Healthcare Global Enterprises Ltd (HCG) Q4 2023 Earnings Call Transcript

Healthcare Global Enterprises Ltd ( ?????? : HCG) Q4 2023 Earnings Call dated May. 26, 2023

Corporate Participants:

BS Ajai Kumar — Executive Chairman

Raj Gore — Whole-time Director and CEO

Srinivasa Raghavan — Chief Financial Officer

Ashutosh Kumar — AGM – Corporate Business Development

Analysts:

Dhara Patwa Shah — SMIFS Limited — Analyst

Kunal Randeria — Nuvama — Analyst

Sabyasachi Mukherjee — Bajaj Finserv — Analyst

Nitin Agarwal — DAM Capital — Analyst

Shyam Srinivasan — Goldman Sachs — Analyst

Aditya Jhawar — Individual Investor — Analyst

Rishabh Tiwari — Allegro Capital Advisors — Analyst

Yogesh Tiwari — Arihant Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the HealthCare Global Enterprises Limited Q4 FY ’23 Earnings Conference Call. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements do not guarantee the future performance of the company and it may involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Dr. BS Ajai Kumar, Executive Chairman of HealthCare Global Enterprises Limited. Thank you, and over to you, sir.

BS Ajai Kumar — Executive Chairman

Thank you very much and good morning to everyone and a very warm welcome to our present on the Q4 FY ’23 earnings conference call for HealthCare Global Enterprises Limited. Today, I’m joined by Mr. Raj Gore, our Chief Executive Officer; Mr. Srini Raghavan, Chief Financial Officers, besides a few members of HCG senior management team to share our operation and financial highlights for the quarter ended and year ended March 2023.

HCG is a leading chain of hospitals focused on oncology care, which is patient-centric, technology-oriented and focused quality outcomes for its patients. Our speakers is to provide the best-in-class cancer treatment on a pan-India basis with superior outcomes with quality-of-life for our patients. HCG is not only focusing on providing patient-centric outcome based cancer care treatment, but is equally focused on and has taken the lead role in the field of research and academia. Given the quality of our innovation, research and patient centricity, HCG ensures access to world-class cancer treatment and services for our patients.

AT HCG, we actively participate in clinical trials, invest in groundbreaking research to advance the frontiers of cancer treatment. Our Tumor board initiative is a potent platform that brings together a multidisciplinary team of oncology experts to discuss complex cancer cases, share insights, and develop personalized treatment plans. Employing breakthrough technology including Advanced Adaptive AI therapy, Robotics and Genomics coupled with our pay per use model for LINACs enable us to provide best-in-class treatment at cost effective prices. Our relentless fight against cancer is founded on our continuous research and technological innovation towards exploring new therapeutic avenues to move up the value chain of clinical excellence and lasting outcome.

HCG is first in Asia to complete 105 clinical runs for over 1,000 patients of comprehensive genomic profiling. The results are encouraging and with a wealth of data emerging from cancer genome studies and data we created we feel this is just a beginning of our journey in the precision medicine and to win war on cancer, not only in early cases, but also in advanced cases to convert cancer to chronic disease. We are also first in India to launch Cell Search circulating Tumor Cell Testing, where just by a blood test we can detect circulating cancer centers.

Cell Search is the first and only system which has received FDS approval for precise enumeration circulating tumor cells in the patient’s blood for diagnostic procedure. Cell Search helps in early detection and screening and also in detecting the response to therapy, informed patient care decisions, real-time treatment and monitoring. At HCG, we always believe in raising the bar and staying ahead of the curve, we strive to provide the best possible treatment to our patients.

I now hand over to Mr. Raj Gore to take you through the strategic initiatives and financial highlights. Over to you, Raj.

Raj Gore — Whole-time Director and CEO

Thank you so much, Dr. Ajai. A very good morning to all the participants on the call. We are extremely happy to announce our stellar performance for FY ’23. We ended FY ’23 with revenues of INR1,691 crores, a very robust growth of 21% with increased profitability. Our adjusted EBITDA for FY ’23 has increased by over 31% on Y-o-Y basis and stood at INR321 crores. Our efforts on operational efficiencies coupled with operating leverage has resulted into expansion of adjusted EBITDA margin by 139 basis points, which stands at 18.9% for the year FY ’23 compared to 17.6% in the previous year FY ’22.

We ended FY ’23 on a strong note with our consolidated revenue for Q4 FY ’23, standing at INR442 crores, year-on year growth of 21% and our adjusted EBITDA margin standing at 18.8%. We’ve been able to create a strong foothold in our mature geographies and have been able to make inroads into our emerging markets. In Q4 FY ’23, our revenues for matured centers have increased by 19% year-on year and revenues from our emerging centers have increased by 32% over the same-period.

The adjusted EBITDA margin is lower by 30 bps in FY ’23 Q4 compared to the previous quarter, primarily due to upgradation or replacement of radiation machines at three of our locations; Ongole, Ranchi and Shimoga, which has resulted in reduction of margin by 40 bps. These machines are under installation and are expected to be operational during Q1. In addition to driving higher utilization of existing capacity, we continue to invest in superior clinical expertise, capacity creation and brand-building to fuel future growth and further fortify our leadership position in the industry.

To ensure our growth momentum going forward, we have increased our sales and marketing spend, which we think is an investment in our future in Q4 FY ’23 by 0.5% of top line over the previous quarter and by 1.2% of top line over the same quarter previous year. Especially in our emerging geography, our operating investment in engaging quality clinicians and our go-to-market activities are showing good results. We are happy to report that our one-time value-creation cost will end from this quarter and there will be no further adjustment for the same on EBITDA going forward. These transformational activities done over the last six quarters has started adding value and has set us up very well on a path of profitable growth going forward.

Our revenue through digital channels has grown by more than 3 times in FY ’23 over FY ’22, crossing 6% of total revenues in Q4 FY ’23. We also recorded our highest-ever annual revenues from medical value travel with a year-on-year growth of 91% and reaching to 1.5 times of pre-COVID highest level. We’ve been consistently delivering growth across our network and have grown faster than the industry over the last eight quarters. Our track record of consistent performance reflected in highest-ever revenue and highest-ever EBITDA over last nine and eight quarters in a row, respectively is a testimony of meticulous planning and rigor in execution we have shown as a team. With unparalleled growth journey over many years, it’s primarily due to HCG’s pan-India network, specialized and differentiated cancer care model, and local market leadership across locations, which we have established over past several years.

To conclude, I would like to say that HCG remains to be the trusted healthcare partner for every individual battling cancer. We are honored to have earned the trust of our patients and the communities we serve and are committed to upholding that trust every day. Through our relentless endeavor, we assure our patients the best of the treatment available across the globe and live up to promise of adding live in years.

With this, I hand over to our CFO, Srini for financial highlights.

Srinivasa Raghavan — Chief Financial Officer

Thank you, Raj and very good morning to everyone. We have uploaded our Q4 FY ’23 results, an updated investor presentation on the stock exchanges and company’s website and I do hope everybody had an opportunity to go through the same.

We are delighted to share that we have been able to grow our revenues ahead of the investment growth due to the trust and brand created for HCG. On the revenue front, our consolidated revenues for Q4 FY ’23 stood at INR442 crores as compared to INR365 crores in Q4 FY ’22, a growth of 21%. Our revenues for FY ’23 stood at INR1,694 crores, again registering a growth of 21% year-over-year. Revenue split between HCG and Milann stood at 97% and 3%, respectively for Q4 FY ’23. Revenue growth for HCG stood at 22% year-over-Year, whereas Milann witnessed flat revenues. As mentioned in slide 9, revenue from the mature centers stood at INR333 crores, a growth of 19% on a Y-o-Y basis for Q4 FY ’23. Revenues of emerging centers stood at INR109 crores, a growth of 32% on year-on-year for Q4 FY ’23. We are delighted to say that our emerging centers are inching towards maturity and are seeing good traction across geographies.

Moving to slide 10, there are [Indecipherable] operational KPIs for our company. New registrations form 21% of our revenues. Number of new registrations grew by 18% at 80,000 in FY ’23 versus 68,000 in FY ’22. 37% of revenues came from chemo sessions and volume-wise the figure stood at 133,000 in FY ’23 versus 104,000 in FY ’22, registering a growth of 28%. Radiation form 18% of revenues and capacity utilization stood at 66% for FY ’23 versus 59% for FY ’22. Total radiation patients treated starts at 5,100 in Q4 FY ’23 as compared to 4,700 in Q4 FY ’22, a growth of 9% and 21,000 in FY ’23 as compared to 18,000 in FY ’22, a growth of 17% year-over-year. In-patient bed occupancy stood at 60% for FY ’23 compared to 53% for FY ’22.

I now request your attention to Slide 11, where we have disclosed our operational parameters across our mature network and emerging centers for Q4 FY ’23. Our company-wide AOR stood at 65.1% and AOR for matured versus emerging centers stood at 64.8% and 65.7%, respectively. Our ARPOB on company-level stood at INR39,800 and our ARPOB for matured centers stood at INR41,400 and for emerging centers stood at INR36,000. Coming to next slide for full year. Our AOR stood at 65.4% and for matured centers it stood at 64.3% and emerging centers it stood at 68.5%. On ARPOB, we did ARPOB of INR38,000 for matured centers and ARPOB of INR40,500 and for emerging centers the ARPOB stood at INR32,200.

Across geographies, we have grown our revenue breakup in slide 13. Kolkata grew by 142%. Revenue from Rajkot grew by 58% and Ranchi grew by 51%. Bangalore Centers of Excellence grew by 24% year-over-year for Q4 FY ’23. For our Milann business, revenues for FY ’23 witnessed a growth of 6.8% and new registrations increased by 13.6%. On the EBITDA front, adjusted EBITDA for Q4 FY ’23, that is after existing the one-time value-creation cost on [Indecipherable] and ESOP expenses stood at INR83.1 crores as compared to INR67.6 crores in Q4 FY ’22, a growth of 23%.

Adjusted EBITDA margin stood at 18.8%, as compared to 18.5% in Q4 FY ’22, a growth of 26 bps. Adjusted EBITDA for FY ’23 stood at INR321 crores, a growth of 31% year-over-year, with margins at 18.9%, a growth in margins of 138 bps. We have also given bifurcation of our EBITDA across mature and emerging centers and I would request the participants to view Slide 9 for further details. Our consolidated reported EBITDA stood at INR76.3 crores for Q$ FY ’23 to INR63.2 crores in Q4 FY ’22, a growth of 21%. Reported EBITDA for FY ’23 stood at INR299 crores, a growth of 26% year-over-year.

On PAT. PAT for this quarter stood at INR8.3 crores as compared to profit of INR5.9 crores in Q4 FY ’22. Full year ’23 PAT stood at INR29.3 crores as compared to PAT loss of INR3 crores in FY ’22, adjusted for one-time exceptional gains or losses in FY ’22. Our PAT pre-Ind AS adjustments for Q4 FY ’23 stood at INR11.2 crores as compared to INR9.4 crores in Q4 FY ’22. PAT for FY ’23, pre-Ind AS adjusted stood at INR42 crores as compared to profit of INR11 crores in FY ’22.

ROCE for matured networks stood at 22.9% annualized for Q4 FY ’23 as compared to 18.7% in Q4 FY ’22, an improvement of 420 bps. ROCE before corporate allocations for matured centers stood at 25.2%. ROCE for emerging centers stood at negative 3.6% for Q4 FY ’23 as compared with negative 8.3% in Q4 FY ’22. This is again an improvement of 470 bps. ROCE before corporate allocations for emerging centers stood at negative 2.2%.

Our net-debt position, excluding capital leases, as on 31st March, 2023 stood at INR198 crores as compared to INR190 crores on 31st December ’22. Our expansion of existing facilities in Ahmedabad Phase 2 and Whitefield Extension of Bangalore COE, is on track. Total planned capex for Ahmedabad is INR85 crores. Expected data of operations being Q1 FY ’25 and the Bangalore COE is INR25 crores, expected date of operations being Q3 FY ’25.

With this, I would like to open the floor for Q&A.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Dhara Patwa with SMIFS Limited. Please go ahead.

Dhara Patwa Shah — SMIFS Limited — Analyst

Thanks for the opportunity, sir. Sir, I have few questions. Since we are seeing increased significant growth in Africa and East India, so what other reasons for this and will the traction continue going forward for these two regions?

Raj Gore — Whole-time Director and CEO

Yeah, hi, thank you. Thank you for that question. In East India, our newest or youngest emerging center, Kolkata had shown 142% year-on-year growth in Q4 and we are really happy how it’s progressing in the right direction. In addition, our mature centers Ranchi and Cuttack, Ranchi is showing 51% year-on-year growth last quarter. Cuttack, which is a very mature, large center, it’s showing 32% year-on-year. So, both emerging mature centers are showing high double-digit growth, which is contributing, East to show such a good growth.

In Ranchi, now as I said earlier, we are also putting — upgrading the LINAC machine with higher capabilities will further help us to do more high-end higher realization radiation treatment. Africa, we have commissioned a new linear accelerator, which is first of its kind in East Africa and I think as a result, we are seeing good growth momentum in our Nairobi center. And of course, I mean, all this is sustainable, you will continue to see it going forward.

Dhara Patwa Shah — SMIFS Limited — Analyst

Okay, sir. Understood. Sir, in North India which are the locations that we are covering? Like which are the hospitals — yes.

Raj Gore — Whole-time Director and CEO

It’s only Jaipur, which is our emerging center, yeah.

Dhara Patwa Shah — SMIFS Limited — Analyst

Sir, in earlier con call you highlighted that once we reach an optimum occupancy level in the emerging market, we will see improved ARPOB growth. So, I guess our emerging markets are already at a good occupancy level of 68%. So, should we expect an ARPOB increase from here on.

Raj Gore — Whole-time Director and CEO

Yes, absolutely. So look, emerging centers, we are at 68.5%, but again, we have not come operationalized all our beds in emerging centers. So, as we keep reaching higher capacity utilization on beds, we’ll keep operationalizing more and more beds. But yes, directionally that’s what we had — that’s the guidance we had given. If you look at our annual ARPOB for emerging centers, it looks like it’s decreased over last year. But look at how we’ve ended the year. If you look at Q4, we have gone back at 36,000 level. It’s what we said that as the occupancy keeps going up, we’ll start optimizing our payer mix and our procedure mix, business mix and therefore the ARPOB will continue to grow going forward.

Dhara Patwa Shah — SMIFS Limited — Analyst

Yeah, sir, that’s helpful. One last question on slide number 10, where you’ve highlighted the capacity utilization for LINAC. So, just wanted to see what is the peak utilization for LINAC in any hospital — cancer hospital? So, we are at already 65%…

Raj Gore — Whole-time Director and CEO

Yeah. Doctor, you can go ahead.

BS Ajai Kumar — Executive Chairman

No, on the linear accelerator, capacity utilization depending on the type of actions we give we can go up to 120 to 130 patients. But nowadays with different modalities of treatment like hypofractionation and all, we can even treat up to 140 new patients per month on the linear accelerator. It again depends on the type of linear accelerator and the technology we use. Some of the linear accelerator when you use complicated technology like IMRT, IGRT, so we may take a little bit more time so the number of patients may be less. So, it’s always depends on the mix or [Indecipherable] CRT but now the world is — we are moving towards more high-end like IMRT, IGRT. So, with that and the hypofractionation, we are very comfortable with the high end linear accelerators we have treating up to 120 patients on the machine per day.

Raj Gore — Whole-time Director and CEO

Thank you, Dr. Ajai. Just to add to that, from a capacity utilization perspective, we can go to 90%, 95% easily including downtime, holidays, lesser load on weekends, etc. So, 90%, 95% we’ve consistently done in our mature centers.

Dhara Patwa Shah — SMIFS Limited — Analyst

Yeah, that answers my question. That’s it from my side. Thank you.

Operator

Thanks you. Our next question comes from the line of Kunal Randeria with Nuvama. Please go ahead.

Kunal Randeria — Nuvama — Analyst

Hi, good morning. So, sir my first question is actually related to slide 9. So, when I see the slide, it seems the company has two different growth trajectories. Your matured centers are actually doing fairly well, growing at a very steady consistent pace, both revenue as well as your EBITDA trajectory, but the emerging centers, EBITDA trajectory seems to be all over the place. So, just want to understand what is the growth for these emerging centers. See because your occupancy, your ARPOBs in Q4 are not too far away from the mature ones. So, I’m just wondering where the profitability from these emerging centers will come from.

Srinivasa Raghavan — Chief Financial Officer

Yeah, so thank you, Kunal for that question. See the — with any new hospital, the way you do it is you may have a 100% build capacity, but you don’t operationalize total capacity, right. So, you will open up part capacity, you will staff, you will add clinical talent, you will get to a optimum utilization on that operational capacity, then you will again release additional built capacity to operationalize it. Then you will have to again add clinicians, again, start your go-to-market. So, that’s the nature. So, it’s a step-by-step growth.

What we have done is our — as we kept hiring clinicians and that’s an upfront cost, so the cost comes first and then the revenue growth comes later, that’s one factor. Second, our investment in brand and our go-to-market comes first and then the growth come. So, because of the nature of this step-wise upfront investments and then the subsequent lagging revenue growth this trending looks a little different from hospital to hospital in that bucket and that’s the result you see on the slide.

Raj Gore — Whole-time Director and CEO

Just to add one point, so on the capacity front or the utilization front, 65.7% occupancy is on our operational beds. And we have given a note in our presentation that only 75% of our capacity built are operational right now. So, on capacity beds, our utilization is only 50%, so we still have a lot of headroom there.

Kunal Randeria — Nuvama — Analyst

Right. Okay, so and — but then at least on your capacity beds you’re at optimum level, right at around 65%. So you know I mean, my question is more, I’m not too worried about the revenue side of things, but more in terms of profit, because see, as you operationalize some of the other beds also there will be some increase in cost, right, some commission cost, some staffing cost, utility, so on and so forth. So, it just seems that you’re now stuck in the 7% to 10% kind of margin back for the moment.

Srinivasa Raghavan — Chief Financial Officer

There are some costs, which probably would be not increasing commensurate with the decrease in operational beds. Like for example, as Raj mentioned that clinicians primarily in our emerging centers at Mumbai and Kolkata, the focus having to invest on clinical expertise and sales and marketing upfront. Now, these costs — one, first cost is in our clinician. The clinician cost, I don’t think would go up as the number of beds gets more operational and you would start seeing operating leverage on that.

Second is sales and marketing, it’s like since the company has been doing really well, we have been investing on sales and marketing cost disproportionately in our emerging centers to attract future growth. So, the results of the revenue growth in these two markets would come and within the emerging centers, primary focus is on our Mumbai and Calcutta region and the other locations which is like other locations where margins have been pretty good.

Kunal Randeria — Nuvama — Analyst

All right. Okay. Fine. Sure. Okay. Now, my second question is I would like to understand a bit more about your capex. Now, the way I look at it is it can be divided in three buckets. One would be our normal maintenance capex on all the centers that you have now. Second would be like adding new tech to the existing centers, something like the Cell Search that you mentioned and third would be what you would spend on expansion. So, if I were to take a slightly longer-term, right, let’s say between FY ’25 to FY ’27 or something like that, could you highlight your plans and how would you be allocating the resources across these three buckets that I spoke?

Ashutosh Kumar — AGM – Corporate Business Development

See, I mean the current year capex is about INR135 crore and I mean we have been saying our maintenance capex is in the range of INR55 crores to INR60 crores. So, that INR60 crores is what I our maintenance capex is. We have also spent incremental capex in the current year — in the year FY ’23 towards technology upgrade. So, we have got the highest radiation equipment which is adaptive therapy in our Center of Excellence at care. Then we have invested on solar, which probably should help us in reducing our operating costs. Then we have other investments been done in upgradation of or upgradation of other existing centers.

Having said that, the company has laid out two greenfield projects, which the company is right now executing. One is in Ahmedabad, Phase 2 and second is in Bangalore at Whitefield. We have also laid out the capital outlay towards these two projects. For Ahmedabad, we have INR85 crores whereas Bangalore we have INR25 crores. This is our current capital visibility here. However, as Raj had spoken during his speech that we would continue to invest in upgrading both technology as well as adding capacity on our existing centers going forward, as the capacity is coming close to its near utility.

Kunal Randeria — Nuvama — Analyst

And maybe just to simplify it a bit more for me. Let’s say, if you’re going to spend 100 in a year on capex, how much could be maintenance, how much could be some of the new technologies that you’re investing in, in your existing centers?

Ashutosh Kumar — AGM – Corporate Business Development

While we have not given guidance per se on on the growth capex. However, our maintenance capex remains in the range of 55% to 60%.

Kunal Randeria — Nuvama — Analyst

Okay.

BS Ajai Kumar — Executive Chairman

And we may want to add here, capex, nowadays with high-end capex equipment, we are doing pay-per use model. So, because of that our actual capex requirement has drastically come down and going forward, we see this as a new way of even replacement capex, which we have done for high-end linear accelerators. Right now we have done very successfully for high-end linear accelerators. In future, we may also do for other equipments. So, right — but based on what Ashutosh said our replacement capex will be the most requirement and even that if it comes and pay per use, our requirement become less and less as we go forward.

Kunal Randeria — Nuvama — Analyst

Sure, sir. That’s very interesting because then would it be fair to assume that your capex will be lower in the outer years and maybe at the cost of compromising on some margin somewhere, because pay per use, I’m sure that will go through the P&L?

BS Ajai Kumar — Executive Chairman

Yes, it could be.

Kunal Randeria — Nuvama — Analyst

Okay. Perfect, sir. Thank you very much and all the best.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Sabyasachi Mukerji with Bajaj Finserv. Please go ahead.

Sabyasachi Mukherjee — Bajaj Finserv — Analyst

Yeah, hi, thanks for the opportunity. Good morning, Dr. Ajai, good morning, Raj and Ashutosh and team. Thanks for the opportunity. First question is a clarification on the margin front. So, if I look at your mature center revenue trajectory and the absolute EBITDA trajectory, the revenues have gone up sequentially and it has been a phenomenon for last eight, nine quarters that is very commendable, but from Q3 to Q4, the absolute EBITDA has dropped and I think you have mentioned this because of some upgradation of LINAC, I missed that point. But is this structural because we are going for a pay-per use model and hence our rental will kick in in the P&L and margins will look lower? Any color on that?

Raj Gore — Whole-time Director and CEO

No, no it’s not structural. As I said earlier, we have certain radiation machines in our matured centers which are going through replacements. We, in this entire digital transformation journey, we are also increasing incremental cost about additional cost for IT applications licenses. That’s the reason, there is no structural issue in this. Radiation, see radiation is a high contribution business. In all our modalities between surgical, medical radiation, radiation has the highest margin and therefore, any drop in radiation affects the total contribution margin that much more. And as — but what we are doing is in all these three centers we are putting on a high-end machine, which will give us capability to do high-end modalities, which have a higher realization. And therefore, there will be improvement in your realization of radiation revenue in all these three locations. So, it will be margin accretive or margin accretive going forward.

Sabyasachi Mukherjee — Bajaj Finserv — Analyst

Okay, got it. So, how many LINACs you have now total and how many of them are in pay-per use model?

Raj Gore — Whole-time Director and CEO

Yeah, so we have five, which are pay-per use model out of 32 LINACs. Most of these LINACs have been you know installed years ago. It’s only last couple of years we started moving towards pay-per use model and we expect going forward that all our replacements will start moving into pay-per use model. And therefore, what Dr. Ajai was saying that our capex requirement will go down.

Sabyasachi Mukherjee — Bajaj Finserv — Analyst

Understood. Follow-up to the margin question, so basically, if I look at on full-year basis, the operating metrics is that you have shown in the slide 10, that has improved strongly every aspect of the operating margin — in the operating metrics. But if I look at the overall margins, overall EBITDA margins for the company, it is adjusted somewhere around 18.8%, 18.9% and strongly refuses to move beyond 20% and probably, the missing piece of the puzzle here is your emerging centers still operate at 7% 8%, kind of EBITDA margin whereas the mature centers at 24%, 25%. My question is, when can we see these emerging centers move up the ladder and [Technical Issues].

Raj Gore — Whole-time Director and CEO

As a bucket I think it will be about 18 months. But let me give you more details. Jaipur is already in mid-20s, Borivali is in mid-20s. So, some of the emerging centers are already at that margin level. As a bucket in another 18 months, we should get to the mature level.

Operator

Thank you. Our next question comes from Nitin Agarwal with DAM Capital. Please go ahead.

Nitin Agarwal — DAM Capital — Analyst

Hi, thanks for taking my question. Two questions. On this pay-per use LINAC model versus an outright buyout, in your assessment, what’s the difference in ROCE between the two — from — how does the financial — that the economics really work out for you in both the models?

Ashutosh Kumar — AGM – Corporate Business Development

Yes, so, I mean theoretically it is, traded off a single patient on our pay-per use machine is ROCE, because there is no capital involved. Now, how does it play out when it comes to profitability is that now almost a bulk, around 20% to 25% of what we generate from patient goes to the manufacturer. However, what we have also done and observed is that due to upgrade of these machines, from this previous versions, we are able to give high-end therapies to our patient. So, a lot of cost, which is going to the manufacturer is also traded off due to higher [Technical Issues] from the base. And and the good part of our deal is that in fact the CST and AMC cost is also been borne by the manufacturer. So, we don’t have additional operating cost towards that.

Raj Gore — Whole-time Director and CEO

Nitin, what Ashoutsh is trying to say is that the pay-per use model is also good for two things. One is in the beginning you may have a low volume of patients. So, you are not really investing in the capex. Even with the lower volume you are okay, because it is per patient you’re paying. You’ve not invested and you are not — your debt is not increasing and you are not paying any debt payment is not happening. Point number two is because of the high-end units we are getting, we are able to do more of IGRT, IMRT in even Tier 2, Tier 3 cities where the revenue model is pay per — the patient pay model is higher. Because of that, our contribution factorability is high.

So essentially, that usually whatever we charge is already paying-off. What extra paying off what we may have to pay to the manufacturer. So essentially it, it makes us a win-win situation for us, working with the manufacturers with no investment from our part, like no CMC, no custom duty, so everything comes. We believe it comes in our favor. When you look at it, we have done deep study on this. That is the conclusion we have come to. Long-term, it really works out well and after so many years, like eight years or so, it essentially becomes our own unit.

Nitin Agarwal — DAM Capital — Analyst

Okay. And Doctor, broadly speaking, in your assessment over the next two to three years, how much capex should be saving on in terms of cash outlay based upon our expansion plans?

BS Ajai Kumar — Executive Chairman

Yeah, if you look at at replacement capex, LINACs, we may to replace another seven to eight linear accelerators. Am I right, Ashtoush, close to that, at least, I think eight and not only replacement, new instalments. When you look at second linear accelerator, we may be in the region of 10 to 12, so you are talking about the each unit, about $2 million. So, you are looking at approximately $20 million, $25 million.

Nitin Agarwal — DAM Capital — Analyst

Okay, okay, that’s helpful. And secondly on the mature centers, while we did talk about the fact that Q4 had some one-offs because of which numbers are little down, but the EBITDA for these centers has been in the 74%, 77% range — INR70 crore range for the last three or four quarters also FY ’23. So, Raj, where do we see this number? I mean, is there a scope for a meaningful delta on this number or this is where we probably starting a bit of a flatter situation in this — in the mature centers on the EBITDA front?

Ashutosh Kumar — AGM – Corporate Business Development

Before Raj takes up, just on the numbers, while you said, 70%, 75%, those are reported numbers and if you look at the adjusted number, it has moved from 75%, 76% to 83%, so there is a delta of INR6 cores, INR7 crores from quarter one to quarter four.

Raj Gore — Whole-time Director and CEO

And as I explained, see this is not — this quarter is not the end goal for us, it’s not the last over. We are as I mentioned earlier, we continuing to invest in our sales, marketing expenses. Our sales, marketing expenses are almost 1% more than last year this year. And that’s the right thing to do, because I believe that we have — we not only have expertise, we have spare capacity, there is enough demand-supply, it’s important that we create visibility of HCG brand, so that we grow footfalls going-forward. That’s the right thing to do for the business on an ongoing basis.

Nitin Agarwal — DAM Capital — Analyst

And Raj sir, just the last one on the INR14 crores, INR15 crores that you spent on the consulting expenses this year, what kind of pay-off do you see on that and when do you start see it coming through?

Raj Gore — Whole-time Director and CEO

So, we had already guided the market that we were expecting our margins to go up in the range of 150 basis points. Off that, we have sort of like at least, 60% 70% of that benefit, we have already seen in the current year and some of the benefits would commence as we go forward in next few quarters.

Sabyasachi Mukherjee — Bajaj Finserv — Analyst

Okay, thank you. And if I can squeeze in one last one, on — what are the — what’s the way forward for us on the fertility clinic business, how are we seeing the business? Is it strategic business for us, Gore, are we looking at investment in this business incrementally?

Raj Gore — Whole-time Director and CEO

Yeah, as we have said, we are now because of the COVID and those recovery took us some time, we have reorganized the fertility and we are also not going to do any of the budget we had planned with the [Indecipherable]. So, we feel there is a significant upside for us to focus on the fertility-only. So with this, we are looking at good improvement this year and we have put lot of systems in place and we want to be definitely a dominant in Bangalore. So, our focus going-forward will be in Bangalore. So, going-forward in the next few quarters, we will definitely update how we are doing. But we do see quite a few positive signs for our growth. As you know, we have made it very clear, at some point we want to divest. So, we will decide at what point to divest.

Nitin Agarwal — DAM Capital — Analyst

Okay, sir, thank you very much.

Operator

Thank you. Our next question comes from Shyam Srinivasan with Goldman Sachs. Please go ahead.

Shyam Srinivasan — Goldman Sachs — Analyst

Hi, good morning and thank you for taking my question. Just one on the outlook for fiscal ’21 — ’24, Raj, Dr. Ajai, how should we look at revenue growth? Firstly, we have done 21% this year. And if you could help us disaggregate it into either changes in ARPOB that you foresee. We have about 4% increase ARPOB overall. So, just want to see how we should look at ARPOB versus say utilization improvements?

Raj Gore — Whole-time Director and CEO

So, as you said, 21%, 4% is ARPOB. The rest is volumes. If you see our — even NPR, which is the most new patient registration, which is the most important metrics for us, because one patient coming in getting treated for multiple modalities and the lifetime value. So, we have had a very good 18% growth on a year-on-year in NPR, so largely it’s led by volume. As I mentioned earlier, first, we want to drive capacity utilization before we start optimizing all other financial metrics. So, we’ll continue to do that. On going forward, we don’t actually give forward-looking guidance. But if you look at our track record for years and including in last several quarters, we have outpaced the industry growth and we — our endeavor is to continue on that journey and grow at a higher rate than the industry.

Shyam Srinivasan — Goldman Sachs — Analyst

Yeah, that’s helpful. So, what is the industry growth you think? 15%, 14%?

Raj Gore — Whole-time Director and CEO

So, cancer market is growing at 11%, 12% annually CAGR over few years. I mean last last five years, it’s grown about 11%, 12%, it is expected to grow at the same rate going forward, about 12%, so that’s cancer market growth in India right now.

BS Ajai Kumar — Executive Chairman

And also Shyam, I want to just add one thing. See when we look at the growth for us, historically for HCG, we have been very strong in radiation oncology and even now our radiation oncology is our big strength where the contribution factor is very high. And when we look at places like even Mumbai, Jaipur, we’re adding more units. And similarly, in Vizag, so more — lot of our centers including mature centers and those who are growing, we are adding more units. So, we feel our growth in terms of our radiation, chemo administration will excel quite a bit in the coming year. That is where we are going to see our significant growth happening.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it, sir.

Raj Gore — Whole-time Director and CEO

And — thank you Dr. Ajai. And Shyam, I think we have shared in the past also that while we continue to grow organically, we are also looking at inorganic opportunities. We had several targets that we were evaluating. We have made good progress and hopefully, we’ll be able to share more details in coming months on that front.

Shyam Srinivasan — Goldman Sachs — Analyst

Understood. If I were to look at slide 13 and just looking at your regional cluster breakup, where do you think there is scope for further improvement? I’m just looking at headline numbers like Maharashtra has only grown 6%, let’s assume, right. So, just the ones where growth has been slower for the full year or Andhra Pradesh for the quarter, let’s assume. So, is there something regional-specific cluster-specific strategy that we have in the next 12 months?

Raj Gore — Whole-time Director and CEO

So, growth — while the mature centers continue to grow at a steady-state, steady weight, the growth will come from emerging centers. Emerging centers, we have two in Mumbai, Maharashtra, one in Kolkata and then you have Rajkot, Jaipur, which are showing very good traction. You mentioned Maharashtra, it’s showing 6%, but if you look at I think that’s largely because in Maharashtra, in Nashik in both Mumbai hospitals we had large COVID and vaccination revenue last yea. If you look at our oncology revenue growth year-on-year in Maharashtra, that 6% will become 15%.

If you look at, if I can draw your attention to year-on-year growth in Q4, it’s reflecting 19% because by Q4 last year, COVID and vaccination was not there, that is a real reflection of our oncology business growth there. If you look at Mumbai, we are — in Mumbai, in Q4, we have grown about 24%. For the year, in Mumbai for oncology business like-to-like, we have grown 41% over the previous year. So, Mumbai is going very well. Mumbai, Kolkata, emerging center as a bucket will be the future growth drivers going forward.

And as I mentioned — as we have been mentioning that two of our top Centers of Excellence, Bangalore and Ahmedabad, we are adding capacity in terms of new facilities, we are adding one in Whitefield to continue to grow our market share in Bangalore and Ahmedabad, we are shifting to a newly modern built 200 bedded facility by beginning of next financial year and that will ensure that these two centers will continue to play a major role in our growth going forward.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it. My last question is just on the — I remember 12, 18 months, we did an price benchmarking exercise of our prices with competition and we took some price increases up. Do you foresee that will likely come back again? Is there pricing power you think where you can take prices up? The ARPOB growth like you said, has been 4% only. So, is there an element of price increases we can take in ’24 or ’25 let’s assume?

Raj Gore — Whole-time Director and CEO

So we had — 12 month ago, we had done it. Actually 15 months ago, we started doing that exercise in Bangalore. During this last financial year, we have taken it to the rest of 10, 12 major facilities. So, that’s been ruled out recently. We don’t see it happening again soon. But we continue to do our inflationary price increase every year effective from April 1, which we have already done. I think as I stated before, we do have capacity in many of our centers. We do want to go for driving volumes first. In the meantime, we are upgrading technology, we are upgrading our clinical strength and we are investing in building brand.

Combination of all three, when the capacity starts reaching to optimum level, should give us our pricing ability to charge premium, considering that anyway in two-third of our locations we have a market leadership position locally in oncology market. So, we are working towards that. As of now, the focus is on volumes, volumes, volumes, driving capacity utilization but naturally, it will move in that direction as we start reaching optimum utilization.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it, sir. Thank you, and all the best.

Operator

Thank you. Our next question comes from Aditya Jhawar, an investor. Please go ahead.

Aditya Jhawar — Individual Investor — Analyst

Yeah. Good morning, team. I have a question on the cash flow statement. I see there is a receivables write-off of INR31-odd crores. And there are again doubtful debts for I think two to three years INR11-odd crores. So, could you throw some light on this part?

Srinivasa Raghavan — Chief Financial Officer

Yes, Aditya. The thing is, we have our receivable policy positioning, so based on that, on the credit customers, we do make provisions based on the receivables based on the commercial trends. So, the rise up that you see in the books of accounts is basically the provisions that we have paid in the past and over a period of time, [Indecipherable] is not comfortable, that’s what we have cleaned it up as part of this exercise. But having said that, it’s not that we cleaned it up and that’s the end of the story. We will keep monitoring this and as and when there is an opportunity to push these collections, we will continue to do so. It’s more a financial discipline exercise and out efforts to drive the receivables ensure that we are behind you and collect as much as possible continues to be on.

Ashutosh Kumar — AGM – Corporate Business Development

Just to add to what Srini said, since you picked up on the cash flow, the net fact because of the bad debts and the provision is a write-back of PBT, because it’s not a cash outgo. Just making it clear.

Aditya Jhawar — Individual Investor — Analyst

Yeah, but in the business I’m still not able to understand receivables how it got stuck like INR31-odd crores is a very big amount. So, could you again briefly explain here?

Srinivasa Raghavan — Chief Financial Officer

I think it’s overall. It’s not just a one year phenomena, it’s over period of time. We are looking at last five to six years. So, as I heard on all our credit customers, we have been creating provisions based on the aging of those customers and based on that the provisions are what accumulated over a period of five, six years. That INR35 crores you are looking at is a provision that has been created over a period of time, that we have realized is not collectible at this point in time. So, based on a good financial discipline, we decided to write-off this amount.

Aditya Jhawar — Individual Investor — Analyst

Okay, thanks for that. And my second question is on the margin front. If I see the post rental margins, we are coming around 10% to 11%, which has been for the past two years. But as we know that in the hospital sector generally when the capex comes lower, we see that the margin should trend upward, but from the last three to — from the last six to eight quarters, we’re trading near 10% to 11%-odd margin. When we can see that bump-up in the margins? You can give maybe two or three years’ perspective. Like emerging centers should contribute how do you see this going forward?

Ashutosh Kumar — AGM – Corporate Business Development

So, Aditya, I mean, we are not able to relate to your 11% margin, because our reported adjusted — sorry — our adjusted EBITDA margin is 18.8%…

Aditya Jhawar — Individual Investor — Analyst

I’m taking out rental, rental, also here if you calculate post changes pre Ind AS, yeah.

Srinivasa Raghavan — Chief Financial Officer

Pre Ind AS?

Aditya Jhawar — Individual Investor — Analyst

Yeah.

Srinivasa Raghavan — Chief Financial Officer

Pre Ind AS, it’s still 15%.

Aditya Jhawar — Individual Investor — Analyst

That’s not 11%?

Srinivasa Raghavan — Chief Financial Officer

Pre Ind AS cannot be 11%, Aditya, it should be a higher percentage. But the larger question is, how do we drive margins across the emerging centers, I think that’s what you are trying to ask.

Aditya Jhawar — Individual Investor — Analyst

Yes, yes.

Raj Gore — Whole-time Director and CEO

So, Aditya, I mean if you look at last two years, eight quarters, we’ve grown from 13% to almost 19% in terms of margin post Ind AS. Our existing centers have gone from 18% to almost 22%, right. It’s the new center bucket that was dragging it down. Earlier it was negative, now it’s coming positive. We’ve been explaining that while we reached to a certain level of margins, three, four quarters ago, we decided that we want to go for scale and therefore, we started strengthening our clinical talent and investing in go-to-market building brands to make sure that we ramp-up our hospitals faster than we’ve done historically.

Our emerging markets, our new market towards, we have to grab market share from someone else. So, we decided to go on a front foot aggressively to grow these volumes. I think what is happening that margin trend is a reflection of these decisions, which means they are the right decisions for those businesses. Right. Now fundamentally, we’ve shown again and again that the model delivers goods margins in mid-20s, whether it is irrespective of the location that they are in, whether it’s new — whether it’s metro, whether it’s non-metro, Tier 3, Tier 4. We’ve proven it multiple times, it’s a matter of fact when all cylinders start firing in emerging bucket, that it starts moving in the right direction towards the mature center margin.

Srinivasa Raghavan — Chief Financial Officer

I think that in fact Raj has given a time frame of about 18 months to kind for the emerging centers to fall in line with the matured centers and I think that’s a good starting point.

Raj Gore — Whole-time Director and CEO

And as I said, you know Jaipur in last two years have gone to mid — early 20s, Borivali is gone to 20s, right. So, even in the emerging center bucket there are hospitals, which are already reaching that, that 11%.

Aditya Jhawar — Individual Investor — Analyst

Okay, that helps, that helps. Thanks. And the last question I have is on the LINAC machines. So currently, we have 31-odd, right? First, correct me if I’m wrong.

Srinivasa Raghavan — Chief Financial Officer

Yeah.

Aditya Jhawar — Individual Investor — Analyst

Is it correct. Okay. Now we have current capacity utilization as 68-odd percent, but you said that we can move up to 90-plus percent. So, how do we increase your capacity utilization and how fast we can ramp-up here? Or It depends on the mode of, see, I see the number of patients also going up, so which is good amount. Then how do the dynamics change here. The increasing capacity utilization of LINACs? And for the two to three years, how much more we are trying to add, that also in LINACs, how many metrics, because you said we are going for pay-per use model and this one, yeah.

Raj Gore — Whole-time Director and CEO

Yes, yes. So, Aditya, if you look at the page on operating metrics, it shows that year-on-year our utilization has gone from 59% to 66%. On quarter-on-quarter, it’s moved from 60% to 65% in Q4. This is the average utilization for the entire bucket. We have many hospitals where we are already 90%, 100% utilization, for example, Borivali. Borivali, we’ve been clocking 95%, 100% utilization. We hired a bunker, we want to add one machine. The machine is commissioned as we look. This month, we have commissioned the second machine. So, the answer lies hospital by hospital.

We have identified hospitals where we already are hitting utilization. Right. Ranchi is one more example. Jaipur, there are two machines. The utilization is at higher 80s, what we’ve learned from our — some of the past experiences that we don’t need to wait for it to reach 90%, 95%, because there is a long-lead time to order machine and install it. It takes six to nine months for that. Therefore, as we start hitting 80%, 85% in respective hospitals and wherever we have bunkers, we will start ordering machines and deploying it. Where we don’t have bunkers, we’ll start creating bunkers.

As we speak right now, we have about four machines that are — five machines that are getting installed in various places; Borivali, Ranchi, Ongole and Jaipur. That’s what is happening right now and these machines will get commissioned in these two, three months period, current period. We have also identified some of the other hospitals where we would like to add machines. For example, Nagpur, for example, Kolkata. So, we have leased-up units where we would like to now increase capacity by adding a LINAC. We have planned for the year and the subsequent year. And in pay-per use model, the community would deploy it at right time without incurring capex in a margin-accretive and LOC-accretive manner going-forward.

Aditya Jhawar — Individual Investor — Analyst

Okay, okay. That helps. Thank you so much. All the best.

Raj Gore — Whole-time Director and CEO

Thank you.

Operator

Thank you. Our next question comes from Rishabh Tiwari with Allegro Capital Advisors. Please go ahead.

Rishabh Tiwari — Allegro Capital Advisors — Analyst

Thanks for taking the question. My question was regarding the pre-Ind AS numbers, which was been discussed in the last question as well. Earlier we used to report that it used to be around INR65 crores-odd number in Ind AS impact annually. What would be the ballpark number for this FY ’23 here?

Srinivasa Raghavan — Chief Financial Officer

Pre-Ind AS number? Adjusted. [Technical Issues]. You have to remove about INR70 crores from overall numbers.

Rishabh Tiwari — Allegro Capital Advisors — Analyst

So, exactly how much is rent?

Raj Gore — Whole-time Director and CEO

This is the Ind AS impact, right, 70 crores annually.

Srinivasa Raghavan — Chief Financial Officer

So, if you are looking at INR321 crores for the full year, the pre-Ind AS number would be about INR250 crores.

Rishabh Tiwari — Allegro Capital Advisors — Analyst

About, sorry I lost you.

Srinivasa Raghavan — Chief Financial Officer

2-5-0. INR250 crores.

Rishabh Tiwari — Allegro Capital Advisors — Analyst

Okay, sir. Pre-Ind AS would be higher than the post-Ind AS number, is it?

Raj Gore — Whole-time Director and CEO

No, no no. Our post-Ind AS EBITDA number for last year is INR321 crores. If you want to a pre-Ind AS like to like number, as we reported earlier, you will have to remove about roughly INR70 CR from it which takes it to about INR251 crores.

Rishabh Tiwari — Allegro Capital Advisors — Analyst

Yeah, okay. That I understood. Thank you.

Operator

Thank you. Our next question comes from Yogesh Tiwari with Arihant Capital. Please go ahead.

Yogesh Tiwari — Arihant Capital — Analyst

Thank you, sir. My question is basically on right-of-use asset, basically related to balance sheet. So, your right-of-use assets has declined in FY ’23, also your other intangible assets has got declined. So, what would be the drivers for it, sir.

Raj Gore — Whole-time Director and CEO

Yogesh, can you repeat your question? There is lot of disturbances in the background.

Yogesh Tiwari — Arihant Capital — Analyst

Yeah, my question is the right-of-use assets it has declined in FY ’23 from about INR400 crores in FY ’22. So, what would be the driver for the decline? Also, there is a decline in other intangible assets. So, if you can share some thoughts on it.

Srinivasa Raghavan — Chief Financial Officer

Remember last time when we — for the year-end call, we had explained this thing that we revised our policy of capitalization of right-of-use assets. We had taken only the lock-in period of most of the assets, which were, only eight to 10 years and we wrote back or we reduced the ROE [Phonetic] assets of the impact of 10 years capitalization. That’s why you saw INR250 crore, INR300 crore reduction last year on account of this plus as we keep paying the rent, as you know, ROE is nothing but the capitalization of the future rentals. And as you keep paying rents, this will also organically come down, that is the reason why you’re seeing a decrease in the current year also.

Yogesh Tiwari — Arihant Capital — Analyst

So, sir this decline in rental would be related to which facility?

Srinivasa Raghavan — Chief Financial Officer

It relates to all the facilities, where we are paying rent, which is spread across all these locations. So, as [Indecipherable] rightly explained, as the year goes by, the capitalization would keep coming down and that’s the reason for the reduction.

Yogesh Tiwari — Arihant Capital — Analyst

Sure, sir. And sir…

Raj Gore — Whole-time Director and CEO

It’s the capitalized rent.

Yogesh Tiwari — Arihant Capital — Analyst

Okay, sir, sure. And sir, one last question on the upcoming capex, so, at Whitefield and at Ahmedabad. So, as you told earlier, it takes about 18 months for emerging asset turn to become mature. So, can we assume that the two upcoming assets that like Whitefield and Ahmedabad, it will start giving the targeted ROCE by the end of FY ’26?

Srinivasa Raghavan — Chief Financial Officer

[Technical Issues]. Ahmedabad is not a new [Technical Issues]. We are just lifting the existing hospital and putting it in a new [Technical Issues], because we have none of the capacity that the Ahmedabad center has. So, given that we should be able to maintain the momentum, rather improve the momentum as far as this center is concerned. And as far Whitfield center is concerned, it’s an addition to our existing Center of Excellence. So, we are optimistic that we should be able to pick up volumes very quickly from the inception stage itself.

Yogesh Tiwari — Arihant Capital — Analyst

Sure, sir. Just on the time and like, we expect that to, for example, Whitefield to complete in the first quarter of ’25. So, we can expect like FY ’23 to be the major contributor for this keeping in mind the time lines?

Srinivasa Raghavan — Chief Financial Officer

It’s one of the contributors. It’s the one of the contributor as Raj and Ashutosh explained where many activities that are happening, result to the expansion, we are also looking at M&A activities. We are also looking at emerging centers kind of coming on par with the new centers. All this will be a major driver to propel the growth of the organization.

Raj Gore — Whole-time Director and CEO

And just to add to what Srini said, our centers in Whitefield is a niche new center, primarily from the perspective that we want to consolidate and improve our market leadership in Bangalore. So, it’s going to be small center compared to what we already have in Bangalore and it is more aimed towards like increasing our market share in Bangalore. It’s going to be primarily day care regulation and medical oncology center but we do have some physical OTs and beds as well. However, it is going to be add-ons center to our Center of Excellence. So, it’s going to be — it’s not going to drag us as far as profitability is concerned, other than it will add to the incremental revenue. And as Srini said, Ahmedabad is going to be shift of hospital not [Indecipherable] from the change the economics of additional [Technical Issues].

Yogesh Tiwari — Arihant Capital — Analyst

Okay sure, sir, that’s helpful. That’s all from my side. Thanks.

Srinivasa Raghavan — Chief Financial Officer

Thank you.

Operator

Thank you. Ladies and gentlemen, we have reached to the end of the question-and-answer session. I would now like to hand the conference over to Mr. Raj Gore for closing comments.

Raj Gore — Whole-time Director and CEO

Yeah, thank you. Once again, I take this opportunity to thank everyone for joining your call. Keeping having this interest in our organization, our growth story. We will keep you updating on regular basis for any incremental updates we have on the company. I hope we’ve been able to address all your queries. If there is more queries, please get us — get in touch with us or our Investor Relations Advisors, Strategic Growth Advisors. Thank you once again and talk to you next time again. Thank you.

Operator

[Operator Closing Remarks]