes this conference. [Operator Closing Remarks]