Healthcare Global Enterprises Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Revenue grew 16% YoY, but margins lagged: The top line benefited from strong brand pull, higher footfalls and recent acquisitions, yet the EBITDA margin target of ~20% was pushed to Q4 FY24 or early Q1 FY25.
• Emerging centers are the growth engine and the margin drag: Mumbai, Kolkata and Nagpur posted 41%, 42% and 60% YoY revenue growth, but their unit-level EBITDA grew only 7% as a corporate cost rejig masked the true operating leverage still to come.
• Capacity expansion is front-loaded, utilization will follow: Three new LINACs and 64 beds pulled radiation utilization down to 61% and inpatient occupancy to 56%, with a ramp-up planned by fiscal year-end and six more LINACs coming over the next 18 months.
• Inorganic bets are live but early: The Indore and Nagpur acquisitions are integrated and growing, with Indore set for a ₹40–50 crore, 50-bed expansion over two to three years, while the Milann fertility business is flagged for eventual divestiture with no firm timeline.
• What to watch next quarter: Whether the Q4 margin jump materializes, the pace of utilization recovery in radiation and inpatient beds, and any clarity on a potential CVC exit, which management called a “nonissue” but declined to address.

Emerging Centers: High Growth, Delayed Operating Leverage

• Revenue surge: Mumbai, Kolkata and Nagpur delivered 41%, 42% and 60% YoY revenue growth respectively, driven by investments in clinical talent and go-to-market efforts in those specific markets.
• Mumbai market share gains: The city is gaining share faster than most peers, supported by adding one linear accelerator in Borivali after the prior one was fully utilized, and operationalizing a robotic surgery program there.
• Margin flow distortion: Emerging centers’ revenue grew 13% but EBITDA only 7% because a prior-year operational efficiency exercise reduced corporate cost, an effect invisible at unit-level P&Ls even though the group-level corporate cost has declined.
• Path to group margin: Once new centers break even, they are expected to reach 11% to 15% margins, which management says will pull the group above 20%, either in the last part of Q4 FY24 or the beginning of Q1 FY25.

Ajai Kumar: “We expect the same trend to continue, and we feel, you know, towards the end of the fourth quarter at beginning of the first quarter of next year, we will be close to 20% margin.”

Capacity Utilization: A Planned Dip, With a Ramp-Up Promise

• Radiation utilization fell to 61% from 67%, driven by proactive expansion and the operationalization of three new LINACs during the quarter; management has strategic plans to optimize and ramp up by fiscal year-end.
• Inpatient oncology occupancy dropped to 56% from 61%, reflecting a 64-bed addition and better bed turnaround that reduced average length of stay; overall occupancy stood at 63.6% versus 66.4% a year ago.
• Emerging centers occupancy declined to 60.1% due to mix optimization, particularly at the Jaipur center, though ARPOB grew 28% YoY, signaling a positive trajectory.
• Matured centers held steady: They delivered 13% growth on healthy volume growth across modalities, with ARPOB up 10% and occupancy up 14 bps despite bed additions.
• LINAC pipeline: Six additional LINAC machines are to be installed over the next 18 months across various hospitals, and the majority of existing locations are already running at capacity utilization levels rarely seen in multi-specialty hospitals.

Inorganic Strategy: Acquisitions Performing, One Divestiture on the Horizon

• Indore acquisition rationale: The 50-bed comprehensive cancer care center is the first private facility of its kind in a non-metro market with no major cancer care players and a growing treatment market; the transaction closed in early October.
• Indore integration and expansion: The value creation plan spans revenue improvement and cost optimization through HCG network capabilities; management plans to add 50 more beds at a capex of ₹40–50 crores over the next two to three years.
• Nagpur growth: The NCHRI acquisition delivered 60% YoY revenue growth, validating the hub-and-spoke model for delivering accessible cancer care nationwide.
• Milann divestiture flagged: The fertility business, which went through a difficult post-COVID period, is being improved and consolidated, including closing one Delhi center to drive efficiency in the remaining ones; management is looking at divesting in the future but declined to give any firm timeline.

Raj Gore: “Our strategy in Indore involved entering a non-metro city with a high-quality asset and integrating it under the HCG banner. This was a strategic move given the absence of major players in the region for cancer care and a growing market for cancer treatment.”

Competitive Position & International Business

• Dominant oncology stance: Management asserted a leading position, stating “people can follow us, we are not followers,” and expects sustained growth as new centers mature.
• International business hit a record: The quarter marked the highest international revenue ever, nearly doubling the pre-COVID quarterly run rate.
• Women’s cancer care launch: A dedicated women’s cancer care center was opened at Colaba, South Mumbai, to meet the exclusive needs of women cancer patients.

Ajai Kumar: “I feel honestly, people can follow us. We are not followers, and we are in such a leading position. Our growth as we have indicated will sustain and grow, and as our new centers also grow, we will continue to be in a dominant position in oncology.”

CVC Exit & Unanswered Questions

• CVC exit rumors deflected: When asked about reports of a CVC exit, management said the best persons to answer are CVC themselves, calling it a “nonissue” for the company while acknowledging that as a shareholder, CVC has every right to exit when they feel they have achieved their return.
• Margin undershoot not detailed: An analyst asked why the EBITDA margin is undershooting the ~20% target and which cost line items are responsible; management responded only with a general statement about moving upward and the Q4/Q1 timeline, without addressing the specific cost drivers.
• Bed expansion details deferred: A request for precise numbers on new beds and facility expansions for FY25 was met with a range of ~200–250 beds and an offer to “connect offline to get exact details.”
• Mature-center classification avoided: When asked when emerging centers can be classified as mature, management did not provide a timeline, noting only that Kolkata and South Mumbai Center are over three years old.

Ajai Kumar: “I was wondering when somebody will ask that question. I just want to say that as a shareholder, they have every right to come in, and if they feel they have got their return, they will look at exit. Best persons to answer that will be CVC. For us, really, it is nonissue.”

Guidance & Commitments

Key Metrics