New units to ramp up by FY17, aid margin expansion: Narayana

Narayana Hrudayalaya will soon begin reaping returns from investments done in new units over the last 3 years, says Group CFO Kesavan Venugopalan in an interview to CNBC-TV18. The new units are expected to ramp up significantly by FY17, he adds.

The company is comfortably leveraged with healthy cash flows and good occupancy rate of around 54 percent across mature and new units, he says.  

The comfortable funding position will aid in actively explore acquisitions and expansion, Venugopalan says.

Currently, they are in the process of commissioning four new hospitals, one each in Mumbai, Lucknow, Bhubaneshwar and Kenya and these are expected to come on stream within the next 48 months.Below is the transcript of Devi Shetty and Kesavan Venugopalan’s interview with Rukmini Rao on CNBC-TV18.Q: How was the company’s performance in the quarter gone by?Shetty: I am very happy looking at the way we have done. By the grace of God, things have worked out the way we wanted and I am very optimistic about the future.Q: I want to understand in terms of your debt position currently, how is Narayana Hrudayalaya doing? What is the debt ratio that you are sitting at and are you comfortable?Venugopalan: Based on the last one year equity infusion what we have done in the company, we are very comfortable at an earnings before interest, taxes, depreciation and amortisation (EBITDA) ratio, debt-EBITDA ratio of 1:1.4 and currently, we have a debt of around Rs 257 crore which is quite a healthy leverage what we are maintaining at the time. And, this gives us a very good opportunity in terms of looking around for acquisitions, investing in future expansions at a much higher way.Q: Also, we have seen a bit of margin expansion happen in this quarter. Do you see more room for margin improvement going ahead in FY17?Venugopalan: As we have maintained at the time of listing, we have invested quite a bit in the last three years in new units and while we took a lot of operating expenditure hit in terms of the last 2-3 years, the time has come where these units have started contributing both in terms of occupancy, ramp up, volumes and cash flows. So, we are in a very comfortable position with respect to generation of cash flows from these units. And our focus for the next year would be in terms of ramp up of these units in terms of further improving the occupancy. And obviously there is room for further improvement of margins in what we have reported at the moment.Q: If you can give us a sense of what is the occupancy rates that you have currently across your hospitals.Venugopalan: Currently we have an occupancy of around 54 percent and this is spread across both mature and the new ones which we have set up in the last 2-3 years and we expect, as I said earlier, FY17 is a focus for our new units to ramp up and deliver much more in terms of our revenue growth and EBITDA growth.Q: Also want to understand in terms of your own expansion plans for FY17, what is it looking like? Are you looking to expand your footprint in other countries as well?Shetty: We have many plans. As you know, we are commissioning new hospitals. Our Mumbai hospital should be ready hopefully by the end of this year and a few other hospitals. We have signed an agreement, we are in the process of building a hospital in Kenya and we are looking at, if possible, if the opportunities are good, some acquisition opportunities.Venugopalan: In fact, to be precise, we have four more hospitals which we have planned for the next 48 months. One is coming up in Mumbai in the next 6-7 months. The other one in Lucknow is expected to be in the next 24 months and we have Kenya where we have signed an agreement in the last few days. We expect that to come in the next 3-4 years. And of course, in Bhubaneswar, we are expecting a reply Bhubaneswar government in terms of allocating an alternate land for us.Q: Also in terms of your capital expenditure (Capex), wanted to understand, are you going to be taking a big hit on Capex again in the next year?Venugopalan: Not really. In fact, our four new projects what I had mentioned is sufficiently spaced out in terms of when they are going to come on board. So, we also have a steady stream of cash flows which are coming in. There will not be any issue with respect to the cash flow of funding these projects. We are also adequately leveraged if in case we much more money for Capex.