Yatharth Hospital & Trauma Care Services Limited

Q4 2024 Yatharth Hospital conference call

Robotic surgery are integrated seamlessly.

One of big 6 audit firm will be appointed as auditors.

Case mix shift to specialty treatment will lead to ARPOB growth.

Upcoming Jewar Airport in Noida ( planned to be largest in Asia) will help to draw international patients. Set up dedicated marketing professional to attract international patience. Dedicated floor and lounge under renovation. 150 kidney transfer in 1.5 years, 90% are international. They will contribute to double digit in overall revenue.

Industry leading growth in profitability and revenue.

Confident of maintain revenue and EBIDTA growth 29% and 35% in upcoming years.

Payer mix not in focus. Focus on increasing ARPOB.

Govt rates are 20 to 25% rates are lesser then govt. business. For oncology govt rates are not such big, it is less.

Govt business will come down due to international patience ramp up.

Annual rate hike is 6 to 8% rate hike for cash. For insurance it is one to one negotiation with insurance companies and it is for 2 years for govt insurance, for private depends on 1 to 2 years.

International Patients:

Upcoming Jewar Airport in Noida ( planned to be largest in Asia) will help to draw international patients. Set up dedicated marketing professional to attract international patience. Dedicated floor and lounge under renovation. 150 kidney transfer in 1.5 years, 90% are international. They will contribute to double digit in overall revenue.

Jhansi Hospital:

Jhansi Hospital at 34% Occupancy in Q42024.

ARPOB decreased due to government business. It will be in increasing trend in upcoming years.

Faridabad Hospital:

Waiting for two machines then cardiac department will be running.

Occupancy can be much earlier then Jhansi in terms of occupancy.

Expansion Strategy:

Organic and in organic.

Asian Fidelis Hospital renamed as Yatharth Hospital and start commercial operation from 12 May 2024. 116cr to buy and 34 cr for machinery. Little capex is pending, should be ramp up very well. Faridabad is huge potential.

One hospital to acquire each year from FY24 to FY26. It will be mix of internal accruals and debt. Company will be still net debt free.

It will be primarily in North India. CAPEX of 60 to 70 lacs per bed similar to Asian Fidelis hospital.

Receivables:

Increase in Govt. Business. Now it is 40%. May be due to election or Q4, will be normalized soon. Q1 will have significant reduction in debtors.

Coming two quarters will see drop in receivables.

Income tax:

Oct 2023 as filed, money is still with company for 76 cr. Expect in this FY money will be back to company. It do not affect working capital. Investigation do not found suspicious, it is frozen as per procedure.

Concall Transcript:

In nutshell, If company demonstrate revenue growth with considerable improvement in receivable will be positive.
D: Invested

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They have ratings from CARE as opposed to CRISIL now so when rating agencies are switched they publish this note. Yatharth has issuer rating from CARE. Term loan rating was not required because the paid it off using IPO money. They have a term loan now which they may likely get rated from CARE.

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I personally did not like the fact that no disclosure about 70crs being frozen was made to exchanges. Also money being frozen is not a routine thing. Exited for now.

Will re-enter if it tanks further to 370 levels.

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I heard from a friend who’s a surgeon at Yatharth, some issues going on within the management.

Disc - Invested

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Ohh… then it is even more worrying. isn’t it?? I mean changing of credit rating agencies

Well it depends right! CARE is also a well recognized firm so I would not be overly concerned. Yes, i think it might have been cheaper to appoint CARE than CRISIL. So i think the decision is more cost related than anything else. The company has active conversations with institutional investors and DII are invested which is usually a good sign to judge any corporate CG issues.

Is it normal for hospitals to have such high receivables particularly from insurances and TPAs.

Also why are they piling up reserves but not
distributing a single penny as dividend. They have been growing quite well so why not distribute some dividend as well like their other peers

To answer your first question, it depends. It depends on the type of patients a hospital is catering to. I case of Yatharth, they have a lot of govt. and scheme patients which is why if you see even after so high revenues and profits and margins, the cashflows are not impressive. This is because they have a lot of receivables from their scheme patients. As correctly pointed out by @Worldlywiseinvestors in a recent videos, earnings might be there but quality of earnings is more important.
On reserves, I guess distributing the cashflows at this stage might not be a good decision. They need to grow, invest in newer hospitals.
Disclosure.- Not invested…

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Yatharth Hospitals -

Q4 and FY 24 highlights -

Company’s portfolio of Hospitals -

Noida - 250 beds, 81 ICU
Greater Noida - 400 beds, 112 ICU
Noida Extension - 450 beds, 125 ICU
Faridabad - 200 beds, 61 ICU ( acquired in Feb 24, commenced operations in May 24 )
Jhansi-Orchha - 305 beds, 76 ICU ( acquired in 2022 )

FY 24 outcomes -

Revenues - 670 vs 478 cr, up 29 pc
EBITDA - 179 vs 135 cr, up 35 pc ( margins @ 27 vs 28 pc )
PAT - 114 vs 66 cr, up 74 pc ( due to steep fall in interest cost post IPO fundraise )

Q4 outcomes -

Revenues - 177 vs 144 cr, up 24 pc
EBITDA - 47 vs 38 cr, up 21 pc ( margins @ 26 vs 27 pc )
PAT - 38 vs 17 cr, up 121 pc ( due interest cost falling to zero post receipt of IPO proceeds )

Cash on Books @ 238 cr
Debt on Books @ 84 cr - mainly came from acquisition of Faridabad Hospital acquisition

Hospital wise Revenue breakup for FY 24 -

Noida - 185 vs 172 cr, ARPOB @ 26.5k

Greater Noida - 234 vs 199 cr, ARPOB @ 28.9k

Noida Extension - 214 vs 135 cr, ARPOB @ 33.9k

Jhansi - Orchha - 36 vs 13 cr, ARPOB @ 17.4k

Faridabad - went live in Q1 FY 25

International patients remains a key focus area for the company. Have operationalised a dedicated International patients floor and launch at Noida Extension facility. Setting up an additional infrastructure of 200 beds specifically focusing on International patients at their Greater Noida facility. Their doctors are going to countries in Africa, CIS to do OPD consults and attract patients from these regions

Aim to keep acquiring 1 hospital / yr for next 3 yrs to keep the company’s growth engine running. Will use moderate amount of debt, cash on books, internal accruals for the same. Company’s areas of interest include - UP, Haryana and MP Mkts

Company level occupancy @ 55 pc ( FY 24 ending ) - indicating significant headroom for operating leverage to kick in ( specifically at Jhansi-Orchha, Faridabad and Noida extension facilities. Noida + Greater Noida are already running @ 89 and 67 pc occupancy levels )

Consolidated Hospital level ARPOB @ 28.8k, up 8 pc YoY

Govt business @ 40 pc of topline - this is a key matrix to monitor. This also results in high receivables. Company is in talks with various Govt Depts for release of funds. The situation should ease up post the elections

Both Noida, Faridabad - have good catchment areas from neighbouring areas of Western UP, Haryana

Company has on-boarded some well known, reputed doctors for its new Faridabad Hospital

Expect to do a revenue and EBITDA growth of 20 pc + and 30 pc + for FY 25,26

Brownfield Capex lis ined up for Greater Noida + Noida Extension hospitals in next 2-3 yrs. Should cost around Rs 60 lakh / Bed ( So … for a combined addition of 300 - 400 beds at these two hospitals, company may end up spending around 180 - 240 cr )

As the company’s occupancy levels increase, the share of Govt business should steadily come down

Avg private insurance rates are lower than cash rates by aprox 15 - 20 pc. Avg Govt rates are lower than cash rates by aprox 25-30 pc

Company expects that in medium term ( 2-3 yrs ), share of revenues from International patients should cross 10 pc

Also expect a rapid ramp up at the Faridabad facility

Disc: initiated a tracking position, biased, not SEBI registered

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Everything from return ratios, fundamentals to valuations seems good. My only concerns are the lack of cashflows, growing receivables, and CRISIL’s “Issuer not cooperating” rating. I understand that almost 40% of the business comes from govt. which maybe the reason for subdued cashflows and rising receivables. But what about crisis report? Also, I read @Naval said somewhere in the thread that some issues going on within the management.
Can anyone provide better clarity?
Disc. not invested. studying

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If everything was perfect, it wouldn’t be trading at ~24x FY25E PE (likely FY25 consol PAT to be around 150 crs in my view)

  1. There are issues ofcourse. I do expect the receivable issue to get sorted in next 2 months - the trigger isn’t just elections but also reducing fiscal deficit of GoI and transmission of funds as a way to spur pvt capex by GoI (been done in the past iirc)

  2. Re CRISIL’s issuer not cooperating - I wouldn’t put too much of emphasis here since the company regularly hosts con call and is fairly open to being grilled. It would have been very different had they not published investor presentation or hosted con calls.

Disclosure - Had exited post Q4 when I discovered that 70-80 crs was frozen by Income Tax and they never disclosed. Entered yesterday at around 415 since the risk reward seems favorable on a 1 year basis.

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Rough working of Yatharths financials over the next 3 years
Disc - Slightly optimistic numbers, assigned PE is the trailing PE at which I think the business should be valued at the end of each year, assuming stated one acquisiton a year, Invested

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Great effort! I’d say that ARPOB estimates for both Noida Extension & Faridabad are conservative. Noida Extension has hit 40k in Q1FY25 and Faridabad is already at 30k. My sense is Faridabad should scale up rapidly and hence occupancy should hit 55-60 in FY26.

Further, in hospitals, from what I understand, its all about the brand. 3-4 years from now, Yatharth would be a well established brand & hence should attract a higher share of cash / insurance payor mix.

Govt share is high because most of the chains (Max, Apollo, Fortis, etc.) shun away CGHS patients in favor of cash / insurance patients.

D - Invested since 420 levels (had reentered post selling)

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  • Revenue grew 37% year-on-year to INR 2,118 million in Q1 FY25
  • EBITDA increased 30% year-on-year to INR 537 million
  • Profit after tax grew 60% year-on-year to INR 304 million
  • Overall occupancy improved to 61% compared to 51% in Q1 last year
  • ARPOB (Average Revenue Per Occupied Bed) increased 9% to INR 30,551
  • Noida Extension Hospital registered 81% Y-o-Y revenue growth, contributing 38% to topline
  • Oncology now contributes 10% to group revenues and 17% for Noida Extension Hospital
  • Government business contributes around 37% of revenues, down from 40% last year
    Recovered INR 80 crores out of INR 227 crores outstanding receivables as of March 2024
  • Debtor days reduced by around 5 days compared to last fiscal year end
  • Targeting to bring debtor days close to 100 by end of current fiscal year
  • Acquired 200-bed Faridabad Hospital which commenced operations in May 2024
  • Planning to add 250 beds in Noida Extension and 200 beds in Greater Noida in next 2-3 years
  • Signed NDA with a leading big six auditing firm for management audit and process improvements
  • Focusing on expanding footprint across North India through organic and inorganic growth
  • Targeting one inorganic acquisition per year
  • Added robotic surgery capabilities including Da Vinci, MAKO and Cuvis robots
  • Planning to start medical and surgical oncology and cardiac surgery in Jhansi hospital
  • Targeting to reach 2,800-3,000 beds by FY28 from current 1,605 beds
  • Expecting to reach close to INR 1,000 crores revenue in FY25
  • Targeting sustainable EBITDA margin of around 25% at consolidated level
  • Faridabad hospital expected to break-even in 18 months and reach 20%+ EBITDA margin in 3 years
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why there is so much dilution of share capital ?
anyone knows?

Very fundamental answer to this. Company’s revenue growth is much more than the ROE it generates. So to sustain this high growth they need to borrow debt or dilute equity. Their debt to equity was very high before IPO and they repaid their debt with equity infusion. In the future this same process will repeat, unless they find a way to increase their ROE by 1000 bsp atleast.

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RoE is not a great way to look at this. ROCE is since capital is equity + debt and all hospitals can very well take on some debt instead of diluting. For FY24, their ROCE was 32% - much more than their annual revenue growth (29%).

Also, the business overall has significant op leverage in 4 of its 5 hospitals (excluding Noida), because of which profit growth should be higher than revenue growth and hence they should be able to maintain if not improve upon their ROCE.

Also conceptually, isn’t this whole debate only relevant where extra capital is needed to fuel revenue growth? In the current case, as I said above, 4 out of 5 hospitals have enough capacity to keep on growing for next 1-2 years (barring the scheduled capex) without needing any significant extra capital.

I don’t think dilution is or will be a concern.

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First of all where did you come up with this figure of 32% ROCE? Screener clearly shows ROCE for 2024 was 24%.

What you’re claiming is not possible mathematically, if the revenue growth of a company is much more than the return it generates on equity(ROE) than it has to keep infusing funds unless of course as you said it is sitting on Operating Leverage, then it’s Net Profit would increase significantly more and generate more ROE than revenue growth.

But in the case of Yatharth, as you claim that the company does not need any capital infusion, then why did they use raise capital 3 times in the last 4 years and used all that money to repay debt instead of further expansion? If they could really sustain the growth without capital infusion they wouldn’t dilute their equity.

They have raised capital 3 times in the last 4 years and they will have to keep doing it in the future or borrow debt unless the Operating Leverage kicks in.

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Annual Report

I did mention they could take on debt like other hospitals? Right now they are net debt free and even on an absolute basis, the leverage is low. But since debt also exists, hence ROCE and not ROE. As a metric, ROE is more relevant for banks since they’re anyways highly levered & medium for raising capital becomes equity more often than debt.

Past isn’t always a good predictor for future in investing. Not sure how this is relevant on a going forward basis since much has changed operationally (higher ARPOB, case mix, etc.)

Sure, and borrowing debt is fine… they’re pretty much on a net debt free status right now… 5crs of gross debt against 100crs+ of cash. Also the Op leverage is already kicking in… they have pretty high EBITDA margins compared to some others and they only seem to be stabilising at ~30% on a steady state basis (excl. growing hospitals - Jhansi & Faridabad)

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