Max India Ltd
Highlights of Q1 FY19 results
- Max India Business
o Revenue grew by 3 % qoq to 641Cr net revenue due to re-calibration of the company due to some regulatory head winds and due to voluntary re-calibration there are some reversible and come ir-reversible impact for how the growth supposed to be in line with the expectation
o Growth in Oncology , Orthopedic and Neurology had grown very healthily at 15.8 %. Alternate business which is the Max Labs, the Max@Home and Daycare oncology has grown 31 % sequentially looking at revenue of 29 Cr.
o EBITDA for Q1 at Rs. 30 Cr, down 8% sequentially primarily due to Noida facility under infra revamp. Noida will be converted into Onco Daycare Center & will be operational by January of next year. EBITDA was 17.1 Cr for the July Month as compare to 30 Cr for the last quarter. This is the indication that how company is going to ramp up .
o Digital revenue contribute 100 Cr plus to company revenue . Cost target is 64-67 Cr for the whole year and some of it is visible to company in first 4 months But primarily, these savings now are targeted across 3 lines, 50 % as the personnel cost , 30 % in material cost and 20 % in Indirect cost. Now company shifting focus to revenue and some new Initiative has take place .
o Company has take out 2.5 lakh existing customers and 4 lakh customers who has come once to company. Now company is going to do daily CRM program which will encourage them to visit company more. Also done some tie-ups with nursing home for quid pro quo so they will get from company speciality clinics where they will refer patients to company.
o Company is opening more channels in Patna , Ranchi and one more and also an O&M in Punjab and some new International Tie-ups.
o Company has also disentangled some PSU which were not that profitable. So about 30 trail accounts has been closed in the quarter including NDNC . Company is contributing higher beds to higher facility speciality.
o Shifting of value added prices is also one the way. All the Initiatives are going on to meant to push up the revenue from now on and costs are underway, and that has also started becoming visible to company in the month of July So company remain intact on trajectory projected for exit rate of Q4 this year, about INR 300 crores. - Max Bupa Business
o GWP has grown by about 17% to INR 186 crores, driven by 21% growth in renewal and 10% growth in new sales. And one would observe that the new sales growth are, all of a sudden, come down, but that’s more to do with the sales uptick which company had in Q1 FY18 due to the significant price increase. Today, company is seeing a massive reversal in July whereas because of the price increase the base was low and the new sales have grown by about 52%. So national, the growth will normalize as company progress through the year.
o Company also had d significant improvement in claim ratio and across cohort. Claim ratio is down by about 230 bps to 53%. Now company though had a loss of about INR 12 Crore in first quarter, that’s again on the expected line, because the moment company normalized for reinsurance impact last year, the loss is pretty much in line with last year.
o Company has found new partnership with h Karur Vysya Bank and HDFC Bank during the last quarter and company has launched the branch banking in HDFC Bank.
o Company Plan going forward is to accelerate growth, strengthen multichannel distribution strategy, expand distribution footprint by opening new branches, leverage a variability model in the loan – loss ratio market and synergize with Max Life to leverage the (inaudible) from branches. - Antara
o The asset-light growth has been kick-started with the first projects in Noida.
o Company has already launch the contract and the sale launch is expected sometime in Q3 FY19. There are few more projects which are currently being sort of explored and as they take shapes in next few quarters company will inform in coming future.
o There have been sales trajectories which just goes with around 3 sales a month and overall units sold at least about 100 mark. - Max India will continue its robust growth trajectory with Max healthcare, starting out a profitable growth path over the next 5 to 7 years, and the bed capacity probably would be about 5,000 beds.
- Max Dupa goes accelerating from current levels of about 25% as conclude the long-term strategy for the business, and Antara driving a capitalized growth in the future
Q&A - On Healthcare side company revenue growth has tapered down because of the recalibration in the product mix so how this going to pan out in next 2 to 3 years? Does company is going to go back to earlier trajectory of 15 % plus kind of revenue growth ? What would be the levers of growth ?
o Revenue growth is as expected and ramp up will be happening in Q2 onwards and in next 2-3 years company will settle down to 12 % to 15 %. - Will the growth will be more from organic side or from bed additions ?
o Primarily organic and there are several initiatives that company had taken to ramp up revenue from reorienting entire sales activities, BTL, to reactivating customer data business, to digital, to opening more of country, and also, a very healthy uptick in international sales. - Kindle give some sense on the new business ? What is the kind of number company is looking at especially in Max Lab business in next 2-3 years ?
o Company had broken even on the new initiatives s. The ramp-up is roughly INR 6.5 crores, INR 7 crores a month. The EBITDA is positive . Company is doing the network , samples which are showing in the Max Lab. Company is now making new offerings in term of products. - Does company is still in course to hit INR 250 Crore in maybe 2, 3 years or company is recalibrating the number?
o Company had talk for total alternate business revenue and company had close to 40 Cr total revenue last year This year company target was 100 Cr but in the first quarter itself company had done 29 Cr so company will achieve its long term trajectory business target. - Kindly give guidelines on the Max Healthcare Business Break even and growth?
o Company had Tied up with the largest retail bank with HDFC Bank so there will be a big material change in the business . Company is working toward breakeven by FY19 and in last 3 years company have grown from 20 offices to 30 agency offices whereas Apollo , Star Health have more than 150-200 offices so now company is planning for some Pilots because there is also a proven margin in terms of variable agencies, which is far more profitable, there is an opportunity in terms of synergizing with Max Life, a very little guarantee there, offices will expand our business tree there, branches in their agents. Now depending on the outcome of this growth as well as how quickly company ramp up with HDFC Bank , really the outcome on capital and breakeven will depend on, and sometimes their learning . So company need another 6-9 months to give proper outlook on both capital and growth outlook as well as breakeven outlook. - There have been several reports around a potential buyout of the healthcare partner Life Healthcare. What is the current status of this discussion ? And are there any other significant strategic expansion plans for the healthcare business? And are there any similar inorganic expansion plans for Bupa as well, especially against the backdrop of the processes like Star Health and Ready Care?
o Life Healthcare has been sort of on the exit spree for about 9 months. So currently there are players who are looking for acquiring the business so company is waiting for how plan will pan out. Company can double organic expansion itself . Currently company is looking at an opportunity in Inorganic growth . because currently company is trading that business up like as company said that it will be a 100 Cr revenue business in the year and it is growing very sharply to 2.5x growth. So at some stage company have to leverage its hidden value and create some growth capital to take care of (inaudible) sort of existing balance sheet of the business growth, as well as to grow more in terms of hospital business - How much of the revenue decline came from the Noida facility ?
o Company lost about 10 Cr - Why the occupancy has come down ?
o Revenue go down primarily in the large business So the effect of Ramadan came a month early. Last year, it was July, this year, it came in June. That’s one reason for the (inaudible) is coming down, and the second was Noida facility, that slows down. A third that was an emergency in Ethiopia, and also in Turkmenistan, (inaudible). So primarily (inaudible) international business and Noida shutting down. - Revenue per bed seems to have come down, Is that because company decreased the price?
o No there has been a price control through regulatory action in some parts of last year happened very early on and then in August of 2017, the orthopedic implants got a price control. Apart from that company had not decrease price. - What is giving company confidence to putting additional capital at the point of time in terms of expansion ?
o Company is putting up a tower in Vaishali with 80 beds and it will become operational in December or January. There were temporary headwinds in term of regulation and price control, there is more issue of demand. It’s a supply constrained market. Company is not going to see a spike up in the government allocation Ayushman Bharat announcement that will come and it will unleash a certain volume. Company is just recalibrating model to be able to preserve profitability and that is what is taking the time. The cost initiatives are already being implemented and company is able to see the run rate coming through and that’s sort of (inaudible) 64 to 68 crores will get realized as part of company budget. And on the revenue side company is recalibrating its revenue model so that’s why it is taking time and from demand perspective it is still very bullish and therefore investment will flow in . Company is also looking for additional growth capital that needs to be given on that side of alternate business as well.
o In terms of profit margin company will come back to 11-11.5 % by close of FY19. Growth is coming from alternate business like Oncology business is growing at 15 % annually for company so company is focused on oncology for coming 4 years . Second is Vaishali expansion and Vaishali Hospital is in a place which is in the middle of a concrete jungle so there are apartments overall and filing that is easy and whole demand of trajectory is moving up so the growth is coming there . - Is it possible that company will be able to make 15 % , 17 % or additional cash that deploy even after the regulatory environment changes?
o Sure overall business getting to sort of a mid-teens ROE 4 years from now. it takes to ensure that, that trajectory remains intact and therefore company view on long-term profitability and earnings potential of the business - What is driving the Net Income as it is highest in the last 7-8 quarter ?
o Company claim ratio has come down and there is an improvement of 230 bps on claim ratio. - In health Insurance business what is the strategy going forward as most of the revenues are coming from metro cities ?
o Company strategy is to grow more and more in Tier-2 and Tier-3 cities through the reliability model and through Max Model. Company is already growing good in Metro Cities but at the same time the cost of delivering health care is too higher . So because of that the profitability of the business is not – as one would expect it to in terms of the business . So company want to grow more in Tier-2 and Tier-3 cities . From last 2-3 years profit from Tier-2 and Tier-3 cities are much higher compare to Metro Cities. - Did company will stick to guidance of adding 110 bed for the financial year ?
o Yes 100 plus bed will be adding by December-January. - How much part of revenue decline because of the slowdown in the international business and d how much is it because of recalibration of the business that’s taking place?
o About 5-6 Cr will be impact of international business. - Kindly break down the 15 % growth that company is expected going forward ?
o 8-9 % from New Beds and within the 8% to 9%, there will be 3 to 4 – 3% should be pricing, and then balance will come from other channel. - Kindly give some brief on expansion of Healthcare business internationally ?
o There are 2 models operating currently . One is a model that there are some hospitals which are very close not to Delhi and some decisions are being taken by doctors. Under second model have information center with sales and marketing folks who are doing – covering corporates and partnering Hospitals. There are specialty doctors in the partner hospitals and the similar flow back to hospitals in Delhi. - What is the treatment mix revenue from the specialist mix ?
o It is 11 % of total revenue Then neuro would be 9% to 10%. Oncology as mentioned 15 % to 16 %, ortho would be roughly 8% to 9% and then company have renal internal medicine that will be 8-9 % , then company have a share in general surgery which is again 5.5 % and balance would be other specialty line and internal medicine and others. - How much revenue come from International ?
o 9 to 10 %. - By when does company expect the healthcare business to come back to normal ?
o The transformation journey is of 18-24 months however company has already started seeing green shoots in month of July and in H2 company hope that it will end up will its guidance . And thereafter, it’s a transformation journey spanning about 18 to 24 months, assuming that there is no surprise by the regulatory action. - In Max Bupa , What is the underwriting process ? What is the incentive structure in the system ? Does company see any regulatory headwind because of such good claims ratio in the segment ?
o Company underwrites at the time of sale and the point is actually has to claim without asking question and giving sound medical underwriting , Company claim process is very smooth . Company have a 30 min turnaround time on the claim process And this – if you are a claimant in a hospital, then you have a point of care beds, for example in Max healthcare, company have those and now setting these up , the turnaround time for claims processing is 15 minutes Whereas when it comes to some of the insurers, it take month to process claims so it is One differentiator . The second is there is a lot of focus on health risk management. Company has done underwriting at the point of closure, therefore company is happy to honor all the claims and things like that. There is lot of data analytics engine that go behind Onboard at et cetera. And company strategy is to expand more and more in the Tier-2 and Tier-3 cities where there is lower claim ration compare to Tier-1 cities. . Third is company is very low on fixed benefit products, and the proportion of the fixed benefit product is rapidly increasing in overall case. So from combination of these three things company will be able to set Claim ratio at lower level . - Why was the occupancy rate was 55-60 % compare to 75 % in previous quarter because company was not able to make profits at bottom level ?
o Company have not seen many hospitals many hospitals with 55% occupancy turning a profit. 71 % occupancy basically means that company have a lot of room to grow. It can go up to 85 % and at that point of time it will come to EBITDA because there’s no extra cost will be incurred for this extra occupancy. So company manage the hospitals at a 65-70 % in terms of demand and other Infrastructure. And when the occupancy passes that level, then the margins become very good . Company also have doctors which are not on fees to service bus they are employee . Then there is a fixed cost structure that company build up and beyond the point. So that’s how the economy work today. Then there are other hospitals which run for fee for service at cetera. but in that case, when the hospital gets to occupancy of 75%, 80%, EBITDA margin will improved which is not the case that company have . So in company case as the occupancy rate goes up there’s a lot of flow through which happens because of the model.