Max Healthcare Institute Ltd
NSE:MAXHEALTH
Max Healthcare Institute Ltd
NSE:MAXHEALTH
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Earnings Call Transcript
Other Earnings Calls
Ladies and gentlemen, good morning, and welcome to the Max Healthcare Institute Limited Earnings Conference Call.
[Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Suraj Digawalekar from CDR India. Thank you, and over to you, sir.
Thank you, Ryan. Good morning, everyone, and thank you for joining us on Max Healthcare's Q3 and 9 Months FY '25 Earnings Conference Call. We have with us Mr. Abhay Soi, Chairman and Managing Director; Mr. Yogesh Sareen, Senior Director and Chief Financial Officer; and Mr. Keshav Gupta, Senior Director, growth, M&A and Business Planning. We will begin the call with opening remarks from the management, following which we will have the forum open for an active Q&A session.
Before we begin, I would like to point out that some statements may be included for may be forward-looking in nature, and a set this effect as included in the earnings presentation shared with you earlier.
I would now like to invite Abhay to make his opening remarks. Thank you, and over to you, Abay.
A very good morning to everyone, and a warm welcome to Max Healthcare's Q3 FY '25 Earnings Call.
We are considerably pleased by our performance this quarter with over 30% year-on-year growth across parameters such as revenue, EBITDA and occupied fees, notably supplemented by the growth momentum of our recent acquisitions. We are happy to share that we achieved EBITDA breakeven in December 2024 within a record period of 6 months from the launch of our greenfield hospital [indiscernible]. This hospital reported a revenue of INR 59 crores and an EBITDA loss of INR 5 crores in Q3. [indiscernible] year-on-year growth of 58% in revenue and 94% in EBITDA, while Max Natpar reported year-on-year growth of 22% in revenue and 50% in EBITDA in the third quarter. Additionally, JB Healthcare Limited became of Olin's own subsidiary of the company during the quarter. JP Noida is presently being integrated into our network and reported a gross revenue of INR 112 crores with an operating EBITDA of INR 23 crores at a margin of 21% in the third quarter. We have now been able to demonstrate remarkable operating efficiencies across all formats of inorganic growth, mainly greenfields, acquisitions and brown trees. This fortifies our confidence for the upcoming phase of accelerated growth driven by significant brownfield additions within the next 6 months. Consequently, we continue to strategically pursue inorganic opportunities. We're expanding our footprint in the Mumbai metropolitan region through our foray into the attractive pali micro market, given its rapid urban growth and proximity to Mumbai. Our Board has accorded its approval to enter into an asset-light built-to-suit agreement for a 500-bed hospital at a prime location in Tani to be set up by the partner as per our specifications on a built-up area of approximately 6 lakh square feet. The hospital is expected to be commissioned in 2028. This marks our third asset-light transaction designed to drive growth and maximize potential return on capital employed with minimal investment. The Board has also provided this approval for enhancing the capacity of an upcoming asset-light build-to-suit Hospital in Mohali Zero to 400 beds from 250 beds planned previously.
Now coming to the third quarter performance highlights, which is our 17th consecutive quarter of year-on-year growth. Our average occupancy for the network stood at 75% versus 73% in Q3 last year and 79% in the trailing quarter. While the occupied bed days grew by 36% year-on-year and 8% quarter-on-quarter. Average revenue per occupied bed for the quarter stood at 75, remaining relatively flat both year-on-year and quarter-on-quarter. Like-for-like ARPU for existing units, however, grew by 7% year-on-year and 3% quarter-on-quarter. Network gross revenue was INR 2,381 crore compared to INR 1,779 crores in Q3 last year and INR 2,228 crores in the previous quarter. This reflects an increase of 34% year-on-year and 7% versus the trailing quarter. New units reported a gross revenue of INR 323 crores in which, while existing units registered a year-on-year growth of 16% in revenue driven by 8% growth in occupied bites and 7% growth in our box. The international patient revenue stood at INR 201 crores, registering a growth of 28% year-on-year and 8% quarter-on-quarter. Despite contraction in patient footfalls from Bangladesh in EM due to political unrest. Network operating EBITDA stood at INR 622 crores, reflecting a growth of 32% year-on-year and 10% quarter-on-quarter. This includes INR 60 crores EBITDA contribution from new units. Network operating EBITDA margin stood at INR 27.3 crores for the 27.3% for the quarter existing units improved their EBITDA margin by 70 basis points to 28.6%. Annualized EBITDA per bed for the network stood at INR 7,300,000 like-for-like EBITDA per bed for existing units stood at INR 32.6 lakhs, reflecting a growth of 9% year-on-year. Profit after tax before exceptional item was INR 390 crores versus INR 338 crores in Q3 last year and INR 349 crores in the previous quarter. reflecting a growth of 15% year-over-year. The exceptional item of INR 74 crores was towards charges paid to Yamana Expressway Industrial Welfare authority for securing permission for a gin in shareholding of GE Healthcare Limited prior to acquisition. Overall free cash flow from operations was INR 303 crores during the quarter, INR 362 crores was deployed towards ongoing capacity expansion projects and upgradation of facilities and acquired hospitals while INR 146 crores was distributed as a dividend and INR 1,716 crores, net of cash at JP Healthcare Limited was used for JP acquisition. Consequently, net debt for the network stood at INR 1,608 crores at the end of December 2024. We Continuing our efforts to support the local communities, we treated approximately 37,500 outpatients and 1,300 in patients from economically weaker section do society entirely free of charge worth INR 52 crores at hospital tariff. Both our strategic business units continued to report significant growth in the revenue and profitability. Max at Home reported a top line of INR 55 crores, reflecting a robust growth of 24% year-on-year. It now offers 15 specialized service lines across 14 cities with over 50% repeat transactions. Max Lab reported a gross revenue of INR 41 crores, reflecting a strong growth of 22% year-on-year. It provides services in 48 cities through its network of more than 1,200 collection centers and active partners.
Now coming to the status of our expansion projects 128 beds at Maxar now beds have been commissioned in January 2025 and balance 64 beds will be added in February 2025. Further, we are waiting in principle approval for the existing 13 to 17 floors for hospital use, which will add another 140 beds almost immediately. 127 let at Max Napo, 12 beds have been added in October 2024 for the balance was on a digital flows, we're expecting the environmental clearance to come by March 2025. project completion should be another 24 months thereafter. For the 268 beds as Nanavaty in Phase I, interior fit-out works and progress currently, the project continues to be on schedule, and we expect completion within the next 3 to 4 months. 400 beds at Maxar at Saki complex, majority of the structure was complete. The project is on track, and we expect completion within the first quarter of FY '26. 15 beds at Mali, the interior work is in progress, and we expect this completion again by the first quarter of FY '26. 500 beds at sector per gram structural work is in progress. We expect completion of the first raise of 300 beds by end of Q3 FY '26. All of these are inserted and we will see significant ramp-up in our capacity over the next 12 months, a large part of which is coming through Nanavati for Hali and Maxmat within 6 months. Thereafter, 367 beds and perfect receipt of environmental as teeing work is in progress currently. This project is largely unsecured. 550 beds at a Max Pirana, the forest approval is delayed due to Supreme Court proceedings in relation to 3 selling involving DDA as a retained [indiscernible] governor of dealing for the past 6 months. They have not committed anybody to remove any of these in there. But we think that this should get fairly resolved soon or other statutory approvals are increased. 400 beds, no objection certificate from fire Indus has been received. The project is expected to be completed within 30 months. And finally, moving on to the go view of company performance for 9 months ending December 2024. Network gross revenue stood at INR 6,636 crores, reflecting a growth of 25% year-on-year. New units contributed INR 585 crores for the gross revenue. Overall network operating EBITDA grew by 20% year-on-year to INR 1,687 crores, reflecting a margin of 26.6%, while EBITDA per bed stood at INR 71.5 lakhs. Existing units reported an EBITDA margin of 27.7% and EBITDA per debt of INR 78.5 lakhs. Max upon demonstrated year-on-year growth of 41% in revenue and 67% in EBITDA, while Max Natco reported a year-on-year growth of 26% in revenue and 118% in EBITDA within 9 months of acquisition. Since becoming operational in July, Mactaclocked revenue of INR 92 crores, an EBITDA loss of INR 29 crores. this greenfield hospital achieved EBITDA breakeven in December 2024, like I said, a record of 6 months from its launch, as highlighted previously. During the 9 months, we generated INR 1,025 crores of free cash flow from operations after interest, tax, working capital changes and routine CapEx INR 793 crores was deployed towards ongoing expansion projects and upgradation of facilities at acquired hospitals, INR 146 crores was distributed as dividend and INR 1,716 crores was used for TMB acquisition.
With this, we open the floor for any Q&A.
[Operator Instructions] The first question comes from the line of Amey Chalke from JM Financial.
Congrats to the management on good set of numbers. So the first question I have is on the revenue from the existing units. It seems that quarter-on-quarter from Q2 to Q3, the revenue has remained largely flat despite being the weak quarter of quarter 3, is it possible to explanation on the front, where we have seen the improvement or performance improvement during this quarter for the existing units.
So Amey, basically, quarter 3 is typically a weak quarter because of -- you have stars in this quarter. And if you see the history, you will find that particularly the revenues down by 2% to 3% and EBITDA also dropped by 2% to 4% in this quarter. Despite that, right, because spend this time it's flat. And in fact, the EBITDA has improved over the previous 2 to 3 , right? So that way, I think the performance has been much better, and it's daily because of the fact that the Diwali month, right? Typically, you see occupancies drop to around 6%, 7% range. But this time, we had very, very healthy occupancies even during Diwali. And that's what made all the difference in this quarter.
You must look at it on a year-on-year basis because of seasonality. Every quarter must be seen on a year-on-year basis rather than sequentially quarter-on-quarter.
Sure. No, because I was expecting a drop this quarter, considering it is a seasonally weak quarter, that's why the question was okay.
Basically the value has a got a difference. Articularly the optimists do drop, but this time did happen, then also with the fact that the 1 asset end of the month, that also never helped. Middle of the month and have more effect.
And second question I have, we were expecting a price increase for some of the insurance schemes. So has that been taken place? Or do you expect in next 1 year, any price increase to happen on the insurance side?
We're not expecting a price increase on the insurance side. I think that happens. We are looking at a price increase on the institutional side. I think we're still expecting that it's long overdue. I believe this should come but let's see what happens on that. It's mostly on the institutional side. On the insurance side, it happens on a rolling basis. So I mean, whichever insurance contracts come offline every 2 years, that kind of -- you get new rates over there. So that's happening as a course of hiding.
And if you see our therapy mix, it has continued to improve. The oncology mix would also improve from quarter 3 of last year to this year. considering the new bed addition, which has happened, would have a little bit lower oncology proportion, I believe, for existing hospital, the mix would have moved up sharply. So where should we see the optimized mix for the oncology revenues going ahead?
So I think on the new hospital, it should be increasing considerably, in fact, because for Lana, for example, the new bunker is yet to get ready. I think in April, May, I think it's coming on stream. So that should increase what happens without radiation oncology, even the other programs suffer in as far as oncology is concerned. So you will see a major uptick over there. I think we are looking at the new bunker coming on stream even in Dwarka. So right now, the facilities without a bunker. So there's no relation quality that needs to take over there as well. I think besides that, even in JP, et cetera. So we are going to see further increase in oncology. You're absolutely right, the current pie also takes into account improvement or increase in oncology business, but that number is kind of subdued to pull down the new hospitals, new acquisition, where we are looking at perhaps a significant increase in oncology business.
Right. Just to add more like which would be the hospital which would have highest oncology mix? And what would be that number so that we would know the upper limit for the oncology.
I can't give you the hospitalized numbers. But I mean, the very fact that we have 5% plus as a percentage in the overall setup. Obviously, then the hospital, which will be in the range of 29%, 30% also. But or the new as will be lower, right? Potato be around 12%, right? So those are kind of in will be single digits again also on the personnel. Yes. Loan. So it's half the [indiscernible].
Sure. And just last question. The PHS profitability has pulled down a bit this quarter. Any reason for the same?
No. So I think you don't see it in the overall aspect. And it is read the notes out there, these people have collected some money to the other costs. So that is how you see that there. And also, we have revised the fee structure for 2 of the pages. So which means that there are more upstream happening on the first column, right? So we're getting more fees into the especially from Balaji and media.
It's more less pocket by profit. Yes.
The next question comes from the line of Sumit Gupta from Centrum.
Am I audible?
Yes.
So [indiscernible], it is really good. So I just want to understand how the market is panning out and what kind of trend do settle the overall profitability going forward?
Market. How the market is panning out and?
In the profitability going forward for the [indiscernible].
So I'm not going to give you any forward guidance, but the market is panning out very well. Like I said, we are launching another 140 beds. The recent we are doing that because the occupancy is -- requires that. Sorry, 64 beds have already been commissioned in the month of January. These are new beds and another 65 ward beds will be commissioned in February. So in the current months. And thereafter, we're looking forward to another 140 beds, which can immediately come online post approval. So we have requirement of the beds, and that's what our trajectory kind of -- that is what we're anticipating. And therefore, we're getting the beds online. We're also looking at the new bunker to come on stream over there. So with the new Bank utilization Cology business, the daycare business, all of that sort of increases. So -- and we are seeing very good traction with clinical claims building in nucleation and so on. So I think, yes, let's now as a significant amount of movement over there.
Okay. So what is the competitive have been intently being standard or like in what is the tenant?
What is the what?
Outer intensity [indiscernible].
The same as earlier. So there's a quota and there's mean. The same possibles tend to [indiscernible]. Yes.
I mean there is [indiscernible] there this a polo there, and there are so them. And then there are other smaller mesh and hospitals.
And sir, on the [indiscernible] subsidy, then the decline overall profitability was a left.
It's got to -- but Q-on-Q is -- like I said, it's a seasonal business, right? You can't look at Q2, we have a look at Y-o-Y.
The next question comes from the line of Damayanti Kerai from HSBC.
My first question is on your debt side. So INR 1,600 crores net debt after payment or JP, et cetera. So now in view of multiple projects coming in like coming quarters or years, how should we look at the funding side? And then maybe you can just like give your upper little bit for net debt to EBITDA, like what will be your upper talent there.
So our upper limit is 2.5x net debt to EBITDA, okay? I think we are far from that. Most of the -- well, the new wells that we've announced, such as Mohali, Zip as well as Honey they are both asset-light models. So the developer incurs the cost we are selling these spaces from them thereafter. Data expansion, again, is in a similar line, which is an asset-light model. As you're aware, the clarity itself is asset-light model. Now other than that, we are looking at, I think, INR 500 cores to INR 600 crores over the next 3 to 4 months of CapEx towards the brownfield and then thereafter. But yes, our overall cap is 2.5x debt to EBITDA. This would improve not only current CapEx, but also any further inorganic growth or whatever we may do including on an off-balance sheet debt. And we are at 65 is pointing after this taking the optimistic.
Okay. So comfortable don't go for any strategy?
Yes. No, we are very conservative on the debt side. I mean.
Okay. And just if you can remind us like what kind of cash is currently generated from the existing business?
So this quarter, we ended INR 303 crores of free cash flows. This is after tax, after working capital increase, maintenance CapEx and any interest.
So on an average, we can assume like INR 100 INR 1,200 crores of cash per year is getting generated against your all growth needs.
Well, hopefully, more given the growth quarter-on-quarter or the year-on-year growth that we have.
Okay. My second question is on price increase, which you mentioned on the institutional channels. Can you elaborate? Are you expecting something to come up on the feces rate? Or what is it regarding?
That's right. We're expecting something to come up in CDS rates is also impact to the ES business. Having said that, in spite of the listing, we have been sort of selective in the kind of specialties we've been attracting even in the institutional business. So the gap earlier used to be 44% between our cash rates and institutional. Now it's come down to 36%. So the debt has also reduced. On top of that, we're expecting better rates now ramming through on CDS. But we been expecting this some time. My hope is that it comes in this quarter.
Have you heard any announcements on the government and you mentioned next 2 to 3 months, right, you're hoping to hear something?
No. We've had many assurances from the government, and we continue to have them at the highest level, but it does until it comes to, it doesn't come through, right?
See. Okay. Great. And then my last question will be on institutional venture, so which is around 30% for the quarter. So how should we look at, because earlier you mentioned your endeavor is to bring it down, right? But eventually, I understand you will take up screen patients even when you have a bed to wrap, but any like guidance or any target in your mind for this part of the business?
So see what happens is that as we add new hospitals or new capacities, right? The institutional business is going to go up with that. Our endeavor is not to reduce institutional business. Our endeavor is to accommodate growth in our preferred channels of business. But if I can do both, I don't have a problem doing it. You distill it when you have a capacity constraint, if you're able to sort of add more and more capacity to it, okay, because even the institutional business is contributing, right, towards your fixed cost. So as not to unless it was a loss-making business, then you will be doing it in the first place. The first choice is to create more capacity, okay, to accommodate that business as well as any growth in your CTI or your preferred channel business, okay? And wherever you can't do that, you start distilling the business.
Okay. So you have the flexibility to play around with this mix, right, to optimize the asset utilization.
We've done that, right? So you'll see plenty of facilities where we brought it down to 0. But now you'll see that some facilities that we open up now, let's say, Bombay, we'll start that business because we're coming up with new capacity first idea to fill the beds contributes, you've seen it in the same background for example. But having said that, even with the lower rates, our EBITDA per bed is higher, typically because you've got operating leverage also, right? When you're adding brownfield capacity of existing hospitals. So if you take the example of that port, Nakul used to operate at a 55% to 60% occupancy. But we've been able to ramp up the occupancy by taking in the institutional business, then we need to do before that acquisition.
And the immediate fallout of that is it all circulate down to our EBITDA. So you better off taking where you have idle capacity. But if you don't have it capacity, then you should not be to institute the business. You should take it to businesses where you have a [indiscernible] capacity? Great. I mean you take Q2 business, it ports down to EBITDA, and you have higher EBITDA for debt on the incremental institution business.
The next question comes from the line of Prashant Nair from Ambit Capital.
Can you share details on how much your investment would be for the [indiscernible]?
Prashant, but your audio is not clear. Could you please lift your receiver and speak your question.
Is it better?
Yes.
Yes. So my first question was on the Mumbai project and the additional beds that you intend to add in Mali. Both are build-to-suit projects. What would your investment outlay be for these 2 assets.
Potentially, it's going to be medical equipment, which will be, let's say, about INR 150 crores to INR 200 crores. But that only happens at the end when it's constructed, right, the last 3 months, 6 months over ever. Yes, about INR 39 were bad, but it's all back ended. Medical equipment comes after the entire project is almost complete.
Yes. So and Mumbai you intend to operationalize in fiscal '28, is that right?
No. In a -- yes, -- it takes about 3, 3.5 years to bid after including permissions.
And Yogesh, for your business, would say 65% cash conversion be kind of a reasonable number to work with, assumption to work with? Or can this change say, at any point over the next 2 years?
No, I'm not [indiscernible].
I think you're referring to EBITDA to free cash flow.
Yes. In just surprise the right number. I mean we only hope that the tax numbers will come down going forward in terms of cash outflow. So this should be put it.
The next question comes from the line of Tushar from Motilal Oswal Financial Services.
So first 1 on the hospitals which are coming up over the next, say, next 6 months. So with respect to those, what kind of operational cost addition can be factored or FY '26?
This is for the brownfield?
Yes, sir. Those ones which are coming up in, say, FY '26 Mohali, Maxmat a any.
Marginal operational cost because the all brownfields. We already are incurring all the major costs in the existing hospitals.
Exactly. Sir, secondly, with respect to this build-to-suit where the investment is lower, but accordingly, I mean subsequently, as and when, let's say, the steady-state occupancy of, say, 55%, 60% as an when that happens, what kind of margins we are sort of assuming this build-to-suit because there would be rent share or there could be some revenue share with the partner unlike own greenfield brownfield expansion. So what kind of basically trying to understand what kind of margin dilution happens.
You have to look at what we get vis-a-vis what we invest. So you have to look at it on a ROCE basis, right? Now if 50% of the capital cost in this case, which is land and building is incurred by the partner. And you're looking at that 8% or 9% yield right? And we enjoyed a 35% ROCE at a stable state on the whole hospital. You can imagine what it does to your 20% contribution. Your ROCE goes beyond 100% effectively, right? And most importantly, any cost and time overrun you're insulated against because that is to the partners account and not to your account.
Understood. And what kind of ARPOB using this -- these locations can direct compared to, say, metros or plans where you actually have to 250 that's sort of assumption for these locations?
I think an is metro does. I don't think there's any difference between Tanin what teeth Mumbai spray operating you have some listed players like Jupiter I think, which are operating in a 0 to 8. I think 75,000 to 80,000 is our at present, 3 years later, hopefully, it will be more. In Mohali, should be no different from our existing hospital in Mali, which has effective, which is about 55,000 ARPU at this point of time. 3 years later, it should be more -- we are where our probes growing by 7%, 8% every were per year.
Got it. And just 1 more on [indiscernible] given the current occupancy and current profitability affect the existing centers, while the -- so the growth will be more driven only by bad now, given that the operational efficiency is largely in place? Or do you think there is still some more efficiency, which can drive the profitability while [indiscernible] drive the volume growth.
So when you have higher occupancy, obviously, you have the cost also deferred to larger number of beds. So automatically, you have operational efficiency coming through. Other than that, like I mentioned, you have day care, which is really your radiation and so on and so forth that there's no banker over there right now, which should come on stream shortly. I think it's going to by July. It's coming on stream. And thereafter, you'll have a higher amount of ARPU emanating from that particular facility. The other clinical programs, equipment, which is in online, which is coming, we ordered these equipment, it takes time for it to come and so on. So I think all of this will contribute to higher ARPOB, better operating efficiencies and so on. Also, some of the doctors are doing during the quarter, right, quarter 3. So obviously, there'll be a full quarter impact going forward.
Understood. And just 1 more, if I may. On given the kind of size of revenue, in fact, it's a little smaller in the overall scheme of things, but just to understand here, in terms of the current the occupancy, which is sort of dragging down and subsequently having impact on profitability, even if I leave aside seasonal impact. Still just to understand the potential to add another 150 beds.
But the occupancy on a year-on-year basis increased last. Quarter 2 was 91%. This quarter is 79%. So we know that in they had the vector-borne last quarter. So other seasonally, it does happen.
It is quite good there. 79% is by no means a low occupancy in a low season. I think 79% midnight occupancy. And like I said, it will take us 24 months to build additional beds I have no doubt that even if you take a 5% increase in occupancy over the next 2 years, okay, orally occupied out. And do keep in mind that you create infrastructure for your peaks, not for your trust. So peak occupancy was 91% last quarter.
No, I meant to say that at 79% occupancy, we are at, say, INR 5 crores, INR 4 crores revenue, INR 11 crore EBITDA, which is like roughly 20%. So from a profitability point of view, we are more or less there and still -- and then given the kind of profitability share, we intend to still add 15 be is what I'm trying to ask. Or is the EBITDA margin still possible to get better at this site.
Of course, it is better to -- possible to get EBITDA -- higher EBITDA margins. Also the new were -- if you say occupancy is not an issue, okay? Then as far as the higher occupancy is concerned, you also had a huge amount of operating leverage, right, because it's a brownfield See, EBITDA per bed is significantly higher than this basis, you also have to visualize this basis the entire ROC that we're shooting for, which is 20% to 25% within 4 years.
The important aspect is that we still have to get to the respectable ROC, right? We are -- I mean, our target is 20%, 25% range. We are at 10%, 11% ahead now. So we have to have those additional beds to get to the dose level. And that's how it was all planned probably are possible Keep in mind, this is only the 9 months, right?
The next question comes from the line of Rishi Mody from Marcellus Investment Managers.
Am I audible?
Yes. Yes.
So Abhay, I just wanted to understand this partner health care facility. So we have used the profitability there to fund the new Vikrant and the other, which is again of the HF facility. So I wanted to understand, like do. Just control the cash flow? Or do we have ownership over that free cash flow that these Balaji, society and all of these guys create? Like can you give out that money as dividends to the shareholders or not allowed to do that?
No. So there's no dividend to be declared for society, right? But 1 society can obviously contribute to the other society if the objectives are right? So for example, Balan Society and discrete objectives are same. So if they have certain obviously, to net to the other society to use it for their perception propose and that's what we did, right? But what has -- what the upstream to the main company , right? But the moment you mainstream is the company, then you get only with a tax. So endeavor is orders to -- if you need a case study, move it from month scores, but you can upstream it. But you have [indiscernible].
You have the ability. Your question is, can it be a dividend? Yes, it can be upstream and then dividend, but of course, you'll be paying a 25% tax.
Okay. Got it. And second, you mentioned on the PSF, the fee has been revised. What's the change like today, I'm guessing we are getting around 25% to 28% of that revenue out as fee, which is recognized in our Max Healthcare revenue books what something.
Every 2 years, the case has revised in each of these Fright. There's a tenace and we review the cost, et cetera, and based on that and the cash flow and based on that fee is very late impact and role will be around INR 25 crores for the season. I don't know the percentage, but at the absolute amount of fat and obviously aim into the ML through the MSAs that we have.
Okay. So we will get extra INR 25 crores going forward? From biology?
Yes.
Okay. Second, on the Pan hospital, so I said that the lease is only for 5 or so initial lease and then you have 2 renewals versus when I look at the Zirakpur 1, we have around a 20-year lease with some 20 year renewal. So just wanted to understand, like, is there a risk of that property post we're getting it being taken away by the developer and being given to someone else for a higher rental or like why did we get into only a 5-year lease. And secondly, due to the 2 renewals post that 5 years, how many years are there for? And who has the right for that renewal?
There's 2 things. It's not 5 years or 3 years, it's actually 15 years. I think there was a -- so it's less years 15 years after that can is that after 12 months of operations, we have a call option on it, so we can acquire it at any point of time. right? We can acquire it, we can sell it down to a REIT, we can acquire it and nominate somebody else on whatever else it is.
Then you'll understand the commercial logic based 5-year lease date, got to pay higher stand duty. So since we have the option with a swell did a call and then redo it [indiscernible].
Okay. So like 5 plus 5 plus 5. Okay. All right, just fine. Second, the last question from my end is the IRDAI regulations or the guidelines that have come through.
Sorry, just 1 -- I just want to go back to that point. It's 15 years with the call option at our choice.
Yes, to buy the property within 12 months, I heard that. Yes.
So don't look at only 15 years. We can always sort of change the 15 years and extended, we can buy it, and we can explore gets an or may somebody has to buy on the same lease.
And what would be that amount if you exercise the call option, like how much do you have to end up paying to the developer?
It's a cost thing, I think debt cost.
It's a cost and very nominal yield on the management of the project.
Okay. All right. So 1 crop of that would effectively INR 1.5 crore or would become the cost if you end up acquiring it.
Yes, that's a large range of 1 to 1. The real cost is for putting a project up is about INR 19 to INR 2 crores per day for a clean fix, so that's the rawest cost.
Okay. So last on the IRI guidance or that's come out today or yesterday with the decided to cap the increment on senior certain insurance policy price hikes? And they've asked these insurance companies to act together and negotiate with hospitals and bring it closer to the MI rates. So just wanted your view on, firstly, how much of our revenue within the insurance pool comes from India cartoons.
And secondly, like do you see any credit negotiation impact from this instruction?
So there's no rate negotiation impact. In fact, I see a benefit from it because the number of people who may be going out of the insurance net because that premium goes, there's a step jump in the team now won't go out of the insurance net because of this, right? Because then it's more valuable as far as premium is concerned, there is no premium change between -- sorry, there's no renegotiation of different group, it's not cut that way. I mean what's the cost saves, right, whether it's for a seniorities from our standpoint.
And giving a price of 10% per year, what we negotiated the insurance companies is around 10%, 12% for 2 years. So insurance line logic was to continue through and do the reflective increase that cost to the extent most is lesser than what they are lying anyways. The insurance. Price change on insurance, okay, every 2 years is about 12% to 13% at best. So that comes to inflation medical inflation of about 6% per year effectively, right, at 5.5% to 6%.
Right. Yes, I got that. So that's secure part. Just like -- these guys collectively, the insurance companies collectively coming in and bargaining, does that impact [indiscernible].
That would be a competition commission issue rate. I don't think cat -- but no, I don't see any -- I mean, if that was to happen, then they should be kind of getting together and negotiating current aside. So why would you take 1 segment. Like [indiscernible] said, I think if I increase is 6% per year, and they have been permitted 10% per year where the problem.
The next question comes from the line of Sangeetha from [indiscernible] Advisors.
Hello. This is Andres Sangeeta's husband. I think she's going to the loo. I had 1 question regarding the payer mix. How much of the payer mix is in control and to the extent that is in your control, what are the steps that we are taking in the next year or so to hopefully, in favor of higher profitability.
So it is not -- I mean it's a prime disease, right? Effectively, we start adopting. You have to align yourself with what the market demand is. One, you move towards higher technology, of course, okay, and with perhaps more robotics and more higher-end program, that is what drives the clinical mix.
No, I'm talking the payer mix.
Sorry. As far as the payment is concerned, we've seen there's an increase of 28% in international business. So this is because we've engaged deeper with various geographies that we get pacing from as far as the domestic patients are concerned, up countries, 40% of our business that's been growing at very fast clip of some 24%, 25% or majority of it is CTI, which is cash and TPA related. So all of that is growing at a faster clip. And so we want to have deeper engagements with upcoming. And I think some of these things and other activities that we do to engage with the communities that should enhance the preferred channels for us.
The next question comes from the line of [indiscernible] from Nippon AIS.
Congrats on a good set of number. Just wanted a season I just want to understand that on a consolidated basis, for example, our EBITDA margin is somewhere around like current rate is around 27%, but you to assume for natural hospitals. I just wanted to understand for the asset-light model might I understand completely that ROCE would be very much attractive. Just wanted to understand what would be -- what would the EBITDA margin number for the mature business was asset like model. It could be around 20%, 25%. Just wanted to understand that range.
Post India, right? The rental line comes below EBITDA.
But on a pre basis, what would be the image take out.
It should depend on what the maturity of the hospital is the SP1 It should be around 5% a 56%.
The next question comes from the line of Neha from Bank of America.
Just 1 clarification on the Mumbai expansion. I think once the new tower is commissioned, we are planning to phase out some of the older ones and rebuild that. So would the net addition still be the 268 beds that we've talked about? Or should I also adjust the beds that will be going off for some time until we get it back. How should that phasing happen?
Yes. No, it is going to be a net reduction there. When we start Phase 2, okay, which should be almost immediately, you will have a reduction of 100 bps okay. So your net addition is 168 beds on the current 300.
Yes, we are adding currently 283 beds. After that is commissioned, we will be we have to pay it down 160 beds. The immediate will 100 beds. The next will be adding 161 beds and take down other 60 bps. That's a phrase of 1.5-year, 2-year period. So net reduction eventually will be 160 bps and net creation would have been for around 50 beds.
To state, there's no reduction there. We have to take a call on reduction once we do the Phase 2, then the reduction right?
So the Phase II is not happening immediately.
Yes, you will -- at that stage, you bring down about 100 beds. And we'll bring down 100 beds.
Okay. Understand this is over the next 2 years. This entire process will get completed in the next year.
That's right. But the beds which are being pulled down, okay, are water style, et cetera, while the -- so 1 of the things we've been able to do true this expansion is rightsized beds because the kind of bets that we have demand for and occupancy for are single beds and beds and so on, whilst the present facility, 1 of the reasons that occupancy levels typically have been lower over here at Nanavati compared to the rest of the network is because a lot of the petro old-style word style nightingale watts. Those are the beds which are getting pulled out. So we are rightsizing the beds. So the net impact shouldn't be that much. You're getting what is required, maybe almost a 90% occupancy single beds, et cetera, those continue water side, a lot of the work site in what, et cetera, come down, which any case on.
Okay. So there won't necessarily be a financial impact from it because of the rightsizing of it. But then how should I think about the improvement? Because I think 1 of the areas that we wanted to improve was also the margin of the Nanavati hospital. So does that start happening once we've commissioned all of the wine completed Phase I fully.
Absolutely. It happens with 2 accounts because 1 is your number of beds, right? Increases. So right now, let's say, if your operational beds you occupied by the 30 to 40. And even if you take an increase of about 150 -- 40, 50 beds on top of that net increase, okay, looking at 50%, 60% more capacity addition, right? So what you're having is you'll have the same cost structure, a defrayed more number of beds and even the highest cost structure defrostiness in the right size beds. So you will get the operating leverage and your margins will certainly go up.
Understood. Okay. That's helpful. My second question is just an extension of the previous question. I think there has been some chattering insurance companies about getting together and trying to negotiate pricing, even using IRDA as 1 of the agencies does that. I know you mentioned competition commission, but do you see that as a risk when we're thinking about pricing with insurance, could that 10% over 2 years, be much lower as we think about the next, let's say, 3 to 4 years depending on how this process progresses.
Not at all. I mean I haven't seen any approaches, any discussions, anything other than that. I mean, IT is actually the regulator for insurance companies. So I don't think insurance companies met under the umbrella and have ILD negotiated that or get into the discussion, et cetera, because I think it is far beyond their mandate, right? I mean, other than a conversation like this where you're mentioning the rumor, okay, and that also for infield that have sort of come my way. there's never been any approach on that. I think secondly, I think most importantly, the moot point is that, look, medical inflation is 6% to 7%. Okay. That's the increase we get okay every year. Just get it every 2 years. So it shows up at a 12% increase every 2 years, but the fact is 2 years on an annual basis, it's still 5% to 6%. My salary increases is pretty much that. any increment that you see is on real growth, which is new technology, new thing, what is coming, of course, in terms of percentage margins, you get less patches. But in terms of value, you get more do understand, eventually, all the innovation, which happens in the health care sector eventually has to pass through the dose of hospitals, right? I mean the same hospital 30 years back, we had to do conventional surgeries and now to income robotics, the same hospital, which is to CPG best are doing transplants now. We need to have gene resurgence working on oncology. Now you have organ specific oncology got radiation, you got key models, you've got other robotics, et cetera doing those surgeries. So all of that, you go up to value chain as well, right? So there is real growth.
Also if the insurance companies that organized, I think there's -- on the other side also, I think the hospital channel or a one, right? They can also be a collective bargaining on the hospital side. That's easy to infect hospitals are far lesser in terms of if you take GM.
Yes. Yes, the demand-supply equation, I guess, is in your favor.
Not only that, also the density of beds, right? I mean we are dominant players in Dalian CR. I think some of our peers are in their own markets, et cetera. So if you kind of dissipated across the country in a different manner, I mean, today, look, we've got more facilities. We've got 15 facilities in Delhi and we advised the number of facilities over the next 3 listed players put together. So literally, 3 players get together, okay. I knew what another 20 players are not in the same size. So your bags slightly different than [indiscernible]. It's not even a question of bargaining part. I think it's a question of what is right and what is the 5% to 6% growth ever in pricing every 2 years. It's not something that you can way, right? How much lower do you want to be the question?
We take the next question from the line of Kunal Dhamesha from Macquarie.
The first 1 on the part, while we have done very good job of breaking even. Based on our reported number, if I look at the indirect cost in Barka Hospital for the 140 bed, it seems to be roughly around INR 150 crores, INR 160 crores a year. assuming that our direct costs are similar in line with the network average. So my question is, given that we are going to add almost from 1,400 1,500 by next year, how should we think about the indirect costs related to that? I know there are some brownfields, et cetera, as well. But again, these countries are separate towers versus the current towers and all that. So there might still be higher kind of indirect costs there. So let's say, all in all, this 1,500 beds, what is the net cost that we should assume whether it's INR 1,000 crores or INR 800 crores? Or how should we think about that?
No, I think the way you need to think about is that indirect cost is not linear, right, and it is not -- sorry?
It would come primarily in the first year and then operate on [indiscernible].
Whatever indirect cost is you've been incurring, okay, up till breakeven, we've incurred in direct costs, right? The indirect cost okay, 40 beds, we have broken even, correct? Thereafter, every bed that you had, your indirect cost is not going to be linear, right? It's only a direct cost, which is going to be the thing. Our indirect costs will be just some nurses and some resident doctors, et cetera, which is a marginal cost. So what is going to happen is every bed that you add, the revenue from that bed, okay, will give you a lot more leverage on your EBITDA. So a lot more for almost our entire contribution margin. So let's say if you're operating at a 60% contribution margin, okay, 50%, okay, of your top line? Or that means almost your entire contribution margin will flow to our EBITDA. Because your indirect cost is not linear. And that is and therefore that is the basic principle of any brownfield or opening any hospital. And frankly, I think over the next few quarters, okay, you're going to see that being demonstrated.
And those beds are not coming in new tower, the existing structure already has 300.
It already has the bed [indiscernible].
We only opened 140.
Correct. Correct. Correct. So once you operationalize another 160 beds, there would still be some incremental costs related to it, right?
If you have a hospital, which is 8 floors, okay, you operationalize 4 floors. Now you need to operationalize and other flows. All your costs of your clinicians, of your management of your utilities or common areas, all the support functions, kitchen, everything already incurred. When you open up another floor, what do you do? You get nurses and resident doctors. So nurses cost me INR 23,000 a month, okay? And the resident of to cost INR 41,000 a month. effectively, you're looking at maybe 8% of your revenues okay, or 9% of your revenues attributed to this cost, right? So our contribution gross -- if your gross margin, if your contribution is 60%, you got 8% from that. So 52% of your top line is growing slightly our bottom line.
Sure, when you ramp up.
Obviously, when you ramp up, right? So every incremental bed will give you more for the project in state post the breakeven stage. And that's not only a hospital, any venture works like that, right? I mean that's basic economics.
Sure. And, another 1 on the [indiscernible] mix and payer mix or by share in the payer mix. If I look at the 9-month payer revenue from the institutional patients have grown at roughly around 34% year-on-year. And the bad share has only grown at around 20%. So my view is that there is a decent amount of kind of rebasing of the pricing of some sort has happened. And I also see there was some order passed in February 24 from Delhi government advising the CBS rate. So what are we looking forward in the next 2, 1 or 2 months incrementally?
Delhi government has nothing to CDH. CGS is rated a central government. But the central government health team. It's got nothing to do with Delhi government. [indiscernible] government cannot dictate or decide central government rates.
Yes. And Kunal already mentioned that the drag between the self-pay and the institutional segment has come down in terms of ARPA, right? Earlier, it used to be 44%, now it's only 36%. That means an 8% improvement in terms of the that we have, right? So basically, the obviously we win more oncology and also we are able to stick some of the impairments were the ARPOB in the station. So as you find pet is not there, but there's the revenue growth. That obviously means that there's a of growth which is happening. And it's not the rates. There's nothing happening on the way. It's only without the change in the mid of the patient and also the quota that we have on [indiscernible] business.
Sure. I have some document, probably I'll share it [indiscernible] detail on that. I have just 1 more question, if I can.
Yes.
Sure. Sir, this INR 40 crore of donation that we have done from Balaji and Bubis,And that kind of we have taken pre-EBITDA which kind of reduces our profitability. So does this kind of help with maintaining the tax exempt status for the trust hospital.
So first of all, it's not before EBITDA after it's in the EBITDA of me. It's basically from 1 set of the other study, the other societies are not having already income, so we didn't show them as a separate column SP1 Right? We put in that under the limitation comp, right? And you see that the overall number is matched. So it's not a major movement. It's only movement of 1 society to make it to the other one. And it has nothing to with that status. It is basically under the tax status, we are supposed to use the money that you have for the [indiscernible] society, and that part of the objective is also to and other studies right? So if the money a surplus cash, then obviously, we need to do other society. So it's within that epitope objective for us. And within the MPW approval that we have in terms of assumption from the Internet market to donate money to the for further [indiscernible].
As there are no further questions, I now hand the conference over to the management for their closing comments.
Thank you, everyone, for taking time out to join us for third quarter results. We look forward to interacting with you again next quarter.
On behalf of Max Healthcare Institute Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.