Narayana Hrudayalaya : Earnings Call Transcript Q3 FY 2023

"Narayana Hrudayalaya Limited

Q3 FY23 Earnings Conference Call"

February 10, 2023

MANAGEMENT: MR. VIREN SHETTY - VICE CHAIRMAN

DR. EMMANUEL RUPERT - CHIEF EXECUTIVE OFFICER &

MANAGING DIRECTOR

MS. SANDHYA J - CHIEF FINANCIAL OFFICER

MR. R. VENKATESH - CHIEF OPERATING OFFICER, EAST AND

SOUTH REGIONS

DR. ANESH SHETTY - MANAGING DIRECTOR, OVERSEAS

SUBSIDIARY HCCI

MR. NISHANT SINGH - VICE PRESIDENT, FINANCE, MERGERS &

ACQUISITIONS & INVESTOR RELATIONS

MR. DURGA PRASAD - SENIOR MANAGER, MERGERS &

ACQUISITIONS & INVESTOR RELATIONS

Nishant Singh: Good afternoon everyone. My name is Nishant Singh. I head the IR Function at Narayana Hrudayalaya. I welcome you all to the Q3 FY23 earnings call of the company. To discuss our performance and address all your queries today, we also have with us Mr. Viren Shetty - our Vice Chairman, Dr. Emmanuel Rupert - our CEO and MD, Ms. Sandhya - our CFO, Mr. Venkatesh - COO of our Eastern and Southern domestic operations, Dr. Anesh Shetty - MD of our overseas subsidiary HCCI, better known as Cayman and Durga Prasad

• Sr. Manager from the team. We hope you have gone through the investor collaterals which have been uploaded on the stock exchanges as well as on our website. As usual, before we proceed with this call, I would like to remind everyone that the call is being recorded and the transcript of the same shall be made available on our website as well as on the stock exchange at a later date. I would also like to remind you that everything that is being said on this call that reflects any outlook for the future or which can be construed as a forward-looking statement, must be viewed in conjunction with the uncertainties and the risks that they face. Post the call, should you have any further query, please do not hesitant to get in touch with us. We would like to address it to the best of our ability.

With that now, I would like to hand over the call to Dr. Rupert.

Dr. Emmanuel Rupert: Good afternoon everyone. I warmly welcome you all to the Q3 FY23 Earnings call conference of Narayana Hrudayalaya Ltd(NHL). The third quarter of fiscal year delivered steady performance supported by the growth in business across our flagship units, newer hospitals and improvement in payor mix. Consolidated revenue for the quarter stood at INR 11,282 million reflecting a Year-on-Year growth of 17.5%, and a marginal decline of 1.2% compared to the previous quarter due to the seasonal nature of the business which affect patient footfalls. However, contribution from international patient footfalls remain unaffected.

Narayana Hrudayalaya generated consolidated EBITDA of INR 2,660 million in Q3 FY23 at a margin of 23.6% against 22.3% of Q2 FY23, when adjusted for the one-time other income. This margin improvement is attributed to improvement in payor mix and cost efficiency.

Our Cayman unit managed to contribute to the overall performance despite holiday season, and HCCI revenue marginally declined by 3.2% to USD 28.2 million. We remain optimistic on the robust growth prospects of overseas business in Cayman and continue

to explore the investments in surrounding islands on opportunistic basis.

Our overall balance sheet and liquidity profile remains strong with group cash and liquid investments of over INR 5.6 billion against gross borrowings of INR 7.8 billion (Net debt of INR 2.1 billion) as of 31st December, 2022. Our debt-to-equity ratio has further improved to 0.11 against 0.14 in Q2 FY23, giving us sufficient room to fund our expansion through our mix of borrowings and internal accruals. We have incurred capital outlay of close to INR 6.8 billion (includes the Sparsh acquisition) for 9 months ending 31st December, 2022, and in the fourth quarter we expect to spend the balance amount of guided capex of INR 10 billion for FY23. We have also provided further disclosures in slide 12 of our investor presentations on capex spends for FY22 and expected spend for FY23 and FY24.

During the pandemic, we partnered with YouTube on digital awareness program to provide reliable healthcare information on a daily basis. We created more than 600 videos to provide evidence-based answers to questions of YouTube users across India in 6 different regional languages. This initiative which received 45 million consolidated views and more than 7,000 likes, allowed people to understand their affliction in a very difficult period. We are proud to share that this was featured in Google's Impact Report on 2021 which was released in December 2022. We're strengthening this partnership with channels like YouTube.

Our total investments in digital engagements channels grew online traffic by 97.5% to 5.4 million users in the current quarter as against Q2 FY23.

We're also pleased to inform you about the soft launch of Athma SaaS version specifically designed for small healthcare facilities such as diagnostic labs, nursing homes and standalone hospitals. Athma Saas offers a streamlined integrated solution for an underserved segment of the market scattered across tier 2 and tier 3 cities. The team is onboarding foundational customers to gather valuable usage data and feedback to further enhance and refine the platform.

Aligned with our vision to provide integrated healthcare to wide sections of the society, we have piloted a subscription program in Bangalore to cover individuals and family members. We have recently crossed a landmark milestone of 1,000 subscription plans and are witnessing continuous traction. These results are encouraging us and give us

	confidence to rollout a comprehensive personalized seamless healthcare service at the
	doorstep through digitally integrated patient touchpoints. We will keep providing more
	information in the coming quarters.
	We continue to strengthen our current position and grow our brand through several
	various strategic initiatives that will drive our vision to offer a gamut of integrated
	quality healthcare services to people across geographies at an affordable cost.
	Thank you.
Nishant Singh:	I would request everyone to now use the 'raise hand' feature to start posing their
	questions.
Prithviraj:	Sir, could you give us the revenue and EBITDA of the new hospitals for this quarter?
Sandhya J:	Okay. So, we have been able to continue to improve our performance on the 3 new
	hospitals. We have, from a revenue growth point of view, the revenue was about INR
	110 crores for this quarter for the new hospitals - SRCC, Gurugram and Dharamshila.
	This was a 17% growth compared to last year. And the EBITDA which we were able to
	deliver was 7.3%*. In this the Mumbai hospital has almost broken even, and Gurugram
	and Dharamshila are positive. So, that is the number for the new hospitals.
Prithviraj:	Thanks for that. See, this 7.3%* EBITDA margin is actually quite a good improvement
	compared to what we have seen over the last few quarters. So, how long will it take for
	this to reach a sustainable EBITDA margin of say 15-17% from now on?
Sandhya J:	I think for Gurugram and Dharamshila we are almost there. So, I think as we see the
	next few quarters, we should be able to reach a reasonably sustainable margin for
	Gurugram and Dharamshila. Mumbai, we have broken even actually in January. So,
	Mumbai will take us maybe more than a year, but we are in that direction. But,
	Gurugram and Dharamshila we are almost there.
Prithviraj:	And, my next question is on the Cayman business. I guess in an interview you mentioned
	that the oncology department will commence from Q1. So, how much is the capex that
	went for this particular block and what kind of revenue potential are you looking at?
Anesh:	Hi Prithviraj, thank you for the question. The last slide of the investor relation
	presentation talks about the capex that we've incurred, and we project to incur. I would

*Inadvertently mentioned as 9.3%

	say about 80-90% of that is for the new oncology block which includes not just the
	oncology block, but the new hospital as well. The new oncology block, yes you are right,
	we are on track to treat our first patients from early Q1 of the next year. So, in april
	hopefully we'll be starting radiotherapy services. Since it is a department, essentially a
	service line for us, we won't be in a position to share specific revenue projections for a
	particular department.
Prithviraj:	That's helpful, thanks.
Dhara:	Thanks for the opportunity. I had 2 sets of questions for Cayman. So, despite the
	declining number of discharges from last 4 quarters, our average revenue per patient
	has actually increased for Cayman. So, what is the driving factor for this?
Anesh Shetty:	Hi Dhara, thank you for your question. So, there are few reasons for that. So, the first is
	essentially an increase in the complexity of patients that we continue to treat. As we
	commission more service lines which are catered towards our oncology offering and
	getting ready to ramp up the linear accelerator and the comprehensive oncology
	program, we are going to be doing more and more complex patients.
	The second reason is the discharges, which is the denominator for the ratio you are
	referring, as well as the discharge as an absolute number, we had a migration of our
	core EMR system from the legacy system to Athma a couple of quarters ago. So, Athma
	is more sophisticated in that. We are able to breakdown discharges into more granular
	details of daycare, emergency and regular IP discharges. So, we are working on
	reconciling the pre-Athma and post Athma discharge numbers for this maybe in a
	quarter or two.
Dhara:	Sir, if we're saying the new oncology block will be operational from Q1 FY24, should we
	expect the number of discharges will also grow from here on?
Anesh Shetty:	So, the oncology block which will be ready from April will be only offering radiotherapy.
	We continue to offer medical oncology. I mean, we have been offering medical oncology
	for a while and that will continue. Surgical oncology will build up as well. So,
	radiotherapy, the number of discharges, these are predominantly day-care patients, so
	they will not be in-patient discharges. And, although the realization is high and we
	expect the margins to be commensurate with what we are earning, the number of
	patients will not be very significant to move the needle in the early days, that will take