Kovai Medical Center and Hospital - Health and Wealth

Thanks for posting, this management thinks long term always, everyone was worried with medical college

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Can someone help on explaining why revenue from education segment were lower in Q1FY25 compared to last 2 quarters?

Also, why did bed capacity and operating bed count fall in FY24 compared to FY23?

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Did they give any timeline for getting to 2000 Cr revenue. Also, any comments on the operating margin from management side?

Is the entire 300 Cr capex going to be utilized from internal accruals or debt or equity raise?

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I have tried to summarize key points based on what I have seen in the hospital sector. These are broad points which includes some softer aspect to give insights(posting the same from Narayan hospital thread)

1.First established multispecialty hospital in a city will have significant moat in attracting patients. Main reason being the trust of that particular hospital gained over decades of service and is difficult for the new competitor to replace it. Many patients and relatives keep coming to the particular hospital because someone known to them was treated and recovered in that hospital even if it’s more than a decade back. This happens despite the same specialty being available in some other hospital near to them which was not existent earlier. Even for the same level of service and specialty doctor the existing one is preferred even at slightly higher cost. The feeling that someone known to them recovered in a particular hospital and trust has an ever lasting impact on people and probably the greatest moat.

  1. Longer the hospital is functioning, the better will be its revenue and margins as they can keep on expanding their capabilities like , oncology, higher radiology services, specific surgical capabilties like organ transplants, robotic surgeries etc. As the hospital expands these superspeciality services, the revenue per patients and margins improve with limited additional investment.

  2. Mix of patients in terms of paying: Best is to have a private insurance patients pool as the money is guaranteed on time and there are standard payment terms with the insured. Also standard hospital rates are defined and the patient knows what will be their share in paying. Hospital charges are highest for cash patients but the problem is at least 5% of cash patients do not pay the full amount and the hospital has to let go a reasonable amount for such cases under various circumstances like death/influential calls from local leaders/politicians.

  3. Mix of surgical vs medical patients. In general higher the number of surgical mix better the profitability of hospitals. As cost of operation and associated charges like OT charges, radiology imaging before surgery etc… are much higher per bed compared to patients undergoing only medical treatment. If the occupancy of such a hospital improves the operating leverage is significantly higher as fixed cost of operation theater/pre and post op care is better absorbed.

  4. Typically hospitals agree for most of the Govt schemes like ECHS,CGHS etc in the beginning as it helps them to cover certain basic costs. It also helps to gain good will among patients over the years as the family members/friends of such scheme patients will start availing the particular hospital services and increasing occupancy. Govt schemes come with their own risk of increasing receivables, significantly less consultation fee/operation fee impacting margins. As occupancy of a particular hospital reaches around 70%, typically hospitals will start to withdraw from Govt schemes. This helps in freeing up sufficient beds for other patients and increases average revenue per patient. The consultation fee and other charges for a private patient is 10-20 times higher compared to Govt schemes. This may lead to some drop in occupancy for particular hospitals in the short term but the ARPOB are much much higher for a pvt patient compared to Govt scheme. It also helps in reducing receivables, reduction in manpower employed in Govt insurance desk, lesser requirement of healthcare workers as overall no of patients comes down but with much better profitability.

  5. Hospital with optimum ALOS. In general the maximum billing for any patient happens during the first few days of hospital admission. Initial evaluation including lab tests, radiology investigations and critical therapeutic intervention happens during the first 1-4 days. After that it’s generally the ongoing maintenance therapy of the initial plan and revenue per patient per day drops after 3-4 days. It’s better to look for hospitals with ALOS of 3-4 days. It also indicates how efficient the hospital system is in terms of quick admission, evaluation, treatment and discharge process and dealing with insurance companies for quick discharge. Reducing ALOS less than 3 days in multispecialty hospitals is practically impossible as the number of sicker patients, superspeciality, and complex surgical treatment increases.

  6. Presence of long serving doctors who can get more patients to hospitals on their own. Impact of it is more in particular surgeons/gynecologists. Obviously patients do prefer to go under knife with the same surgeon who has done it successfully in the past for them or relatives.
    One of the key things to look at is retention of consultants by hospitals. If the same consultant remains to work with the same hospital for a longer time of more than 5/10yrs it brings a lot of repeat patients. The time and efforts required spent in evaluating known patients with readily available past history is lesser than a new case. Probably this is one of the key but ignored question to ask in company concalls.

  7. Presence of DrNB educational program in hospital.It makes the particular medical fraternity of the hospital to be updated about ongoing changes in the medical field and improve the care of patients. It also gives the hospital administration adequate junior level doctors to work during their training period. Generally if some of the junior doctors are good during their training period will be absorbed into the unit as they complete the degree.

  8. International patient mix; Higher mix of international patients bring higher revenue and better profitability. Generally international patients come to India for superspeciality care like Oncosurgery, Organ transplantation etc… The cost of the same is higher by ~25% compared to domestic patients helping in better revenue and margins for hospitals.
    Discl: currently not invested in hospital stocks.

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Kovai has received a GST notice of 43.5 Cr.

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what kind of notice is this with Rs. 2.72 lakhs as actual taxes due and Rs. 43.53 crore as PENALTY!!

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ACKO shared few insights on Indian healthcare / insurance:
image

Meanwhile a bit of buying from the promoter entity:

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@lohiyaakshay08

There is an element of seasonality in the education business. Odd and even semesters start in June and December respectively, hence these quarters tend to be better.

A snippet from the KMCH website:

The odd semesters shall be conducted from the month of June/July to November/December and the even semesters shall be conducted from December/January to May/June in every calendar year.

You should compare the numbers on a Y-o-Y basis instead, that will paint a better picture!

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An update after ~2 years.

Had invested in Kovai and Artemis earlier.
Kovai still looks alright from the above simplistic view.
But now exiting Artemis.

Views welcome

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Thanks for sharing

Kovai’s PAT margin should be better in FY25 with better margin from Education segment & peaked out depreciation.

NH is interesting with prespective of health insurance integration.

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Apollo also planning to enter into health insurance business again.

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The only issue I see with Kovai is their lack of concalls. Not sure how to track the progress of their Chennai hospital.

Found this 2022 snapshot from Google street of the acquired Saravana stores property. This already looks like a hospital type building to me.

From my little experience working on a PPP project during my consulting days, they should at least be able to start their OPD and small IPD unit way earlier than 1.5-2 years mentioned above. But it all depends on how they want to launch and how many specialties they want to have on Day-0, no of OTs, ICU beds, etc.

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They do have an plot near by this building where they might expand in future

I see it as 3-year project. 1.5 year on setup and another 1.5 -2 year of establishing operation and attaining decent occupancy/utilization. Not really worried about what happens in between.

Disclosure: Invested

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They were partners in Apollo Munich. And it was merged with HDFC ergo. Why again planning to join the health insurance bandwagon?

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Worth reading, covered different aspects of Kovai.

Disc. : invested from lower levels

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Good one @suru27 bhai.

I do not agree with this specific Risk though.

Increase in insurance penetration: A higher-than-expected increase in insurance penetration would affect the margins of the hospital as a whole.

Increase in insurance penetration would be beneficial for all types of organized hospital chains. The Chairman has insisted on the virtures of a cheap medical insurance on several ocassions. Even the latest Annual Report talks about it.

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The company must do concalls if they’re planning to expand beyond a regional hospital. There is a clear lack of visibility due to which haven’t invested beyond a small % in last year. Look at Asarfi, which is an SME company who have started concalls

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Though Insurance penetration may increase the people they cater to, Insurance patients are not preferred by the hospitals as the insurance cos many a times they dictate the tariff to the hospitals which individual cash paying patients cant. Also the working capital cycle gets prolonged for insurance claim. These are the days where insurance cos have a big say on how much each surgery can be charged, whatever the health cover you have. Have seen instances where despite having 10 lac cover, they refuse to give even 1 lac for deserving surgery citing its their tariff. Not many hospitals can go against it as they may lose their patients( as an insider from healthcare). Hence insurance penetration has both positives and negatives. For hospitals that are running efficiently with good clientele, any day they would prefer cash paying patients for the reasons cited above.

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True. I have seen cases where for the same hospitalization, bill for insurance patients was 15% less than cash settled patients.

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