Max India Q1FY18 Conference Call Highlights (My notes - might contain errors/mistakes)
1. Max HealthCare
Financials and management commentory:
• Revenue growth 10% at 702 Cr
• EBITDA growth 8% at 64 Cr
• Impact due to Stent pricing control, closure of Inpatient facility in Pitampura, dis-empanelment from few ESI & PSU accounts
• Expect strong revenue growth from up-country market and international channels
• Plan to convert Pitampura into Day care model same as Panchsheel
• Patient experience metric increases to 74% from 63%
• Two landmark acquisitions in 2015
• Plan to double the bed capacity – 5000 beds
• As hospitals move from unmature to mature state, we are outbeating on profit expansion as compared to other hospital chains.
• Average revenue per occupied bed increases 7% at Rs. 44,940. Price increase 3% rest across specialities
• Doctor model – part of cost savings, Minimum guarantee – most of the doctors, 15% doctors may not have guarantee. 2800+ doctors with 65% on rolls
• EBITDA per bed – our focus not on percentage but absolute number
• Speciality mix will be shared later in future Investor presentation
• No one has land capacity in Delhi, there have been few additions in Noida and Gurgaon. 500 beds by Jaypee hospital can go up to 1200 beds. Enough demand to absorb supply, did a Demand Analysis during Saket hospital exercise
• Measure capacity utilization by Night occupancy at 12am. Sunday – occupancy usually drop
• Capacity utilization can go up to 80-82% - comfortable and right thing to do, expect 7-8% increase from current levels
• Moved away from reporting breakup of unmature and mature hospitals. This reporting was misleading to some extent
• East Delhi complex and Saket – 70% of business. Expect to have most aggressive growth from these locations with future bed increase coming up in these locations.
Cost savings program:
• Program launched to achieve 70 Cr cost savings in this year
• Achieved cost savings of 100 Cr in FY16-17, this year target is 70 Cr, planning further 50 Cr
• Total 50-55 Cr may reflect in P&L, others achieved on account of not approving increase in budget requests from different units
• Half impact due to personnel cost, rest material
• Trying to optimize material usage – each surgery
• Achieve better negotiated rates through effective sourcing negotiations
• Optimize Doc cost, bring down power cost, optimize travel/conveyance cost.
Regulatory price control impact:
• Total 68 Cr impact - Minimum wage hike 37% in Delhi, Stent pricing impact, Drug pricing and ESI limit increase/maternity requirements
• Knee caps – impact 3-5 Cr
• Don’t bill at MRP, currently using markup
• 22 items got affected, total 30-100 Cr impact (rough estimate)
• Tried to bundle the prices but regulation said Stent has to be priced separately
• Mitigation on bundling product and services – change the business model.
• Up-country 20% TPA/Walk-in. 5 more offices Lucknow etc. Meerut, Ambala – OPD; Lucknow – no OPD. Should be able to bring to 25% level.
• International 10.5% - opened office in Kenya
• Digital Channel – very promising – lot of potential
• Current ratio Indirect:Direct 70:30; Future plan to convert other way round.
• B2B – May’16 – 400 tie-ups, B2C launched last quarter
• Revenue 2.5 times growth monthly, 1 Cr/month run-rate.
• Net Debt 1100 Cr
• Stake purchase 49% in Saket – close of this year
• 22% Pushpanjali Crosslay – 2.5 years out.
Over 4 years – 800 beds coming up with expected 1 Cr per bed cost, total Capex 800 Cr
• Largely debt driven
• Debt/EBITDA 2.5-3 times
• Over 4-5 years horizon, Cash flow from Operations should be able to fund 70% of Capex.
Future growth forecasts:
• Revenue growth 12-15%
• EBITDA growth 20-25%.
2. Max Bupa
• Gross Written Premium increases 30% at 159 Cr – driven by 31% growth in renewals and 28% growth in new sales.
• Net profit of 0.2 Cr vs net loss of 5.6 Cr YoY
• B2C segment – premium 32% growth
• Conservation ratio at 82%
• Market share at 3.9%
• Opex ratio down from 60% to 50%
• Q4 is biggest quarter so we may see Red again. Breakeven expected in FY19.
• New initiatives – policy within 2 mins
• First point of care desk – Saket Hospital from 30 mins pre-authorization to 15 mins
• Corporate agency agreement signed with South Indian Bank – goes live in Aug’17. This will give access to 850+ branches. Tie up with Federal Bank is already there in that geography.
• Overall contribution from Bancassurance channels – gone up to 20% from 15% last year
• Online sales – 15-20% digital – included in Direct Sales. Price increase 15-40%, blended 20% increase.
• Some signs of break-even by FY19. Q2&3 to be similar, may again see Red in Q4.
• After FY19, it can be a hockey stick, profits to emerge, start becoming meaningful.
• Agents come down 35% ? Terminated in-active agents – regulatory requirement.
• Agents Commission costs – variable. Supervision and training cost – need to bring down.
• Insurance agents are exclusive, however they do distribute 2-3 products using family members
• Number of agents – channel mix – half agency, half third party. Cleanup of unproductive agents 15-20%.
• Other players in industry - Star health – adding branches and agents aggressively – might be on a sell-out journey.
• We believe in calibrated growth, having a Sustainable Profitable Growth.
• Experimenting with Variable agency model – may double the profitability of channels if it works.
• South Indian Bank channel can scale up in next 6 months. Launch expected in August.
• Want to do a meaningful distribution expansion – add more profitable channels.
• Advantage with PSU banks – don’t push for extra profits, content with what is required as per regulatory guidelines. Bank of Baroda – 35% network penetrated.
• 30 residents moved in. More than half units already sold.
• Capital investment 1250 Cr (200 Cr equity rest Bridge Finance)
Investor presentation: http://www.bseindia.com/xml-data/corpfiling/AttachHis/eae6399f-92b9-455d-bdeb-fb40ccf6bbc4.pdf