Narayana Hrudayalaya : Earnings Call Transcript Q2 FY 2023

"Narayana Hrudayalaya Limited

Q2 FY23 Earnings Conference Call"

November 11, 2022

MANAGEMENT: MR. VIREN SHETTY - VICE CHAIRMAN

DR. EMMANUEL RUPERT - CHIEF EXECUTIVE OFFICER &

MANAGING DIRECTOR

MS. SANDHYA J - CHIEF FINANCIAL OFFICER

MR. R. VENKATESH - CHIEF OPERATING OFFICER, EAST AND

SOUTH REGIONS

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: Good afternoon, everyone. On behalf of Narayana Hrudayalaya, I welcome you all to the Q2 and H1 FY 23 earnings call of the company. To discuss our performance and address all your queries today, we also have with us Mr. Viren Shetty, our Vice Chairman, Dr. Emmanuel Rupert, our CEO and MD, Ms. Sandhya, our CFO, Mr. Venkatesh - COO of our Eastern and Southern domestic operations, Dr. Anesh Shetty, MD of our overseas subsidiary HCCI and Durga Prasad from the team.

I am sure you have gone through the investor collaterals which have been uploaded on the stock exchanges as well as on our website. As usual, 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 as well as on the stock exchange at a later 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 risks 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, should you have any further query, please do not hesitant to get in touch with us. We would like to address it to the best of our ability.

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

Dr. Emmanuel Rupert: Good afternoon to everyone. I cordially welcome you all to the Q2 FY23 earnings call conference of Narayana Hrudayalaya Limited.

The second quarter of fiscal year exhibited robust performance and maintained the momentum set by the first quarter due to an improvement in patient footfalls, case mix and payer mix. Consolidated revenue for the current quarter stood at INR 11,416 mn a quarter-on-quarter growth of 21.4% aided by steady performance of India business and strong performance of Cayman business.

NHL generated consolidated EBITDA of INR 2,749 mn in Q2 FY23 at a margin of 24.1% which when adjusted for one-time other income stood at 22.3% as against a margin of 19.4% in Q1 FY23. This margin improvement was attributed to improving payor mix and procedure mix.

Our Cayman business demonstrated continued growth due to lifting of restrictions and HCCI revenue increased by 28% to USD 29.1 mn.

Our overall balance sheet and liquidity profile remains strong with INR 7.2 billion of gross borrowings against a consolidated cash and liquid investments of over INR 4.6 billion as of 30th September 2022. Our debt-to-equity ratio remains comfortably low at 0.14, giving us room to fund our expansions through borrowing and internal accruals. Including a recent acquisition at Bangalore, we have incurred capital outlay of close to INR 5.5 billion for the 6 months ending 30th September 2022. We will continue to invest as per our strategic priorities, and we believe that our capex should be north of INR 10 billion in FY24 as well.

What gives us immense pride is bringing access to advanced quaternary care to patients from all sectors of society. In line with our vision to continue to invest in state of the art medical equipment, our unit in Howrah commissioned the latest model of linear accelerator, which is the Varian True Beam in Q2 FY23. With this strong momentum in high-end cardiac sciences work, in both congenital and adult segments and also in oncology work in robotic procedures and also in the fields of transplantation, which is both solid organs as well as bone marrow transplants. we are proud to share that Narayana Institute of Cardiac Sciences in Health City, Bangalore has consistently performed more than 750 cardiac surgeries since March of 2022 and did the highest ever procedures in the cath lab of more than 1850 procedures. The unit was also successfully conducted more than 28 percutaneous valve implantations of the Aortic valve in this Quarter. Mazumdar Shaw Hospital in Heath City Bangalore also successfully performed more than 74 robotic procedures for very complex oncology procedures. It is very heartening for me to share with you that we have been able to perform 2000 bone marrow transplants to date across our network hospitals.

We are increasing our investments in digital engagement channels to improve operational efficiencies and patient experience. The digital traffic grew by 49% to 2.75 million users in the current quarter as against Q1 FY23. As India's leading cardiac and oncology provider we have been able to meaningfully contribute to cutting-edge medical research. We have already published more than 192 scientific papers in this current year and for the last two decades, we have published over 1640 scientific papers.

One of the interesting research activities that is currently undergoing along with the University of Arizona is the multimodal intraoral imaging system which is used for only detection of oral cancer with a smartphone and a specialized app that comes along with that.

Another area of cutting-edge research is in the field of bone marrow transplants, specifically the rejection of transplanted cells. The body can sometimes reject the transplanted cells as they come from a different person. This is known as Graft-versus- host disease (GVHD). At NH we are currently studying the potential of Itolizumab in treating patients who suffer from Graft-versus-host-disease. If successful, this will help thousands of patients across the globe.

We have previously spoken about our collaboration with Immuneel which is a Biocon start-up. It is a GMP certified processing centre which is in-house in the Health City campus for making what is called the CAR T therapy. CAR T stands for Chimeric Antigen Receptor. These are nothing but receptive proteins that are present on the cells, on the T-cells and they are re-engineered in the GMP certified process. The blood is removed through an apheresis machine and separates out the T-cells from the patients. And it is re-engineered by ingesting a gene for Chimeric Antigen Receptors and then we grow millions of these CAR T cells in the artificial lab, and this is reinfused into the patient, and you have a specific targeted destruction of the cancer cells. This is a major new dimension of therapy for refractory cancers across the world, which costs up to half a million to 1 million cost in the Western world. We are participating in the trial with Immuneel and following the regulatory approvals, which will take some time. We should be in a position to be able to provide this form of therapy to many patients in the Health City campus.

Our Health for all is our guiding beacon, and it has always been an integral part of everything that we do. We are proud to have contributed to discounts, and subsidies of greater than INR 300 million towards providing subsidized or free treatment for indigent patients in H1 FY23. Our CSR team continues to focus on providing scholarships for underprivileged children to pursue medical education.

While the results do bear about our focus on execution, as articulated, we are looking to also pursue strategic growth opportunities as reflected in recent acquisitions across our flagship region as well as Cayman Islands. We remain confident about the demand