Healthcare Global Enterprises Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Eighth straight record quarter, but emerging-center investment is the real story: Revenue and EBITDA hit new highs, yet emerging-center EBITDA margins compressed to 7.5% as the company deliberately traded near-term margin for volume and scale.
• Unit economics already at 21–22% EBITDA: The 19% reported margin includes ~2–3% corporate cost; management sees a path to 25% unit-level EBITDA and calls 200–300 bps expansion over 2–3 years “certainly not unreasonable.”
• da Vinci pay-per-use model unlocks Tier 2/3 cities: A first-of-a-kind arrangement with Intuitive — no minimum guarantees, revenue-share plus fixed amount — puts three new robots into smaller markets and changes the capex math for robotic surgery.
• One-time costs end in Q4: Consultancy charges that weighed on the last three quarters will stop after Q4 FY23, removing a recurring drag on reported margins.
• What to watch next quarter: Whether the Karnataka ART Act lifts around March–April as expected and releases pent-up Milann demand, and whether emerging-center revenue growth begins to convert the clinical-talent investment into margin.

Emerging Centers: The Volume-Before-Value Bet

• ARPOB sacrificed deliberately: ARPOB declined sequentially because emerging centers are prioritizing volumes and scale over realization; management states ARPOB still improved over Q2.
• Margin hit is an upfront investment: EBITDA margins in emerging centers fell to 7.5% vs a 10.5% average over the prior two quarters, driven by disproportionately higher spending on clinical talent hiring and sales & marketing to drive new patient registrations and modality utilization.
• ROCE dip called temporary: A small quarter-on-quarter decline in emerging-center ROCE reflects operating-expense investment that management expects will flow into higher revenues going forward.
• Occupancy trajectory is a 3–5 year story: Emerging centers are expected to reach mature-center occupancy (~65%) over a 3–5 year period; current installed-capacity utilization sits around 56%.
• Bigger-city mix will lift ARPOB naturally: As emerging centers in larger cities (Mumbai, Kolkata, Nagpur) grow as a share of total revenue, ARPOB and realization will automatically move higher because those locations carry a better payor mix.

Raj Gore: "As we've always stated, first, we will go for volumes, and then we will go to improve the quality of the business and go for ARPOB."

Margin Bridge & Trajectory

• Unit economics are healthier than reported: At the unit level, EBITDA is already 21–22%; the 19% reported figure includes roughly 2–3% of corporate cost.
• One-time consultancy charges end in Q4 FY23: These value-creation costs have been reflected for the past two quarters and will appear for one final quarter before dropping off.
• 200–300 bps expansion over 2–3 years: Management called this “certainly not unreasonable” and said it will strive to “even better that,” with the entire current base moving toward the mature-center model’s mid-20s EBITDA margin over a “few years span.”
• Mumbai growth optically subdued but mix is improving: Last year’s vaccination revenue inflates the base; adjusting for that, growth looks better, and Mumbai is deliberately pursuing a cash/TPA/corporate payor mix that yields better ARPOB and margins over time.

B.S. Ajaikumar: "It's certainly not unreasonable and hope, though we can't guarantee, we can even better that that is what we will strive for."

Robotic Surgery & Technology Bets

• da Vinci pay-per-use model is a structural unlock: HCG and Intuitive created a first-of-a-kind arrangement with no minimum guarantees, sharing revenue plus a fixed amount; three new da Vinci units are being deployed under this model, explicitly aimed at penetrating Tier 2 and Tier 3 cities.
• Surgeon certification pipeline building: About 5 surgeons certified in Bangalore, another 4–5 in Ahmedabad, and 2–3 trained in Mumbai; HCG has its own training program with da Vinci and intends to certify outside doctors as well.
• Ethos adaptive radiotherapy installed: The AI-based system has treated a significant number of patients in three months; the company is studying the radiosensitivity index to determine exact dosing requirements.
• Genomics-to-treatment connection under exploration: With over 1,500 patients sequenced on a 500-gene panel (claimed as the largest in the country), HCG is investigating how to connect genomics to technology to decide proper dosing of radiation, targeted therapy, and immunotherapy.
• Low-dose CT scan for smokers planned: Working with a radiology group to launch Sunday low-dose CT scans, bringing in an experienced radiologist.

B.S. Ajaikumar: "It is not really a lease. It is our model of pay per use where I think first time da Vinci to best of our knowledge instantly where we have without any minimum guarantees making, there is a model where we share in our revenue and certain fixed amount, and we found that it's doable, and that is we can penetrate Tier 2, Tier 3 cities..."

Milann: Regulatory Overhang Nearing Resolution

• Q3 flat sequentially, 9–10% YoY growth: Seasonality and the Karnataka ART Act regulatory changes suppressed the quarter.
• Karnataka ART Act expected to lift around March–April: Patient engagement is expected to resume once the regulatory issue resolves, with Q1 FY24 potentially seeing “big numbers growth.”

Balance Sheet & Capital Allocation

• Net debt nearly flat at ₹212 crores: Excluding capital leases, net debt has been largely flat over recent quarters because the company deployed capital into revenue-generating activities: ~₹18 crore in solar in Karnataka (electricity savings), high-end equipment in the center of excellence, and robotic surgery.
• Debt-to-EBITDA at ~2.3%: Management expects this ratio to come slightly lower in future quarters; no GPP costs next year, and key ratios are expected to stay at acceptable levels.
• Capacity addition trigger at ~75% occupancy: With installed bed occupancy at 56%, beds are not a constraint; management notes oncology is increasingly outpatient, and ALOS trends down with minimally invasive techniques and robotics.
• Installed capacity to be fully deployed in ~18 months: All installed but not-yet-operational capacity will be brought online within that window.

B.S. Ajaikumar: "in oncology, historically, it has been more and more outpatient and less hospital say, as you look at the ALRs, it tends to come down as we move forward year-on-year. So that is the reason the bed is not the way we feel to measure the growth."

International Business & Other Drivers

• International revenue at 1.5–1.6x pre-COVID highs: Last quarter was the highest ever, driven through agencies, direct institutional tie-ups, international insurance tie-ups, direct business generation by taking clinicians to markets, information centers, and permanent team members in those markets.
• FY24 growth drivers unchanged: Improvement in utilization of emerging hospitals, improvement in new patient volumes in emerging hospitals, faster growth from non-mature centers, and technology investments (new equipment brought in) will all contribute.
• Clinical talent investment is continuous: Management will never stop adding clinical talent as the clinical services portfolio becomes complete, bandwidth chokes, and vertical specialization evolves.

Guidance & Commitments

Key Metrics