Max Healthcare Institute Ltd Q1 FY2024 Concall Summary

Key Takeaways

• Flat Q1 margin vs Q4 is the standout signal: Operating margin of 26.8% held flat QoQ despite April salary increases and a seasonally weak quarter, a break from historical patterns that management called "very encouraging."
• ARPOB jumped 13% YoY on mix, not just price: Oncology, orthopedics and cardiac sciences drove the improvement, with robotic procedure volumes doubling; price revisions across almost all channels took effect April 1.
• Institutional bed share fell 270 bps ex-Shalimar Bagh: The payor mix shift toward higher-yielding patients continued, though CGHS tariff revisions after nine years have prompted a more cautious pace on further disempanelments.
• Capacity pipeline is large and mostly on time: Dwarka (300 beds) targets Q3 commissioning, Nanavati Phase I (329 beds) and two others target Q4 FY25/Q1 FY26, while Max Smart is delayed six to seven months on forest approvals.
• What to watch next quarter: Whether Dwarka receives its occupancy certificate and commissions on schedule, the pace of CGHS rate revisions for the balance tariff segments, and any sign that Afghanistan international patient flows resume.

Q1 Performance: Margins Held Flat Despite Seasonal Headwinds

• Operating margin flat QoQ at 26.8%: Q1 is historically the weakest quarter because April 1 brings annual salary increases of 6.5-7% and summer holidays reduce surgical volumes, yet EBITDA matched Q4 levels, a departure from the usual sequential decline.
• ARPOB rose 13% YoY to drive the result: The improvement came from a richer specialty mix (oncology, orthopedics, cardiac sciences), a doubling of robotic procedure volumes, and price revisions across almost all channels effective April 1.
• Occupancy held flat YoY at 74% on a higher base of operational beds, with occupied bed days up 3% YoY; Q1 occupancy is structurally lower because doctors take summer leave and elective surgeries are postponed.
• Direct costs rose with the surgical mix: Higher-end specialties like oncology and cardiac carry lower percentage margins but deliver higher absolute EBITDA per bed; medical oncology and robotic procedures added to direct costs while indirect costs increased on 4% additional capacity, roughly 10 new OTs, and 80 ICU beds created by converting ward beds.
• Annualized EBITDA per bed hit a record ₹70.4 lakhs, up 14% YoY and flat QoQ despite Q4 being the strongest and Q1 the weakest quarter seasonally.
• ICU expansion raised manpower intensity: The 80 new ICU beds require roughly 5x the nursing complement of ward beds (5:1 vs 1:1), contributing to a larger YoY increase in employee costs alongside the 144 new beds and 10 OTs.

Soi: "I am very encouraged by the fact that in spite of this our Q1 results are flat with our Q4 because if you look at it historically... Q1 is usually lower than Q4 because on April 1 you have increase in costs, particularly your salary costs, for the whole year."

Payor Mix: Institutional Share Stepped Down, CGHS Revisions Add a Wrinkle

• Institutional bed share fell to 29.7% from 30.3% YoY: Excluding Shalimar Bagh, where the company strategically did not optimize payor mix to build occupancy on 122 new beds, institutional share dropped 270 bps to 27.4%.
• CGHS tariff revisions arrived after a nine-year gap: Revisions in April and June 2023 touched roughly 26% of tariff items with a ~50% price increase on those items, translating to an overall ~5% price increase in total billing for PSU patients; the impact on ARPOB so far is 0.6-0.7%.
• Further disempanelments are on hold: Management now expects to go slower on reducing institutional share because the CGHS revisions improve the economics of that business; the long-term trajectory toward ~15% institutional share still holds but may fluctuate for a couple of quarters.
• DSO rose 11 days to 66 days on a buildup of receivables in the PSU segment (CGHS/ECHS) and the insurance segment, where DSO moved from 24 to 34 days; some unwinding occurred in July.
• International payor mix is a growth lever with secular expansion underway; Afghanistan, formerly 12% of international business, remains at zero but recent flight resumptions are a "very big positive."

Soi: "Today, let's say if I had a magic wand and we could put up these extra beds to accommodate the increase in CTI, we would not let the institutional business go either."

Capacity Expansion: Five Projects Underway, One Delayed

• Dwarka (300 beds) is closest to commissioning: Majority MEP and interior work is complete; the developer is expected to apply for the occupancy certificate in the latter half of this quarter, with hospital commissioning targeted for Q3, subject to that OC.
• Three projects target Q4 FY25 to Q1 FY26: Nanavati Phase I (329 beds) has excavation and raft work nearly complete with the ground floor slab expected by end-October; Sector 56 Gurgaon Phase I (300 beds) is at 50% site excavation with the EPC contract in final stages; Mohali (190 beds) has completed demolition and the D-wall, with excavation underway and EPC in final negotiations.
• Max Smart Phase I (350 beds) is delayed six to seven months: Final forest approval for tree transplantation has been received, but work can only begin after the rains subside; the company is fast-tracking capacity addition at Vikrant Foundation in the Saket complex to compensate.
• Vikrant Saket (300 beds) received environmental clearance and is under processing with SEIAA; drawings are planned for formal upload in September after the DDA reconstituted the file.
• Internal restructuring will add 20-40 beds this fiscal: Some beds were added in July, more expected in October; management cautioned this is not an annual exercise and cannot be repeated every year.
• FY24 capex cash outflow is pegged at roughly ₹900 crore, subject to change; routine maintenance capex typically runs ₹170-180 crore annually, with ₹70 crore already spent in Q1 on an accelerated basis.

New Asset Economics: Breakeven Targets and ROCE Discipline

• Dwarka is expected to break even by the 10th month of operations, with the total loss not exceeding ₹30-40 crore during the ramp-up phase.
• Peak occupancy for new assets is projected similar to network levels, potentially reaching about 80% once mature.
• Incremental bed manpower is lower than the network average due to operating leverage; the 144 beds, 80 ICU beds and 10 OTs added at Shalimar Bagh generate more revenue and EBITDA but carry higher absolute manpower requirements.
• Inorganic opportunities are being actively pursued with a fortified M&A team under a new head; the acquisition lens is disciplined by a target ROCE of 20-25% in the business case four to five years out, with less emphasis on the entry price than on the underwriteable future economics.
• EBITDA per bed is 50-55% better than the next best player, which management argues gives Max a greater ability to underwrite a stronger business case in any acquisition.

Soi: "For us, it's less important what we are paying today, of course nobody likes to pay more. But what is important to us is what is the business case we are willing to underwrite four or five years down the line."

Specialty Mix and the Margin Math

• Higher-end specialties compress percentage margins but expand absolute EBITDA: Oncology, cardiac sciences and robotic procedures carry lower margin percentages than routine surgeries, yet the absolute rupee contribution per bed is higher because the procedure values are larger.
• Oncology is a structural growth driver: Rising cancer incidence, increasing awareness, wider health insurance coverage, and greater use of expensive oral chemotherapy drugs are all lifting revenue and ARPOB; oncology day care (radiation, chemotherapy) is not captured in occupancy or IPD statistics but flows into ARPOB because all revenues are divided by in-patient beds.
• Drugs and consumables run 23-25% of revenue per a broad range provided by the CFO, though the figure includes F&B and other direct costs and is not a precise split for drugs alone.
• Q2 seasonality differs from Q1: Q2 typically sees the highest occupancy but lower ARPOBs because the case mix shifts toward internal medicine (dengue and other seasonal illnesses).

Soi: "I have always said, I would rather do a \$10,000 surgery with a 20% margin than do a \$2,000 surgery with a 50% margin."

Expansion Strategy and Demand Visibility

• Expansions are demand-led, not metro-led: Management has identified 21 cities where at least one or two competitors have proven viability and will enter any such city; current brownfield expansions are driven by capacity exhaustion and surging doorstep demand, with ICU waiting times sometimes stretching to a couple of days.
• No demand dwindling observed across any hospital; occupancy is already recovering in the current quarter after the seasonal Q1 trough.
• International business is growing secularly with no sporadic or bottled-up demand; Afghanistan, formerly 12% of the international segment, remains at zero but recent flight resumptions are a positive signal, with management hopeful of some contribution in the next few quarters.
• Two land acquisitions face litigation: The Vaishali land agreement is signed but subject to ongoing High Court and district court litigations that must be settled before handover; a second Gurgaon land parcel has a status quo order from the Punjab High Court and was always a post-2028 plan, never accounted for in current capex, funds, or commissioning schedules.

Soi: "Any city, where at least one or two of our competitors have proven viability, we will enter into those cities. Presently the expansions we are doing, we are not doing because we only want to be in metros, we are doing because we have a business need. We have run out of capacities and there is demand which is surging on my doorstep."

Guidance & Commitments

Key Metrics