Healthcare Global Enterprises Ltd Q1 FY2023 Concall Summary

Key Takeaways

• Strong quarter, margin expansion underway: Revenue grew 26% YoY and EBITDA margin expanded 180 bps YoY to 17.7%, driven by occupancy gains, pricing actions, and cost optimization programs that are just beginning to roll out across the network.
• New centers are turning the corner: The new centers bucket, once loss-making, is now EBITDA positive, with Kolkata expected to turn around this month; management is confident this bucket will approach mature-center performance in 12 to 18 months.
• International business at 1.4x pre-COVID: Geographical expansion to Mumbai and Kolkata, plus channel footprint investments, have pushed international patient volumes well past pre-pandemic levels.
• Profitability milestone reached: PBT turned positive at ₹10.4 crores from a loss last year, and management called the ₹6 crore PAT sustainable on a consistent basis going forward.
• What to watch next quarter: The pace of the structured pricing rollout across 10 more centers, the Kolkata turnaround, and whether the cost optimization program delivers the promised margin lift as it expands beyond Bangalore.

Revenue Growth & Occupancy

• Broad-based growth: Consolidated revenue growth of 26% YoY outpaced the industry, with new centers growing 23% and mature centers like Bangalore COE growing 37%.
• Occupancy climbing steadily: Company-wide AOR reached 64.6%, driven by consistent footfall growth from clinical strength investments, technology additions, empanelment with TPAs and corporates, and activation activities over the last 4 to 6 quarters.
• Capacity is not a constraint: HCG has 1,974 beds with 1,737 personalized; as occupancy rises, more already-built beds will be commissioned without requiring new brick-and-mortar investment.
• Geographic highlights: Jaipur grew 263%, Ranchi 112%, Mumbai 53%, and Bangalore COE 37% YoY; Maharashtra's apparent 10% growth was depressed by a high COVID-revenue base in Nasik during Q1 last year.
• Milann fertility business: Revenues increased 43% YoY, new registrations grew 139%, and new centers within Milann grew 70%.

B.S. Ajai Kumar: "We have space, we don't have space constraints. We don't have to put more brick and mortar. This Occupancy is happening as per our expectation as the revenue grows from each center because our center of excellence and areas in Jaipur are all reaching historic growths. Naturally the occupancy will increase. It won't remain stable at 50%."

Margin Expansion & Cost Optimization

• EBITDA margin walk: Margins expanded 180 bps YoY to 17.7%, with cost-saving initiatives and strategic efficiency projects already contributing in the quarter.
• Structured cost optimization program: A workforce productivity, indirect cost optimization, shared services, and technology introduction program began in Bangalore clusters a couple of quarters ago and has already delivered 20 to 30 bps of margin improvement in Q1 alone; the program will now be rolled out to other markets.
• Structured pricing revision: A line-by-line pricing initiative started in Bangalore, mapping competition, positioning, capacity utilization, and value proposition; now rolling out across 10 more centers, with additional realization improvement expected.
• Targeted margin lift: Management expects 100 to 200 bps of margin improvement over the next 12 to 18 months as these initiatives ramp across all centers to full potential.
• PBT turnaround: PBT swung from a loss of ₹8.9 crores in Q1 FY22 to a positive ₹10.4 crores; QoQ PBT increased 11 times.

Raj Gore: "We map the competition, we look at the pricing, we map our positioning in the market, our value proposition in the market versus other players. We look at our capacity utilization for particular businesses and see if there is an opportunity to increase pricing premium. We go line item by line item in a more structured manner and identify items where we can optimize our pricing."

New Centers & Turnaround Trajectory

• New centers bucket now EBITDA positive: The bucket was loss-making and has now turned around center by center; year-on-year growth has been strong and occupancy rates are rising.
• COVID delayed, now accelerating: Two years of the pandemic slowed new center ramp-up; as COVID recedes, immediate acceleration is visible, with Nagpur and Jaipur ramp-ups described as fantastic.
• Kolkata turnaround imminent: Kolkata, the newest center, is expected to become EBITDA positive this month (August 2022).
• Convergence with mature centers: Management is very confident that in the next 12 to 18 months, the new centers bucket will start getting close to existing mature centers on performance metrics.
• New center ARPOB dynamics: Jaipur ARPOB is constant because the mix favors scheme business; the approach is to get more patients to experience services first, with optimization following as utilization increases.

International Business & ARPOB

• International business at 1.4x pre-COVID: Bangalore was previously the only destination for international patients; post-COVID, Mumbai and Kolkata have been added as destinations, supported by expanded channel footprints including government tie-ups, insurance tie-ups, institutional tie-ups, and digital channels.
• Six new information centers: Set up across large contributing geographies to create greater brand pull for medical value travel.
• ARPOB improvement drivers: Pricing increases on both cash and TPA revisions, positive mix change, and more hospitals achieving NABH accreditation, which provides additional pricing ability.
• Existing center ARPOB premium: Bangalore center of excellence carries much higher ARPOB due to technology mix and pricing, creating a structural difference versus new centers.

Raj Gore: "Pre-Covid period Bangalore was largely the only destination to get international patients. Post-COVID, today we have Mumbai as well as Kolkata, two more destinations and we have made significant efforts in expanding our geographical footprint as well as channel footprints... As a result, we have seen in Quarter 1 our business is 1.4 times the pre-COVID level."

Capital Allocation & Expansion Model

• Ahmedabad greenfield: A very large center is being built with total planned CAPEX of ₹85 crores, expected to commence operations in Q1 FY25.
• Bangalore COE Whitefield extension: Planned CAPEX of ₹25 crores, expected operational by Q4 FY24.
• Pay-for-use CAPEX model: The majority of technology additions will use a revenue-sharing, risk-reward model rather than upfront CAPEX, enabling faster growth without heavy capital deployment.
• Greenfield design shift: Future projects will emphasize fewer beds and more outpatient and daycare facilities, reflecting the direction cancer care is moving.
• Inorganic growth: Management is actively scouting and pursuing inorganic acquisitions as part of the growth strategy.
• No CAPEX guidance: Management refrained from giving forward CAPEX guidance.

B.S. Ajai Kumar: "With this model the CAPEX actual requirement in terms of what if actual CAPEX becomes less, it is more of a sharing the revenue. With all this I think we are very well positioned to handle even a capacity needed, putting extra technology without actually putting extra CAPEX in it. So, it will be risk reward sharing."

Digital, Technology & Clinical Initiatives

• Enterprise RIS PACS with Siemens: First-of-its-kind AI-based physician imaging platform in the country, introduced in collaboration with Siemens.
• AI-enabled adoptive radiotherapy: Being introduced at Bangalore Center of Excellence, also a first in the country.
• Genomics platform: A next-generation sequencing platform has been acquired, and a circulating tumor cell platform is in the process of being acquired.
• Omni-channel patient engagement: Building digital capability across website, social media, WhatsApp bot, patient app portal, centralized call center, integrated CRM, and advanced analytics to increase digitally influenced footfalls.
• Electronic medical records: Transitioning away from conventional medical record systems.
• Clinical outcomes data: Plans to publish head and neck and breast cancer outcomes data in the very near future to challenge global benchmarks.
• HoloLens for Tier 2/3 reach: Working on tech-enabled innovations like HoloLens to extend physician and personalized medicine benefits to patients in Tier 2 and Tier 3 cities.

Raj Gore: "The cancer patient journey starts before HCG and will continue while they are getting treated at HCG. They will always have this sword hanging over them and they will have to do follow ups once they finish the treatment for rest of the life. Through digital asset it gives us the ability to make sure that their journey before HCG to during HCG and after HCG is convenient and we can help them by giving them the right advice, doing a follow up with them, sending reminders, bringing them back because early detection gives them best chance to improve their outcome."

Guidance & Commitments

Key Metrics