Apollo Hospitals Q Earnings Call 13 Nov 13

Transcription

1 Apollo Hospitals Q Earnings Call 13 Nov 13 Ladies and gentlemen, good day and welcome to the Apollo Hospitals Q2 FY '14 Earnings Conference Call. As a reminder, all participants' line will be in the listen only mode. There will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Mayank Vaswani of CDR India. Thank you and (Technical Difficulty) Mayank Vaswani, Investor Relations Thank you. Good afternoon and thank you for joining us on this call to discuss Apollo Hospital's financial results for the quarter and six months ended September 30, We have with us today the senior management team comprising Ms. Suneeta Reddy, Joint Managing Director; Mr. S. Venkatraman, Chief Strategy Officer; Mr. Krishnan Akhileswaran, Group CFO. Before we begin, I would like to mention that some of the statements made in today's discussions may be forward looking in nature and may involve risks and uncertainties. For a complete listing of such risks and uncertainties, please refer to our Investor Presentation. We shall start with Ms. Suneeta Reddy, who will discuss the operating highlights for the quarter. Mr. Krishnan will then discuss the financial highlights and expansion plans and Mr. Venkatraman will cover the retail pharmacy and health insurance businesses. Documents relating to our financial performance have been ed to all of you earlier and have also been posted on our corporate website. I now invite Ms. Suneeta Reddy to provide key highlights of our performance. Over to you ma'am. Good afternoon, everyone, and thank you for taking time out to be on our call. As shared with you earlier, we are in the midst of our expansion at Apollo Hospitals. The next 12 to 24 months will see us scale up both in terms of capacity and our own capabilities. In the current year itself, we plan to operationalize around 500 beds, which will include each hospitals in Nashik, Nellore and Trichy as well as additional capacity in urban clusters of Chennai and Bangalore. We are also (inaudible) continuously making steady progress on several initiatives, ranging from doctor engagement to physician connect programs and enhancing our retail healthcare presence through clinics and cradles. Our plan to rapidly improve operating profile at newer facilities will begin to show up in the forthcoming quarters. This helps to set the stage for the rollout of the new beds in the second half of the fiscal. We have a very clear focus to build and enhance our capability. The COE initiative is one such focus strategy, which has allowed us to positively influence the case mix in order to garter a proportion of high acuity cases in all our hospitals. We have crossed the landmark number of over 500 robotic surgeries this year across our hospitals, making us leaders in this space. The adoption of robotic technology at majored urban centers across the network was introduced last year and this is in line with our constant quest for providing newer and better technologies to our patients and thereby improve clinical outcome. Now, on our financial performance, our standalone revenues grew by 17% from 836 crores in quarter two last year to 975 crores in quarter two this year. Sequentially, quarter on quarter performance has been 9% aided by strong revenue growth in both the hospitals and standalone pharmacies. We are happy to note that even under difficult economic environment, the existing businesses have borne 15%. Also, both healthcare services and standalone pharmacy have improved on margins. The new hospitals at Vanagaram, Ayanambakkam in Chennai and Jayanagar in Bangalore had operating losses of 5 crores this quarter as they are in the initial stages of operation. Reported EBITDA hence grew 11% from 144 crores in quarter two to 160 crores in quarter two this year. Profit after tax was up by 5% to 87 crores. Specific to our hospital business, we witnessed a good quarter on quarter traction in most of our large hospitals group wise. Some of our units like Ahmadabad, Hyderabad, Bangalore and Calcutta had improved their performance in quarter one. The physician connect program in Hyderabad is beginning to deliver with improvement in outpatient volumes and enhanced specialty mix. More importantly, I think they have also started (Technical Difficulty) their patients mix, which has led to our higher ARPOB At Chennai, the focus on day care surgeries and outpatient facilities helped us to drive continue its strong growth in OP volumes and revenues. Our Tier II hospitals in Bhubaneswar, Mysore and Madurai continued to grow well. Bhubaneswar has now registered

2 [ph] 5% occupancy and we are evaluating further expansion of this facility. Mysore revenue has also grown 30% year on year. And Madurai, Karur and Karaikudi have grown 16%. Our focus is currently on aggressively strengthening our medical teams in our own new start ups, while adding our new specialties. While we are slightly behind in Vanagaram, Ayanambakkam in Chennai and Jayanagar in Bangalore, there were a few delays in the statutory approvals, which also delayed tie ups with BHUs, insurance companies, which have (inaudible). We hope that this will help us catch up on performance in both these hospitals. The next two quarters actually do present an opportunity to fill up these nearly 500 beds in our new facility, which should lead to a healthy growth in both the top line and EBITDA. Volume growth, increased occupancy and reduced average length of stay have combined to drive sustained double digit growth in our hub, which have been a result of a healthy case mix. We also believe that Hyderabad will show an increase in our hub (inaudible) facility is in operation and it would be aided by a decrease in (inaudible). The pharmacy business has also performed well this quarter with 22% growth in revenues and 36% growth in a mid term. The improved operating performance has come up come close to a higher proposition of private labels and On a consolidated basis, revenues grew by 17% to 1,111 crores, while EBITDA was higher by 10% to 179 crores in quarter two FY '14. This after absorbing an EBITDA loss of 4.5 crores in our subsidiary Apollo Health and Lifestyle due to the addition of two birthing centers and new clinics, which were added last fiscal. Before I close, I would like to share with you that Apollo celebrated its 30th anniversary this quarter. It has been a fantastic journey from our first hospital in Chennai to over 15 hospitals in the length and breadth of our country. From day one, our focus had been on the pillars of excellence, in the areas of clinical outcome, patient care, adoption of technology, and offering value for each of our patients and customers. We are pleased to share that these four values continue to drive us as we endeavor to. Before I hand over to Krishnan for further details on financial performance, I would like to share with you the immense pleasure that Apollo Hospitals Chennai, Apollo Health City Hyderabad, and Apollo Hospitals, Vanagaram, Ayanambakkam have been assessed and certified by HIMSS, Health Information Management Systems and Society Level 6 on our IT adoption and maturity model. This is a significant step forward. We now fall into the light of 2.3% of hospitals in the Asia Pacific region, who have this unique distinction. Apollo Prism, a web based Patient Health Record the first HIMSS, ICT Innovation Award in recognition of Apollo's effort, commitment and dedication to leveraging on healthcare ICT to transform patient care and outcome. The Apollo Hospitals Group was of multiple awards in the 12th edition of the Asian Hospital Management Awards. Apollo Hospitals was a winner in 9 out of 10 categories and won 10 awards out of a total of 39 Gold and Excellence awards. Also, thereby winning special awards for outstanding achievements by the Hospital and Group. Now, let me ask Krishnan to brief you on our financial performance. Krishnan Akhileswaran, Group Chief Financial Officer Thank you, Ms. Suneeta. Good afternoon and thank you for joining our call. I trust all of you have received our earnings presentation, which had been circulated earlier and is also available on our website. On a stand alone basis, revenues were higher by 17% at 975 crores compared to 836 crores in Q2 last year. EBITDA increased by 11% from INR144 crores in Q2 FY '13 to INR160 crores in Q2 this year and EBITDA margin stood at 16.4%. To get a fuller insight of our margins broken by segment as well as existing and new businesses, please refer to slide eight of our presentation. You will notice that EBITDA margins on our existing healthcare services have actually improved by 60 basis points to 24.6%. This is despite the increase in consumable costs that we had because of the rupee depreciation as well as the higher manpower cost on account of our increment that we had effective July. The retail pharmacy business has also reported an improved EBITDA margin of 3.1%. The impact on the reported EBITDA number has come from the new hospitals which were launched in Q4 of the previous fiscal. That is a 200 bedded hospital at Vanagaram, Ayanambakkam in Chennai and a 120 bed Ortho and Spine Center at Jayanagar in Bangalore. These hospitals have reported an EBITDA loss of INR11 crores in H1 FY '14, which have impacted the standalone EBITDA on an overall basis. This, of course, was in line with our plan and we hope to see this reduce as we move forward. PAT margins were 8.9% in H1 FY '14 as compared to 9.5% of H1 FY '13. Depreciation increased by 20%, from 52 crores to 62 crores in H1 FY '14 on account of new facility, beds added in the last one year. Finance costs also increased from 32 crores to 43 crores due to expansion in CapEx. Other income, which constitutes income earned from investments in liquid mutual funds and bank deposits was 11.6 crores in H1 FY '14 as compared to INR18.4 crores in H1 FY '13, primarily due to low returns from liquid funds on the back of the recent rate hike. Effective tax rate in H1 FY '14 was 22% as compared to 27% in H1 FY '13 due to the applicability of 150% Coming to slide nine, healthcare services ROC is at 17% for the first

3 half on an enhanced capital employed, which includes Jayanagar and Ayanambakkam capital employed of over INR200 crores. Excluding the new hospital, ROC of existing healthcare services is at 19.8% of H1 FY '14 as compared to 18.9% of H1 FY '13. Consolidated revenue grew 16.6% from INR953 crores in Q2 last year to 1,111 crores of Q2 FY '14. EBIDTA has grown 10% from INR162 crores to INR179 crores in Q2 FY '14. H1 FY '14 revenue grew 16% from INR1,834 crores to INR2,133 crores. H1 FY '14 EBITDA at INR339 crores has grown 9.5% over H1 FY '13, with a 15.9% margin. However, as you can see on slide 12 after adjusting outpatient volumes were 8%. Total occupancy was 72% in H1 FY '14 at 4,094 bed compared to 76% in H1 FY '13 at 3,988 beds. The lower occupancy in percentage terms in the current year, as you would notice, is due to increase in bed capacity and absolute occupancies have increased. This is also supported by low ALOS across clusters with blended ALOS declining from 4.7 days in H1 FY '13 to 4.55 days in H1 FY '14, which, in turn, directly benefits ARPOB. Across the network, we are witnessing inpatient revenue growth outpacing inpatient volume growth, indicating that the case mix of getting richer in favor of high acuity case. The rise in outpatient volume growth with an accelerated increase in outpatient revenues is the result of the focus on day care surgeries and improved outpatient facilities. Slide 18 has our expansion plans for the next three financial years and related CapEx. Of the total planned expansion of 2,685 beds over the next three years, about 1,000 beds of seven [ph] locations will be added in the current fiscal. Over 500 of these beds will be in three REACH hospitals at Nellore, Nashik and Trichy. Another 200 beds will come up at North Bangalore, sorry, the next will come through three new facilities in Chennai. As mentioned earlier, our funding for these expansion plans will be through a combination of debt and internal accruals in a phased manner. That's it from me. I'll now handover to Mr. Venkataraman, who will walk you through developments on retail pharmacies and Apollo Munich Health Insurance. S. Venkatraman, Chief Strategy Officer Thank you, Krishnan. Good afternoon, everyone. The standalone pharmacy business continues to be strong as revenue grew 22% (Technical Difficulty) 478 crores in Q2 last year to 339 crores in Q2 this year. This is from a mix of same store sales as well as continued expansion of the Pan India store network. We added 51 stores and shut down 17 stores, resulting in a net addition of 34 stores in Q2 FY '14. We now have a Pan India network of 1,560 standalone pharmacies as of 30th September Over the last 24 months, we have shut down several stores that we are not meeting our objectives and targets. The evaluation is now almost complete and we expect a number of closures to reduce and believe that the net store extension will pick up pace from the second half of the year. We continue to focus on our long term plans of consolidating the performance of our existing store networks, while simultaneously enhancing our presence in new locations. At the same time, the focus on margin improvement remains intact with emphasis on higher volumes in mature stores as well as a sustained increase in contribution from our private label products. Growth in same store revenues remain slightly healthy as revenues from the pre 2008 batch of stores grew over 10%, the 2009 batch reported revenue growth of over 14% and the 2010 batch reported over 15% growth. Overall EBITDA is higher by 36% from INR8 crores in Q2 last year to INR11 crores in Q2 this year. The EBITDA margin for the entire network of stores has increased by 34 basis points to 3.3% in Q2 FY14. The accelerated expansion plan is also expected to result in an operating leverage, which will help us further expand our margin in H2.The EBITDA margins of the 2008 batch is now at 5.5%. We have in our network over 1200 stores, which is more than 75% which are now EBITDA positive. Coming to the insurance business, Apollo Munich Health Insurance has recorded an increase of 25% total income during the quarter. We are confident of the value that we offer in this industry and this is validated by the appreciation from customers and award received by the company. We continued to expand our network in customer base and ascertain that this business will begin contributing more meaningfully as we attain. That's it from, we can now take Questions And Answers Thank you very much sir. Ladies and gentlemen, we will now begin the question and answer session. (). Our first question is from Krishna Kiran from ICICI Direct, please go ahead. Krishna Kiran, Analyst Yeah. Thanks for taking my question. Mam just looking at Hyderabad cluster numbers, if you look at inpatient volume and outpatient

4 volumes maybe from back end calculations, which is hardly 0.5 and 4.8%, can you just explain what actually happening in this Hyderabad cluster? In the Hyderabad cluster, as I mentioned earlier is gone up which is because we are the patients and sudden amount of rationalization on the type of patient mix that we have currently. Earlier we were taking more of CGHS and Arogyasri, now we've actually kept the number of beds that were keeping for CGHS and Arogyasri which we the volumes will be compromised for a short period, but I think that a focus on retail patients patients and on is the right way forward. Krishna Kiran, Analyst Okay I understand. And secondly occupancy rates whatever my calculations are right, I don't think we have any increase in Hyderabad cluster occupancy rates in the Q2 Q2 numbers. The Q2 numbers have gone up to 67% as compared to 64% in Q1. There has been an increase in the occupancy. Sir I mean, I understand that you are comparing with Q1 with H1, but what I'm trying to understand is like Q2, what my calculation says Q2 of this year compared with Q2 of last year which is more kind of a stagnant at 70%. Yeah, that's right. Last year it was 66% now at 67%, but as Ms.Suneeta said the mix of occupations that we have in this 67% is different and which is you can see that in the Q2 of this year even outpatient volumes have gone up well. That's also aided by our focus on cash fashion. 90 days. 90 days. Okay and one more question from my end before I join the queue, our promoter pledge says percentage has gone up from 41% to 56% in the first half. Can you share some more light on that? I think it's a temporary lift at, it will be corrected over the next quarter. Okay, okay. I have few more question, I'll join back the queue, thanks. Thank you. Next question is from Bino Pathiparampil of IIFL. Please go ahead. Bino Pathiparampil, Analyst

5 Hi, good afternoon to all. Could we get some color on the ramp up in capacity Ayanambakkam and Jayanagar in Bangalore? In its current state, it's ready for a full ramp up. Earlier we didn't have all the licenses in place. But today I'm happy to say that we have extremely good doctors which is critical. We have all the licenses in place and I think it's all about now informing Bangalore and (inaudible) patient, drawing patients towards (inaudible) facilities which I believe they have a plan and you will see improvement in the coming quarters. Bino Pathiparampil, Analyst But could you give a broad range of what it is seeing now. Is it like a 10% type or 30% type otherwise roughly? So the current occupancy levels in at the case down operation in Ayanambakkam is around 35% and in the place like Jayanagar it is now closer to 30 odd percent. But we expect Jayanagar to actually pick up much faster because we already have our doctors in place there. We've already have added an orthopedic specialist, we have pulmonologist, we also have neuro because it's a specialty center. We expect that the volumes in this would be much better in Q3 of Great, great, that's great. just one clarification, this 30%, 35% that you said is as present of overall commissioned beds or (inaudible) operating beds, Which in (inaudible) for example today that own 100 beds is what we be a operational line. Okay, okay, right. second what was your what is your current Capex for an individual pharmacy store? including the deposit that you may have to pay for rental? anyway they hold INR1.5 million. INR1.5 million, so, so currently you are making about 40 crore EBITDA, and you are adding may be around 150 stores a year, so you should have been completely cash breaking even. sorry, you will incompletely able to take your Capex require for Capex required for growth of that business from your EBITDA right? that's right. okay, so that should continue how do you plan to put more money into ramping up the cloth?

6 we continue to add about 150 to 200 resource per annum, that will continue. so that's inline so and it's that cash flow from the pharmacy business is sustained that group moment right, right. and finally I see this MOTP in your list of hospitals to be added. what is that and that has seen a movement from FY'15 to '16, so what is that because of? can you repeat your question please? in your list of planned capacity expansion, there is an item. MNCP is actually a it's a piece of land which is close to our main hospital in chennai, where we are doing an optimistic parking space. but it is giving that besides parking space to that we free up space in the main hospital, it's giving us close to 35,000 square feet of outpatient facilities for check up. so that, our intension is to increase OP volume and we do have (inaudible) sales, so that piece will be used for the OP patient. and that's for multi level car parking. okay, okay, right, right. got it. thank you i'll join back the queue. thank you, our next question is from Neha Manpuria of JP Morgan. Please go ahead. Neha Manpuria, Analyst thanks for taking my question. my first question is on the Chennai class (inaudible) would look at your ARPA for the quarter. this seems pretty strong, whether look at year on year or quarter on quarter. maybe quarter on quarter, mentioned that obviously our case mix is helping. How much more growth do you think is there with initiative, do you think there is more improvement expected in Chennai cluster as far as are concerned? For 30 years, we heard these questions. I think for 30 years we have managed to show growth, clearly is our focus is on delivering outstanding clinical outcomes and patients are willing to pay for this. So whether it is through introduction of new technology like Robotic or it is through shorter stay [ph] improving the way that we handle patients through laparoscopic surgeries, improving the way we handle new patient and also removing doors with lower cluster to cheaper to let me say less expensive facilities, we will continue to focus on the, but there I do believe that we to do it. Neha Manpuria, Analyst We could not feel that impact fully because it was implemented part of the quarter number one. To all the major pharma companies have gone back to the original margin for the distributors and retail, so that extent of our margins have not been impacted.

7 Neha Manpuria, Analyst Okay, okay. So going forward, we expect the margin improvement in that case to continue to? Yeah, we expect that to move yeah, move forward. Neha Manpuria, Analyst And what would be our sustainable margin in the median term, improved margin that we are looking at? We expect to improve at least at 1% every year with continued growth. Neha Manpuria, Analyst Okay. And my last question is on debt, obviously the expansion with the expansion we are seeing an increase in that, what is our target comfort level when we are looking at debt, by the end of FY15 or thereof? What is the level will be comfortable at and we have a good balance sheet? So we have said that we are looking at our expansion to a combination of debt or internal accrual, we have around 500 crores of cash with us now, of course the debt is 1000 crores. The gross debt is 1000 and the net debt is now at 500. We are in 0.3 debt equity, we are comfortable on the debt EBITDA that. We have said again that we will be comfortable going up to the 0.7, 0.75 debt equity over the next couple of years. Neha Manpuria, Analyst No, what I think that it will be calibrated. Got it. Thanks a much for taking my questions. Thank you. Our next question is from Praveen Sahay of B&K Securities. Please go ahead. Praveen Sahay, Analyst Yeah, thank you for taking my question. My question is related to the Hyderabad cluster, if I look at just for the second quarter FY 14 (inaudible) and sequentially we are seen some decrease in ARPOB so like a last quarter you had said some tariff hike in the Hyderabad cluster and that's also impacted. So, the increase in ARPOB so what exactly happened so the sequentially down ARPOB? ARPOB is actually increased from Q1 to Q2. The ARPOB in the first quarter was 20,166 and second quarter is actually 30,222. Praveen Sahay, Analyst

8 222? So, it's not come down. Praveen Sahay, Analyst Because what I just calculated on the basis of the first half number, you had provided 19,707. No, no there has been increased. We've been tracking this, there has been an increase. Praveen Sahay, Analyst Okay, okay fine. Just coming to an expansion plan, from the rich hospitals like Nashik, Nellore and Tirchy. Our project cost has an increased from the last quarter numbers to this quarter and if there any delay in this we are planned as for the planned like for this rich hospitals. So, there Tirchy would be commissioned in the coming quarter and Nellore by the end of this fiscal is what we would commissioned inside. There are not going to be a major increases in these cost of if you see at Nellore, more around the rather than 10 crore which is what we have considered that is point in time. And that's because of the increase in medical equipments that we have changed a bit of (inaudible). Praveen Sahay, Analyst Okay, okay and also like for the Patna facility like which is commissioning on FY 16 there is a decrease in a project cost. So, we are reduced something or we got the number of beds has acquired 240. So that was the that is again a change in scope in the Patna project, so it's said been grower now to 200 crores. Praveen Sahay, Analyst So that's as per the plan, by the 16? Yeah, that should be by that should come in FY 16. When we move towards the end of FY 16. Praveen Sahay, Analyst Okay, fine thank you. Thank you. Our next question is from Nitin Agarwal of IDFC Securities. Please go ahead. Hi, thanks for taking my question. up on the REACH hospitals, I just wants the most of the expansions have you talking about on next three years, there is a limited validity [ph] limited component of REACH. Is there, is there some consequence of we seeing

9 more opportunities in the again in the metros or larger terms and not really focusing too much on REACH going forward? No, I think it's, we do it in two ways. One is that, because of organization it's clearly we have this clustered approach in tier 1 cities, where we want to sense our presence because our brand is very strong. And that is the priority. We have twin priorities that taking is identifying to tier 2 cities, where which work either markets toward were we sure at the patients recognized the value of having in Apollo Hospitals. So we do, we are continuously looking at tier 2, in fact, we have a team that is allocated for these tier 2 cities, I believe that 1000 beds are coming up in tier 2 cities which is not a Okay, so and I also but I'm think that is per se the REACH concept on Apollo Hospitals which you listed out in the expansion plans only three of these in the incremental for next three years. So, that then three that REACH hospital per se the concept it don't seem to be focusing too much on it is as a key could driver is? No. I don't think that correct it all, because as you know as the plan develops we are looking at indoor we're looking at Ludhiana they are at their facilities as the way it is doing it we looking at both organic acquisitions it's quarter to quarter you will not be able to see growth in REACH facilities but the fact remains that is still part of our strategy to grow in tier 2, we've applied a land in for example of tier 2 cities, and we are in the mixed of construction of those facilities. And we are also looking at some opportunities for acquisition of facilities. So, I don't think that it's a strategy that we satisfied is clearly Apollo operate with our focused on both consolidation in tier 1 and growth in tier 2. Thanks for that. And on the organic growth that you talked about in terms of option it is, I mean what's the kind of landscape that you see as far as the opportunities are concerned, I mean do you see, I mean a lot of your standalone hospitals which are where you typically can get, typically where take as soon as sell out or you see more of management contracts or what kind of option did you see on that bed? So, these opportunities can either come out of our managed hospitals already, that we have a platform of managed software's, some of them would wanted to take ownership off, and this can either be a majority ownership or even full control. It's either that or there are also small hospitals in places like they are two locations where you know they have recently set up in the last two to three years. You know the hospitals are getting closer to completion, they didn't want to speak out the partner who can then come out with the 51% and with the partial part to complete acquisition over a period of time. Some of these opportunities will help us get into the market faster, like Indore could probably be a as we see now Indore, which we have put that in FY15, could probably a acquisition opportunity. Again as we have other opportunities in east of India as well one or two. Because not that there are many such opportunities, but yes he actively keep looking at this across. Yeah, that's along with the consolidation of our facilities in Kolkata, Hyderabad, Bangalore offer opportunities for organic role. And when we talk about this liquidity of 0.7 to 0.75 does the Rashi take into account some of these in organic growth plan that you have, or will that be something that will have to revisit. No. At this point in time, includes some of these, because these are small one. We don't see these as big capital requirements.

10 Okay. As a group and what's your thought on this whole restructure assuming if this get facilitated would Apollo as a group interested in exploring the same? See we are in the process like sorting it, they are some issues which don't make it extremely attractive at this point of time, we hope that we have an opportunity to debate with the both Finance Ministry and with studies to see that this becomes a viable that really becomes viable as this is in Singapore. But, what will be the motivation for us to grow for this, given the fact that we seem to be comfortable on our gearing right now and with picking up. Unless and until we really slipping half of our expansion plans what will be the motivation for us to go for that? If you were to explore it? So as what Suneeta said, we don't have any urgent requirement to go for this, we are only studying the option outside as well as in India. Unless it is going to be helpful for the next years' of expansion etcetera, we don't really require it for this phase. Okay, fine. And lastly on the pharmacy side, what's the propotion of the private level that we have right now? It's about 5.5% of the total turnover. And how do you suggesting moving forward? See, we have moved in the last year from 3% to 6% and we expect at least add 1% every year Okay and lastly, if I can squeeze on one more. Suneeta you in the presentation you guys mentioned about this primary care health centers, all these primary formats are being slowed in lot more detail. If you can probably help, throw some more light on that strategy? You mean the clinic? The clinics and other primary clinics in the, what you call. Retail healthcare. Yeah, I think that as part of Apollo started, we've always incubated new business models and I think retail

11 healthcare sector, the pharmacy will has a huge opportunity. The way we look at it is that it is really not such a high CapEx business. But it benefits us in terms of reference for patients, it enables access an issue and I think that is enables that access. Second it allows the referral I think the third issue is that if we manage to get scale and size just as we do pharmacy it could be considered as a separate business and at that time, I believe we would have created immense value which is why we are strengthening the clinics business at this time. We have taken over some of the franchises, we are doing it on the franchise model. We've moved to on an ownership model because we want to capture the value that we created so far. But do you have any numbers or anything in mind for take two, three year view for the (inaudible) business? Yes I think that nearly a 100 own clinic is in three years, is something that we can expect to see. We're looking at the lower CapEx model. So the investments in these clinics will not be very high. But we believe that the focus is definitely on ROC and on records to the main hospitals. But are there any specific streams that you can be focusing on these (inaudible) or these are all broad base primaries GP based sort of the next. Yeah, it's correct you're right. It's GP based with health checkups but in this is a cradle as well, where we are looking at certain upgrades in tier one cities and I think Apollo is already been successful in this space because unfortunately we did it in a franchise model which began cloud nine and it became spotted same. So we have to do, we decided that we won't do this anymore we will do it with the other one branding and the cradle is always been a part of our strategy and it's proven to be extremely successful. We do have planned to set up ten cradles. Okay fine, thanks very much. Thank you and next question is from Krishna Prasad of Kotak Securities. Please go ahead. Hi, good evening every one. First of all thanks for providing this break up on losses in your hospitals. My question is you know, if I you look at you expansion plan over the next two to three years, So I just wondering at any point in time you would have sort of new hospitals will keep coming up and increasingly which sort of will have impact on the margin going forward, so if two to three year sort of trajectory, would you still think the margins would actually see any meaningful upward buyers or could we still see this expansion sort of suppressed margins over this period? This is good a question, it's a challenge that we think about very frequently and while we growing our business, it's done in a calibrated manner so that stores, while we open new facilities, the previous ones gets matured. For example, Bhuvaneshwar is now started contributing in the same way we believe that Jai Nagar what we've opened in Arumbakkam and soon Trichy will start contributing when we open the next set of 100 beds. So, we believe that there will be positive contribution coming from the, but from the two year old facility which will enable EBITDA growth. S. Venkatraman, Chief Strategy Officer

12 This is strategy that we have to have a pipeline of projects. Given the fact that growth here has been quite high and the important thing is located from two angles, one is to look at it from unit wise margins, where all our facilities that actually going up. The only reason is being the margin contraction at the company level is because the standalone pharmacies ratio compared to the total turnover is going up and also new unit as Suneeta said. They will be under pressure for some times. The same thing happened around two years back on Bhuvaneshwar was on stream. EBITDA margins and other margins were under pressure, but now it is fully recovered. So as a company, we have a strategy that we have to have a pipeline of projects and as long as unit margins are intact and growing, which is what we are doing all the time. I don't think there is any cause for concern at this point in time. And just to add to what Venkat said, it is the number of new beds is a of existing stock dramatically go up in a single year. I think that's important to know portfolio is a mix of both hospitals and we expect that to some extent. Sure. Just a follow up on what you just mentioned, considering we've been in expansion phase for maybe about a couple of years now and obviously have lot of plans going forward am just thinking, I mean has the how do we view that sort of shift in environment, do you think there is been a need to sort of calibrate our expansion plans may be delete a bit more considering the market, may be is be the bit more sluggish and what we would have expected. are those yes it certainly I think what we have done is, it is the calibrated approach, even though the facility could take 300 beds to way we do it is we open may be a 150 will make operational, then when when there is we see we have understand the demand more deeply, we going to a full ramp up mode. so yes it is calibration, the second area that we are looking at is we are looking very carefully at our Capex, and seeing what is absolutely necessary and that market before we make certain investment. so it's the third the issues with light sensing and all, I don't think we should slow down our efforts in any ways. just because the environment is bad, because it's important for us to guess to go ahead with our plan to get for where we purchase the land and building versus started, it's very important for us to just go ahead and get through is licensing in place. doctors recruitment pipe line which is important, is something that is that function continuously, it is a pipe line. so even for existing hospitals, we continuously get new doctors. so it's something that very much part of our DNA. right. so my the other question that I have is actually around the Hyderabad cluster, now if I remember correctly I think we started off with the R pop growth focus and then I think somewhere down the line shifted to increasing volumes, and now I think we are back to sort of talking about case mix improvements. now I know it's been a difficult market, but I mean do you really think that's is going to be a sort of recovery any time over the next 12 to 18 months or is this going to be a bit more prolonged? well we are focusing on 12 to 18 months, we are focusing on the (inaudible) results, so we do we are quite hopeful, the signs are good I think that we have good doctors in place, it its let me say that we are optimistic about it. so just finally on chennai, I see that the last may be the half year now, our R Pop growth is actually been quite strong. Is there something that would have changed, I mean despite the Ayanambakkam addition, I see that they have done about 14% kind of growth, anything that we need to thereof take note of or how do we sort of see this spanning the next half year or the year ahead? So, it's a combination of as we said two or three times as the outpatient volumes as you have seen in Chennai has done well, the

13 outpatient revenues have also grown well, the robotic surgeries that we have been talking of have picked up substantially in Chennai that is again a high the surgery. Daycare surgeries have again picked up in Chennai because if you look at the daycare surgery center that we have put up now, we are doing very well, it has grown year on year almost around 30%. So, those are few factors which have actually helped contribute to the Ortho of Chennai, also Ayanambakkam, first day if you look at the Ortho of Aysnambakkam, they have the Ortho we had actually planned for a lower Ortho, but then if you look at the Ortho today, it is good because we are doing good tertiary care cases there. Yeah, I think stopped a lot about the brand that people are willing to pay a premium, especially for in the tertiary care segment that we are the first choice for patient, which is why suprisingly in Ayanambakkam, we started with we bought tertiary care cases and set up the usual primary, secondary and emergency cases. Krishna Prasad, Analyst Just one I mean just a follow up on what you just mentioned now, I mean when you do expansion and obviously you have a plan, let say if Aynambakkam, like you mentioned may not have initially been looked up as a tertiary care unit, but so how much of this is really planned and how much of this is sort of let us say, trial and error which goes into newer facilities I mean I know it is always the combination, but how you have seen that play out in some of these new hospitals and facilities. We are always tracking for comments against plan and we check why the variations has happened. So, in this case, we had a very good team of tertiary care consultants who joined us in Ayanambakkam ahead, so that is one of the reason that the tertiary care cases actually picked up faster than the secondary care cases. So that is the reason. Krishna Prasad, Analyst So, good luck for your future projects and thanks a lot for taking my questions. Thank you. Thank you. The next question is from Vivek Kumar Gujarati from Anand Rathi Shares and Stock. Please go ahead. Vivek Kumar Gujarati, Analyst Good afternoon Ma'am. I just wanted to know like target EBIT margin of pharmacy business or ROCE going forward, maybe next four, five years, how do you see the EBIT margin and ROCE of pharmacy segment? At EBIT it and 30% to 35% across. Sir, can you share some numbers like globally if you see the pharmacy business is very profitable your margin is? I can't share numbers.

14 Okay. So, we have been going this business around 22% this year, not of 25% as what we will be looking at and 3.1% EBITDA for H1 and 2.3% EBIT is what we have done. So, we have a visibility to take it to around 6% over the next few years is what open says. Okay. Sir, second question regarding the lease rental, if you can share the lease commitment for next four, five years, it will be great. You will have to take this offline, because this is more an accounting question. Okay, okay. Sir, can you share something about the marketing strategy like when you are going into new city, what will be marketing strategy for the company to? Marketing strategy is the company or? New location. So, I think before we start the facilities and marketing fees is already there with actually in the process with documenting this, where we do some three more city [ph], we do free registration of patient. And in many of these cities the patient for the tablet and whole of facilities for care. So, it mixed that much easier for us to have access to them, but they will be in marketing team in place that will do it. The second part of which is marketing or doctor, which means that we plan CMEs and COEs which within the city through that people have would aware that these are the doctors who are going to come, and this is the level of skill that's available in this city. The third is that, that there is an advertising plan, with the advertising plan in the expenses we have and after the facility is open. Okay. So, it's and of course, we do have people, we have a feel port for every hospital, part of the feel port just meet with the referring doctors. The second part of them meet with corporates, which is another segment of our business. And third part, of course is to handle our details.

15 Okay, Ma'am. Thank you. Thank you. Our next question is from Ravi Dodhia of CRISIL. Please go ahead. Ravi Dodhia, Analyst Thanks for taking my question. I have two, three questions. So, one with respect to the occupancy at Chennai cluster, if we also remove the occupancy at our Ayanambakkam facility still occupancy is in the range of around 70% to 74%. So which in the earlier years had, was in the range of 78 to 80 position. So any reason for low occupancy? No, there is no specific reasons for any the low, in fact occupancy is in line with our plant. There is no specific reasons that we have of course as I said one of the things that we have done is also the day care surgery center that we have opened up. So some of the day care cases registered earlier one day admissions etcetera have now got into the day care surgery center. So that's also brought down some of these single day staying patients. So that could be one of the reasons, but otherwise broadly we are in line with plan and we still have some room to grow there and we are working on that. And I think the way to look at this is to look at consolidation of the market status in occupancy in single facility. Because if patient find that Ayanambakkam and Vanagaram is closer to them. They will, hopefully they will go there. That's what we want them to do. Last studies is like added differential between both. So it captured another segment of the market that deals that if it expenses to one is it answers the question of access to a facility and second what is the price which people are willing to pay. So we are actually reaching out to new market within that metro. Okay. Sir end it is said to the outpatient volumes in the earlier part of the call you highlighted that, there has been increase in volumes. But if you look at the Q1 and Q2 numbers it has declined on Q on Q basis in both the quarters. So I think if you can explain that? So whenever the reclassification in the Q1 number there was an error in the Q1 number that was given. That could be the reason that you are seeing two numbers which is computed by you as a lower number. Please get offline with Krishna Kumar and he will provide you. There was a wrong number in that. Otherwise from a H1 perspective we have grown 10% and Q1 and Q2 both grew almost around 10%. Okay, sir my last question is with respect to the potential margins in the pharmacy business. If you look at the mature stores up to 2008 batch, in past two years margins have been in the range of 5% to 5.5%. So when we are taking about margins of around 6% to 8% margin potential but still the mature store which is the kind of most mature up to 2008 batch has not been able to see that kind of margin. So what will be our strategy? We are working on improving the private label in the mature stores and also this quarter we have some mature stores turnover impacted because of the hesitates in Andhra Pradesh because most of the matured source in that reason, and also implemented now DPCO drug implementation that has disrupted supplies. so other than that it is we don't see any reason, we will be track in the next two quarter.

16 sure, so in the mature stores we are targeting 6% to 8% EBITDA margin on next say two three years? yeah. thank you very much. as there are no further questions from the participants, I now hand the floor back to the management for closing comments. thank you so much for joining the call everyone, and that's all from our side. thank you very much members of the management. ladies and gentlemen, on behalf of Apollo Hospital that concludes this conference. thank you for joining us and you may now disconnect.