Max Healthcare Institute Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Record EBITDA per bed, margin expansion: Annualized EBITDA per bed hit an all-time high of INR 75 lakhs, up 17% YoY, while EBITDA margin expanded to 28.7% from 27.7% a year ago.
• Payor mix shift is the core engine: A 3% YoY rise in occupied bed days was driven almost entirely by higher-value cash, insurance, TPA and international patients, while the institutional bed share fell to 27.3%.
• Brownfield economics are a structural advantage: The Shalimar Bagh template, where incremental beds hit 40% EBITDA margins almost immediately due to negligible fixed costs, is expected to repeat across the 90% of the expansion pipeline that is brownfield.
• Robotics adoption surprised to the upside: Robotic procedures more than doubled in the last year, a pace management called dramatic and unexpected, though margins on those procedures may sit below the overall average.
• What to watch next quarter: The Dwarka greenfield commissioning in Q4, any CGHS rate revision from the government, and whether the promised inorganic deployment of the INR 1,303 crore net cash position materialises.

Payor Mix & ARPOB Dynamics

• Preferred channels did the heavy lifting: 93% of the YoY occupied bed day growth came from cash, insurance, TPA and international patients, pushing the institutional bed share down to 27.3% from 27.9% last year. Excluding Shalimar Bagh, the institutional share stood at 25.4%.
• ARPOB rose 13% YoY driven by all specialties, with oncology as the key driver, while remaining flat QoQ on seasonality. The 28% YoY increase in PSU ARPOB was almost entirely a mix shift: only 5 percentage points of that came from a price hike in the segment.
• The institutional ARPOB gap is structural: The 85% gap between institutional and non-institutional ARPOB exists because Max runs the highest ARPOB in the industry, built on high-end clinical programs (transplants, oncology), a diverse payor mix, and international patients. Management argues peers with ARPOB around INR 40,000 do not see this gap because they lack those elements.
• New beds carry a temporary institutional mix: As new capacities come online, institutional business will initially increase in percentage terms or stay flat, but the operating leverage on those incremental beds means even a lower payor mix delivers higher percentage margins and EBITDA per bed.

Soi: "We have a huge operating leverage for the new beds. We don't have the fixed costs, etc. As a result, what happens is that even the lower payor mix becomes more viable and even more viable on the new beds. Because our operating cost is very low on the incremental beds."

Capacity Expansion & Project Pipeline

• Dwarka greenfield is the near-term catalyst: The developer has applied for the occupancy certificate, interior works are mostly complete, and management expects to commission the facility in the latter half of Q4, starting with approximately 164 beds of the eventual 300. All program and function heads are already hired and working in other facilities.
• Brownfield projects are on schedule: Nanavati's ground-level structure is expected this quarter; the Sector 56 Gurgaon and Mohali projects are almost entirely on time. Max Smart at Saket, with tree transplanting initiated, should start construction by December 2023.
• The brownfield template is proven and repeatable: The Shalimar Bagh experience mirrored Vaishali before it: tap untapped doorstep demand, then let operating leverage work with no real fixed costs on incremental decisions. Management expects this template to hold across the pipeline.
• 90% of the ~2,600 additional beds are brownfield, where EBITDA breakeven is expected within a quarter or two, if not the first quarter itself. The last brownfield experience delivered breakeven and 40% margins within 40 days. The remaining 10% is greenfield, where breakeven is targeted within the first 12 months.
• EWS obligations are manageable: Of the ~2,600 additional beds, roughly 1,000 beds carry no EWS obligation; the balance 1,600 will have a 10% obligation, translating to approximately 160 beds.

Soi: "Look, honestly, our Shalimar Bagh experience was the same as our experience in Vaishali before that as well. Because, theoretically, you're tapping into untapped demand on your doorstep to start with. And then you have operating leverage - you don't have any real fixed costs with those incremental decisions. Theoretically, this should be the template going forward as well. I don't see that changing."

Oncology & Robotics: The Clinical Mix Shift

• Oncology is the standout growth driver, growing 26-28% versus the overall 17% revenue growth, driven by a larger disease burden, a focus on robotics, and patients gravitating toward bigger players with higher entry barriers (equipment investment, bunkers, infrastructure).
• Return on capital in oncology is even with the rest of the business, per management, despite the higher capital intensity.
• Robotic procedures more than doubled in the last year, a pace of uptake and acceptability among both doctors and patients that management described as dramatic and surprising to the upside. Robotics helps reduce average length of stay and improves EBITDA per bed, though margins on robotic procedures may be lower than the overall average.
• The robotics ownership model has shifted: Max started with a pay-per-use model but has since bought back more than 50% of its robots, moving to a hybrid model.
• Management declined to split oncology revenue between surgical and non-surgical (chemotherapy, radiotherapy), stating the breakdown is not publicly disclosed.

Soi: "First and foremost, although robotics has been around for some time, over the last couple of years, there has been a sudden uptake of that and acceptability between both doctors and patients has been quite dramatic as far as robotics is concerned. To be honest, it surprised us also on the upside."

International Business & Patient Channels

• International revenue grew 25% YoY and 11% QoQ, now contributing 9% of total hospital revenue, despite the Afghanistan business, which historically accounted for 12% of international, remaining at zero.
• Channel infrastructure is expanding: A company-owned patient assistance centre in Nepal was operationalised during the quarter, and all formalities for a Bangladesh centre are complete with operationalisation expected shortly.
• An MoU with Intuitive Surgical will establish Southeast Asia's first Total Program Observation Centre at the Max Saket facility, reinforcing the robotics and international patient proposition.

Capital Allocation & Inorganic Strategy

• Net cash improved dramatically to INR 1,303 crore from INR 42 crore at the same time last year, with free cash flow of INR 436 crore in Q2 alone. INR 90 crore was deployed toward capacity expansion during the quarter.
• Management is evaluating 21 cities for inorganic deployment and intends to deploy capital across acquisitions, built-to-suit (asset-light) models, and partnerships. The stated preference is acquisitions at the right price and built-to-suit arrangements; management does not particularly like greenfields.
• The growth strategy is framed as exponential, not linear: three streams, current bed capacity growing EBITDA, announced expansions already underway, and cash deployment. Even without deploying cash, returning it as dividends, capacity doubles over the next 3-4 years.
• On the CARE acquisition, an appeal has been made to the High Court and the matter is now for the judge to decide. Management declined to offer any opinion on the outcome.

Soi: "So, there are three streams of growth over here. One is your current bed capacity, which has been growing in terms of EBITDA. Then all the expansions that are already announced, which are already underway, which we said are largely online. And the third is what you want to do with this cash. Right? It's an exponential 3X strategy. It's not a strategy of 15%-20% growth."

Margins, Costs & Seasonality

• EBITDA margin expanded to 28.7% from 27.7% YoY and 26.8% QoQ, with H1 margins at 27.8%. Direct costs were lower QoQ due to an increase in medical patients from seasonal vector-borne diseases; indirect costs were lower as a percentage but higher in absolute terms on marketing for international channels and seasonal power consumption.
• PAT grew 26% YoY on the flow-through of improved EBITDA and lower finance costs.
• The margin bridge from revenue to EBITDA works as follows: as payor mix and clinical mix move up, the difference between the revenue increase and the indirect cost increase, which runs at 6-7% annually, flows down to EBITDA.
• Seasonality is well-established: Q4 is the best quarter, Q2 is the second-best, and Q1 and Q3 are weak quarters. H2 is typically marginally better than H1. Q2 benefits from the dengue and vector season; Q1 is weak due to salary increases and fixed costs resetting on April 1; Q3 is weak due to the festival season.

Guidance & Commitments

Key Metrics