Narayana Hrudayalaya : Earnings Call Transcript Q1 FY 2023

"Narayana Hrudayalaya Limited

Q1 FY23 Earnings Conference Call"

August 11, 2022

MANAGEMENT: MR. VIREN SHETTY - VICE CHAIRMAN

DR. EMMANUEL RUPERT - CHIEF EXECUTIVE OFFICER &

MANAGING DIRECTOR

MS. SANDHYA J - CHIEF FINANCIAL OFFICER

DR. ANESH SHETTY - MANAGING DIRECTOR, OVERSEAS

SUBSIDIARY HCCI

MR. DEBANGSHU SARKAR - HEAD, MERGERS &

ACQUISITIONS & INVESTOR RELATIONS

MR. DURGA PRASAD - SENIOR MANAGER, MERGERS &

ACQUISITIONS & INVESTOR RELATIONS

Debangshu Sarkar: Hello everyone. Good afternoon to all of you. Myself Debangshu and as most of you are aware, I run the Investor Relations and Mergers and Acquisition Practices at Narayana Hrudayalaya. On behalf of the company, I welcome you all to the first quarter fiscal year 2023 earnings call of our company. To discuss our performance and address all your queries today, we have with us Mr. Viren Shetty -- our Vice Chairman, Dr. Emmanuel Rupert -- our CEO and MD, Ms. Sandhya -- our CFO, Dr Anesh Shetty -- MD of our Overseas Subsidiary HCCI, and Durga Prasad from the team.

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 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.

On that account, I'm sure you guys probably would have also gone through our annual report as that has also been very recently updated for the last fiscal.

Post the call, in case you have any further queries please do feel free to get in touch with us. With that, I would now like to hand over the call to Dr. Rupert.

Dr. Emmanuel Rupert: Good afternoon to all. We are pleased to report the highest profitability for our Indian operations during the quarter gone by which surpassed the previous highs witnessed in Q3 FY22. Aided by steady operations at Cayman, we managed to achieve a consolidated EBITDA of INR 2.0 billion at a margin of 19.4% and PAT of INR 1.1 billion at a margin of 10.7% for the period Q1 FY23. Since our planned capital outlay for India and Cayman is still running behind schedule due to external factors, we incurred a cash capex of over INR 1.1

billion during the period. Our overall balance sheet and liquidity profile remains strong with INR 5.2 billion of gross borrowings against a consolidated cash and liquid investments of over INR 4.4 billion as on 30th June, 2022. Separately, we have reorganized our operating regions to ensure greater alignment among our hospitals. From this financial year onwards, Jaipur hospital will be part of the Northern group and Raipur hospital would form part of the Eastern Peripheral grouping.

With negligible contribution of Covid-19 and vaccine volumes combined with recovery in elective volumes, we registered the highest ever EBITDA margin of 16.2% for Q1 FY23 for our Indian operations. Compared to previous high in Q3 FY22, the domestic operations' EBITDA grew 27.5% while registering an absolute increase of around INR 300 million and it registered 46.8% growth compared to Q4 FY22, which was impacted by the omicron wave. The Indian operations also registered the highest percentage contributions from the international patient business since the onset of the pandemic at 6.5%. While we are working on new marketing channels to grow this further, we don't believe we will reach our pre pandemic figures of around 10%-11% till international travel reverts to pre pandemic behaviour.

It is heartening to note that the strong India performance has been achieved through all round performance across the network while continuing to be led by our flagship centres which registered an EBITDAR margin of 30.0% in Q1 FY23 as against 28.9% in Q3 FY22. Our three new hospitals across NCR and Mumbai registered a revenue of over INR 1.05 billion and delivered a positive EBITDAR margin of 6.5%. The Non-Flagship Hospitals excluding Jammu achieved a healthy EBITDAR margin of 18.8% in Q1 FY23. We remain encouraged with the resilience of our business during these uncertain times and we shall continue to invest in brownfield expansion across these units over a period of time.

Moving onto Cayman, our hospital was affected by Covid restrictions and strict quarantine rules placed by the authorities for most of the quarter and managed to register an EBITDA of USD 8.0 million in Q1 FY23. As our expansion slowly continues, we plan to onboard key clinical talent ahead of

the anticipated patient volumes since there is a long lead time for getting visas and work permits. With Covid disruptions minimizing from Q2 and with our Camana Bay Clinic making us more accessible, we are confident of sustaining solid performance of this unit going forward.

We continue to focus on various technology initiatives to drive performance. During the quarter gone by, we implemented a cost estimation module in ATHMA HIS to provide accurate estimates for planned admissions and we also implemented a checklist tool for clinical staff to improve patient safety. Our software team also developed a new user interface for AADI Mobile App to improve user adoption and drive productivity of our doctors across the network. Our efforts in revamping the marketing team have paid off and digital marketing channels now contribute almost 1/4th of the overall India business.

On the ESG front, for the period Q1 FY23, we achieved a net carbon reduction equivalent of 3,705 tons along with savings worth 9.1 million through energy optimization and switching to green energy and another 3.6 million by upgrading to high efficiency equipment across the network. To improve our focus, we have also initiated the business responsibility and sustainability report ESG framework across the group.

On the clinical front, we have continued to differentiate our services by focusing on advanced quaternary work in cardiac, Oncology, and GI sciences across the network. Some of the key highlights for the quarter gone by are

• We added three additional operating rooms to the Narayana Institute of Cardiac Sciences at Bangalore in the Health City campus, thereby increasing the surgical throughput in this unit. This unit did 2,027 cardiac surgeries during the quarter and performed 1,687 Cathlab procedures in May 2022, which is the all-time highest monthly volume at this center.
• Our flagship RTIICS at Kolkata successfully bridged a patient with end stage heart failure to transplant with CentriMag biventricular assist device (BiVAD). The unit also successfully implanted a suture-less aortic valve, which is the first such procedure in the eastern India.

• Our focus on transplant programs generated strong momentum which resulted in 75 successful Bone Marrow Transplants, 20 Liver Transplants, 8 Heart Transplants, and 192 Renal Transplants across the group in Q1 FY23.
• We also managed to perform 30 TAVI procedures as well as 125 robotic surgeries across the group in the same period.
  While continuing to consolidate our operations, we would pursue growth opportunities both in India and overseas to derive synergies from our robust existing operations and maximize value for all our stakeholders. We are confident about the prospects of the healthcare landscape across the world and are taking steps to transform our business to become more patient oriented digitally native and operationally efficient. We see our overall business being well poised to continue Dr. Shetty's mission of delivering affordable and high-quality healthcare to all sections of our society. Thank you.

Debangshu Sarkar: Thanks, Dr. Rupert. With that, we will now open the floor for Q&As.

Prithviraj: Mr. Viren I just have a couple of questions. First on your domestic business new hospitals, you mention they have done 6.5% EBITDAR margin this quarter, so how do we see this margin trajectory over the next couple of years and when can we expect them to touch that 18% or 20%, which currently your non-flagship hospitals are delivering?

Viren Shetty: These hospitals, two in Delhi, one in Mumbai are of different sizes and configurations. The Delhi ones we feel pretty confident that ultimately, they will reach the normal trajectory that the rest of the hospitals have given that these are multispecialty quarternary and tertiary care hospitals. So, as for the timeline, it's hard for us to give guidance. I would say normally for our hospital they take anywhere from 3-4 years to break even, post that another four 3-4 to reach a sort of maturity and then depending on how we expand them, it will take its time. So, both the hospitals will be due for expansion, not immediately, but some point over the next two years. In Gurugram, we want to add two more floors, we have the capacity to do so and Dharamshila also we're looking to talk to the hospital owner, the trustees to expand another