Apollo Hospitals Enterprise Ltd

NSE:APOLLOHOSP

Q2-2026 Earnings Call

[Operator]

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

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

[Devrishi Singh]

Thank you, Yusuf. Good morning, everyone, and thank you for joining us on this call, hosted by Apollo Hospitals to discuss the financial results for Q2 and H1 FY '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; Mr. Sriram Iyer, CEO of AHLL; Mr. Sanjiv Gupta, CFO of Apollo HealthCo; 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 risk 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 your opening remarks. Thank you, and over to you, ma'am.

[Suneeta Reddy, executive]

Good afternoon, everyone, and thank you for taking time to join our earnings call. I believe that you have received the earnings documents, which we shared yesterday. Consolidated revenue was at INR 6,304 crores, a 13% year-on-year growth. Consolidated EBITDA was at INR 941 crores, registering an increase of 15% year-on-year. Within this, the Healthcare Services EBITDA was at INR 781 crores, registering a growth of 8% year-on-year and Healthcare Services margin remained robust at 24.6%. We are pleased to talk about the sustained and strong momentum for quarter 1 into quarter 2, delivering strong growth across all 3 verticals, Healthcare Services, Apollo HealthCo and AHLL. Despite the seasonal impact from the onset of festival period, focused execution has enabled us to report broad-based growth and resilient operating metrics.

Healthcare Services business has delivered a 9% year-on-year revenue growth to INR 3,169 crores. The revenue growth was driven by insurance and cash patients together accounting for 83% of the inpatient hospital revenue. Quarter 2 FY '25 had a higher incidence of seasonal medical admissions, leading to a high base. Medical admissions were low in quarter 2 FY '26. The low growth in medical admission was offset by a 14% increase in revenue from CONGO Specialties. The reduction in number of patients from Bangladesh has had a 1% impact on Healthcare Services revenue in quarter 2 FY '26.

Surgical volumes grew by 3%, supported by a continued focus on CONGO Specialties. Cardiac, oncology, neurosciences, gastro and orthopedics, which remain a key growth entry, delivering a 6% volume and 14% revenue growth on a year-on-year basis. Group-wide occupancy stood at 69% in quarter 2 FY '26. As shared earlier, we have withdrawn the ARPOB metric and introduced the average revenue per patient ARPC as a more accurate measure of realization. ARPC in quarter 2, FY '26 was at INR 173,318 reporting a growth of 9% through a combination of better clinical mix and regular tariff increase for inflation. Within the Healthcare Services business, we have delivered an ROCE of 30.3% with a balanced ROCE across all geographies, metro, tier 1 and tier 2.

Moving ahead, Apollo HealthCo reported revenues of INR 2,661 crores marking a 17% year-on-year growth. Apollo Health & Lifestyle revenues also increased by 17% to INR 474 crores during the quarter. Private label and generics were at 15.2% of total pharmacy revenues. Our digital platform 24/7 added 3 million new users, taking the total to 44 million users. The platform GMV was at INR 723 crores, growing 16% over the same period in the previous year. The pharmacy distribution business in Apollo has reported an EBITDA of INR 181 crores as against INR 153 crores higher by 19%. Losses in the digital vertical was at INR 71 crores compared to INR 101 crores in the same quarter last year. As a result of Apollo HealthCo reported an EBITDA of INR 110 crores in quarer 2 FY '26, up from INR 52 crores in quarter 2 FY '25. AHLL delivered an EBITDA of INR 50 crores, representing a 21% year-on-year growth, with margins improving to 11% from 10% in quarter 2.

During the quarter, the Chief Minister of Delhi inaugurated Apollo Athenaa, Asia's first dedicated cancer center for women in Defense Colony. The facility is designed to tackle the growing burden of breast and gynecological cancers and integrate precision medicine survivorship program and world-class treatment protocol. We also performed a soft launch of the Multispecialty Tertiary Care hospital in Pune. We continue to make steady progress on our other expansion projects across key metros including Kolkata, Hyderabad, Bangalore and Gurugram with commissioning lined up in the upcoming 12 months.

The statutory processes for the restructuring within Apollo HealthCo and Keimed merger continue to proceed as per plan and we remain well positioned to capture the full benefit of scale within Apollo HealthCo. Half year H1 FY '26 results, the consolidated revenue for H1 FY '26 stood at INR 12,146 crores, a growth of 14% on a year-on-year basis, supported by balanced expansion across all 3 verticals. Healthcare Services revenue at INR 6,104 crores, up 10% year-on-year, driven by continued traction in high-end specialty and improving clinical mix.

Apollo HealthCo delivered revenues of INR 5,132 crores, registering an 18% increase year-on-year. While AHLL grew 18% to INR 909 crores. Consolidated EBITDA for the first half was INR 1,793 crores, reflecting a 20% increase year-on-year. PAT stood at INR 910 crores, up by 33%. This is a strong half year performance, which reinforces our ability to sustain growth momentum while maintaining financial discipline and operating efficiency.

Let me close by saying that our quarter 2 and H1 performance underscores the continued strength of Apollo's integrated health care ecosystem and our commitment to delivering clinical excellence at scale. We remain focused on deepening our leadership in core health care services, accelerating digital in retail health and expanding our network through strategic capacity additions across key markets. With a disciplined approach to execution and a clear road map for growth, we are confident of enhancing our performance in the coming quarters, and we continue to create long-term value for patients, partners and shareholders.

On that note, I would like to hand over to the moderator and open the line for questions. I have Krishnan, our Group CFO; Madhu Sasidhar, CEO of the Hospitals Division; Madhivanan, CEO of Apollo HealthCo; Sriram Iyer, CEO of AHLL; Obul Reddy and Sanjiv from Apollo HealthCo who will take all of your questions.

[Operator]

[Operator Instructions] First question is from the line of Binay Singh from Morgan Stanley.

[Binay Singh, analyst]

My first question is how to think about organic growth for hospitals. Keeping in light 2 points. First is that the Bangladesh impact incrementally will go away, so that will be 1% positive. Secondly, there's a lot of news flow on insurance pricing that hospitals are planning to keep steady for next year. So keeping both these, could you comment on this and then guide on organic hospital growth for next year?

[Suneeta Reddy, executive]

Yes. I think we are quite confident that we will get back into 30%. We say this because Bangladesh, at least 60% has started coming back in October. And we believe that we will mitigate the impact of losing one territory. Also, we're exploring new markets, including the Northern markets in Uzbekistan, et cetera. So those that are surrounding markets, Africa, some with Indonesia, Iraq, new markets added to Bangladesh coming back will definitely give us an upward trajectory. With regard to insurance, we continue to stay in dialogue with the insurance companies. And I think that there is a very good way forward because all of them represent different parts of the value chain, and we recognize how important it is for us to cooperate and work together.

[Madhivanan Balakrishnan, executive]

And on the pricing front on insurance also, I'm not sure about this commitment that we are talking of. Typically, as you know, in any case, our insurance contracts are once in 2 years. So by that definition itself, we don't get a price increase every year. So what happens is every 2 years, it gets reset. So if you have reset the contract this year, we -- it's the same pricing applies for 2 years, while our inflation is always annual, which you know. So that's the way it has been working, and it's the same way that it continues to be. Certain contracts will come up for renewal this year, certain others will come up for renewal the next year. So it's a rolling contract renewal that works across the system. It continues the same way.

[Unknown Executive]

And Binay, if I can add, even within this quarter, you will see that there's -- I think Ms. Suneeta spoke about it, a significant improvement in the quality of the revenue. There has been an increase in the complexity of cases with a substantial improvement in our CONGO Specialties and high complexity cases. We've also invested a lot in the past 2 quarters in building solid programs and heavily into recruitment, especially in our mature units. So I think these will all add to that organic growth that you are asking.

[Binay Singh, analyst]

Secondly, just one question on the presentation on Slide 16, where we talk about capacity expansion. Here, we used to say FY '26 commissioning number. Now we are putting it under FY '26, '27. So is there any change in ramp-up plans just to check that for the next 2 years?

[Madhivanan Balakrishnan, executive]

So the way we are looking at it is this. Today, if you're looking at it, I'll comprehensively handling this slide because there are other couple of questions also which have come up. One was 6 new hospitals is what we are looking at adding in the next year -- this year to next year. This coming quarter, you would see us already -- we already started commissioning -- we already soft commissioned the Defense Colony Cancer Hospital. We have also soft commissioned Pune. So you will see that Pune and Defense Colony, both will start -- we will start reporting numbers from this quarter itself which is Q3.

Come to Q4, we are quite -- we will be starting the Sarjapur, Bangalore Hospital as well as Calcutta. Come to end of Q4 or early Q1 is when we are looking at Hyderabad because there are -- in Hyderabad, as you would have seen, we have -- the costs have gone up by INR 35 crores because we have now decided to add a comprehensive oncology program also there, which includes the radiation therapy equipment with results in us -- that requires some more time to build. So which is why it will be more around Q1.

Even in Gurugram, it will be more around Q1 because we have enhanced the overall facilities and doing some more of private rooms, et cetera, in line with what the market demands. So the way you should look at it in Q3, Q4, Q1. In that order, we will be looking at starting all these 6 hospitals. The balance brownfield, which is also something that we have now added. We have also started work on Jubilee Hills and Secunderabad now. So all those brownfield expansions will also come next year, mid of next year, et cetera, mid- to end of next year.

[Suneeta Reddy, executive]

And in Bangalore, Malleswaram and Mysore expansion, work has started on board. So you should see it happening next year. We will open out those beds.

[Madhivanan Balakrishnan, executive]

So by end of next year, all the census beds that you are seeing should be fully operational. Of course, as you know, we start 50% as we start and then keep ramping up. So next year is going to be quite a busy year for us. And you will see all of these fully commissioned by end of next fiscal.

[Operator]

[Operator Instructions] Next question is from the line of Damayanti Kerai from HSBC.

[Damayanti Kerai, analyst]

My first question is again on hospitals. So between now and end of FY '27, as you indicated, 6 hospitals coming up. So I understand '26 Pune will be key addition and the majority will be coming in '27. So if you can comment a bit on the impact on EBITDA margin trajectory due to the new costs coming up?

[Madhivanan Balakrishnan, executive]

So Pune and Defense Colony is this quarter, Sarjapur and Calcutta is also Q4. So from an FY '26 perspective, FY perspective, these 4 hospitals come in FY '26 itself. And Hyderabad and Gurugram will come into the next year. We continue to believe that next year, overall EBITDA losses from these hospitals should be around the INR 150 crores number, which is what would be the EBITDA losses from these hospitals, but we will come back to you closer to the Q3, Q4 to -- once we commission some of these hospitals, but we don't expect it to be higher than that.

[Damayanti Kerai, analyst]

And these losses include fully built up costs, right, once you commission a unit, most of your doctor costs, your facility costs, et cetera, are already in place?

[Madhivanan Balakrishnan, executive]

Yes, that's correct.

[Damayanti Kerai, analyst]

Okay. My second question is on your spend on Apollo 24/7. So the last 2 quarters, I think somewhere INR 94, INR 96 crores kind of spend, which we have seen. So what kind of headroom you have to reduce from these levels? Or these are more sustainable cost levels to look at?

[Madhivanan Balakrishnan, executive]

So Damayanti, when you say spend, it's a cost structure. So a big chunk of the cost has been -- as an individual entity, we have reduced it quite a bit. So this would be, in a way, a new normal, but as we get into the program of aligning between the 3 entities, Keimed, Apollo Pharmacy, PD, and we will see a few more -- a little bit more of synergies coming through as both the teams will merge. But our biggest expenses are primarily on the marketing side, so which has been -- it's come to a very rational level. So you'll see some more, but that will typically happen from the next financial year. Q3, Q4, more or less, we will, there is nothing much more to bring down on the spends line. So focusing on the revenue side of the story.

[Damayanti Kerai, analyst]

Sure. And the target of achieving cost breakeven for 24/7 by end of this fiscal remains or we can.

[Madhivanan Balakrishnan, executive]

We are on course, we are on course. There might be one hiccup in the form because we are investing reasonably strongly on the insurance side of the business. We are seeing some very good traction. We have completed some of the integration with the health side. We are exploring the life. So there might be a little bit of a hiccup here and there, but we are on course as we speak.

[Operator]

Next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

[Tushar Manudhane, analyst]

Again, just on Apollo 24/7 on the GMV side, probably INR [ 7,200 crores, INR 300 ] crores has been sort of a stable for the last 3, 4 quarters, while you already highlighted in terms of how the cost measures will help in getting the better profitability. If you could share your thoughts on how do we think about improving the GMV?

[Madhivanan Balakrishnan, executive]

So you have to look at the GMV from 3 perspectives. One, how is the pharmacy business growing within the pharmacy business itself, there were 2 levers. One, what we call as a platform revenue, which is primarily driven by Apollo 24/7 the app and the website, which has been growing at a very good pace of around 30% on a year-on-year basis. And on a quarter-on-quarter basis, we are in the range of around 5% to 7%. In this quarter, we actually exited out of a few B2B businesses, because we were considering to walk out of them because of some of the bottom line related and our quest of trying to break even. So this GMV reduction. That's why you're seeing just a 16% growth that's coming primarily from the pharmacy side. So we -- and that was one reason.

And the third was the GST, because earlier we used to report the total numbers on a total GST basis, given the advantage that we have received as an industry, it has shaved off around 6% on the top line. This does not impact us on the bottom line side. So that's the only reason. So you will start seeing the increase on a quarter-on-quarter basis because now it's a new normal.

[Tushar Manudhane, analyst]

In terms of any other, let's say, business aspect, it can -- so GST is more like a transitionary period probably. But any other aspect in terms of to drive the GMV?

[Madhivanan Balakrishnan, executive]

So we will continue to grow what we have -- our original guidance of growing between 25% to 30% on the overall. Our diagnostic business is picking up. In fact, we buck seasonality. So we will be back on course again on that side of the story. On the hospital side of the business, the business that we try to drive on the cancels. We are relooking at our approach so that we can become much more relevant in the overall scheme of things as far as the hospital is concerned. And the last one, the insurance will, like I told you, will take a little bit of time, but we have started clocking in some good numbers with just 2 cities in fray, which is the NCR and Hyderabad. You will start seeing the new businesses picking up from Q4 onwards.

[Tushar Manudhane, analyst]

So just on the hospital side, the Karnataka cluster has seen IP volume decline. If you could share...

[Madhivanan Balakrishnan, executive]

So Karnataka region, there was a drop in the medical admission significantly in that region, particularly. If you look at the drop overall of the 6% that we reported in this region, there is a medical volume drop of 15%, while surgical volume went up by 2% and Cath also went up by 13%. So I think it is really at the seasonality -- seasonal medical admissions that we see in Q2 in Karnataka or we saw in Q2 of last year definitely was not there this year. But otherwise, which is why if you look at the average revenue per patient in this region has gone up by 14% percent because the balance cases, which is Surgical and Cath that mix has a higher ARPP compared to the ARPP of medical admissions. So clearly, that's the reason.

But -- so the core continues to remain intact.

[Unknown Executive]

Yes, that's correct. And if you face those medical admissions back to last year, it was almost entirely a very bad dengue season, which we have not seen this year. So I think it is a year-to-year seasonality meaning volume that we do, especially in the high complexity specialities continues to be strong. I think that growth will continue into this quarter.

[Operator]

Next question is from the line of Harith Ahamed from Avendus Spark.

[Harith Mohammed, analyst]

My first question is on margins for Keimed. We've seen some softness there of around 30 to 40 basis points decline on a Y-o-Y basis. In the past, you've talked about some restructuring and buyout of minority stakes, et cetera, within Keimed. Is that activity over? And how should we think about EBIT margins and especially in the context of the overall marginal guidance of 7% by 4Q next year. Sanjiv?

[Sanjiv Gupta, executive]

Yes, you're right in saying this Q2, we had slightly drop in the EBITDA margins for Keimed, but this is only onetime integration and scheme-related expenses, which got accounted in Q2. So you wouldn't see the same happening in -- from next quarter onwards. And as suggested earlier also, over a period of time, we're looking at 20 to 30 basis points over and above 3.1%, which normally used to be Keimed EBITDA since last 2, 3 quarters to be happening as we move forward. .

As far as the overall 7%, which I think you're referring to the guidance of Q4 FY '27, wherein we are suggesting about INR 25,000 crores of revenue rate with a 7% EBITDA. I think we are hopeful that we should be able to hit that mark. And progress is there quarter-on-quarter. This quarter, if I look at the H1 of FY '26, we are at about INR 9,200 crores of turnover, which makes it to about INR 18,000 crores plus and EBITDA is 4.4%. I think once we get into breakeven, the margin should come closer to 7%. If you exclude the digital losses, we are already at about 6.2%. And as Mr. Madhivanan suggested that somewhere in Q4 or we will be very near to breakeven. So I think after that, you would start seeing overall EBITDA also to be in the range of 6% plus. And 1 year forward, we should be in the range of about 7%.

[Harith Mohammed, analyst]

Got it. My second question is on Specialty Care segment within AHLL. Growth has been a bit soft there, and you called out competitive headwinds in the segment. So trying to understand which verticals within Specialty Care, we are seeing higher competition? And what's the outlook here?

[Suneeta Reddy, executive]

Sriram?

[Prathap Reddy, executive]

Ma'am, the line for Mr. Sriram got disconnected.

[Suneeta Reddy, executive]

Okay. Could you repeat the question, we'll take it.

[Harith Mohammed, analyst]

Yes. So I was asking about the Specialty Care segment within AHLL. We see the relatively modest growth there for that segment in this quarter. And in the presentation, you've called out competitive headwinds for the segment. So within -- I understand there is multiple verticals like Cradle and Spectra within specialty care, so trying to understand which vertical we're seeing greater competition. And what is the outlook here?

[Suneeta Reddy, executive]

So in terms of competition, clearly, the only one that has serious competition is diagnostics because for Spectra, there is no competition. And in Cradle, it is only where our Cradles are present. There's very little competition, except in Karnataka where Cloudnine has as big market share. Having said that, I think that our focus will be on primary care. It will continue to be focused on growing diagnostics as well as growing the clinics, which is really primary case, creating clinics with GPs at the center to be able to look after community and act as a funnel to Apollo Hospitals. So this is what we are currently focusing on. And of course, dialysis continues to do well.

[Operator]

[Operator Instructions] Next question is from the line of Neha Manpuria from Bank of America.

[Neha Manpuria, analyst]

Ma'am, I think you mentioned that you expect growth to get back to 13% for the Healthcare Services business. This I assume would be organic growth and the expansion should add to this growth? Would that be a fair assumption?

[Suneeta Reddy, executive]

I think over a 3-year period, you will see that there is headroom for growth within the system. This should result in 13% growth in the existing beds and an additional 5% coming from new beds in the next 36 months.

[Neha Manpuria, analyst]

So 5% will get added over the next 3 years. Would that be right?

[Suneeta Reddy, executive]

[indiscernible] years, you'll see another 5% coming.

[Neha Manpuria, analyst]

Okay. Got it. And on the GMV growth in the digital business, could we get a breakup of what would be the split from GMV in pharmacy and insurance new businesses? And how should we see this let's say, when the business achieves breakeven? What would be the mix of that GMV? Just trying to understand how the revenue and margin should move based on this mix?

[Madhivanan Balakrishnan, executive]

Yes. Let me not give the exact breakup, but typically, the pharmacy business constitutes the biggest chunk out of this. And this is the one which has a direct impact on our profitability, because the unit economics is what drives this breakeven that we are working towards. So any kind of a growth in GMV, which is on a profitable basis at a unit economics level, straightaway contributes to breakeven. So the way to read it would be what percentage of our total GMV is being contributed through the e-pharmacy business.That's layer number one.

Diagnostics business is again directly linked to GMV, albeit the numbers are not as large as that because the margin structure is reasonably better. So that constitutes the second portion. The third layer of business, which is the hospital business is predominantly fee driven. We are more a tech services and a lead operator for the hospitals, being driven through the digital mechanism. So that is more or less independent of the GMV growth.

As far as insurance is concerned, this is more of -- the GMV equivalent in the financial services industry is gross written premium, which is what we log in. So here again, because we are approaching a model wherein we want to make insurance as affordable as possible. We are actually promoting a more EMI driven kind of a business in this model. So here again, we will start reporting the collected premium into our numbers. So these are the 4 layers, e-pharmacy the biggest constituent, diagnostics, the second big one. The hospital contribution of the GMV is primarily driven by fees and therefore, will not make such a big play. And the fourth one is the insurance business, which will come to the party in another maybe a quarter or so. And like I said, 60 -- 55% to 60% of the total pool comes from the pharmacy.

[Neha Manpuria, analyst]

And from a profitability perspective, the increase -- I mean, for us to improve margins to, let's say, the 20%, the pre-operating margin for 20%, 25% would essentially then depend on pharmacy business growing? Or would it dip, as insurance picks up scale, that would be a bigger driver of the margin.

[Madhivanan Balakrishnan, executive]

No, insurance -- pharmacy is the current driver of the business, that's a reasonably established business. But the insurance at this point of time is still on a breakeven mode. Once that get into brick-and-mortar, it starts contributing to the profitability in a much more disproportionate sense. But to read it for the next 2 quarters, I would focus on the pharmacy business.

I just wanted to highlight one more point. As we speak, just to give some confidence back to how our path to profitability is growing along. All the 3 lines of businesses that I spoke about pharmacy, diagnostics and consult business at a CM1 level has turned positive in each one of them attained the individual level. Our immediate objective in the coming quarters is to drive the CM2 and then the CM3. Like I told you, maybe the insurance business will take a little bit more time, but we'll bring that also pickup.

[Operator]

Next question is from the line of Shyam Srinivasan from Goldman Sachs.

[Shyam Srinivasan, analyst]

I know you mentioned about the seasonality and the reason why the utilization fell from 73% overall to 16% and I get it. But I'm just trying to look from a forward path perspective, right? ALOS has been consistently declining. This is obviously as we are able to be more efficient in terms of our processes and stuff. But is there a theoretical lower limit where we reach on ALOS? I think that is question one. And my point, larger point being, when will we start seeing better volume growth because utilizations have been below 70%. And is there a plan where at some point of time, we needed to go to 70 -- above 70% at all or our business model does not need to be like that. I'm just trying to compare ourselves with some of our peers whose utilizations are higher.

[Suneeta Reddy, executive]

[indiscernible] benchmark that we're looking at. ALOS has dropped by 7%. So the use of new technologies -- in the cardiac where we have minimally invasive as well as robotics. So this is really driving down ALOS and allowing us to discharge patients much faster. With regards to occupancy, I think that 70% is definitely the target that we hope to reach. Having said that, we are looking at improving payer mix. We are focusing on the corporate, which earlier, I think we had not put enough focus there. A lot of focus on detail as well as international coming back to us. With some of these initiatives, I think that we will move closer to 70%. Having said that, our metro hospitals have actually crossed 70%. And in October, the first -- in October itself, we are looking at higher occupancies coming from metro. We have a separate plan for the non-metros. Do you want to add?

[Unknown Executive]

Yes. So it's a good question, and I think the ALOS question first. A lot of -- as Ms. Suneeta said, the benefit that you are seeing are the results of us putting in driving our digital transformation, putting in electronic command centers in each of our hospitals and reducing variability. And I think we are probably not going to see sustained reductions in ALOS other than a few of our units that still need to catch up. I think where this puts us is in a place where we can drive utilization higher. We can more easily take on much higher levels of occupancy with less variation and more predictability, because the barrier to driving occupancy to much higher in acute care hospitals is the need for beds when there is high variability in patient admission. I think our digital transformation allows us to address this more efficiently. So clearly, we are targeting much higher levels of occupancy. And in some hospitals, it is possible to drive it to 80% or higher, especially when we are targeting more elective and semi-elective patients.

[Shyam Srinivasan, analyst]

Very helpful. And just a second question on the EBITDA loss guidance that you shared for the 6 hospitals. I heard it's INR 150 crores. I think Krishnan, you called it out as INR 150 crores. So I just want to understand does this hit us in the full fiscal '27? Is it spread around just from our past experience, 2015 to 2018, where some of the bed additions at that time led to like very volatile margin trajectory? Is there something that we are doing this time differently to ensure even some of the financial metrics are a little bit smoother, if I say so.

[Madhivanan Balakrishnan, executive]

No, no, surely, we are. These are all in existing markets. These are all in existing markets. So if you look at places like Delhi, Hyderabad, Calcutta, et cetera, we have a very clear plan on how we can ramp up. And as we have said, our internal target is to get all of them breakeven in 12 months. And given that it's all going to be if you look at it, it's going to be first 2 hospitals in Q3, followed by another 2 in Q4 and then Q1, there is a kind of -- it is being spaced out a bit. And yes, in the first half of next quarter, there could be a bit higher than this -- if it will not be equally spread, but then first half would be a bit higher and then it will come off. But we will start showing that separately in our earnings presentation as we have done in the past as well, so that you get the confidence that we are, in fact, to achieve those numbers that we have stated.

[Suneeta Reddy, executive]

And I believe that it won't be a significant impact on EBITDA margin because we will have strong cash flows, EBITDA of to close INR 3,000 crores as we open these new hospitals.

[Madhivanan Balakrishnan, executive]

And [ Dr. Naveen ] said, the existing hospitals also, we have room for growth, and we are working on that. So that also should start supporting in the next year on the volume as well as ARPP driven growth. So we are working on both.

[Operator]

Next question is from the line of Bino Pathiparampil from Elara Capital.

[Bino Pathiparampil, analyst]

Most questions answered. One on the insurance business. How are you selling the policies now? Is it mostly online?

[Madhivanan Balakrishnan, executive]

It's a combination of all the 3. Our first attempt is to try and sell it digitally because we have no intentions of going and spending on marketing spends and trying to get new customers. So we are primarily focusing on this INR 1 crore plus customer and a 44 million registered customers. So it's predominantly driven by digital. However, insurance being such a complicated piece, a small ticket items sell very well on digital. However, the moment the ticket sizes go into the range of INR 20,000 to INR 30,000 people seek out an assistance. So we are building a capability of a call center, which is right now 300 seater, we intend to take it up to around 500 as a capacity building and the productivity norms work out. So think of it as a combination and omni model of leads and some business through digital and the corresponding ones through a call center mechanism. We are not in the process of putting any kind of a manpower on the field. If at all any to be more from a services perspective, but that's not the channel that we are focusing on.

[Bino Pathiparampil, analyst]

And do you plan to promote it through your physical pharmacy stores at all?

[Madhivanan Balakrishnan, executive]

Here again, we will come out with some specific products such as, let us say, a vector insurance or a personal accident, which will be done more under the POSP model, but that is expected only around the next financial year. We would like to get the basics right first and then go into some of those models in which case maybe out of the 7,000, we might identify 1,000-odd outlets without putting a person on -- in the place, we are not intending to increase the cost, but we will work very closely with the APL outlets with the right kind of outlets to sell products which can be sold as a part of the normal journeys and flows.

[Bino Pathiparampil, analyst]

Got it. And in HealthCo, when you say the diagnostic business, it is a sourcing of diagnostics business, right? Your back end would be AHLL?

[Madhivanan Balakrishnan, executive]

Correct, correct, correct. So we are primarily into originating business for them, the final labs, et cetera, rest with AHLL. So think of us a digital arm for AHLL.

[Operator]

Next question is from the line of Kunal Dhamesha from Macquarie.

[Kunal Dhamesha, analyst]

The first one on the hospital business. If you look at the EBITDA margin in this quarter have remained same despite strong ARPP growth of around 9% and you also suggested that the acuity mix is kind of positive. So what is driving profitability to kind of remain same and since EBITDA margin in existing hospitals are not expanding despite the strong ARPP growth. How comfortable are we with offsetting the losses from the new units that we are expecting over the next 4 quarters?

[Suneeta Reddy, executive]

With regard to ARPP growth, we showed a 9%, which really indicates that we have really moved up in terms of complexity. To move up in terms of complexity and to mature that we are prepared for the new hospital expansion as well as growing -- getting new volumes into the old. There was considerable amount of INR 67 crores spent on doctor hiring. I think we have created an organization structure that will make sure that we will go in terms of -- we have improved sales and marketing, and there is certain costs attributed to that. We've created teams that strengthen our projects division as well as started recruiting for the new hospital. So it's a little of the cost coming ahead of the opening, which is why it seems it is at 24.6%, it is that. But going forward, we should see the benefits of all of this. And therefore, the impact of the losses in new hospitals will remain at INR 140 crores to INR 150 crores.

[Madhivanan Balakrishnan, executive]

So also, if you look at it in a very different manner, yes, last year, same quarter, we did see an increase in spike in the margin because of the medical admissions that we spoke of. However, full year margins were at 24.2% full year. Whereas if you look at H1 of this year, we are at 24.6%. So the way you can look at it is some -- we have taken steps which is evident in terms of ensuring that there is a margin flow-through, which happens because of the ARPP, et cetera. We are not seeing it because of looking at it on a quarter-over-quarter basis. But when you look at it on an annualized basis, you will see that this year margin should be higher than last year reported margin.

[Suneeta Reddy, executive]

And also there is a plan to cut costs by about INR 120 crores. I believe that we've achieved about INR 60 crores of it. So clearly, this will continue to support the EBITDA margins in the region in the range of 24.6% to 25%.

[Kunal Dhamesha, analyst]

Ma'am this INR 120 crore cost cutting, is it related to hospital business and which are the areas within...

[Unknown Executive]

So it's a broad-based approach to managing our costs. We found opportunities in our materials management and supplies. Certainly, we are looking at how we utilize our HR more efficiently given that we've made huge commitments and huge investments in our digital technologies, therefore, that is driving a lot of efficiency in how we do our work. So as we bring online new hospitals rather than recruitment, we are actually looking at redeployment that is leading to better efficiencies in how we use our HR. Beyond that, I think there will be some opportunities to reduce our ongoing costs in IT and some other costs as well.

[Operator]

Mr. Kunal, may we please request you to rejoin the queue, sir. Next question is from the line of Avnish Burman from Vaikarya.

[Avnish Burman, analyst]

My questions are on Keimed. I wanted to know that because of the GST change that happened in this quarter, how much sales did the business use as only to Keimed. How much sales loss was there?

[Krishnan Akhileswaran, executive]

You will see somewhere about 4% of the sales revenue coming down because of the -- from lot of 12% items into [indiscernible] . Something like entire 12% GST slab is removed and that consists of almost 70%, that moved to 5%, and we expect about 4%, 4.5% revenue drop.

[Avnish Burman, analyst]

4%, 4.5%, okay. And is the inventory back to normal at the customer end at the Company end?

[Unknown Executive]

It's from day 1, we have been managing that. We have planned it well, and the transition was smooth that including our 700 front end stores, we could implement this software and see the new building is done at 7 a.m. on 22nd and everything is passed on to the customer as per the regulation.

[Avnish Burman, analyst]

My question was that in that interim period, we saw the inventory coming down at the retailer level. Is that back to normal?

[Unknown Executive]

That's back to normal.

[Avnish Burman, analyst]

Okay. And one question on the margin compression. We've seen Keimed margins getting compressed by about 40 basis points sequentially and Y-o-Y. Is there a reason for that?

[Unknown Executive]

Sanjiv have already answered.

[Madhivanan Balakrishnan, executive]

Sanjiv, you can answer that again. .

[Sanjiv Gupta, executive]

This is only one time. This is related to the scheme and integration-related expenses, sir? And you wouldn't see that happening in the next coming quarters. Even if those expenses are there, they'll be very low. They will not be material to pull down the EBITDA percentage. But Q2 has happened because of these expenses.

[Operator]

Next question is from the line of Kritika Damani from Prospero Financial Solutions.

[Unknown Analyst]

Congratulations on another strong quarter. I had a question about like we have seen that the Healthcare Services has grown 11% in this quarter and your average revenue per patient is up 11%. So the occupancy has eased up to 69%. So in prior quarters, you have mentioned balancing occupancy and realization. Could you elaborate whether this quarter's average revenue per patient growth was primarily led by tariff revisions or richer case mix or structural shift in patient segments.

[Unknown Executive]

So most of the tariff increases has already been realized previously. Almost all of our improvement in the average revenue per patient has come from an improvement in our case mix. And that is evident across all of our higher complexity specialties, including cardiology, oncology, neurosciences, gastroenterology and orthopedics. And it has also been a broad-based increase in ARPP primarily in our large hospitals and metro cities, but across pretty much every single geography.

[Unknown Analyst]

All right. The second question is that you have highlighted that the artificial intelligence-led interventions in oncology, radiology and stroke care. Beyond the patient outcomes that are you seeing any measurable operational efficiences because how scalable are these models across your own hospitals?

[Unknown Executive]

So thank you for that question. Yes, we are using artificial intelligence technologies very broadly. I think today, if you go to our front-end website, there is an artificial intelligence agent that connects patients with complex medical conditions to the right doctor and allows them to book appointments. That business, which is from the website grew from last year to this year by 318%, mostly due to the adoption of a very scalable AI technology that our patient consumer-facing.

Internally, we have, as I said before, we've implemented command centers, digital command centers that have real-time intelligence can see patient flow in each of our hospitals in real time. And on top of that, we are layering agentic technologies to autonomously anticipate patient issues and proactively solve that. So I think there is tremendous potential for us to have better efficiencies through the use of AI technologies.

[Operator]

The next question is from the line of Lavanya Tottala from UBS.

[Lavanya Tottala, analyst]

Just a clarification. So you mentioned that Q2, there was an increase in costs related to hiring for hospitals next quarter? So is it right to assume that this was related to the 2 hospitals, which are expected to open in Q3 and there will be jump again in next quarter once the hiring for the other 2 hospitals to open in Q4 will happen. Is that the right way to think?

[Suneeta Reddy, executive]

No. I think some of it is correct. For example, in Pune, they have -- there is a HR cost in the hiring of doctors and we're just about to do the full-blown launch of Pune. So we do have to hire some of our doctors ahead of the opening. This will happen in Gurgaon well. And I think that for this quarter, we've captured some of the costs, there will be a little additional cost that will come in the March.

[Lavanya Tottala, analyst]

Okay. But for the hospitals which are to open in Q4, there will be hiring, which will happen ahead, right? So that should come in from Q3.

[Suneeta Reddy, executive]

Some hiring, yes. But it is not huge -- like to give you the figure for this year for this quarter. So it's not huge, but it's there.

[Operator]

Next question is from the line of Madhav from Fidelity.

[Madhav Marda, analyst]

Just wanted to check that we are at about 24.5%, 24.6% EBITDA margin in the hospital business, but we seem to have already added some of the OpEx for newer beds. Could you give some sense in terms of what the base network margins are adjusted for some of these costs that you're already building in for the newer hospitals? And then those margins, like you said, you'll report the OpEx for some of the newer hospitals separately, which is I think is a good idea. So the base network margins in your view, how do you think that could progress over the next couple of years, excluding the new beds?

[Unknown Executive]

So in the base, we would like -- we think approximate cost which is there in this quarter would be roughly around INR 10 crores in this quarter, but next quarter onwards, you'll see it increase but we will show you the split from the next quarter of our established hospitals and the new hospitals, both the revenue and the EBITDA such that it's clear for you on how it's the existing or the established is progressing as well as the news coming in. So that will clearly give you the perspective.

As of now, there are costs of roughly around INR 10 crores which is built in. And on the doctor side also, there will be almost around INR 5 crores in the doctor now. But you will see that it's being separated out from the next quarter. We are clearly hoping and working on ensuring that we should get the overall margins over the 25% in the next year and even higher on the established hospitals, which is at 24.6%, which is a combination of both revenue as well as costs that we spoke of.

[Madhav Marda, analyst]

So the INR 15 crore cost, which is built in quarter 2, that's roughly 50 basis points, right, of our revenue?

[Madhivanan Balakrishnan, executive]

It is correct.

[Madhav Marda, analyst]

So basically, the base is above 25% in quarter 2 already, right?

[Madhivanan Balakrishnan, executive]

YOu are right. You are right in the way that you are looking at this. So -- but once we start splitting out from the next quarter, you will see the exact difference coming in.

[Madhav Marda, analyst]

And that 25.1%, which we had in quarter 2, just that number, like, of course, excluding the new beds, that -- do you think there is scope to expand those margins over the next 1 or 2 years?

[Madhivanan Balakrishnan, executive]

Yes. Clearly, there is because there is headroom for growth. We are working on the clinical program. And clearly, we would -- the internal target is to take it higher by at least 100 basis points.

[Operator]

Sorry to interrupt Mr. Madhav. Sorry to interrupt, sir. Maybe please request you to rejoin the queue, sir. Next question is from the line of Nitin Agarwal from DAM Capital.

[Nitin Agarwal, analyst]

Recently, there has been a significant hike in CGHS rates by the central government. So the question here is that, a, I mean, does these hikes in CGHS, I presume it will be followed to other central government agencies, does that a, change our perspective towards government business? And two, how much of an impact does it really have on our business right now?

[Madhivanan Balakrishnan, executive]

So yes, it's at least a marginally better number that we have given. But from a base perspective, it doesn't change the views that we have been having on the business.

[Operator]

We will take our last question from the line of Kunal Dhamesha from Macquarie.

[Kunal Dhamesha, analyst]

Just on CGHS rate revision, have we kind of done an exercise where we can -- if you can suggest what is the average rate hike that we have received or the government has given for the key therapies like, Onco, cardio, et cetera.

[Madhivanan Balakrishnan, executive]

So your point is correct. See, there are certain specialties where they have increased the prices reasonably. So cardiac, onco, ortho et cetera will be reasonably better now. But the point is when you empanelled yourself for CGHS, under the rule book, you have to take whichever patients they send to us or whoever comes to us. You can't deny admissions for the others. And it's not appropriate that we take that route unless the government allows us to do that, then we could actually have selected some of these specialties and worked on those specialty. So it's a bit of a difficult way of doing that. It's not something that we have been doing in the past either. So with that, it's very -- and then when you look at the overall average realization and compare it to the insurance business or even the cash tariff, it's still a good 65% discount to the overall realization that we have. So that is -- we don't make that kind of margins you know that.

[Operator]

Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for the closing comments.

[Suneeta Reddy, executive]

Thank you, ladies and gentlemen, for joining this call. I do want to say that the management is always available. I could see there were many more questions that needed to be asked. So please feel free to reach out to us. We are encouraged by the robust growth in revenue across all verticals. And the EBITDA we've delivered despite seasonal market factors.

Our integrated health care ecosystem spanning hospitals, diagnostics, pharmacies and digital platforms. We'll continue to deliver balanced growth and improved asset utilization. Our footprint expansion will go on stream as planned and will add to strength to our clinical delivery as well as to volumes and continue growth. We really appreciate your continued interest and look forward to communicating with you throughout the year.

[Operator]

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