Apollo Hospitals Enterprise Ltd

NSE:APOLLOHOSP

Q1-2026 Earnings Call

[Operator]

Ladies and gentlemen, good day, and welcome to the Apollo Hospitals Limited earnings conference call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Mayank Vaswani from CDR India. Thank you, and over to you, sir.

[Mayank Vaswani]

Thank you, Sagar. Good afternoon, everyone, and thank you for joining us on this call hosted by Apollo Hospitals to discuss the financial results for the first quarter of FY '25-'26, which were announced yesterday.

We have with us today the senior management team represented by Mrs. Suneeta Reddy, Managing Director; Mr. A. Krishnan, Group CFO; Dr. Madhu Sasidhar, President and CEO of the Hospitals Division; Mr. Madhivanan Balakrishnan, CEO of Apollo HealthCo Limited; Mr. Sriram Iyer, CEO of AHLL; Mr. Sanjiv Gupta, CFO of Apollo HealthCo Limited; and Mr. Obul Reddy, CFO of the Pharmacy business.

Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Please note the disclaimer mentioning these risks and uncertainties on Slide 2 of the investor presentation shared with all of you earlier. Documents relating to our financial performance have been circulated earlier, and these have also been posted on the corporate website.

I would now like to turn the call over to Mrs. Suneeta Reddy for her opening remarks. Thank you, and over to you, ma'am.

[Suneeta Reddy, executive]

Thank you, Mayank. Good afternoon, everyone, and thank you for taking time to join this earnings call. I believe you would have received our earnings documents, which we shared earlier yesterday. We are pleased to start FY '26 on a strong footing with a healthy momentum and double-digit growth across all 3 verticals: Healthcare services, Apollo HealthCo, and Apollo Hospitals and Lifestyle.

The performance in Q1 reflects consistent execution across key geographies and business segments, resulting in broad-based growth, resilient operating metrics and improved profitability. Consolidated revenue grew by 15% on a year-on-year basis to INR 5,842 crores. Within this, Healthcare Services business has delivered 11% year-on-year revenue growth to INR 2,935 crores. Revenue from insurance patients saw a year-on-year increase of 13%, while revenue from cash patients grew by 16%. Collectively, these segments accounted for 84% of our inpatient hospital revenue.

Surgical revenues grew by 14%. Our focus on specialties, cardiac, oncology, neurosciences, gastro and orthopedics, which is CONGO, maintained a strong momentum, growing revenues by 13%. Group-wide occupancy stood at 65% in quarter 1 FY '26. This quarter, we are announcing a change in our reported metrics. We have traditionally reported average revenue per occupied bed. From this quarter, we propose to discontinue this metric from our report. ARPOB blends pricing, length of stay and occupancy into one figure. High ARPOB can sometimes reflect higher operational efficiencies like higher acuity mix and better bed turnover rather than pure patient revenue.

Growth in ARPOB can result in -- due to reduction in ALOS or increase in occupancy, which are purely operating metrics and are not related to realization per patient. Unfortunately, health sector stakeholders were sometimes misrepresenting ARPOB growth as price or tariff growth to consumers and the public at large and implying that hospital inflation is higher than it actually is. This narrative ignored the impact on cost of advancements in technology, therapeutic procedures such as robotics and minimally invasive procedures, which significantly improve patient outcomes.

Instead, we draw your attention to average revenue per patient, ARPP, which we believe is a more accurate measure by realization. It isolates what we are able to realize per patient irrespective of how long they stayed or how efficiently beds were used. It reflects true pricing power and case mix strength. More complex cases leads directly to more ARPP. ARPP in quarter 1 FY '26 was INR 1,72,282 and grew by 9% through a combination of better institutional tariffs, case mix and regular tariff increase for inflation.

Moving ahead, Apollo HealthCo reported revenues of INR 2,472 crores, marking a 19% year-on-year growth. Apollo Health and Lifestyle revenues increased by 19% to INR 435 crores during the quarter. Consolidated EBITDA was at INR 852 crores, registering an increase of 26% year-on-year. The Healthcare Services EBITDA was at INR 718 crores, registering a growth of 15% year-on-year. Healthcare Services margins remain robust at 24.5%, a year-on-year increase of 88 basis points.

The Pharmacy distribution business in Apollo HealthCo recorded an EBITDA of INR 167 crores as against INR 139 crores, higher by 20% year-on-year. 24/7 EBITDA losses were at INR 73 crores, significantly lower than INR 116 crores in quarter 1 FY '25. This is the result of conscious work on cost management and closely tracking unit economics in each line of service. As a result, Apollo HealthCo reported an EBITDA of INR 94 crores in quarter 1 FY '26, up from INR 23 crores in quarter 1 FY '25. This is an excellent outcome, and we are well on track to achieve breakeven in the digital business by the end of this fiscal.

Apollo Health and Lifestyle delivered an EBITDA of INR 40 crores, representing 31% year-on-year growth with margins improving to 9.3% from 8.4% in quarter 1 last year. Consolidated PAT was at INR 433 crores, growing 42% year-on-year. Within Healthcare Services business, we have delivered an ROCE of 28.4% with balanced ROCE across our geographies, the metro, Tier 1 and Tier 2. Private label and generics revenues were at 14.6% of total pharmacy revenues. Our digital platform, 24/7, added 1 million new users. The platform GMV was at INR 682 crores, representing a growth of 23% over the same period last year.

We are making good progress on our hospital capacity expansion plans. Our dedicated women's oncology center in Delhi, multispecialty hospital in Pune, acquired hospital in Bangalore, and our multispecialty hospital in Kolkata will be operational in FY '26, a capacity addition of 700 beds. Plans on other ongoing projects remain on track with phased operationalization in the coming quarters. The strategic reorganization of our omnichannel pharmacy and digital health business is proceeding as planned, and we expect to complete all steps within 18 to 21 months, a time line that we had earlier announced. The scheme is expected to conclude by the end of FY '27, by which time the business is expected to achieve a run rate of INR 25,000 crores of revenue with 7% EBITDA margin on a combined basis.

Our quarter 1 FY '26 performance underscores the resilience and agility of our integrated health care ecosystem. We have continued to advance our strategic agenda, deepening our leadership in core health care services, scaling our digital retail platforms and further enhancing patient outcomes through clinical excellence and innovation. We are well poised to capture emerging opportunities and sustain our growth momentum through FY '26. Our unwavering focus remains on delivering long-term value for patients, partners and shareholders.

On that note, I would like to hand over to the moderator. And for questions, I have with me Krishnan, our CFO; Mr. Madhu Sasidhar, CEO of the Hospital Division; Sriram Iyer, CEO of AHLL; Madhivanan, CEO of Apollo HealthCo; Obul Reddy and Sanjiv from Apollo HealthCo with me here to take all of your questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Damayanti Kerai from HSBC.

[Damayanti Kerai, analyst]

Congratulations for a good set of numbers. My first question is on 24/7, where we have seen significant improvement in profitability. So as we can see, operating costs, excluding ESOPs were down almost 16% quarter-to-quarter, and I believe that's the key reason for better profitability. But at the same time, when we look at GMV for the platform, it's down around 14%. So How should we look at your GMV growth ahead? And then you mentioned you will be cost neutral by end of this fiscal itself. So just want to have more clarity on how should we look at the GMV for 24/7 platform?

And additionally, if you can update on some of the newer services, which were added to the platform like insurance and corporate tie-ups, et cetera.

[Madhivanan Balakrishnan, executive]

Can I take the question, ma'am.

[Suneeta Reddy, executive]

Yes, Madhi, please. Madhi, please, take that question.

[Madhivanan Balakrishnan, executive]

Thank you for the question, Damayanti. So 2 things. Your assumption is correct. On the cost front, one of the biggest things which was driving cost was our unit economics, which is a combination of our customer acquisition charges, the kind of discounts and the life cycle costs that we incur and the cost of delivery. At a broader CM1 marginal contribution, we are almost at breakeven for pharmacy, and this is what contributes the biggest. So a big chunk of the cost reduction that you're seeing is coming from there, which is helping us. Over the next 2 quarters, our pharmacy would be way above the line in terms of unit economics. And therefore, we will be in a much better position.

On the GMV question that you raised -- and this trajectory continues. We continue to keep spending less on marketing. Our customer acquisition is growing at a good healthy pace of around 200,000 new customers coming into the portfolio, and we are able to retain our customers who come in through our very strong circle program and the constant improvement in service. Specifically on the GMV bit, if you were to notice, our GMV is contributed by 3 lines of business. The first one, driven by pharmacy. The second, diagnostics. In both these cases, the correlation between GMV, revenue and margins are very straightforward.

However, in the business that we drive for the hospitals, which is the both IPOP business as well as the various consult business, compared to last year, we had a redefinition of how we generate GMV. That's why we have restated some of the GMV numbers, which we can explain in detail. But what is effectively done is earlier, we used to take the total GMV, which was contributed by Apollo 24/7. Incrementally from this year onwards, we are focusing only on the new customer business that we are generating. That's how our revenue structures are aligned.

So for the investors and the analysts, I would request that we focus a little bit more on the revenue drive as far as hospital IPOP is concerned, both hospital as well as clinics. And for diagnostics and the GMV business will continue. So the restated numbers ensures that -- we will basically indicate that we have grown on a sequential basis at an 8%, whereas on a year-on-year basis, we have moved on 23%. So it's a simple technical readjustment. The underlying business assumptions remain the same.

And from a future perspective, earlier, we used to say that INR 800 crores to INR 900 crores of GMV is what will sort of take us to a breakeven. That number may be around by another INR 50 crores to INR 100 crores, I would say, maybe the day we start touching INR 800 crores, some of these things will start playing out because of this readjustment.

[Damayanti Kerai, analyst]

Okay. Just to clarify, you mentioned pharmacy diagnostic, no change in how you book the number, but it's the IPOP, the hospital consult, et cetera, where there was some adjustment. And now we should look at the incremental delta which will come in this part of the business, right?

[Madhivanan Balakrishnan, executive]

Yes. Yes. Yes. And we have reinstated both last year. When we talk about the growth numbers, we reinstated according. It reflects the growth in a much more stronger manner.

[Damayanti Kerai, analyst]

So the reflected number is on like-for-like basis, what we are seeing there?

[Madhivanan Balakrishnan, executive]

Yes.

[Damayanti Kerai, analyst]

Okay. My second question is some of the e-comm platforms, I believe they have gone very aggressive in the last few months in terms of stepping up their presence in not only the OTC wellness products, et cetera, but on the prescription medicines supplies also. So how do you see competition in this space from some of these e-comm players, where I see, I guess, a lot of aggressive push coming in the last few months.

[Madhivanan Balakrishnan, executive]

I wouldn't say last few months. All this action has started just around from this month onwards, which is 2 quick commerce players jumping into the prescription business. We will watch. But in my mind, this is actually a better development for the overall industry. Today, the digital part of the business in the markets that we operate in, especially for pharmacy, if I have to take that as a benchmark, operates at around 12% to 15% of the off-line pharmacy business. We genuinely believe in some of the -- as the market matures, this number should settle at around 25% to 30%.

Incremental players coming in with aggressive strategies, in my mind, will expand the digital market and give a greater amount of trials. And here, I think Apollo, given its very strong trust, very strong supply chain capabilities and the ability to offer always good quality, trusted medicines should hold on in the long run. We are not going to be in this war for acquiring customers at any cost, but build a much more stronger, sustainable business under the direction of our Board if I look at it as market expansion.

[Damayanti Kerai, analyst]

Yes. So this is good for the industry and you believe you are in a better -- you have winning proposition in this space despite entry of more competition?

[Madhivanan Balakrishnan, executive]

Yes. Our operating model is to build a sustainable model wherein at a unit economics level and growth will happen. And this is where the advantage of having an offline pharmacy of almost 6,500-plus outlets in sync will work much better. So we constantly reorganize our supply chain network. We believe there is a lot of growth still available in the Tier 2 and the Tier 3 cities, and we are focusing on that as we go forward as we walk towards our end-to-end breakeven.

[Operator]

Our next question comes from the line of Kunal Dhamesha from Macquarie.

[Kunal Dhamesha, analyst]

First one on the average revenue per patient growth of 9% year-on-year. If you could provide the growth drivers for this in terms of case mix, payer mix and price increase, if you can split this 9%?

[Suneeta Reddy, executive]

I'll hand it over to Madhu, our CEO.

[Madhu Sasidhar, executive]

Yes. So if you were to average out the tariff, which is the price mix, I think you referred to, the landed effect is probably in the 4% to 5% on a year-on-year basis. So the remaining comes from a combination of case mix, primarily on case mix. And most of this has been driven by our CONGO specialties. So by CONGO, we refer to the cardiac, oncology, neuro and gastro and orthopedics. They have independently contributed to that delta, especially gastro sciences and orthopedics, which have grown at about 16% and 17% on a revenue basis year-on-year.

Even within the CONGO specialties, when we look at each one of the specialty, the average revenue per patient, which is an indication of the severity and complexity of the case, that has grown in healthy double-digit numbers across each one of our CONGO specialties.

[Kunal Dhamesha, analyst]

Sure. So basically, half and half is the way to put it?

[Madhu Sasidhar, executive]

At least half and half, yes. But on a volume basis, most of our volume growth, almost all of it, I would say, in this quarter have come from the CONGO specialties.

[Kunal Dhamesha, analyst]

Sure. And more cash as well, right, which is typically slightly higher in terms of -- as compared to insurance?

[Madhu Sasidhar, executive]

The payer mix growth has been highest in insurance. On a volume basis, it's about 7.8%, followed by our cash, which has also grown by about 5%.

[Kunal Dhamesha, analyst]

Sure, sir. And ma'am suggested that we will be operationalizing around 700 beds. Is that the correct understanding of the 1,577 beds that we have slated to add this year?

[Suneeta Reddy, executive]

Yes, yes.

[Kunal Dhamesha, analyst]

Okay. And ma'am, when would the next tranche of, let's say, 800-plus beds would be? Shall we expect to be operationalized -- FY '27?

[Suneeta Reddy, executive]

Yes.

[Kunal Dhamesha, analyst]

Okay. Sure. And the last clarification from my side on this GMV change. So in Q4, we had guided for revenue to GMV ratio of around 45% to 46% for full year versus 36% in FY '25. So now with this redefinition, is there an update to the guidance or that guidance baked in the redefinition of the IPOP GMV revenue conversion?

[Madhivanan Balakrishnan, executive]

No, I wouldn't change that. I think we can go with more or less that kind of a tracker. Like I told you, we are focused more on the revenues. So the revenues will have been -- there is no change in the definition of the revenue. In fact, it will continue to grow. So I wouldn't make any changes there, please, and continue...

[Kunal Dhamesha, analyst]

And breakeven, you said INR 800 crores to INR 900 crores revenue?

[Madhivanan Balakrishnan, executive]

As a GMV, revenue, we should be able to -- on the digital side, we will be hovering between INR 90 crores to INR 100 crores. So once we touch that number, that's how it is. What I [indiscernible] about INR 800 crores is the GMV. That's a good indicator.

[Operator]

[Operator Instructions] Our next question comes from the line of Neha Manpuria from Bank of America.

[Neha Manpuria, analyst]

The first question on the hospital business. Now that the Bangladesh disruption -- patient flow disruption is in the base, is it fair to assume that the hospital growth rate, which has been in the 10%, 11% will inch up to the mid-teens along with the bed expansion? Just trying to understand when we go back to the mid-teen growth that we're used to seeing in the hospital business.

[Suneeta Reddy, executive]

Yes, Neha, it will certainly go up. I think you will see also an improvement in the existing assets as well as the addition of new hospitals.

[Neha Manpuria, analyst]

And this is -- because if I look at the occupancy, the occupancy does not seem to be showing an improvement. Obviously, we have also seen a decline in ALOS. So I'm just trying to understand how much of it would be -- how will it be reflected in terms of operating metrics of occupancy? How should I look at that for the existing network?

[Suneeta Reddy, executive]

I think when we look at the existing delivering close to 13%, 14%. An additional 10% coming over a period of 3 years from the new facilities. Because there's headroom for growth in the existing. So definitely, we can look at 13% to 14% on existing and additional 10% coming from new beds in the next 2 to 3 years.

[Neha Manpuria, analyst]

Understood. And the margins on these, like you had mentioned before, there is still room for margin expansion on the existing network before we -- which is -- I mean, we'll have losses?

[Suneeta Reddy, executive]

Yes, yes. I think there's room for margin expansion. We have a plan to move it to 25%. And as we look at the losses from new hospitals, total impact over a 2-year period could maximum be around INR 150 crores. And the reason why the impact will be minimal is that we do have large cash flows as opposed to earlier when we did our expansion. So strong operating cash flows and margins coming from existing and with some losses, but no huge impact on EBITDA.

[Neha Manpuria, analyst]

Understood. And my second question is on the digital business. What would be the GMV for the full year based on this rebasing that we have done? And also, if you could give us some color on the new businesses, how they are tracking the app monetization and insurance, how they've been tracking?

[Madhivanan Balakrishnan, executive]

Yes. Sanjiv, can you give the projected GMV?

[Sanjiv Gupta, executive]

Thanks, Madhi. I'll take the first question, which is -- so we closed Q1 with INR 682 crores. We strongly believe that we should be hitting a number of about INR 3,000 crores to INR 3,200 crores for the full year as far as the new way of looking into the GMV. And this should represent roughly 25% to 30% growth versus the previous year.

[Madhivanan Balakrishnan, executive]

Yes. Thanks for that. So we will continue to grow at between 25% to 30% growth, and we have seen our first quarter on schedule. There are certain businesses, which we are tightening to ensure that our revenues are on the upswing. Specifically on the new businesses, insurance business, which I've spoken to you about, has started getting some legs. For this quarter, we finished with a INR 5 crore number as against -- we had targeted actually to do around INR 7 crores. We did INR 5 crores because some of the technological integrations with the partners are still in process. As this is the first time that we are building it, it's taking a little bit of a time.

But a very encouraging sign is that we are getting a reasonably large number of digital customers who are buying very strong products from partners like Niva Bupa and Care and Star Health. We have started off with health. Life and the other 2 will progress. Various other corporate partnerships, we are working together as a One Apollo story, wherein as one full entity, we are approaching larger corporates to build a much stronger story. The SBI story has started off on the right earnest. We are in very early stages again. it's giving us good quality customers on a repeat basis.

We will continue to build on these lines of businesses. The insurance business will continue to take a little bit of more investment, both in terms of people and technology, but we are reasonably confident by the end of the year, it will not take away from our breakeven objectives.

[Neha Manpuria, analyst]

And what about the app monetization?

[Madhivanan Balakrishnan, executive]

Yes, touchwood. That's also doing as per track, while it might not be on the lines of quick commerce. But given very, very specific, we are working in line with people with -- whether it be the weight loss drugs, some of the other mega pharmacy brands, very strong FMCG brands are a part of the mix. That story is also picking up nicely. So we should be on course for monetization.

[Operator]

Our next question comes from the line of Shyam Srinivasan from Goldman Sachs.

[Shyam Srinivasan, analyst]

Just the first one on the hospital business. When you guide for organic growth of about 13% to 14%, we did 11% for this quarter. So I just want to understand what should change? Is the ARPP growth going to remain as high? Or are you going to see better volume growth in the path forward? And just if I were to look at your occupancy for this quarter and when I compare to the peers, I know there could be a geographical difference, but it's one of the weaker numbers. So I just want to understand, for the path forward, how are we looking at even utilization improvement? And what should -- what will help us get back some of the growth? I know you talked about CONGO, but maybe still -- does it mean we have lesser occupancies when we do more CONGO? So I'm just trying to see, is the business model changing?

[Suneeta Reddy, executive]

No, no. I think that there is a huge focus on volume. We have focused on CONGO. I think that we -- having a network that is all over India, we will also focus on secondary care and therefore, the volume should improve. As you consider payer mix, I think we are strengthening our alignment with the local markets as well as with corporates, with PSUs and hope to see an uplift in international patients coming in, in the second and third quarter as we found new markets. So all of this should contribute to higher occupancy, which you will see in the second quarter and continue to grow in third and fourth.

[Krishnan Akhileswaran, executive]

Also, I would like to quickly let you know that clearly, there has been an uptick in our overall robotic surgeries that we are doing in the system, minimally invasive work, et cetera, that we have continuously focused on, which is why if you look at the as ALOS, ALOS is down by 6%, right? Clearly, it's a large number compared to a 3-point -- and that number clearly versus 3.23% of Q4, we are now at 3.06%. Clearly, the ALOS is one of the reasons for the occupancy, which is why the ARPP is good. The margins are good. It gives us headroom for growth also in our existing metros, which is good till the time some of the new hospitals come in. So that's something that we are quite committed to.

Volume growth, while you are seeing headline volume as 3%, as we said, insurance and walk-ins are at 5% and 7% and 3% is also because of the IPS. If you adjust for the Bangladesh, it would have been at 5%. So clearly, yes, there are reasons for this quarter. But going forward, we should go back into that teen growth is what we have committed to.

[Madhu Sasidhar, executive]

And if I can just add to that, add to what Ms. Suneeta and Krishnan said, a lot of the occupancy number that you see has been intentional. It's a 6% reduction in length of stay, which is almost like adding 550 to 600 beds, right? What this gives us is the extra capacity in our chassis to focus on supply side. So to your question as to where will this volume growth come from is that we have been very closely paying attention to that supply side, which is adding clinical talent. So you will see some of that coming to bear, especially in our metro markets, driving that volume growth. So it will be in the high complexity care mostly, but it will be driven by some addition on the supply side.

[Shyam Srinivasan, analyst]

Yes, very helpful. Just a second question on AHLL. It's kind of all over the place, if I can use one word, right? We have top line growth, but no EBITDA growth in some -- and we have -- so maybe diagnostics is one I noticed, which is looking odd. Also, I think primary care and only where we have seen EBITDA margin expansion is specialty. So maybe just a summary on AHLL, please.

[Suneeta Reddy, executive]

Sriram, please take that.

[Sriram Iyer, executive]

Yes. So I think -- see, our focus has been to drive. We have seen a very good growth on diagnostics on volume. When you look at the diagnostic margin in quarter 1, I think I just want to inform that we opened Central Reference Laboratory in Chennai on 30th April. This is state-of-the-art fully automated digi lab spread across 45,000 square feet. So we obviously had certain one-off validation cost, which is there on the EBITDA that is baked into quarter 1. If I normalize that, my EBITDA margin is about -- in diagnostics, is at about 10.3%. So that's the number.

But obviously, since we went live, there were these one-off costs that typically happens when we go live, which is more for making the lab live and the controlling calibrations. Having said that, yes, we have seen a good increase in margin on specialty. And even on primary care, there has been a focus to grow revenue and the margins will come in the coming quarters. We are confident about sustaining these growth rates further as well. I hope that clarifies.

[Operator]

Our next question comes from the line of [indiscernible] Investments.

[Unknown Analyst]

I have two questions. I just want to understand, this is with respect to the 24/7 pharmacy business. There was a strong uptick in terms of the margin, pre-operating cost -- 24/7 pre-operating costs with respect to the online pharmacy distribution segment. I just want to understand what drove this strong uptick in terms of margin? And can you give any guidance for Apollo Healthcare perspective in terms of revenue growth and margin improvement for the next 1, 2 years?

[Suneeta Reddy, executive]

Madhi and Sanjiv?

[Sanjiv Gupta, executive]

So maybe I can take the first question, ma'am. This is Sanjiv, this side. So our margin for the quarter 1 has been 15.4% versus Q4 of 12%, which is about 340 basis points up. Majorly, this is on account of the -- one, the renegotiated rates with all the service providers, which is across diagnostic and on the Healthcare Services IPOP.

Second, also, because of the better unit economics on the pharmacy side, margin rates have been better. Plus Q1 also saw insurance uptick, which Madhivanan talked about that in Q1, we had almost INR 5 crores of insurance, while in Q4, it was roughly INR 1 crores to INR 1.5 crores. And higher upside on the insurance commission also boosted the margin apart from the fact that the monetization also helped us. So all in all, all the revenue segments had a better margin profile for Q1 versus Q4. And some total of that is what you're seeing is about 340 bps higher in Q1 versus Q4, sir?

[Unknown Analyst]

And the growth in guidance part?

[Madhivanan Balakrishnan, executive]

So the GMV of INR 3,200 crores that we spoke about, we continue to be on course. Like I told you in our first quarter, we are very much as per our AOP target. Typically, our new customer acquisition continues both for pharmacy. As far as our diagnostic business is concerned, we are at a new normal. So that business has also picked up. This quarter should be good. So we are on course for our breakeven on Q4. I would not want to look beyond that at this point of time as we look at various other lines of businesses.

[Unknown Analyst]

Okay. And my second question is with respect to the demerger. So currently, under Apollo Healthcare Hospital Enterprises, there are 3 segments. One is the hospital business. Other one is the Apollo HealthCo, which is the pharmacy business. And the third one is AHLL, which is with respect to diagnostics, specialty health and primary care. So my understanding is you're demerging the pharmacy business into new entity. Is that correct? And can you also explain how will the merger with Keimed Health be beneficial in terms of synergy for the pharmacy business?

[Suneeta Reddy, executive]

A.K., and Madhi?

[Krishnan Akhileswaran, executive]

That's correct. You're right in your understanding. What will happen is Apollo HealthCo, as you are seeing in the current form, is what is going to be demerged and will be listed separately by Q4 of FY '27. By the time it will be listed, the NCLT process of merging Keimed into this business would also have come into play. Clearly, we have a pro forma P&L. You can see the pro forma P&L, which has been shared as part of the Investor Relations as part of the earnings deck. You would see that this current quarter, we are at INR 4,430 crores of combined revenue, including Keimed, Keimed supplies to 6,000-odd pharmacy stores apart from supplying to Apollo as well.

So you will have a combination of a consumer-focused business, which is the entire pharmacy, which we are doing with the 6,500 stores, the online digital as well as the Keimed business. So all the 3 will be part of this number. So run rating currently at INR 17,000 crores of revenue, which is what we have said that by Q4 of next year, FY '27, by the time that this will also get listed, we should be run rating at INR 25,000 crores of revenue with a 7% EBITDA margin. So there are synergies of the Keimed business, which I will allow Madhi to chime in.

[Madhivanan Balakrishnan, executive]

You want me to continue. Are we okay?

[Suneeta Reddy, executive]

Yes, sure.

[Krishnan Akhileswaran, executive]

The hospital-based pharmacies continues as part of hospitals, which I'm sure you know, but it's something that -- remember, what we are spinning out is only the retail pharmacies and the online out of that. Carry on, Madhi.

[Madhivanan Balakrishnan, executive]

Very quickly on the synergies. See, while as the digital business becomes unit economics positive and with this merger, we actually believe Keimed besides being a part of the physical distribution business through us, there are a lot of integration synergies that we believe, whether it be in technology, whether it be in people, whether it be in costs. And what typically e-commerce and quick commerce players build on the dark stores. Today, we have 22 dark stores. Once Keimed comes into the picture, we have the ability to find more synergies of setting up more economical dark stores across the country.

So our expansion beyond the top 6 cities to the next 10 and to the rest of India can become much more smoother with a greater integration between the 2 entities. On the product side, we believe our ability like somewhere in the results we spoke about a 14.6% for PL and generics. There is a huge scope available to drive that number, not just within the Apollo chain as well as Apollo Digital, but also across the various Keimed franchises. So technology, data, people and product categories, all the 4 synergies should start playing out as this merger comes in place.

[Unknown Analyst]

So my understanding is this demerger entity...

[Operator]

Sorry to interrupt, Raman, sir, may we request you return to the queue for any follow-up questions.

[Unknown Analyst]

Sure.

[Operator]

Our next question comes from the line of Avnish Burman from Vaikarya.

[Avnish Burman, analyst]

I just have a question on Keimed. I mean you mentioned that the HealthCo plus Keimed would reach about 7% EBITDA margin by the end of FY '27. And Keimed margins, as I understand, is about 3.2% for the full year of FY '25. So I just wanted to know that how much increase in Keimed EBITDA margins are you baking in when you guide for 7% for the overall margins by 4Q FY '27?

[Krishnan Akhileswaran, executive]

Sanjiv?

[Sanjiv Gupta, executive]

Yes. Can I give the answer? Yes. So it would be roughly 40 basis points. So 3.1% should go up to 3.5%.

[Avnish Burman, analyst]

Okay. And the levers for this 40 basis points, I mean, is it coming mostly from the gross margins or operating leverage, if you can just...

[Sanjiv Gupta, executive]

I think majority of this will come through the scale. So that means it will come from the margin side. But we do have the operating cost leverage as well as certain efficiencies that would come in. So there should be some benefit from there also.

[Avnish Burman, analyst]

Okay. So if I understand this correctly, 40 basis point improvement in Keimed margin is coming from -- you're saying both gross margins as well as the scale benefits?

[Sanjiv Gupta, executive]

That's right.

[Operator]

Our next question comes from the line of Tushar Manudhane from Motilal Oswal Financial Services.

[Tushar Manudhane, analyst]

Just one clarification on GMV aspect. So you said there's redefining of GMV and only the new customers to be taken into consideration. So practically, if the same customer is coming for newer indication, then -- so effectively, that will not be counted for GMV, how to think about it?

[Madhivanan Balakrishnan, executive]

Correct, correct. I think you hit it right. Just let me give you an example. Last Q1, we reported a GMV of INR 695 crores. That number stands at INR 553 crores. Is it because roughly 50% of the GMV that we drive for the hospital business is from existing customers and the balance 50% is from new customers who we bring to the overall Apollo Group, either through pharmacy or any other mechanism. Earlier, we used to get the revenue understanding was on the overall basis. Given the new business framework arrangement and the new agreements, our emphasis on maximizing businesses for the new customers. That's why that's the GMV that we are reporting.

For the other customers, which is our existing customers, we have a servicing charge, which is much more predictable. So this is the model that we are following. That's why the numbers. So the GMV comes down, but the revenue story remains intact and keeps hopefully growing at what we are...

[Tushar Manudhane, analyst]

But then the GMV will comprise [indiscernible] which is both, right? Either you put it as a share or you put it as a new customer.

[Madhivanan Balakrishnan, executive]

But for this statement purposes, because we would like to have a direct correlation between the incremental revenue, we have restated to the current. So the new one primarily focuses on the new customers.

[Tushar Manudhane, analyst]

And only that new customer-related share would reach out to HealthCo from Apollo Group, is that?

[Madhivanan Balakrishnan, executive]

From a GMV perspective, yes. Revenue is all encompassed.

[Tushar Manudhane, analyst]

And that percentage of our GMV -- overall, combining the other aspects of GMV, the GMV to revenue ratio is 45% to 46%?

[Madhivanan Balakrishnan, executive]

It will slightly -- yes, yes, we can maintain it. That's how we intend to bring down our cost. We are not making any guidance changes in that.

[Tushar Manudhane, analyst]

Okay. Sir, secondly, on the offline pharmacy, the margins have been pretty stable at 7.7%. While on a long-term basis, increasing private label or, let's say, the non-pharma product would drive that. Anything further to -- any scope to further scale up this EBITDA margin?

[Madhivanan Balakrishnan, executive]

Obul sir, do you want to take that?

[Obul Reddy, executive]

Yes. This is -- at HealthCo level, it operates on a fixed model because we sell to the front-end business on a cost-plus basis. So on a combined basis, it is fixed. This quarter, it is about 25% -- 25 basis points more than last quarter. So we should see that increase happening with the volume and scale. And one more thing to observe, last 2 quarters, we are at a stable private label numbers because of the repositioning of some products and introducing the new products. Now we have a separate head coming to drive that as an initiative, we should see the margin expansion in the coming quarters.

[Tushar Manudhane, analyst]

Got it, sir. And just lastly on Apollo 24/7...

[Operator]

Tushar Sir, may we request you return to the queue for a follow-up question, please?

[Tushar Manudhane, analyst]

Okay.

[Operator]

Our next question comes from the line of Vivek Agrawal from Citigroup.

[Vivek Agrawal, analyst]

This is related to hospital margins. given that there's an expectation of around INR 150 crores of losses in the new hospitals put together over the next couple of years. So does the company have enough room to absorb the entire losses? I'm just trying to understand how to look at the company's overall hospital margins in '26 and '27, whether they can remain stable, can move up or down, if you can help us understand.

[Suneeta Reddy, executive]

I think with INR 2,700 crores of absolute EBITDA, INR 150 crore impact will not be significant. A.K., if you want to elaborate?

[Krishnan Akhileswaran, executive]

Yes. So we are already -- as you have seen the EBITDA of the quarter, we are at INR 700 crores. We are averaging at INR 2,800 crores as we speak. It will only go up from here on. And on that scale of EBITDA of INR 2,800 crores, having INR 100 crores, INR 150 crores EBITDA would not be a big number. And most of these are in existing markets, and we have clear plans and visibility of doctor additions, clinicians that we want to -- we are already targeting, et cetera.

And we will be breaking even in 12 months, as we have said, in most of these locations. So you should see good growth coming and also a very quick ramp-up to double-digit margins after the 12 months also.

[Vivek Agrawal, analyst]

Yes, that I can understand, right? I'm just trying to understand overall margins in '26 and '27, right, whether that can remain stable or you're expecting a marginal dip?

[Krishnan Akhileswaran, executive]

It will be a marginal dip, right, 100 basis points marginal dip. But we will see expansion, as Ms. Suneeta said, the 24.5% EBITDA margins that we have reported, we hope to take it higher, about to 25% or 25-plus number. And from there, you will see a dip of 100 basis points. But overall growth will be visible after that.

[Vivek Agrawal, analyst]

Understood. And second question is related to international markets, right? So first, on the Bangladesh patients. So are you expecting any of the patient flow coming back? Or secondly, would you like to highlight which are the other markets, et cetera, that you are working on that can pick up and drive this international patient number? So just trying to understand how...

[Krishnan Akhileswaran, executive]

Sure. No, thank you for the question. So with respect to Bangladesh, the lowest volume was somewhere between November and December through early January. Since then, we have seen some increase in the volume, but it is nowhere close to the volumes that we used to see same time last year. But having said that, the complexity of cases, the sicker patients are coming to us. So if you look at it on an ARPP basis, the value is higher per patient than what we used to see last year. We are actively engaged in that market, and we expect that the numbers will go up.

Outside of Bangladesh, we are very closely engaged in the markets in Africa as well as in the Middle East. We also have a strong presence and we will continue to develop the markets in the CIS countries. I think the Southeast Asia and further [indiscernible] great interest to us. You know that we are partnering with a project in Indonesia to build a hospital. We are actively engaged in discussions in various countries, including Malaysia, in Brunei as well as offering services in Philippines. So broadly, these are the markets where we expect to see significant volume through the remaining part of this fiscal year.

[Suneeta Reddy, executive]

I just want to add to that, that we've developed a new market, which is Iraq, and this is contributing to the growth of international patients with good healthy margins. Currently, most of these patients are now going to Hyderabad. But there are some also coming to Chennai. [indiscernible] markets, yes.

[Vivek Agrawal, analyst]

Yes, understood. So just last question. So what is the current contribution of international patients in the hospital revenues?

[Suneeta Reddy, executive]

Currently, it's 5% of revenue. We hope that it will be 7% of revenues by the close of the year, targeting 10% of revenues for the next year.

[Operator]

Our next question comes from the line of Nitin Agarwal from DAM Capital.

[Nitin Agarwal, analyst]

On the digital business, we're talking about a breakeven by the end of FY '26. In your assessment, on a steady basis, once the business sort of gets into a steady profitable distribution, what's the kind of profitability the business can do?

[Suneeta Reddy, executive]

Madhi?

[Madhivanan Balakrishnan, executive]

I don't want to hazard a guess, like you said, given the -- at this point of time, our primary focus is to breakeven and build a sustainable model. We are typically seeing on a month-on-month basis, anywhere between 2% to 3% growth because like I told you, our operating model does not believe in spending too much money on customer acquisition. And we still have a huge -- the industry as a whole, especially the digital side, spends anywhere in the range of 15% to 17% as discounts, which the offline industry does not -- which the offline sector does not drive. So that's the second rationalization.

The third bit is there is always this challenge of increasing the average order volume to be in the range of around INR 1,200 so that the cost of delivery is maintained. So I expect the growth on a year-on-year basis to be in the range of 20% to 25%. Please do not expect astronomical growth. And if this unit economics comes through and we are able to keep our overheads at a constant level, which we are very, very bullish about as the merger plays out because we will be able to rationalize quite a bit of our costs, then we should be able to continue to grow on a positive basis on the top line on a 30% to 30% -- 25% to 30% and the revenue will be a little bit more muted at least for one more year because we also continuously invest in a lot of digital assets, which we will reinforce ourselves, whether it be our patient health records, whether it be our Ask Apollo, which is our AI component. So I would go a little bit muted on the revenue side, but we will remain profitable. Sorry, I don't want to go to number two...

[Nitin Agarwal, analyst]

No, that's understandable. And on the offline business, if you just give us a sense of how many pharmacies do we have? And what's the kind of growth rate -- sort of annual growth rate addition that we're looking at going forward?

[Madhivanan Balakrishnan, executive]

Obul sir, do you want to take it?

[Obul Reddy, executive]

We have during the quarter added about 120 stores. And as informed earlier, we are always planned for adding about 600 stores. Revenue growth of 17%, 18% is something that we can expect with the expansion plans in place.

[Nitin Agarwal, analyst]

And sir, over the years, and as you plan up, is there any specific skew towards a particular geography that you're looking to build out more versus what is the current network?

[Obul Reddy, executive]

More towards the central region and South. The central region, we have lesser number of stores. We are focusing on that area. And South is always our best bet to go into the next level, the home.

[Operator]

Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to the management for closing comments.

[Suneeta Reddy, executive]

So thank you, ladies and gentlemen, for joining us on this call. As we close our discussion on quarter 1 FY '26, we are encouraged by the strong start to the year and momentum across our core and emerging businesses. Our integrated health care system spanning hospitals, diagnostics, pharmacies and digital continues to deliver balanced growth alongside operational efficiencies. Looking ahead, our priorities remain anchored in deepening our leadership in clinical excellence, enhancing operational performance and capitalizing on new growth opportunities. We appreciate your continued interest and your support and look forward to updating you in the next quarter. Thank you.

[Operator]

Thank you. On behalf of Apollo Hospitals Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.