Extremely good results posted in Q2 2024
Amazing EPS growth is shown.
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Great numbers. Last 5 years growth from 51 Cr. PAT to 680 Cr. PAT on a TTM basis.
Seems like the highest-ever EBITDA, PAT, and Revenue in any quarter in NH.
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NH Conall Notes Q2 FY24
Revenue Performance:
- Consolidated revenue for Q2 FY24: INR 13,052 mn (YoY growth: 14.3%, QoQ growth: 5.8%).
EBITDA and Margin Improvement:
- Consolidated EBITDA: INR 3,265 mn, with a margin of 25.0% (up from 23.2% in Q1 FY24).
- Margin improvement attributed to higher revenues, cost efficiencies, and realisations.
Financial Position:
- Strong balance sheet with over INR 8.74 billion in cash and liquid investments.
- Net debt-to-equity ratio steady at 0.03, providing room for expansion through a mix of borrowing and internal accruals.
Accreditations and Achievements:
- JCI Enterprise Accreditation: 1st healthcare group in India and 6th globally.
- Guinness World Record: Highest number of ECGs in a single day at a single place.
Clinical Milestones:
- Successful robotic cardiac surgeries, limb re-attachments, and complex clinical procedures.
- Continuous focus on adopting the latest technology for superior patient care.
Digitization and Business Transformation:
- Significant improvements through NH app and Patient Kiosks, reducing administrative workload by 36%
- Doctor app âaadiâ reduces response time by 45%, and new app for nurses, âNamah,â aimed at reducing paperwork.
Cayman Units Performance:
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Highlights
- Highest-ever quarterly revenue: USD 31.5 mn.
- Positive contribution from the recently commissioned Radiation Oncology Block in Camana Bay hospital.
- Outpatients increased from 7,609 (Q2 FY23) to 9,615 (Q2 FY24).
- New hospital in Cayman on track for Q1 commissioning (April-June).
- ALOS in Cayman (8.9 to 9.1 days) explained by serving as the national hospital; focus on longer-term care for chronically ill patients.
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Market Dynamics & Competition:
- Competitive healthcare market in Cayman Islands.
- Over 400 registered medical practitioners and 100+ practices.
- Presence of government and private hospitals; active and competitive environment.
- Limited awareness of potential competition from other Indian hospitals.
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New Hospital Phased Implications:
- New hospital in the same location.
- Expect reasonably fast ramp-up; initial phase with fixed costs and margin dilution until incremental revenues.
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Staffing for New Hospital:
- Existing doctorsâ output to increase.
- Hiring additional doctors based on increased volume.
- Nurses correlated with patient volume; utilizing existing sourcing routes for staff recruitment.
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Staff Tenure and Attrition:
- Senior staff on longer-term relocation.
- Junior staff with variable tenure based on career and personal plans.
- Nursing attrition lower compared to India; some attrition to the U.K. due to post-tax compensation and partner opportunities.
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Education and Retention:
- Attrition reasons not related to education costs.
- Challenges in long-term citizenship; opportunities for spouses in Cayman.
- Holistic factors like family and personal considerations influence retention decisions.
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Insurance Coverage:
- Most U.S. insurers cover treatment during visits or holidays in Cayman Islands, especially for emergency cases.
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Elective Treatment Consideration:
- Patients can apply to insurers for elective treatments.
- Approval likely due to cost advantages in Cayman Islands compared to the U.S.
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ARPP and Outpatient Volumes:
- Significant ARPP increase in Cayman Islands from ~$1000 to ~$1300 YoY.
- Explained as a result of classifying radiotherapy patients as outpatients, causing a spike.
- Anticipated stabilization around $1300.
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Outpatient Volume Increase:
- Noted a substantial increase in outpatient volumes from 7,609 in Q2 FY23 to 9,615 in Q2 FY24.
- Contribution from oncology, but majorly from reporting ENT services post-acquisition.
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Inpatient ARPP Drop:
- ARPP for inpatients in Cayman dropped from USD 39,000 to 34,000 YoY.
- Attributed to a seasonably high number in the same quarter last year.
Narayana Health Integrated Care (NHIC):
- Healthy growth in Q2, crossing Rs 52 mn in revenue with over 45,000 patient transactions.
- Continued focus on growth and improving health outcomes for customers.
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Patient Addition and Billing Trends:
- Healthy patient addition in the current quarter compared to the previous.
- Average billing decreased from 1,538 to 1,158.
- Losses increased from 5.8 crores to 6.4 crores.
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Early Days and Experimentation:
- Acknowledged the early stage of NHIC operations.
- Emphasized ongoing experimentation with value propositions and products.
- Anticipated fluctuations in financial metrics during the experimentation phase.
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Future Contribution and Stability:
- Directionally aimed at stabilizing financial metrics over time.
- Focused on learning from customer needs and refining services accordingly.
- Expected to play a role in patient health management through clinics and subscription plans.
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Role of NHIC:
- NHIC currently operates as a standalone entity.
- Focus on building clinics and offering subscription plans to keep patients healthy.
- Potential referrals to the main hospital in case of future medical needs but not the primary goal.
Operational Upgrades:
- Ongoing efforts to upgrade clinical and non-clinical operations.
- Focus on increasing throughput, building capacity, and investing in digital patient outreach.
Future Growth Strategy:
- Pursuing both organic and inorganic growth opportunities in India and overseas.
- Synergy-driven approach for maximizing value for stakeholders, with a close eye on return on capital.
Brownfield Expansion:
- Focus on Brownfield expansion in flagship locations, mainly Bangalore and Kolkata.
- Land acquisition in advanced stages in Kolkata, construction to start next year.
Bed Capacity Expansion:
- Operationalizing 110 beds in Howrah unit, Kolkata, by end of Q4.
- Construction work to begin in Bangalore Health City, adding 700+ beds in the next 3-4 years.
- Land acquisition in Kolkata for further expansion, updates expected in the next quarter.
Margin Expansion Strategies:
- Continuous focus on improving high throughput through technology investments.
- Emphasis on faster discharges, lab results, and seamless appointments.
- Penetration in cardiac and robotic procedures for efficient bed utilization.
- Aiming to reduce Average Length of Stay (ALOS) from 4.8 to 4.1, currently at 4.4.
- Addressing capacity bottlenecks by adding ICUs, OTs, diagnostics, and labs.
- Technology investments to enhance communication between doctors and nurses.
Challenges and Caution:
- Acknowledgment of significant headwinds from inflation and government actions.
Future Outlook:
- Confidence in meeting demand and growth aspirations with current and upcoming bed capacities.
- Ongoing projects in flagship locations, both greenfield and brownfield, to support growth.
- Continuous focus on leveraging technology and operational efficiency for higher revenues.
India Business Expansion:
- Revenue near INR 1000 cr, operating margins 18-19%.
- Without further investment, potential high single-digit revenue and margin expansion for a decade.
- Minor bed additions, focus on throughput, and new infrastructure planned for significant growth.
Sustainable Margins:
- Commitment to extreme value-based care, fair pricing, and treating as many patients as possible.
- Sustainably delivering the best within these principles.
New Hospitals Breakup:
- SRCC, Gurugram, Dharamshila combined revenue at INR 119 cr in Q2.
- SRCC Mumbai on track to reach flat EBITDA by year-end.
- Confidence in growth and improving margins in Mumbai and Gurugram through specialties and initiatives.
India Level Occupancy:
- Consistently above 65%, improvements seen across all units.
- Double-digit revenue growth for two consecutive years without significant bed additions.
ARPP Perspective:
- Acknowledgment of ARPP being a better metric than ARPOB
- Pricing not the primary lever for improvement; focus on efficiency.
- Modest price increases shown year on year, ensuring affordability for patients.
- Fluctuations in numbers over a short period due to various factors.
Utilization and Flagships:
- Flagship units continue to perform well, running at high utilizations.
- Ongoing debottlenecking processes to enhance throughput until capacity additions are completed.
Capex and Funding:
- Mentioned a pending capex of INR 394 crore for the year, part of a total budget of INR 1,137 crore.
- Indicated the ability to fund 50% of pending capex (around 250 crore) through debt.
- Assured a comfortable net debt to EBITDA ratio even with additional debt.
Cash Flow and Working Capital:
- Affirmed healthy cash flows, indicating strong underlying business performance.
- Minimal change in working capital, operating at almost a neutral position.
Tax Rate and Future Projections:
- Stated an effective tax rate of around 10% for the current year due to the new tax regime in India.
- Estimated an effective tax rate of around 25% for the following year in India.
13 Likes
There are multiple things that are sitting right in front if someone is careful enough to look.
NH can become too big as per my understanding. Below are my thesis pointers:
- Upcoming capex is concentrated in Bangalore and Kolkata where they already have a significance presence, so ramp up wonât be an issue and this will be high in margin.
- Gurgaon is positive and Mumbai is almost positive now, so bleed is not there and this should be able to further drive margins.
- Cayman new facility shouldnât face any ramp up issues because they already have a presence there.
- I studied this in details last month only and I thought that they are just sitting on a goldmine in terms of in house softwares for hospitals. This can be ramped up as SaaS entity separately and this will be a very high margin biz. and looks like company has decided to capitalize this. In latest AR they mentioned about 6-7 in house softwares. This can be a goldmine.
Above pointers should play out in next 3-5 years.
Thereafter, I imagine Gurgaon would be reporting 15-20%+ margins and next expansion phase can come from here.
Insurance biz. and clinic biz. is going to be a very long term play and as per my understanding this is not going to be fruitful in near to medium term because itâs like a network effect and takes time to progress. Iâm very curious about the clinic biz. because I think this can be a game changer for the company and can help company to penetrate into new geographies without setting up full fledged hospital and also it can help reduce the initial pain that hospitals have to go through to ramp up.
Anti-thesis:
- Margin pressure should come in from Cayman end. Also, need to cautiously see the market size of Cayman and market around Cayman which company wants to enter.
- Not sure of the impact of Insurance biz. on margins.
- Companyâs venture NHIC is bleeding as of now.
- Need to watchout for improvement in Gurgaon and Mumbai margins as these facilities have been performing below expectations, thereâs a question that of how long theyâll take to reach Bangalore or Kolkata margins or can they even reach those margins?
Disc: Not Sebi registered, Invested and biased.
11 Likes
India is a place of great growth opportunities where we will continue to invest the lionâs share of our capital: Viren Prasad Shetty - The Economic Times (indiatimes.com)](narayana health: India is a place of great growth opportunities where we will continue to invest the lion's share of our capital: Viren Prasad Shetty - The Economic Times)
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I usually ignored all the new initiatives by NH but this is going to big one. It can make and or break the company. They can easily scale health insurance revenue but will it be profitable over the long term? I have been researching United Health in US. This is what i had in mind when i invested in 2017. United Health is 500B company and they are integrated healthcare companies - Hospitals, Insurance, and Health Tech and have a very big moat.
If they go on this path and are successful, NH can be 100 B
Apollo is also going on same path. Apollo 30 year returns 400 X thread here
Letâs do a deep dive analysis and not get into what will stock do. Views welcome from scuttlebutt etc
I am heavily biased as a long-term holder it is already 5X.
Disc: Holding since 2017 15% of my India portfolio you can find here
8 Likes
NH is currently trading at a lower price-to-earnings (PE) ratio compared to its peers. However, it is important to note that NH has high return ROE and EPS growth compared to others, Is there any additional factors contributing to this discrepancy?
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Yes.
Itâs the cayman island business. Almost half the Ebitda comes from here. Thus, one needs to do Sotp. Indian business itself is sitting on operating leverage as margins of new hospitals are improving.
Disclaimer:- invested. No recommendation to buy or sell.
15 Likes
If the profit margins of new hospitals continue to rise, there is a possibility of experiencing an expansion in PE. Assuming that everything proceeds smoothly in the Cayman Islands and just want to know is there any potential risks in cayman buisness
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Hi Amit, congratulations on a great portfolio performance and getting NH right with a huge allocation.
I do believe the health insurance in USA and India may not be comparable. In the US, if you donât have health insurance and get sick you are pretty much bankrupt. So everyone has to get it. Obama actually made it illegal to not buy health insurance. This is called regulatory capture⌠when Obamacare was being proposed, people speculated that the health insurance companies will be hurt. But in reality they have grown more. Check the stock charts of all the health insurance companies from 2009 or 2010 when Obamacare came to being.
Because of the prevalence of health insurance, people donât really care about the procedure costs when they go to a doctor. I.e. Letâs say my plan says that my deductible is 2k per year. So the first 2k of expense come out of my pocket but then everything above that is paid by insurance. So now if I have exhausted my deductible and then I go to visit a Dr for something, the Dr says it could be a or b or c. To be sure we need to check for each are you sure? I will say yeah go ahead. Why donât you check for d also. The Dr usually does all these tests because they donât want to be sued for malpractice.
The net result of all these dynamics is that people end up using more medical facilities than really needed.
Now the dynamics are very different in India. Suing Dr for mal practice is not really a thing in India afaik.
There are very few Dr (hospital, clinic etc)per capita in India so we need to wait to see a Dr. Because Indians have been paying out of pocket mostly, the cost of medical care has not skyrocketed like US.
Even today, you will see that the hospitals will charge you differently based on whether you have insurance or not.
So I am not entirely sure that health insurance sector in USA and India are comparable.
NH having a health insurance company produces synergy for them so it makes but the end mkt cap itâs another thing
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Thanks Vinayaka for giving US perspective. Yes as i am reading united Health care Annual reports realzied that maximum revenue /profit is comming from Insurance. They are growing twice the GDP growth and yes US is worst in Healtcare cost due to these monopolies gettign formed.
Like Obama care we also have government run scheme for poor people. I see lot of villagers comming and get operated in Delhi etc. This was a tailwind for Narayana. Narayana also have exp with some farmers insurance scheme in Katnatanka.
Narayana is very focused to run their operations at lowest cost and charge customers less.
Insurance anwyays we will see impact only after 3 years they will go slow intially and we will have time to evaluate.
Looks like Indian chains are following US services companies both Apollo and Narayna is going into integrated healthcare.
Insurance is a double edge sword and can go either way if underwriting is not done appropriately.
Earlier Apollo had an insurance arm called Apollo Munich. Despite a joint venture with a global player, they ended up exiting this business only to be acquired by HDFC Ergo.
2 Likes
Went through a recent earnings transcript Q2FY24 and i see they are not keen on tracking ARPOB as a metric. Anyone knows the reason for this ? I did not understand the exact reason behind this. It looks like a very good metrics to me to track for operational efficiencies.
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they want to focus on improving the throughput of patients. Does not get captured accurately in ARPOB. Focus is on improving (decreasing) ALOS. Therefore, the use of database and technology etc, to reduce redundancies in journey of patients. This way more operations can be done. Sweating the physical assets like OT etc.
This is also why focus on total beds in the infrastructure has also reduced. Must but only one variable of growth equation.
There is a huge out patient also which doesnât get captured in Arpob
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Iâm new to this sector, forgive me if i am wrong.
they want to focus on improving the throughput of patients. Does not get captured accurately in ARPOB.
Yes, this is what they said in concall, but i dont agree with it. In my opinion ARPOB should be very good indicator. Let me try to explain.
Let us take the overral revenue into consideration. This way we take this out of the equation.
There is a huge out patient also which doesnât get captured in ARPOB
Overall revenue captures everything. If we divide this by the number of operational beds we can get the revenue they are generating per bed. I donât care now what is mix of outpatient vs inpatient until i am improving on this number. If outpatient are giving me better ARPOB, let that be the way forward.
A still better metrics is EBITDA / (number of beds).
What am i missing here ?
If i do a similar analysis on Apollo (included only their hospital business which is just half of their revenue) and Narayana. Apollo beats Narayana with 50%, still unsure of the numbers i calculated hence not posting here. But can this be the reason why Apollo commands such a market premium.
To improve Free Cash flow/(number of beds), they are focussing on ALOS. ARPOB is not a redundant metric. If length of patients staying in the hospital decreases, they can cater to more patients within same infrastructure. Increase volume of medical services for same infrastructure. Increase Overall revenue with reduced requirement for capex.
This will lead to increase in ARPOB, but, that is the resultant KPI, output of the process. And, increase in ARPOB can also be achieved by increasing Prices of medical procedures, deviating from efficiency in business operations. And their purpose of providing affordable medical facilities.
Rather, they are focussing on increasing quality of Input.
And ARPOB cannot be replicated across the whole infrastructure. But, learnings for reducing ALOS can be scaled across the whole infrastructure.
Sorry, I havenât studied Apollo, so cannot comment on them.
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Narayana philospohy is to charge less for outcomes. EBIDTA should be not seen in isolation with captial that has gone into to produce same EBIBTA. They dont invest in buying some hsopitals so they pay rent for example have less EBIDTA but high ROCE. ROCE is king of any business not EBIDTA. High ROCE with high reinvestment means high growth.