Narayana Hrudayalaya is in the final stages of commissioning its children‘s hospital in Mumbai which will add 297 beds in the current year, says MD & CEO Ashutosh Raghuvanshi.
Narayana Hrudayalaya is in the final stages of commissioning its children’s hospital in Mumbai which will add 297 beds in the current year, says MD & CEO Ashutosh Raghuvanshi. He expects margins to start inching higher as more beds are added.
Apart from 297 beds through the children’s hospital, another 35 beds will be added this year at its existing hospital at its Health City Bangalore hospital.
Speaking to CNBC-TV18 after the company posted its first quarter earnings, Raghuvanshi says being a cyclical business the third quarter tends to be muted, but the company will try to maintain the growth momentum.
Below is the verbatim transcript of Ashutosh Raghuvanshi’s interview to Sonia Shenoy and Anuj Singhal on CNBC-TV18.
Sonia: It has been a stellar showing as far as your margins are concerned. Can you tell us what lead to this growth and by when do you think you could get to the margins that some of your peers have, the likes of 15-16 percent. Can we expect something within this financial year itself?
A: 2017 fiscal has started well for us with the operating revenue as you said going up by almost close to 20 percent. Now this is a mix of - as our hospital grow into their maturity profile. As you know the large number of our beds were in less than five years of maturity basket. So, they gradually as the hospital starts maturing the Average Revenue per Occupied Bed (ARPOB) starts going up, the complexity of cases starts going up, the occupancy starts going up and these are some of the factors which have lead to a good growth.
However, you have to be cautious that the healthcare business is slightly cyclical and you have to look at results more on an annualised basis because typically the third quarter is a holiday period and that usually gets slightly suppressed. However we expect the trend to continue.
Anuj: So, looking at your guidance of setting up 973 new beds across three locations over two to three years. Can you break it year wise, is there any target that you have for FY17 or is this a long dated target that you have?
A: Already we are in the final stages of commissioning our children\\'s hospital which is going to be a unique offering in Mumbai within next three to four months. So, this hospital would have 297 beds outlet and this is going to happen within this financial year. However the other projects such as Lucknow and Bhubaneswar are over the next 24 months and as we had already stated earlier the Bhubaneswar is slightly delayed because we are in the process of discussing an alternative site for the property.
Sonia: So, can you give us a number? Earlier you had guided that there would be almost 973 new beds over the next two to three years. But can you give us a slightly closer timeline in the next one year how many new beds would you be adding?
A: Within this financial year we expect 297 beds to be added at the new hospital plus within the existing hospitals namely the Health City in Bangalore, the multispecialty hospital over there, the cancer centre would be adding additional 35 beds within this financial year. The rest of the beds which is Lucknow, Bhubaneswar will come in 12 to 24 months.
Anuj: So, this Mumbai Paediatric Hospital how much is it going to contribute going forward?
A: Since this is going to be a greenfield hospital we expect it to take the normal trajectory. The occupancies in the initial stages of most hospitals remain in the range of 15-20 percent. However we expect ARPOBs to be reasonably good here because of the location and we expect the ARPOBs to be in line with what our group ARPOBs are and occupancy to be in the range of 20 percent with this fiscal year. So, we should have at least have at least one full quarter coming from this hospital.
Sonia: You did mention that the upward trajectory of the margins will continue but can you give us a bit more granular detail, by when do you think you would get to 13-14 percent margins. Would it be by the end of this fiscal itself?
A: If you look at the hospitals which are over five years we are currently running at an ARPOB of about 7.6 million with occupancy of about 60 percent and the earnings before interest, taxes, depreciation and amortisation (EBITDA) margins here are above 24.4 percent which is in line with the industry. So, we expect the other beds which is 3-5 years category also to go towards the same in the next two years. These hospitals currently are giving about 10 percent of EBITDA. So, we expect that at least two more hospital would show maturity within this fiscal.
Anuj: The other bit which stands out from your numbers is that your finance costs have come down even further. Your debt to equity is already quite healthy but the finance costs were lower at Rs 5.5 crore versus Rs 8.8 crore. For next few quarters does it remain at these levels?
A: It is likely to remain at that level. It is a function of cash flow situation which has improved dramatically because as the facilities are going into their maturity cycle that is one reason. And other than that of course we had conversion of Rs 100 crore pre initial public offering (IPO) of the CDC which was a debt instrument earlier which was convertible instrument and that was done pre-IPO. So, that has overall in net-net reduced the thing and the finance cost has as a result of that gone down. It is likely to remain within that zone.