Max Healthcare Institute Limited (MAXHEALTH) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Max Healthcare Institute Ltd. Earnings Conference Call. As a reminder, our participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star than zero on your touch-turn phone. Please note that this conference is being recorded. And now in the conference, over to Mr. Anup Bajari from CDR India. Thank you, and over here, Mr. Bajari.

Thank you. Good morning, everyone, and thank you for joining us on MAX Healthcare's Q1 FY27 earnings conference call. We have with us Mr. Abhay Sohi, Chairman and Managing Director. It's a Yogesh Sareen, Senior Director and Chief Financial Officer. And Mr. Keshav Gupta, Senior Director, Growth, M&A, and Business Planning of the company. We'll begin the call with opening remarks from the management, following which we'll have the forum open for an interactive question and answer session. Before we start, I would like to point out that some statements made in today's call may be forelooking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Abhay to make his opening remarks.

Good morning, everyone, and thank you for joining us today for MaxHealthcare's Q1 FY27 earnings call. We started the financial year with healthy momentum across the network, recording year-on-year growth of 16% in revenue and 15% in operating EBITDA. We continued to execute well on our ongoing capacity expansion plans. At Max Smart, we have currently operationalized 50% capacity of the 400-bell brownfield tower. The remaining 50% are expected to be handed over to operations during the course of the current quarter. At Nanavati Max, remaining 50-bells will also be operationalized in this quarter and work on the Phase 2 expansion has commenced. Coming to our recent acquisitions, the integration of Max Bhuvaneshwar into the network is proceeding Thank you. The hospital contributed Rs. 19 crores in revenue and 2 crores in EBITDA during the post-acquisition period in Q1 FY27, with an occupancy of 50% and ARPOB of Rs. 35,000, both of which provide significant levers for growth going forward. Prior to the acquisition, the hospital generated revenues of Rs. 154 crores in FY26. Going forward, Our focus is on integrating operations, renovating infrastructure, upgrading technology, and enhancing clinical programs to turn around the hospital over the next 12 months. In relation to the Puna Greenfield, we have acquired the SPV, and it is now a subsidiary of the company. To further strengthen our existing network, the Board has approved a capital expenditure of Rs. 425 crores for a new brownfield tower at Mack Superspeciality Hospital, Veshali. This will add 202 beds to the hospital's existing capacity of 387 beds. The building plans have been approved and the construction activities have already commenced. The project is expected to be commissioned before FY30. Alongside our capacity expansion, we continue to strengthen our research and academic ecosystem. We have recently established a standalone Max Research Center, marking a landmark milestone in our research journey. Over the years, we have built an integrated clinical research ecosystem and have conducted over 750 clinical trials, completed over 2,200 investigator-initiated studies. Published nearly 3,500 papers in index journals, secured over 30 competitively funded research projects, generated patents, and established capabilities that translate scientific discovery into better patient care. In recent months, we have also secured several research grants and awards. From the prestigious institutes, including ICMR Center for Advanced Research in Precision Diabetes, the ANRF-MAHA MedTech Mission, the DBT-European Union Dengu Program, and India AI Mission Initiative, and the National Cancer Grid, amongst others. Our research capabilities are complemented by a dedicated education arm, the Max Institute of Medical Education. The Institute trains over 12,000 healthcare professionals annually, spanning across 180 programs, and our postgraduate ecosystem has over 600 D&B students across clinical specialties. Emboldened by the above and the change in recent guidelines of the National Medical Commission, we have decided to embark upon the medical education business, and I have received in principle approval from the board for the same. We believe this to be a significant line of business in years to come. Now moving on to the Q1 performance highlights. Average occupancy for the network continued to be more than 75%, despite a 13% increase in operational bed capacity year-on-year, with most units continuing to operate at near-optimal capacity. Occupied bed days were up by 10% year-on-year and 5% quarter-on-quarter. Average length of stay reduced by 4% over trailing quarter, reflecting concerted efforts on this front. Average revenue per occupied bed for the quarter stood at 81,900, growing by 5% both year-on-year and quarter-on-quarter. Network gross revenue stood at 2,982 crores compared to 2,574 crores in Q1 last year and 2,664 crores in previous quarter. This reflects an increase of 16% year-on-year and 12% quarter-on-quarter. Due to the discontinuation of select high-value chemotherapy drugs for institutional patients, the share of oncology for inpatient revenues dropped to 22% from 26% in Q1-FY26. Excluding Oncology, Gross Revenue. And year on year. 947 crores, registering a growth of 18% year-on-year, and accounting for 9% of the revenues from hospitals. Digital revenue from online marketing activities, web-based appointments, and digital lead management was Rs. 941 crores, accounting for approximately 32% of overall revenue. Website traffic crossed 97 lakh sessions during the quarter, growing by 41% year-on-year. Thank you. EBITDA stood at 704 crores, reflecting a growth of 15% year-on-year and 3% quarter-on-quarter. Network operating EBITDA margin was 24.8% for the quarter, compared to 24.9% in Q1 FY26 and 26.8% in trailing quarter. The margin was relatively muted due to the recent commissioning of new brownfield capacities and the acquisition of Kalinga Hospital. Annualized EBITDA per bed for the network stood at Rs 71 lakhs vs 68 lakhs in Q1 FY26 and 73 lakhs in the previous quarter. Profit after tax for the network was Rs 357 crores against 345 in quarter 1 last year and 387 in the previous quarter. The network generated free cash flows of Rs. 397 crores during the quarter, Rs. 386 crores was deployed towards the acquisition of Kalinga Hospital and Yerwara Property Private Limited, and Rs. 337 crores was invested in ongoing capacity expansion projects. Net debt for the network stood at Rs. 2384 crores compared to Rs. 1908 crores at the end of March 2026. While the net debt to EBITDA ratio continued to remain below 1, the increase during the quarter includes Rs. 153 crores towards Kalinga and the put option liabilities for the balance stake in Yerwada, which is the Puna project. Continuing our effort to support the local communities, we provided free treatment to over 56,000 patients from economically weaker sections of the society worth Rs. 78 crores at hospital tariffs. We also spent around Rs. 6 crores towards various CSR initiatives during the quarter, which include provision of medical scholarships to underprivileged students, promoting maternal and newborn health, vocational skill training, and environmental projects such as pond rejuvenation and tree transplantations. Both our strategic business units continue to deliver steady growth in revenue and profitability. Max at Home reported revenue of Rs.78 crores, reflecting a year-on-year growth of 32%. It offers 16 specialized service lines across 15 cities, with over 56% repeat transactions. Max Lab reported revenue of Rs.58 crores, reflecting a year-on-year growth of 20%. It provides services in over 60 cities and served over 6 lakh patients during the quarter. Now moving on to the status of our expansion projects coming on stream over the next two to three years. 100 beds at Max Lucknow, additional 100 beds in the existing 468-bed facility will be commissioned over the next two quarters. 500 beds at Sector 56 Gurgaon, we expect to start phased commissioning of this facility by end of this year. 250 beds at Bhukneshwar, renovation of existing facilities should be completed within 12 months. 100 beds at Nagpur, project work continues to be on track, and we expect commissioning by FY28. 400 beds at Ziragpur, Mahali, project is on schedule, and we expect to commission it in FY28. Encore Daycare blocks at Max Dwarka, this is the second phase. Project work is complete, and we are awaiting occupancy certificate. 260 beds at Dwarka, which is the next phase, because Dwarka hospital is running full, it will be commissioned by FY30. 200 beds at Pitampura, project is on track, and we expect commissioning in FY29. 271 beds at Nanavati in Phase 2, project work has started and will be commissioned in FY30. 400 beds at Patparganz, D-Wall work has started, we expect commissioning by end of FY29. And 450 beds at Puna, we have received IOD, project is expected to be commissioned by FY30. With this, we open the floor for any questions that you may have. Thank you.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and 1. To answer question. The first question is from the line of Damyanti Khairain from HSBC. Please go ahead.

Hi, good morning, and thank you for the opportunity. My first question is, Amir, if you can share your thought around the recent Parliamentary Standing Committee recommendation for the healthcare sector. So, any initial thoughts on the recommendation?

I think the recent committee report speaks about I think one needs to look at another important aspect, which is going to be the need for new hospital beds and viability. I think both need to go hand in hand. So I think once you take that equation into account, I think wise minds will think otherwise.

Okay, and are you, like, involved in some of the discussions, which could have gone for these recommendations, or do you think it will be more in the future?

No, I don't think there will be any reach-out to hospitals on this committee.

Okay, okay.

I mean, I have read it as much as everybody else. It speaks about certain FDI caps and so on and so forth. So, like I said, I think, you know, it's a sector we believe that you require a lot more capital. And, you know, you have to have an environment which is both viable and conducive to investment for hospitals to be built. I think, you know, all in all, this report is about, this is 176th report by the committee. And I think, you know, you need to look at it in the balance. And I'm sure the ministries will look at it in the balance.

Okay. Thanks. My second question is your plans for turning around the Kalinga Hospital. So, you mentioned around 12 months to set up Infra and bring the SOP changes, etc. So, once these changes are implemented, what is the headroom to improve in terms of the profitability profile, RFOB, etc.? Because at this point of time, it looks very low compared to the corporate average.

Yeah, I think there's a, because there's a, you know, the occupancy is 50% and RPOB is 35,000. I think there's significant room in both these. You should be able to effectively have a 50 to 80% enhancement in both of these. In order to do that, we have a current hospital, so you have a head start. It makes a marginal amount of profit. But, you know, you have to renovate it, you have to get the technology, you have to get the clinical program. We intend to do all of this over the next year or so. And then, of course, alongside, we'll be building another 200 beds over here, 250 beds here. Before, whether in Lucknow or in Noida with our acquisitions, we've done it many times. So it's the same sort of route that we intend to.

My last question is on Mass Smart, where you commissioned 50% of beds and you mentioned 50% will come this quarter and beyond. So on the commissioned beds, what is the current occupancy and which is the focus segments or focus specialties which are offered in this particular unit?

So you have oncology here, I mean, it's running, whatever's been open is running to, you know, 80% occupancy. They are not going to come in this quarter and the next quarter. They are all coming in this quarter. You know, we're expecting good occupancy over here. Like I said, whatever's been opened is already at 80%. You know, a lot of them got opened in the last one month, and as they are coming on stream, they are getting occupied.

Got it. Okay. So, one last question before I get back in the queue. So, in terms of your insurance impanelment or renegotiations, etc., anything pending in near term, which are due for renewal or renegotiations, etc.

There are ongoing negotiations going on with Jitsar and some other insurance companies. Also, the insurance company that we had discussed last time, those are up for a new world in September or October period.

September, October is the time, okay, when renewals are due.

You know, and Damanthi, last time we had this statement with the insurance companies, so we had agreed a 6% automatic price revision, you know, and that's what, you know, is going to happen. And also, you know, on the, you know, CIA side, you know, there have been engagement with the, with the IIDA, etc., and with the insurers also, and there, more or less, we have agreed that, you know, the level of inflation that hospitals have. What kind of a recommendation to the IDA in terms of automatic price revisions?

Yeah, so we have, at the end of this period, we have automatic renewal and price inflation which is built.

Okay, this is like 6% revision, which was earlier agreed upon. That will come into... That's right. Okay, okay, good. Thanks. Yeah, I'll get back in my case.

Thank you. Next question is from the line of Neha Manpuriha from Bofa Securities. Please go ahead.

Yeah, thanks for taking my question. On the, you know, Max Smart Beds that we've commissioned, you know, given that we're seeing such good ramp-up in the beds that you mentioned, that they're already at 80% occupancy, shouldn't the incremental EBITDA from these beds be very high and therefore start contributing to EBITDA significantly starting from first quarter itself? When should we start seeing that, you know, EBITDA improvement from these new beds come through?

See, what happens is a very standard sort of for any new hospital, brownfield, otherwise, or whatever, the trajectory is very simple. First, you ramp up occupancy, right? You ramp up that occupancy using low RPOB, any RPOB, whatever is sort of coming your way, but you focus on revenue, you know, while you're bearing the cost of the place. And as you sort of ramp up, you start also improving your RPOBs. So you hit break even with occupancy, and once you do that, you start improving your sort of bottom line, everything keeps as, you know, you kind of distill your paremates, it starts coming down to the bottom line. And, you know, we've been through this in Dwarka, we've been through it in other sort of brownfields that we've opened up, the trajectory is the same. First revenue, then the profitability sort of this thing happens. So, I mean, the revenue also, the occupancy will be high, revenue ramp up will be lower relatively, and EBITDA ramp up will be lower even more so relatively, right? Then the second thing which starts happening, your revenue ramp-up moves beyond your occupancy ramp-up of course and your EBITDA starts picking up and then your EBITDA ramp-up is going to overtake your revenue ramp-up as well. So that's a very standard sort of operating book as far as occupancy is concerned. So the next couple of quarters you will see that.

Okay, sorry. So, in which case, when do I start seeing the revenue run-up and bid-run-up? Like you said, a couple of quarters, should that start happening, let's say, by third quarter, fourth quarter, or is it a little more phased out in your opinion?

No, no, no. By the second, third quarter of operation, you are there.

Understood. And the second question is on Max Nanavati. I think you mentioned that the remaining 50 beds with the operations, you could give us some comment on how the beds are, the beds that we've commissioned are doing. And case two, when do we expect to start that, given that we're just starting activity, so when should that be ready and commissioned?

No, so look, the pay is one, again, you know, whatever we opened up is at about 80% occupancy. It's already, we are waiting for the 50%, 50 odd beds which are remaining over there. Soon as they come up, hopefully we'll have that occupancy also done. You know, it's a little further out on the trajectory compared to MaxSmart in the sense that there's already a significant pickup in, I mean, occupancy happened before revenue, and now EBITDA sort of catching up and is going to surpass that soon. So, you know, we already have that curve. And, you know, with respect to the second phase, what that means is we need to kind of shut the 100 odd beds over there, which we have, and we've sort of increased, I mean, we started the works on our second phase. That will take us about two and a half years.

Okay. So, as I remember correctly, MAC Nanavati was lower on the margins because of the, you know, the type of patients that were able to serve and the limitation of capacity. So, the improvement in MAC Nanavati should therefore come once the phase 2 comes through, a meaningful better improvement, or you start expecting that it to catch up with the corporate average, let's say, with the phase 1 itself?

No, no, with the phase 1 itself. Have you already seen the ramp up over there? Thank you. I mean, it's very high RBOB business, EBITDA is already sort of ramping up. You'll get there, yeah.

All right. Thank you. Thank you.

Thank you. Next question is from the line of Viraj Shah from PGIM India Mutual Fund. Please go ahead.

Hi, thank you for the opportunity. I just have one question.

Viraj, sorry, can you speak a little louder, please?

Am I audible now? Okay, perfect. So, I just have one question. If you could explain a bit about the changes proposed in the National Medical Commission with respect to you guys setting up the medical colleges, what is the kind of capital commitment or what are you seeing in this area specifically?

Yes, so basically, you know, there's been a draft notification to say that now even for-profit companies can open medical colleges. Before that, the resolution was that it's only not-for-profit, you know, enterprise which can, you know, get into medical colleges. So I think with that draft change, which we assume will also become the law, you know, for-profit companies can also open medical colleges. Now we've done some, you know, better than other calculations. Our date is that for a 150 medical college, you need around 300 dollars of spend, right, and this is what is the kind of step to do to add, this will be generally in the existing hospitals, right, so for example, we have a 27-acre campus in Lucknow, so our plan is to, you know, start one at Lucknow, and then maybe come to the other hospitals where we have vast pieces of land and try and create these, you know, infrastructure.

And just from my understanding perspective, what would be the kind of margins which one can make via this for-profit medical area?

We are seeing ROCs of more than 25%. I mean, you've been following the recent NEET and this thing. You're aware that less than 2% of students who qualify for NEET exams find... Places in medical colleges. I think this is the government's impetus to increase seats in medical colleges. Previously, for-profit organizations were kind of curtailed from doing so. Also, there were restrictions on the sort of charges which could be applied, you know, to hospitals attached to medical colleges, as well as the kind of wards and, you know, places, you know, there were some infrastructure limitations as well that were there in the previous thing, and all of that had been removed. Now, effectively what that means is that if you have a hospital, You're permitted to have a certain amount of seats for medical education attached to it. So the prerequisite for this business becomes to have a hospital because the students have to train in the hospital, right? The second thing is that at the back end, we're already training D&B students, so we're already teaching MBBS students. Once you become a doctor, you come and train. We already have the faculties, we have the curriculums and so on. So for us, it's very natural. It's almost backward integration for us to get into medical education. We have the campuses in multiple locations, in Delhi, in Lucknow, in Bhubaneswar, in other places, because, you know, we have the campuses, we have the lands, and we intend to sort of get into this business. We are seeing more than a 25-30% ROC at present. And we intend to do this at scale.

Understood. Great. Thanks a lot. That's it from my side.

Thank you. Next question is from Lion of Beano, from Milara Capital. Please go ahead.

Hi. Good morning. Just a couple of quick questions. Go on. We have taken this board approval for additional tower and 200 bets in Weichel. If I look at your earlier presentations, there were already 200 bets scheduled for FIT39 in Weichel. Is it the same or is it a press tower?

No, it's the same one.

Same. Okay. Second, you made this acquisition in Bhuvaneshwar, Kalinga. After that, we have seen some mitigations started immediately after that with the previous promoters. So, could you briefly describe what this is about?

They were not the promoters. These are the minority shareholders of 39% equity. This is the group that sits outside of India. They have their own issues. They have the liquidation proceedings going on against themselves in the parent setup in UAE market. Their shares, as per our legal counsels, are not transactable. Their request or suggestion and plea is to buy their shares also as part of the transaction, which we are very okay to. And they have gone to the court that we should buy their shares. And our counter is that your shares are as of now untouchable. Please get us a court order to buy them. That's the discussion going on. They want to force it to us. Promoters is not an issue party. We have bought the shares from Promoter only. We have the full control of the company.

Understood. Thank you very much.

Thank you. Next question is from Lanav Karanvora from Goldman Sachs. Please go ahead.

Thank you for taking my question. So the first one is with respect to the educational institution. So we have highlighted in the past that, you know, doctors or availability of doctors is not an issue, but is getting into medical education coming from the fact that, you know, maybe five years or seven years down the line when all the large chains would have expanded meaningfully, we might see a shortage of doctors. And is that a response to that, so that in the future, we don't face such an issue. And also, this whole thing will be a part of the console list code, right, the whole medical college setup. That's the first question.

No, absolutely, it is going to be all part of the LISCO. It's going to be, I mean, there are no leakages over there. It's 100% all the economic interest is going to be sitting here. I think that's one. Secondly, I mean, unless we do some, you know, one was to do a private equity round or something else outside of that, that may be different, but yeah, this is going to be 100% sub of the LISCO. So that's one. The second thing is with respect to, what was your first question? Supply of doctors. Supply of doctors. No, so this is a little too far out for that. What happens is that you get a good stream of resident doctors, DNB doctors to start with. Obviously, there is no bond which makes them sort of continue. At the later stage, they get better opportunities somewhere else. If you are not growing, you know, for us, growth is imperative. Okay, because if you don't grow tomorrow, you don't give opportunities of career growth to your clinicians as well as management, then you're going to have a problem. People will move out. Right? So, I think, you know, all those things are going to happen. But, yeah, it gives you a good base of quality resident doctors and BNBs who come to your phone.

Okay, got it. The second question is with respect to CGH's benefits. So, are we on track to that 140 crore number for this year, and how much have we realized in Q1?

So, we are on track in the sense that, you know, that number is flowing ever since, right? So, there was some, you know, left out part, which are the, you know, super specialty rates, that also have started to flow from, I would say, June onwards.

Got it. So, are we like 140 divided by 4 kind of a run rate?

From June 100, yes.

Okay, got it. And the last thing is maybe one request. So, like till last quarter, we used to give the regional disclosure. So, that used to be really helpful to, you know, understand what's happening in different states for us. So, maybe if we can reinstate that from the next quarter, it would be helpful. That's just a request. And also, if possible, you need to share for this quarter as well.

Yeah, you know, the reason that we sort of pulled it out, we're happy to discuss that, because lots of reasons. If I gave each, then you know it's Bhuvaneshwar. There's one hospital that we have over there. So we can... I can't say.

So there was too much tactical information at the hospital level, because some states had only one setup as of now, and given the commemorative request, you know, data that gets used there... Maybe we can give it as others, some part of it as others. And the things can react quickly.

Thank you.

I want to avoid giving solo hospital data. I mean, as you can well imagine.

Sure, that's fine. Yeah, maybe others is a good idea.

That's right.

Thank you. Next question is from the man of Vivek Agarwal from Citigroup. Please go ahead.

Yeah, thanks for the opportunity. In IP revenue growth, actually, if you look at non-ONCO business has done well, but ONCO business continues to remain under pressure and some kind of challenges. So just want to understand, when are you expecting the growth of ONCO segment back to earlier level or maybe let's say the industry peers? Thank you. And second part is that why we are seeing significant issues only in MACs while your peers are reporting healthy numbers, especially in ONCO.

So, one is that oncology will start to level from quarter three onwards. That means, you know, mid of quarter three is when we took this action of, you know, not supplying the, or not using the overseas drugs for the CGHS, you know, after this new MOA was signed. We also have the largest share in terms of CGHS, because of our presence in Delhi, etc. Thank you.

Second question is related to your pair mix. We have seen that, again, institutional shares came down this year. So, going forward, how we should look at the share of institutional revenues? Is it going to go back, let's say, earlier level, 22% or so, or is it going to come down meaningfully even from here on? Thank you.

No, it is coming down. We believe it to come down.

Yeah, so it's a result of a concerted effort. It's not, I mean, we've obviously put something in play.

Understood. Thank you. That's from ICICI Securities.

Thank you. Next question is from the line of Abdul Qadir Puranwala from ICICI Securities. Please go ahead.

Hi, and thank you for the opportunity. So, first is a follow-up on the CGHS question. So, with the reimbursements now, other hospitals are also talking about that not being profitable. Have you guys, along with other hospitals, started to approach the government and the CGHS guys to roll this back to the previous levels?

Look, I think, you know, the institutional business has never been profitable. Right? It contributes to fixed costs. So that's where we are. I mean, you know, you can't, you know, if you're going to continuously only rely on this business, then you will have a continuing issue in any case. And little bit of, look, up-down keeps on payments, lumpiness and stuff like that keeps happening, but, you know, this is a to and fro. It's part of the business, right? I mean, I don't, I'm not particularly concerned about that. What I, what, what, the issue is that on an overall basis, it is not a profitable business. It's a loss-making business. It contributes to fixed costs.

Understood. Understood about it. And, you know, there are certain media articles highlighting that the insurance companies have been now trying to dictate the terms at which patients, you know, get admitted and the kind of care should be offered. So with our interactions with the insurance companies, you know, are they kind of pressing a little harder on this aspect? And if at all, you know, especially in the seasons of fever and flu, which might happen in this quarter, has there any kind of an occupancy impact that you've seen so far?

Firstly, we are not seeing an occupancy impact, but, you know, more importantly, you have to understand what the role of a hospital is, right? A hospital does not admit a patient. A doctor admits the patient, right? So, I mean, this is a matter between insurance companies and clinicians. If a doctor says, admit the patient, we admit the patient. If he says admission not required, we cannot admit the patient. There's a protocol. Eventually, I mean, we are only providing logistics and infrastructure for it and the services. Once the patient is admitted, the triage, the call, okay, to admit the patient or not to admit the patient lies solely with the doctors. And look, eventually, if the, you know, the insurance companies are able to kind of standardize that in some manner with the doctors, etc., so be it. I mean, eventually, the IMA, the medical council has to agree, right?

Got it. Got it. And, sir, between, say, just a bookie precaution, between, say, quarter one of this year versus last year, would it be fair to assume that, you know, the overheads of the new hospitals along with the on-code drugs getting discontinued may have, say, close to 100 to 150 crores kind of an impact on the EBITDA?

No, I haven't really looked at it in that fashion, but what happens is, let's say if you're opening a 400-bed hospital, right, you're going to staff that hospital, and when you open the first 20 beds, obviously, you know, the 20 beds are not absorbing it, but it's a brown field. Maybe the first 50 beds or 100 beds absorbs it, and then as you sort of go further, okay, all of it drops to the bottom line. Of course, your break-even for a brown field is much lower than a green field. But your cost will sort of move up in line with that. But you know, it's a matter of a quarter, a quarter there. You can't look at it as cost going up. I mean, if you don't have the cost going up, going forward in the next quarter or so, you don't have the revenues coming through either.

Sure, got it.

I mean, if I have to open a hospital tomorrow, okay, I have to staff it today. So, I am carrying that cost.

Right.

Right?

Got it. Thank you.

I mean, you should look at it in, I mean, this is not extra, this is not extra cost. This will yield. And you will see it yielding now.

Sure, understood. Thank you.

Thank you. Next question is from the line of Ashutosh Kumar Jha. From Balasemi Asset Management, please go ahead.

Hi. Sir, I just had a question around the bookkeeping of free cash flow. The EBITDA seems to have grown by 15%. However, free cash flow, operating free cash flow seems to have grown by 3%. A similar trend is observable at the EPS level. Can you just explain what is the bridge between the two that was causing this?

So, I think basically there has been a movement in the AR. You know, there's a lumpiness in these elections when it comes to CGH and other PSUs. So, the DSOs have gone up from, you know, 87 days to 95 days. So, in a way, there's a buildup of AR of around 250 crores, you know, in this quarter, compared to quarter four. So, that's, in a way, eaten into the free cash flow location. And also you would have seen that the ETR has gone up a bit. So that's also, so that's, you know, flows has also gone up. How do you claim this? We generally like to be in the range of 60.

Understood. And do we expect this to normalize in the coming years?

Yeah, so, I mean, it should, because we have, the CDX has had a new portal, and the new portal, they were not processing bills, now we started to see collections from the new portal. We do think that this should come down going forward.

Thank you, sir. That is all my questions.

Thank you. Next question is from Rano Siddharth Gandhi from Chanakya World Creation. Please, go ahead.

Hi, thanks for the opportunity. Just two questions. How are you looking at the viability of your expansion plans in light of the Parliamentary Committees report? Does that sort of bring anything to the end of the call? Back to the table, does that require you to reassess any of those? And on the college business, when, you know, do you also expect to start postgraduate colleges, given that, you know, Congo speciality is really a big, big source of revenue for you? And how are you planning to fund this? And when can we see this sort of start commercial operations? Yeah, those are my questions.

I think you'll see starting a commercial operation over the next few years. We will be open to doing any meaningful acquisition if it's available to kickstart our process sooner than that as well. And we intend to fund it entirely through internal accruals. Yes, we intend to start PG courses, so no doubt on that front. And what was the other thing? Does the parliamentary committee put any thoughts on the private report? The parliamentary committee report does not put any thoughts or reassessment of expansion Thank you. My belief is that eventually you have to believe any sort of policy will be rational. We are efficient providers of healthcare. If there is going to be any sort of risk-free return available and it's going to be a viable proposition for anybody to set up hospitals, we believe we will have superior returns relative to that. And, therefore, if, you know, tomorrow, word forbid, you have a situation, you know, hopefully it will become an opportunity for consolidation for us. So, I'm, you know, I'm focused on providing the best of healthcare and being the most efficient. Eventually, you know, any policy has to cater to the medium, to the mean, not to the outliers. And, I believe, as far as efficiency is concerned, we are outliers.

Got it. And just one more thing on the direct costs. Are most of the direct cost increases, while that's a very marginal one, are most of those because of the increase in crude and hence the possible increase in your consumable prices? Or is this not giving you any significant impact on the direct costs?

No, there's been... There's not much of an impact, no. I mean, we've seen some impact in the indirect costs, but not much on the direct cost side.

Well, it's contributed historically to some delays in, you know, materials, you know, if you're importing furniture for hospitals from overseas and so on and so forth, but, you know, a lot of that delays are behind us, right? Thank you so much.

This is helpful.

Thank you. Next question is from the man of Ankur, individual investor. Please go ahead.

Hello. So my question is regards to the opportunity in the market, right? You previously alluded to the long runway to go for the next few decades, right? And we also see in the market there's a huge supply demand gap for private hospital beds and the consumer preference as well as, you know, towards private hospitals. Given that context, right, what's your view, if we look at, let's say, two decades from now, between 20 years, do you think the top two, three, four hospital chains in India, they can each be a size of 100,000 beds? Is that something which is viable, according to you?

You know, the total, in how many years?

In 20 years? Two decades?

No. I don't think that would be the case, because what that would mean is you have at least, for the top three players, you will be building about 300,000 beds. The total number of beds in India right now are 100,000. Okay, you don't want to have complete consolation. That means building 300,000 beds over two decades, you know, my belief is that, you know, that kind of execution capabilities, that kind of capital which is required, you know, it's going to be a big, big, big, big challenge. I don't see any player becoming 10x in two decades.

So, that means, like, we always have this demand supply gap between, you know, what the consumer wants and the availability, right? That's right. Let me wrap up the...

Yeah, the largest hospital chain is 10,000-11,000 beds. For them to be 100,000 beds, they need to be 10 times the size. That means I need to be 15 times my size. No, sorry, 20 times my size. Okay, I don't see building 20 times my size. So you need all the FDI, you need all the investments, you need it to be viable for the next person who's setting up a hospital. So he's buying land, he's doing construction costs at that point in time, and so on and so forth, right?

Yeah. So, your growth rate, right, you've been like doubling your capacity, you're on a trend of doubling capacity every four, five years. So, at least do you foresee this continuing for next 15, 20 years?

Yeah, absolutely. So, I mean, if that you look at them from 5,000, I'll get to 10,000, 10 to 20, 20 to 40 at best, right? Anyway, I mean, I'm just... We are looking at increasing capacity as much as we can and investing in whatever cash flows we have in the sector.

Okay. And in terms of your upper growth, right, we've seen seven to eight percent, which is like, you said, a couple of percentage points above the rate of inflation. Again, that trend you see going forward the next 10-15 years, that trend continues?

Look, hospital growth, top-line RPOB growth will always be superior to inflation because whatever real growth happens in terms of novel treatments, etc., okay, that is a part of RPOB, right? So, RPOB is not only inflation. So, yeah, I mean, if inflation continues at this, I mean, hopefully innovations will continue in the sector in years to come and, you know, like it has for, you know, the past century. So, then you should have the same outcome.

Ankur, I'll request to come back for a follow-up question. Next question is from the line of Saurabh Taparia from Sundara Mutual Fund. Please go ahead.

Yeah, thanks for the opportunity. Just one question on the institutional patient bed share, which has come off this quarter versus previous quarter. But how we should look at this number given upcoming bed additions, capacity additions that we are doing?

If you had capacity addition and yet you've seen it come down, so I think, you know, trend-wise that should continue. Unless we, you know, acquire significant capacities and we need to do, you know, then that's a different ballgame. But as far as this present infrastructure is concerned, I think this trend of reduction perhaps will continue.

Okay, thank you.

Thank you. Next question is from the line of Alankar Garude from Kodog Institutional Equities. Please go ahead.

Hi, thank you for the opportunity. Sir, we have seen a sharp sequential increase in operating expenses even if we adjust our Bhuvaneshwar. While you will be adding incremental beds at Nalavati and Smart, would it be fair to say that we will not see any material increase in OPEX till Gurugram comes up?

Rather than Max Bhubaneshwar, the large increase in indirect costs is due to the new capacities, you know, which have been like, whether it's Mohali, whether it's Nanavati, whether it's Smart. I mean, that along with Bhubaneshwar has caused the big increase in indirect costs. And, yes, I think you will not see any significant increase, and you will see increase in revenue, and therefore, you'll see a higher amount of EBITDA through flow. I mean, that's what your point was.

Yeah, yeah, that was the point. And similarly, Abhay, if you can comment on net debt as well, would it be fair to say that net debt has peaked out at current levels?

I'm still lower than 1 in terms of net debt to EBITDA, and if I can get to 2.5 by doing acquisitions or whatever else, I'd be happy to go to 2.5 times net debt to EBITDA.

Yeah, but barring any acquisitions, it should come down from current levels. Would that be fair to say?

Yeah, I mean, we have the ongoing TEPES plan, right? So, you know, we are spending money on the, on the Shaheed, this 475, 424, etc. So, I would say whatever tax we generate, we will obviously consume that, and maybe we'll also take some loan to finance the projects, right? So, this net debt will marginally go up if you ask in, you know, end of the year.

I mean, there's no meaningful, see, I mean, really depends on what kind of cash flows we are throwing out and so on and so forth, okay? I mean, at present, I mean, if you look at three years down the line, effectively you should have funded your capex and paid down the debt three, four years down the line.

Fair enough. The second question was, can you provide some color on how the three acquisitions have been doing? It's been almost two and a half years now for Lucknow, Noida, and Nagpur. Any qualitative insights there would be helpful?

I think the first and foremost is the fact that we are expanding these capacities. You know, because what we acquired, if you recall, were operating at low sort of occupancy levels. So you've seen very high ramp-up in occupancy, obviously very high ramp-up in revenues and profitability. And now we are moving towards capacity expansion in all three. And that brownfield capacity expansion leads straight to the bottom line. So I think qualitatively, all three have been, you know, successful from that standpoint. I mean, it's been to blame, honestly, I think, you know, yeah.

Okay, okay, got it. And one final one, can you update us on the status of Shaheed Perth as well as Thane?

For the Thane, regulatory approvals are coming in. We have got stage 1 approval for the overall master plan for the site, and we have to submit the specific building plan drawings now. For Shahidpat, we have prepared their drawings, we're discussing with the authorities, and we'll submit them after we have the broad clearance of the concept. For both projects, after we have the approval, which is another six months from now, after that, they'll take about 36 months for delivery.

Got it. That's it from myself. Thank you.

Thank you very much. Ladies and gentlemen, we'll take that as the last question. And now hand the conference over to the management for closing comments.

Thank you, everyone, for joining us today. We appreciate your time and look forward to interacting with you again next quarter. Appreciate it. Thank you.

Thank you very much. On behalf of Max Health Institute Limited, that concludes this conference. Thank you for joining us and we now disconnect your lines. Thank you.