Healthcare Global Enterprises Ltd Q2 FY2025 Concall Summary

Key Takeaways

• 14% revenue growth, margin milestone: Revenue reached INR553.5 crores with 14% YoY growth, while adjusted EBITDA crossed INR100 crores for the first time and margins expanded 100 bps YoY to 18.8%.
• Oncology engine broad-based: Core oncology grew 20% after adjusting for an exited center, with market leadership in 16 of 18 locations; established centers delivered 13% revenue growth and emerging centers 32%.
• International drag, domestic offset: A 17% decline in international revenue from geopolitical headwinds, chiefly Bangladesh, was more than absorbed by domestic strength.
• Digital channel scaling fast: Digital-sourced revenue rose to 14% of the total from 4% two years ago, growing 4.6x in metro and 6.3x in non-metro locations, with a stated ambition to reach 25% of revenue in three years.
• What to watch next quarter: Whether the South Mumbai center reaches breakeven on schedule, the pace of the Ahmedabad ramp in its new 200-bed facility, and any early signs of international normalization ahead of the Q4 target.

Oncology Performance & Operating Metrics

• Established centers: 13% YoY revenue growth and 20% EBITDA growth, demonstrating operating leverage in mature markets.
• Emerging centers: Revenue rose 32% and EBITDA expanded fivefold, led by Kolkata with 66% revenue growth; the center is now positive ROCE on an H1 annualized basis and expected to reach double digits or high teens.
• ARPOB improvement: Total ARPOB grew 7.4% to INR45,188, up from INR35,000-INR36,000 two years ago, driven by a portfolio shift toward better-quality markets like Mumbai, Kolkata, Nagpur and Baroda over the last five years.
• Volume indicators: OPD footfalls up 9%, chemotherapy sessions up 14%, LINAC utilization improved to 70% from 65% in the prior quarter, and bed occupancy stood at 61%.
• LINAC downtime: About 20-25 fewer patients were treated per month due to capacity limitation during a tomotherapy equipment transition, with some additional rain-related disruption in Gujarat.
• Bangalore upgrades complete: One LINAC and one CyberKnife were upgraded during the quarter and are now fully operational.
• Average length of stay: Below 2 days, reflecting oncology's shift toward outpatient and day-care models.

Ajaikumar: "Our focus will be more on footfalls, outpatient care on that. So unlike a regular multi-specialty hospital, once you look at the oncology center, as total in terms of what is the exact number of footfall of patients. And that is what we'll be focusing on."

Center-Level Turnarounds & Capacity Expansion

• South Mumbai center: The one challenged center in the portfolio, carrying INR100 crores of capex including two radiation machines at INR30-35 crores; domestic business continues to grow but international decline has weighed on performance; on track to breakeven this year.
• Kolkata center: Delivered negative growth of approximately 20% last year; now positive ROCE on an H1 annualized basis, with an expectation of adding more than INR10 crores of EBITDA in the current year.
• Ahmedabad transition: Moved from a 100-bed facility that had become a capacity bottleneck to a new 200-bed facility built to spec; the transition was completed in Q2 with minimum business impact, and the ramp will support higher growth going forward.
• Brownfield pipeline: Two state-of-the-art hospitals with 125 total beds under development in North Bangalore and Whitefield, expected fully operational by early FY26; Cuttack will add 60 beds with potential to expand to 100, with construction beginning this fiscal year and operations targeted for early FY27.
• Bed addition cadence: Only about 20-25 more beds plus the MG Vizag beds are expected in the next two quarters; the network aims to operationalize over 900 additional beds within three years, of which 350 are fully invested but not yet operational.

Digital Strategy & Patient Acquisition

• Channel growth: Digital revenue rose to 14% of overall revenue in Q2 FY25 from 4% in Q2 FY23, growing 4.6x in metro and 6.3x in non-metro locations over that period.
• Strategic rationale: India's cancer market is growing rapidly but comprehensive care is skewed toward metros; digital allows HCG to tap the entire market through mobile and laptop channels, converting awareness into need and moving from an episodic care-provider relationship to a lifelong trusted-adviser model.
• Acquisition cost advantage: The primary difference in profitability between digitally sourced and non-digitally sourced patients lies in the cost of acquisition.
• Three-year ambition: Management expressed confidence that digital-influenced footfalls can reach 25% of total revenue within three years.

Gore: "This is our way to move forward and create a virtual channel and own the relationship with cancer patients directly without any middle person. Whether anyone refers them or not to us, we want to have that ability to create awareness and get into their consideration and own the relationship directly with our cancer patients throughout their lifetime."

Acquisitions & Business Realignment

• Vizag acquisition (MG Hospital): Vizag is a top-10 GDP-growing city where HCG held 17% market share versus MG's 30%+; the acquisition consolidates presence in an important market, with identified levers including approximately 25 additional beds, revenue-side synergies, and complementary clinical capabilities that can be spread across both centers.
• MG Hospital current state: Average occupancy rate of about 70-75%, which explains why growth had been stagnating; debottlenecking is planned.
• Acquisition track record: Two acquisitions completed in the past year, reinforcing the stated position of adding 200-300 bps of growth through acquisitions.
• Triesta and Cyclotron realignment: The board resolved to move the Triesta lab business and Cyclotron business out of HCG into a separate entity, allowing both to grow beyond the HCG network; the Cyclotron unit can produce FDG for non-HCG entities, and Triesta can expand under its own brand name.

Ajaikumar: "There is a scope for expansion beyond HCG. So it requires a focused approach, and that is why we decided to take this action. So it could grow as Triesta brand name."

Margins & Financials

• Margin walk: Adjusted EBITDA margin improved to 18.8% from 17.8% YoY, driven by higher revenue, cost efficiency, and operating leverage from digital initiatives; pro forma EBITDA margin including the Vizag acquisition stood at 19%.
• Margin trajectory: Management expects to continue the margin expansion journey and, on a pro forma basis, inch toward 20% EBITDA by Q4.
• Capex guidance: INR250-300 crores expected in FY25.
• ETR guidance: Effective tax rate should remain around 28% or below for the rest of the year.
• Pre-Ind AS adjustment: Rental cost of approximately INR25-26 crores per quarter needs to be adjusted when considering pre-Ind AS EBITDA; management did not provide a specific pre-Ind AS figure.
• Cost per bed: Management declined to provide an average cost per bed, citing that capex is an amalgamation of maintenance and growth spending.

Guidance & Commitments

Key Metrics