Narayana Hrudayalaya : Earnings Call Transcript Q3 FY 2022

FINAL

Company Name: Narayana Hrudayalaya Ltd

Company Ticker: NARH IN Equity

Date: 2022-02-07

Q3 2022 Earnings Call

Company Participants

Debangshu Sarkar, Head, Business Development & Investor Relations Emmanuel Rupert, Managing Director and Group Chief Executive Officer Sandhya J, Group Chief Financial Officer

Viren Shetty, Chief Operating Officer

Other Participants

Ahmed, Analyst

Amit, Analyst

Harith Ahamed, Analyst

Jhalak, Analyst

Nitin Agarwal, Analyst

Prashant, Analyst

Ranveer Singh, Analyst

Sameer Baisiwala, Analyst

Shantanu Basu, Analyst

Bloomberg Transcript

Presentation

Debangshu Sarkar {BIO 20026423 }

Hello, everyone. Myself Debangshu and as most of you are aware, I run the Investor Relations and Mergers and Acquisition practices at NH. On behalf of the company, I welcome you all to the Quarter 3 FY22 Earnings Call of ours. To discuss our performance and address all your queries, today we also have with us Dr. Rupert, our CEO; Dr. Mr. Viren Shetty, our COO; and Ms. Sandhya, our CFO, who has joined us a couple of months back.

I'm sure you have gone through the investor collaterals which have been uploaded on the stock exchanges, as well as on our website. Before we proceed with this call, I would like to remind everyone that the call is being recorded and the transcript of the same shall be made available on our website at a subsequent date. I would also like to remind you that everything that is being said on this call that reflects any outlook for the future or which can be construed as a forward-looking statement, must be strictly viewed in conjunction with the uncertainties and the risk that they face.

These uncertainties and risks are included, but not limited to what we have already mentioned in our prospectus filed with SEBI before our initial public offer in late 2015, and subsequent annual reports on our website. Post the call, in case you have any further

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FINAL

Bloomberg Transcript

Company Name: Narayana Hrudayalaya Ltd

Company Ticker: NARH IN Equity

Date: 2022-02-07

queries do feel free to get in touch with us. And we will try to address it to the best of our abilities.

With that, now I would like to hand over the call to Dr. Rupert.

Emmanuel Rupert {BIO 20800168 }

Good evening -- good afternoon, everyone. With the effects of pandemic subsiding for most part of the last quarter, we are pleased to deliver a consolidated EBITDA of INR1.82 billion at a margin of 19%, and PAT of INR1 billion at a margin of 10.2% for the period Q3 FY22, despite this being a seasonally moderate period. Our strong business performance has resulted in a consolidated return on average equity employed of over 28% annualizing the year-to-date nine months PAT of over INR2.7 billion, despite the pandemic induced severe disruptions, faced earlier during this fiscal.

Overall, our balance sheet and liquidity profile remains strong with INR5.5 billion of gross borrowings, as against consolidated cash and liquid investments of over INR3.4 billion, as on 31st December 2021, despite incurring a CapEx cash outflow of over INR0.8 billion during the quarter gone. With COVID-19 related business contributing just over 1.5%, our India business adjusted for the vaccine revenues grew by over 3.5% on a quarter-on- quarter basis, despite the seasonal --- seasonality impact. With the recovery in high-end cardiac elective work, 34.9% of India business, as well as international patient mix 5.7% of India business led by our flagship hospitals, we are pleased to deliver record profitability for our Indian operations during the quarter gone by, registering an EBITDA margin of 14% for the period.

Sequentially over the previous quarter, quarter 2 FY22, our Indian operations registered an absolute increase in EBITDA of around INR155 million in the quarter gone by, adjusted for the higher vaccine contribution in quarter 2 and one-time impact of incremental other income of INR50 million in quarter 2 towards the write-back of deposits pertaining to our Whitefield unit. With the improving sentiments facilitating people's mobility across regions for the most part of the last quarter, profitability of our flagship hospitals recovered significantly with these set of three centers of excellence registering an EBITDAR margin adjusted for vaccine business of 27.8% in quarter 3 FY22, as against 22.2% in the previous quarter. Separately, we remain encouraged by the performance of our other non-flagship hospitals, including the three newer hospitals, as it continue to progress along the respective growth trajectories, as witnessed over the previous few quarters despite the pandemic induced disruptions wherein. They have anchored recovery and revival of the business during the uncertain times.

Moving onto our overseas operations, our unit at Cayman Islands continuing a sustained performance grew by over 30% year on year basis, reporting operating revenues of $24.9 million in quarter 3 FY22, resulting in an EBITDA of $10.2 million. This is for the nine months period ending 31st December 2021, the unit delivered a healthy EBITDA of $29.3 million, with PAT of $24.5 million. Separately, we recently, we did the groundbreaking ceremony for our previously announced expansion of the City center. While our original timelines have certainly been delayed a bit due to the global supply chain outages affected --- affecting a completely import dependent nation like Cayman Islands for

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FINAL

Bloomberg Transcript

Company Name: Narayana Hrudayalaya Ltd

Company Ticker: NARH IN Equity

Date: 2022-02-07

construction material and equipment, we look forward for commissioning the expanded operation in a phased manner, starting with the radiation oncology program within the next 10 to 12 months. Overall, we do remain confident in this regional business emerging as a strong pillar of our future growth. Separately as part of our continuous evaluation of our portfolio of business units, we have decided to further rationalize this scene by discontinuing operations at our ophthalmology focused in this [ph] center at Kolkata, that is the Rotary Narayana Hospital as well as our fledging heart center operations at Imperial Hospital, Chittagong, Bangladesh to sustain the long-term interest of the business.

As regards our continuing focus on various digital initiatives, we have now extended our homegrown Aathma HIS [ph] and other allied products like Aathma Application for Doctor Insights, which is AADI, lab information systems, electronic claim management systems to our overseas unit at Cayman Islands. Also, we have now improved the patient registration experience by integrating the verified digitals regulatory compliant aadhar- based KYC database. On the ESG front, during the quarter gone by, we achieved a net carbon reduction equivalent of 3,913 tonne through various energy optimization activities like using alternative energy, upgrade or replacement of equipment across the network, and also upgraded the critical fire detection systems across our hospital at Howrah.

On the clinical front, we continue to deliver advanced super specialty work as reflected in some of the highlights. We have continued to do advanced quaternary work in cardiac sciences, oncology sciences as well as GI sciences across the entire network. Mazumdar Shaw Medical Centre performed the unique Total Robotic Bariatric surgery, the first ever case in Karnataka. The unit also published the largest series of all robotic Whipple operation, which is, which is done as a total robotic surgery for pancreatic cancers in the entire country. The SRCC Children's Hospital performed a complex case in perinatology to treat twin-to-twin transfusion system through fetoscopic laser ablations. This is performed very rarely across the country. The unit in Raipur performed a complex onco surgery for the cancer of the pelvic bone called Chondrosarcoma, by doing what is called as an Internal Hemipelvectomy where they replace the entire pelvic bone, half of the pelvic bone as these cancers generally do not respond to chemotherapy and radiation.

The Guwahati unit also performed the complex Whipples operation for pancreatic cancers, in a young 10-year-old child and also the Ahmedabad unit has done a rare case of total elbow joint replacement for the refractory inflammatory arthritis as well as doing very complex angioplasties using intra vascular ultrasound guidance for Chronic Total Occlusions. In the backdrop of the third wave of the pandemic prevailing in the country, while our Indian operations has been quite impacted in the month of January, we are hopeful that recovery would be faster this time around and remain well-placed to sustain the business momentum, notwithstanding COVID-19 related uncertainties. Looking ahead with lives and livelihoods of the community of the core, standing in solidarity, we remain committed to deliver quality, affordable healthcare to all.

Thank you.

Questions And Answers

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Bloomberg Transcript

Company Name: Narayana Hrudayalaya Ltd

Company Ticker: NARH IN Equity

Date: 2022-02-07

A - Debangshu Sarkar {BIO 20026423 }

Thanks. Dr. Rupert. I think, we will open the question and answer floor with that. Please use the raise your hand option, that's there with Zoom out here. So that we can go one by one to everyone and seek the question from the participants. Yeah, Shantanu. Please go ahead.

Q - Shantanu Basu {BIO 17238393 }

Yes. Hi, thanks for the opportunity. I just wanted to know that, as you have mentioned in the last two calls, that there would be a refurbishment of Indian hospitals with more private and semi-private beds getting added. So have you started that? Have you started that as yet or will it take some more time? I know it's a five year plan, but have you started that?

A - Debangshu Sarkar {BIO 20026423 }

Viren, will you take that?

A - Viren Shetty {BIO 19528778 }

I'll start and then Rupert can take up. Yeah, the work has started. We have started with refurbishing a lot of OPD and IPD area. Given that these are all running hospitals, it is taking in a more gradual manner, but it is on track. So for example there a lot of areas where the rooms are being reconfigured to deal with the COVID occupancy and ICU work related to that, that freed up space, that we have been using for more procedure rooms. But this is something, like we said earlier, we will take up over the next five years.

Rupert, anything?

A - Emmanuel Rupert {BIO 20800168 }

Yeah, we have been, as Viren has been mentioning to you, we have been doing that. And we are timing it along with the requirement of beds in the unit, so we are trying to balance our the requirements, as well as, how much beds we can actually take out for the renovation purposes. But it's a fine balance, and we will be able to cater to the timelines, which we have in this.

Q - Shantanu Basu {BIO 17238393 }

Okay, thank you.

A - Debangshu Sarkar {BIO 20026423 }

Thanks, Santhanu. I think if we can move on to Ahmed [ph]. Ahmed, you can go ahead with your question.

Q - Ahmed {BIO 19292073 }

Thank you, for the opportunity. My question is on the Cayman business. So, if we understand the relationship between the revenue ARPOBs and the margins of Cayman

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Bloomberg Transcript

Company Name: Narayana Hrudayalaya Ltd

Company Ticker: NARH IN Equity

Date: 2022-02-07

business, the -- we are maintaining the ARPOB of about $2 million even in Q3 and the revenue has grown about 25% sequentially, but still the margins have come down about 4%. So what explains that margin lift, is it the -- some mix change in the revenue or any specific component of cost structure? Can you please explain?

A - Debangshu Sarkar {BIO 20026423 }

Sandhya, do you want to take it?

A - Sandhya J {BIO 17430977 }

Yes. A lot of our margins are dependent on the type of procedures we execute. So sometimes we have more higher-end procedures, which give us a better revenue realization, but they also come at a higher cost. So some of that mix effect of the procedures, is what is flowing into the margins. So that you would have seen across even in India business, we have that depending on the type of procedures we execute. There is a bit of a range in which the margins -- and because Cayman is stand-alone, so it stands out in a more prominent manner within India because of the balance between the hospitals, you don't see that as prominently as Cayman. Does that answer your question?

Q - Ahmed {BIO 19292073 }

Yes, yes, definitely. And I understand that we are not currently operating in a steady state world, but how sustainable, what kind of margin do you see sustainable in the future for the Cayman business?

A - Sandhya J {BIO 17430977 }

So we would -- so as we see today, we would be -- you are aware that we are coming up with an onco facility. So there would be some amount of investments we will make in the near term because of the hiring of consultants, infrastructure, et cetera. So we will see some amount of dilution in the margin in the near term. And then we will pick back up. So if you ask me for an outlook over the next few quarters, I think the current numbers are reasonably sustainable, then maybe we will get into a little more balanced out numbers, post that, until our full facility comes up, full hospital comes up and starts operating at full volumes. So that's the kind of estimation, but I don't want to give a forward-looking number at this time because A, there are many variables and B, also it depends on the scale up, speed and how each of the specialties perform and stuff like that.

Does it answer your question, Ahmed?

Q - Ahmed {BIO 19292073 }

Yes, very much, very much, very much. Just one question on the -- just a word on the tax rates. So is it fair to assume that Cayman business tax rate is obviously zero and the India business tax rate will be steady state 25%?

A - Sandhya J {BIO 17430977 }

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