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Edited Transcript of APOLLOHOSP.NSE earnings conference call or presentation 15-Nov-19 7:00am GMT

Q2 2020 Apollo Hospitals Enterprise Ltd Earnings Call

Chennai, Tamil Nadu Nov 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Apollo Hospitals Enterprise Ltd earnings conference call or presentation Friday, November 15, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Chandra Sekhar Chivukula

Apollo Hospitals Enterprise Limited - President of Corporate and International

* Krishnan Akhileswaran

Apollo Hospitals Enterprise Limited - CFO

* Obul Reddy

Apollo Hospitals Enterprise Limited - CEO of Apollo Pharmacy

* Suneeta Reddy

Apollo Hospitals Enterprise Limited - MD & Executive Director

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Conference Call Participants

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* Anubhav Aggarwal

Crédit Suisse AG, Research Division - Associate

* Ashi Anand

Allegro Advisors Private Limited - Director

* Damayanti Kerai

HSBC, Research Division - Analyst, Healthcare and Hospitals

* Kashyap Jhaveri

Emkay Global Financial Services Ltd., Research Division - Research Analyst

* Neha Manpuria

JP Morgan Chase & Co, Research Division - Analyst

* Nitin Agarwal

IDFC Securities Limited, Research Division - Analyst

* Prashant Nair

Citigroup Inc, Research Division - Associate Director of India Equity Research

* Pritesh Chheda

Lucky Investment Managers Private Limited - Analyst

* Sameer Baisiwala

Morgan Stanley, Research Division - Executive Director

* Shyam Srinivasan

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Sudarshan Padmanabhan

Sundaram Asset Management Company Ltd. - Research Analyst

* Mayank Vaswani

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Presentation

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Operator [1]

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Ladies and gentlemen, good day. And welcome to the Apollo Hospitals Q2 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Mayank Vaswani from CDR India. Thank you, and over to you, sir.

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Mayank Vaswani, [2]

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Thank you, Stanford. Good afternoon, everyone, and thank you for joining us on this call to discuss the financial results of Apollo Hospitals for Q2 and H1 of FY '20, which were announced yesterday. We have with us on the call, the senior management team comprising Mrs. Suneeta Reddy, Managing Director; Mr. A. Krishnan, Chief Financial Officer; Mr. C. Chandra Sekhar, CEO of AHLL; and Mr. Obul Reddy, CFO of the Pharmacy business.

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. Documents relating to our financial performance have been shared with all of you earlier, and these have also been posted on our corporate website.

I would now like to hand over the floor to Mrs. Suneeta Reddy for her opening remarks.

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [3]

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Good afternoon, everyone, and thank you for taking time out for this call. I trust that you have received our earnings documents, which we had shared earlier. We are really glad to report this quarter the fact that we've achieved several important milestones that we have guided you towards. Firstly, our mature hospitals achieved a 70%-plus occupancy, alongside there was double-digit IP volume growth across all our units, supported by 17% volume growth from our new units. This is a healthy growth rate, given the high-volume base across which we operate. Mature hospitals have recorded an ROC in excess of 25%, which validates our strategy of case-mix calibration and our CoE focus.

Secondly, this quarter saw stellar performance from SAP business. The business recorded 6% EBITDA margin and it has achieved an ROC of 25%. A higher proportion of OTC and generic sales, along with private label increasing to 7.9%, has contributed to the profitability.

Thirdly, Apollo Health & Lifestyle has recorded revenues of INR 181 crores for the quarter, a 22% growth over the last year. The company has turned EBITDA positive for the first time, with an EBITDA of INR 2.5 crore for the quarter. This is in line with our plan to make the business profitable while delivering healthy top line growth.

In summary, this has been a very satisfying quarter from Sysmex. Against this backdrop, I am pleased to share the results of Q2 FY '20.

Q2 revenues grew by 18% to INR 2,464 crores, aided by health care services growth of 15% to INR 1,291 crore and SAP growth of 22%. New hospitals reported revenues of INR 281 crores, representing 17% year-on-year growth, while mature hospitals grew 12%.

Q2 in-patient volumes grew by 10% on a year-on-year basis, supported by 17% IP volume growth in new units. Overall, Q2 FY '20 occupancy across the group was at 5,305 beds or 71% compared to 5,020 beds or 70% in Q2 FY '19. The occupancy in mature hospitals was at 3,980 or 73% and new hospitals at 1,324 or 67%.

Quarter 2, overall EBITDA post-Ind AS 116 was at INR 364 crores. The pre-Ind AS 116 quarter 2 EBITDA stood at INR 308 crores as compared to INR 258 crores in quarter 2 FY '19, a year-on-year growth of 19%.

Within this, health care services EBITDA grew by 15% to INR 2,037 crores. Health care services margins were stable on a year-on-year basis at 18.4% in quarter 2 FY '20. New hospitals registered an EBITDA of INR 24 crore in quarter 2 FY '20 and EBITDA of INR 15 crore in quarter 2 FY '19.

The Proton unit reported an EBITDA loss of INR 6.9 crores for the quarter. EBITDA margins in mature hospitals increased from 21.7% to 22.2%. New hospitals EBITDA margins improved from 6.1% in quarter 2 FY '19 to 8.4% in quarter 2 FY '20.

In SAP, revenues grew 22% year-on-year on the back of strong same-store sales and an increasing off take of in-house products. We added 111 stores on a net basis during the quarter, taking the total to 3,607 crores. SAP EBITDA pre-Ind AS 116 grew 40% to INR 71 crores. EBITDA margin was at 6%. And with the high asset returns in the business, SAP ROC is now at 25%. Net debt as of 30th September '19 is INR 3,038 crores. We have debt-to-equity ratio of 0.91, and net debt-to-EBITDA of 2.6x. As stated earlier, we are looking to stabilize that ratio to lower it to 2.5x by the end of this fiscal.

In November 2018, we had announced our plan to segregate all our front-end retail pharmacy business in the SAP segment into a separate company, that is Apollo Pharmacies Limited, which would be a wholly owned subsidiary of Apollo Medicals Private Limited. The structure is targeted at creating a platform for us to execute an omnichannel strategy for our pharmacy business. It allows the stand-alone pharmacies to be housed on a regular key compliant structure.

Our strategic intent for this vertical is clear. We are focused on taking the store count to 5,000 and achieving INR 10,000 crores in revenue and increasing sales from private label products, improving EBITDA and ROI, while simultaneously building our digital play. We are on course with this strategy, which is evident from the healthy industry-leading EBITDA margins delivered by this vertical this quarter.

We have recently launched ProHealth, a 3-year comprehensive health program designed to keep consumers healthy. We believe this is in keeping with our promise to combat the country's rising burden of NCDs.

We have also built strong trust on the oncology vertical. We have received a very encouraging response for our Proton facilities. We have over 100 patients completed or on the couch, with over 30% coming from overseas. It is a matter of great pride for us that India and Apollo Hospitals is being widely recognized internationally as a major oncology player with the Proton.

Our path to the future is quite clear. Clinical and technological differentiation, premium positioning in domestic and overseas markets and a strong strategic trust on keeping India healthy. I believe that we have made strong strides towards achieving these strategic priorities. We are confident that our robust and highly diversified model, backed by our promise of the highest standards of service and clinical outcome, will continue to deliver on investor stakeholder expectations.

I now open the floor for questions. Krishnan, Chandra Sekhar and Obul Reddy are here with me to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Neha Manpuria from JPMorgan.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [2]

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First on AHLL. Now that we've achieved EBITDA breakeven, how should we look at profitability for this business from, let's say, FY '21, FY '22 perspective? When do you see it getting to sustainable profitability levels? And what will be the driver for that?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [3]

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Chandra?

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Chandra Sekhar Chivukula, Apollo Hospitals Enterprise Limited - President of Corporate and International [4]

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Yes. So I think we are aiming to build on improvement in gross margins. We have seen a year-on-year increase of about 6% to 7%. We want to increase that further to about another 300 basis points, we want to add to the gross margin expansion. Revenue growth across verticals to continue to be upward of 25%. That's the broad thesis at AHLL level. I think the future growth will be driven by revenue and gross margin expansion and control on costs. I think since most of our costs are covered for, I think our margin expansions will start looking good. We are looking at a range of 12% to 15% at a company level to be achieved in the next 24 months on EBITDA margins.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [5]

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Okay. In the next 24 months, you mentioned?

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Chandra Sekhar Chivukula, Apollo Hospitals Enterprise Limited - President of Corporate and International [6]

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Yes. But this will be progressively there. We could restart a little earlier as well, but that is the progressive path on which we are embarking, steady state kind of numbers.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [7]

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Okay. Understood. That's very helpful. Second, if I were to look at new hospital performance in this quarter adjusted for the Proton loss in Navi Mumbai, there seems to have been moderation from a quarter-on-quarter level. Could you give some color as to -- is there some deterioration in other new hospital, excluding Navi Mumbai?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [8]

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No, this year, if you look at the quarter, the quarter has been quite good for the new hospitals. And one of the things I think, Neha, we have been focusing on all these new hospitals has been profitable growth. I think we have been pushing most of them to ensure that they get to a profitable line of business, especially some of the Tier 2 hospitals like Nellore and Trichy and Vizag, et cetera. They have -- the first objective of especially some of these Tier 2 hospitals has been to take in cases which have been to ensure that the occupancy has been optimal and people get used to the hospital. After that, the focus, which we have always been saying has been on profitability, and you will see that in our numbers. You will see that as we are at 8.4% now, we know that we have a target to get to double digits very soon on new hospitals and then accelerate that to mid-teens in the next year. So we have our focus on that. Navi Mumbai is focused on that. Navi Mumbai has already come to INR 10 crore EBITDA for the quarter, in fact INR 9.3 crores to be precise. Other hospitals are also doing well. And you will see, Nellore is doing much better now than earlier. We are seeing very good performance from Malleshwaram. You will see some of that in our results going forward.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [9]

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And sir, on Navi Mumbai, could you give us some color in terms of when we can see more bed addition there, what occupancies are like?

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [10]

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So current occupancy on 230 beds is 200 beds. We hope to add 50 beds next quarter. So by the end of the year, we'll be operating within close to 300 beds.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [11]

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Understood. And will this be for any specific specialty? Or...

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [12]

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No, no, I think it will be for all the specialties.

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Operator [13]

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The next question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.

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Sudarshan Padmanabhan, Sundaram Asset Management Company Ltd. - Research Analyst [14]

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Ma'am, my question is on the stand-alone pharmacies. You had mentioned earlier that strong growth has been seen in the same-store growth. Can you elaborate a bit about what is the kind of growth that we will see in the same-store growth? I mean, we are actually seeing the same-store growth kind of accelerating. I mean, what is the changes that we have done to the business? And how sustainable is the growth?

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Unidentified Company Representative, [15]

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We have focused on store level sales and set some targets and rationalize the product mix. That is why if you see that PL sales have grown about a quarter during the -- I mean, about 100 basis points during the quarter, so it's more focusing at the store level and improving the revenues.

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [16]

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And PL, private label sales now is 8%....

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Unidentified Company Representative, [17]

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It's about 8% of the total sales.

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [18]

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So the total margin has also moved up to 8.3% on the mature...

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Sudarshan Padmanabhan, Sundaram Asset Management Company Ltd. - Research Analyst [19]

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And what is the same-store growth?

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Unidentified Company Representative, [20]

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About 9%.

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Sudarshan Padmanabhan, Sundaram Asset Management Company Ltd. - Research Analyst [21]

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Okay. And ma'am, my second question is on the recent transactions that you have done, I mean which basically would entail cash coming into the business and therefore, deleveraging is something that we had expected and in addition to that, the pledge. I mean, are we in line in terms of the time lines that we had earlier discussed? Or is there any kind of a delay? Can you just throw some light on the regulatory platform, where we are at this point of time?

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [22]

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No, no, there is no delay. I think that the 2 ideas -- the 2 projects we were working on is: Apollo Pharmacy, the creation on the front end, that will be done by January; the disinvestment of the insurance company should be completed by the end of this quarter. I mean, we should get regulatory approval. I think it will the first -- the last quarter of the year, where we actually see the money coming to us.

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Sudarshan Padmanabhan, Sundaram Asset Management Company Ltd. - Research Analyst [23]

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Sure, ma'am. And finally, any update on anything that we plan to do with this Proton, I mean getting a partner, where are we on that side?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [24]

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So as of now, if you look at it, the Proton facility is doing very well. Even before answering the partner question, I would want you to note that we have almost -- we have treated -- the first gantry is operational. We have capitalized half of the -- almost around 60% of the project. Bulk of the CapEx impact only INR 100 crores. I don't know whether you noted in this, we have only INR 100 crores of CapEx spending now for proton between next quarter and the quarter after that. So bulk of the CapEx is all behind us. We have already grossed INR 15 crores revenue in this quarter. This is without -- with only 1 gantry. And this is highly -- this will start generating independent of the partner, which is obviously dependent on how we work through and how we get to that level. I would like you to note that even if we do almost around 300, 400 cases next year, that is what the plan is to get to almost 400 cases for the next year, you would see that this business will go to almost around INR 100 crores, INR 125 crores next year itself, and that is a profitable business. And the EBITDA of that business is almost around 40% plus.

Independent of the partner plan, I think you will see -- even now, if you have seen Q2 -- Q1 to Q2, that EBITDA of this has come down from INR 8 crores loss to INR 7 crores loss. Q2 to Q3, you will further see the losses coming down. And once Q1, the -- all the 3 gantries of the treatment rooms are expected to be operationalized by Q4 of this year. So beginning Q1 of next year, we are quite -- you will see a significant uplift in this, and we will cross the INR 125 crores mark on top line also. We are now at INR 15 crores. If you annualize that, that is already at INR 60 crores annualized revenue. This will more than double in the next year.

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Operator [25]

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The next question is from the line of Ashi Anand from Allegro Capital.

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Ashi Anand, Allegro Advisors Private Limited - Director [26]

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I just wanted to first understand, given the business economics between the smaller hospitals we have in Tier 2, Tier 3 cities versus larger hospitals in the metros and Tier 1, in terms of how quickly the ramp up or longer term should we look at similar margins across the 2? And just your overall thoughts on this?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [27]

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Yes. Overall, the margins are -- even in our Tier 2, if you look at a place like Madurai or other hospitals like Bhubaneswar or Mysore, our EBITDA margins there are in that -- and all those are part of our mature hospital margin. If you look at our mature hospital margins, they are at 22%. And in that while Chennai is obviously a bit higher, we still know that all of these margins are at 18% to 22% in that range. So -- and over a period of time, all of them will go over 20% and an ROI of 18% is what all of these will get to. Yes, our focus now, as I said, is first to get to mid-teens in the next year on the new hospitals itself. And after that, high teens in the year after that, EBITDA margins.

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Ashi Anand, Allegro Advisors Private Limited - Director [28]

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Okay. Excellent. Or anything just looking, say, CapEx over the next 2 to 3 years, and I just want to now strategically as your thoughts between how you look at capital deployment across the different business units that we have hospitals Tier 1 versus smaller ones, the pharmacy, Proton and AHLL, where are we looking in the predisposed worlds having a larger amount of CapEx?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [29]

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So as of now, if you look at the CapEx, we have said that we will first look at getting significant cash flows out of our existing investments itself. Because there is still quite a bit of headroom in our investments. So if you look at it, we are, as of now, not looking at allocating any capital for any fresh -- any greenfield project, as we speak in the next 1 or 2 years. There is no greenfield project planned now. Yes, Bombay has been a plan, which is still an asset-light model. We continue to speak with them which will -- even if it comes, it will be 3 years out, by the time Bombay project is -- the South Bombay project is ready. But if you look at our current CapEx or routine CapEx is at the INR 200 crores level. We will continue to look at the routine CapEx of INR 200 crores level every year and pharmacy is another INR 50 crores, INR 60 crores of CapEx, which will happen because of fresh store additions that is continuing. Apart from that, there is no deployment plan as such. And even if there is any, we will -- if there's any bolt-on acquisitions, we will come to you at a later stage. There's no specific plan now.

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Operator [30]

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The next question is from the line of Anubhav Aggarwal from Crédit Suisse.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [31]

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Just continuing with the previous question. So next year, we expect CapEx about INR 250 crores, INR 260 crores. So what will be your expectation on the debt reduction of the company from that point of view?

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [32]

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Our plans, currently, we're at INR 3,038 crores. So we believe that we will get another INR 600 crores from both the pharmacy, the creation and the front end of the pharmacy and by exiting the insurance business. So we should get about INR 600 crores, which will take us to a net debt of INR 2,400 crores to INR 2,500 crores.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [33]

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Actually, this is...

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [34]

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And the next year cash flows as you -- from the next year, if you look at the free cash flow, it -- of course, we could -- depending on if there's any bolt-on acquisitions. If there isn't any bolt-on acquisitions, this is -- the free cash flow of almost INR 500-plus crores is easily possible even after dividend and working capital increase.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [35]

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Okay. This is after dividend and working capital increase?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [36]

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Yes.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [37]

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Okay. Sure. That's useful. Then second question was on AHLL. I just wanted to get your understanding on the IFC's stake. Now your annual report says that they have a put option after eighth year, which is basically 2024. So is the value at which they exercise the put option already predetermined? Or it will be determined at that time a certain multiple of EBITDA existing at that time?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [38]

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Yes, it is. So there's 2 things. One is they have a fair market value-based exit, which is what is the exit which you should be looking at it, if they do it. The put is just a principal protection put, which is not very value accretive for them. It is just to protect their principal, which means the principal at which they brought in plus, I think, 2%, if I'm not wrong, is brought -- they can get a put at. That is just the value -- it's just a protection of principal.

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Unidentified Company Representative, [39]

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It has 2% this year.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [40]

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And lastly, on the timing on the Proton deal that we were talking about from the last 2 calls, just trying to understand what has delayed it so far?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [41]

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So it is -- so there are 2 points. As I said, we are working on the deal. The deal structuring is something that is taking some time, and the partner has to obviously take a full commitment and we are looking at that at 1 level. Because again there, one of the things that we have to -- we are discussing is the exit which has to be optimal and we -- whoever comes in, we want them to be there for a longer period of time, not like a private equity player and we don't want to commit to any specific IRRs, et cetera, as you rightly are speaking also. And these are the 2 points, the exit and the IRR discussions are taking some time. Independently, the business is also doing well, as I said and guided. So I think we will wait and see how it works.

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Operator [42]

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The next question is from the line of Prashant Nair from Citi.

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [43]

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So just 1 question on bed capacity. So without any very incremental greenfield project or big CapEx, how much do you think you can add to your current operating beds like, just with the installed beds that are available? And for such additions, how do we think about the incremental cost on the P&L?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [44]

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So we...

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [45]

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So currently -- oh, sorry, I'll just say 1 thing. Operational beds are 7,450. We have the capacity to do close to 10,000 beds. So there is clearly, at least, another 1,500 beds that we can add within the system in the next 24 months. Incremental costs, we just have to buy beds.

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [46]

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Yes. So it will not be significant because most of the MRI, CT scans, OTs, everything would have been -- the bigger ticket CapEx would all be already there.

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [47]

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All right. And in terms of -- so this is the potential as to how much you can add. Do you have any specific plans on how much you're willing to take or to use this capacity like?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [48]

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We think it will be around 800 to 1,000 beds. It won't be very -- we still will have capacity because the average length of stay overall, as Ms. Suneeta has been telling it has been coming down in our system. And especially with a lot of Day Care work that is continuously happening across most of our Tier 1 hospitals, the average length of stay has been coming down, and we think it will continue to be that way. Even as we continue to increase the revenue intensity and ARPOBs because of the case mix, we will see that we will not require as much beds even in our current system to be -- we won't see -- over the next 3 years, we don't see a limit -- 3 or 4 years, we don't see this to be a limiting factor.

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [49]

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Sure. And just 1 more question. This 800 to 1,000 beds, which you mentioned, would it be mainly in 1 or 2 of the clusters? Or would it be evenly spread across?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [50]

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Half of that will be -- more than half would be new because there were like -- places like Navi Mumbai will see 100 beds getting added. So half of that would be in the new.

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Operator [51]

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The next question is from the line of Kashyap Jhaveri from Emkay Global.

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Kashyap Jhaveri, Emkay Global Financial Services Ltd., Research Division - Research Analyst [52]

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Just 1 question. In -- so our profit and loss or other EBITDA has seen significant growths even adjusted for the Ind AS number. And despite that, if I look at our net debt over H2 of last year or March '19, has gone up from about -- roughly about INR 3,200 crores to about INR 3,400 crores. So what would have driven that?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [53]

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So last year to this year, we continue to add on the Proton, and we are now -- the Proton as I said, we have only INR 100 crores of -- we have INR 170 crores of Proton CapEx at the end of Q1, if I remember that number INR 160 crores or INR 170 crores. We have spent another INR 60 crores, INR 70 crores in this quarter itself. So last year, if you look at the -- go back to the last year, we will have added project CapEx of almost INR 200 crores even in the last 1 year, including the Proton. So if you go forward, if you look at it, the project CapEx is not going to be high. So you would see that it will -- you will see the results in the debt.

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Kashyap Jhaveri, Emkay Global Financial Services Ltd., Research Division - Research Analyst [54]

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So that also implies that H2 would see significantly accelerated debt repayment, even considering the cash flows coming from the sale of one of the businesses. So would you be able -- are you confident of that also happening?

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [55]

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For the last quarter, yes.

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [56]

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Yes. In H2, anyway, as I said, there is a Proton, balance INR 100 crores of CapEx which is pending. So we don't see debt increase in any case and debt will reduce as Ms. Suneeta already said.

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Kashyap Jhaveri, Emkay Global Financial Services Ltd., Research Division - Research Analyst [57]

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And besides the money that we get from the sale of the business, this would also imply that from operating cash flows also, there will be a slightly higher debt repayment? Is that...

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [58]

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Slightly, yes, you are right. It will not be significant in H2. It will be more after H2.

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Kashyap Jhaveri, Emkay Global Financial Services Ltd., Research Division - Research Analyst [59]

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So in H1 of next year?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [60]

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Correct.

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Operator [61]

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The next question is from the line of Nitin Agarwal from IDFC Securities.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [62]

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So on the stand-alone pharmacy business, we've been talking about the omni-channel strategy. A, can you just help us get a little more understanding of exactly what are we proposing to? And by when do we see some of these things falling in place?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [63]

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So I think we are working on a business plan. We are thinking through it. We are continuing to work on the private label expansion and on the same stores on our offline. Online, we are going slow. We are understanding the market. We are working on it with -- there is a consultant, who is working with us on the same. The team is trying to see how do they focus on the omni-channel or the online without being value dilutive, which is what is very important for us because we don't want to play the game akin to what some of the other peers are doing in the industry. We are cognizant of that. We know how they are driving sales and what are their chronic sales across each of the specialties. We are aware of that. But we would take another 6 months looks like to kind of get to a more clearer answer to you around how do we propose to take this forward.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [64]

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And sir, from an expansion perspective, in the pharmacy business, which are the -- are there any specific -- are we looking to continue to grow in our stronger pockets -- stronger areas of Southern India? Or are there specific new geography that we're looking to target the growth going forward?

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Chandra Sekhar Chivukula, Apollo Hospitals Enterprise Limited - President of Corporate and International [65]

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We are doing both. Apart from Southern India, we are now focusing on Orissa and West Bengal, where we have good number of stores added and good business is coming up.

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [66]

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I think it's -- if you look at the hospital presence, you can expect to see that there will be a strong pharmacy presence that will exist along with it, so at least 10 major states.

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [67]

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Because the brand leverage is significant. The moment, we put an Apollo Hospital brand, for example, in Guwahati for Bhubaneswar, we are seeing that the brand patronization is very high. And around that, we continue to put add on to the pharmacy.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [68]

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And sir, lastly on that bit, we've seen a very sharp margin expansion over the last 3 or 4 quarters in the pharmacy business. Now where we are -- I mean what is the optimal level of profitability that the mature pharmacy store can do in the current business model?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [69]

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Good question. And I think this is directly related to the private label sales because the private label sales is definitely a profitable biz. And if you see, we had guided that we would get to 12% of the top line in 5 years. We are already at 8%. If we accelerate and continue on the momentum, obviously, the margin lever from that is much higher compared to some of the branded label. Obul?

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Obul Reddy, Apollo Hospitals Enterprise Limited - CEO of Apollo Pharmacy [70]

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And you could see that which stores has presented in the presentation, it is at 8% plus. So you should go further someday based on the PL contribution. We'll work on that continuously.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [71]

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Okay, sir. On this pledge reduction, is there -- can you help us the time lines for -- here you're talking about pledge getting reduced to 20-odd percent by the end of the year. Any specific milestones that we can watch out in terms of events?

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [72]

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Yes. I think we're hoping that the insurance events that liquidity event happens by the end of the year or at least by the end of the financial year.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [73]

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And then we added -- and just to sort of revisit that, we're looking at a pledge getting reduced to 20% of the promoter shareholding...

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [74]

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20% to 25%.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [75]

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Of the promoter shareholding?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [76]

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Yes.

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [77]

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Yes.

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Operator [78]

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The next question is from the line of Sameer Baisiwala from Morgan Stanley.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [79]

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Krishnan, for your Proton projection for fiscal '21, what kind of utilization does it assume?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [80]

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So overall -- see, it will still assume only around 40% utilization. At alone -- if you look at the number of patients, eventually, this can treat 1,000 patients in a year and year 5, eventually. We have 400 patients to be treated in year 2 for the numbers that I said.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [81]

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And this is all 3 gantries put together?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [82]

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Yes.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [83]

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Okay. And roughly, about what -- this is what INR 20 lakh, INR 25 lakh per patient sort of billing?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [84]

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INR 28 lakhs is what the average.

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [85]

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For foreign patients at $65,000. And 30% of our revenues are from foreign patients.

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [86]

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Yes. 30% of the revenues are from foreign patients, and we think it will continue to be at that level or even higher.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [87]

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Okay. So is this a start-up pricing? Or this is sort of a mature pricing?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [88]

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So we will look at it...

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [89]

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We think it's a start-up pricing.

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [90]

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Yes. We will look at it over time. As of now, this is the price at which we are...

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [91]

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Okay. Great. And sir, second question is on your capital allocation thought process, over the next 3 years as you start generating pretty meaningful free cash flow. How should we think about that?

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [92]

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In terms of -- I think we should think about it in terms of how we hope to grow Apollo Hospitals. So clearly, we do want to have our presence in every Tier 1 city. So we're looking at something in Bombay, which is an asset light model. However, we will invest in equipment. And I think that while it's good to have free cash flows, we really need to capitalize on the opportunity that exists in this country. And with the fundamental demand/supply gap being so large and the ability to see -- so there are 140 million people who are entering the new middle class. We are targeting these people. Also, if you look at insurance, our insurance business has grown to about 30% of total revenues. So clearly, access has been -- we have enabled access through health insurance programs. And with that, we are seeing a large opportunity for growth in India, especially in both Tier 1 and Tier 2 cities.

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [93]

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No, especially in the new hospitals, since Ms. Suneeta said that, we are seeing very good uplift in our -- in patients coming through insurance. That is definitely something that is working in our favor because as -- because people know the quality of work that they can afford using -- at Apollo and that is why they come here. So definitely, there is a good traction that we are seeing. Again, to be aligned to your thoughts, we have commented about the debt/EBITDA. We would not see any lumping up of debt coming on account of any of what we do. So it will be in that -- we are in the 2.2 to 2.5 debt/EBITDA is what we would be solving for even as we grow the EBITDA.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [94]

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Okay. So which -- that's great. And so that means that our net debt target INR 2,400 crores, INR 2,500 crores end of this year is sort of the bottom. After that, we would be using this free cash as growth capital?

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [95]

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Yes, correct.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [96]

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Okay. And just final 1 from my side, and that's on the digital strategy. Suneeta, are you -- are there any key monitorables that you can share with us, the active users, the adds and how is this whole strategy paying off for us?

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [97]

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Right now, we are just putting it in place. So we are working with McKinsey to do so. So it's a little early for me to actually talk about it. However, we are in terms of marketing the existing Apollo facilities, we are seeing the digital channel is playing a very positive role in booking appointments, in referring patients into the system. So more on that next quarter.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [98]

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Okay. I'm couldn't resist, 1 more from my side. And once we are hitting 60%, 70% occupancy across our network, I mean, how much headroom do you have to grow volumes specifically?

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [99]

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Lots of headroom. Because we believe that ideally ALOS across the world has dropped to 3. We are already doing a lot of -- 40% of our surgeries are done at about 2. So clearly, there is a lot of headroom available. We need to think of it as 60% capacity utilization. So there's -- across the group, we are really at 65%, 66% capacity utilization. So there's another 20% to 30% available there. Plus with the ALOS dropping to 2.5% to 3%, I think you should think of us in terms of having 12,000 beds. And I believe that we

(technical difficulty)

about 8. We've come down to 3. So I think 3 years from now, with our focus on surgical work and the high intensive care work, we should be able to bring that down to 2. So definitely, there's a huge headroom for growth.

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Operator [100]

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The next question is from the line of Damayanti Kerai from HSBC.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [101]

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Hello?

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Operator [102]

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Participants, please stay connected while we check the management's line.

(technical difficulty)

Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. So you may go ahead. We still have Damayanti Kerai from HSBC on the line?

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [103]

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So my question is regarding the annual tariff hike, which we take for the hospitals. So have we taken for this year? And if yes, how much will be that?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [104]

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So this quarter, we didn't take anything. We have taken in Q1 almost around 3% to 4%. But after that, we will do it more on the Q4 or Q1 of next year.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [105]

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Okay. And quantum, will it be similar, around 3% to 4%.

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [106]

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It's correct.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [107]

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Okay. Sure. Okay. Ma'am just spoke about that we have enough headroom in terms of ALOS reduction, but for key hospitals, say, in Hyderabad and Chennai, do we have sufficient headroom in terms of improving ARPOB consistently from here?

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [108]

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Yes, I think we do because we are focusing on fortunately care specialty. That results in a higher ARPOB. We're doing -- we're not doing too much of the medical admissions. We're doing more surgical admissions, where 50% of our work is surgical admission. So definitely, that will yield in a higher ARPOB. And going forward, we are focusing on this because we will also have a focus on centers of excellence, which lead to higher ARPOB and higher margins.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [109]

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Sure, ma'am. So that should sustain our 10% to 15% kind of annual increase in the ARPOB side, right?

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [110]

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Yes, it should.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [111]

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Okay. And ma'am, 1 question regarding the SAP, stand-alone pharmacy business. So you mentioned your focus on improving digital strategies and all, but can you just elaborate a bit further there, like how we are preparing for competition against increasing presence from online pharmacies? Or how we are placing?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [112]

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So I think the overall -- we are aware of how they are targeting the market and which are the Tier 1 markets on which they are focusing on. And Ms. Suneeta said, targeting us in some way because, obviously, they are giving discounts. But if you look at the overall market size of the pharmacy business at over INR 100,000 crores and then look at where we are and then look at the market -- where the online pharmacies are. In terms of overall market size, it's still significantly lower. The way we intend to do it is very different from how they have handled it. And I think as I said, it will be nice if you can wait for 6 months for us to give you a proper rollout of the same because you can -- you should remember that we are health care players, we are not just a pharmacy operator. So what we give to the consumer will be significantly different from what a pharmacy player can operator -- can offer, which means it will be something which will combine health and pharmacy.

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Operator [113]

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The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [114]

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Just a question on the cash flow and the debt reduction side. So when I look at your half yearly cash flows and the construct of it versus the EBITDA that you generated and the type of CapEx number that we shared, it looks less likely that your operational cash flows can be surplus enough to repay any kind of debt. Is that the case? And when we said that INR 600 crores of debt reduction is going to come from those 2 transactions, it also clearly means that bulk of the debt reduction is not from operational cash flows, but largely from those 2 events that we have lined up. So if you could shed some light there in terms of cash flows and debt reduction?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [115]

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No. So you are right. That is why if you look at it, there was another question which asked us as to how much will it come down from the next half, and I said it will be marginal reduction from these cash flows coming out of 3 cash flows in the next half. And we also said that significantly it will come from H1 of next year. You are right in that, which this is why we said out of the INR 3,038 crores, almost around INR 600 crores comes because of this. The incremental cash flows will have to be used towards Proton balance CapEx of INR 100 crores, as I said. So that is something that is being borne in mind. Even you should remember that this quarter, we paid INR 100 crores of dividend to the -- and that was part of Q2. So which is where, if you look at the cash flows, there will be some lumpiness in the overall cash flows in some quarters, especially in Q2, that was one of the reasons that you saw that increase.

And another thing that since you are asking, I should tell you that today, as we speak, we are -- we have still not migrated to the new tax regime of 25%. We haven't encountered any query so far from any of the analysts, but I'm sure someone will ask this later. We intend to get into the 25% regime in the year after next. This year, we continue to be on MAT, meaning because we have MAT of past, which is almost around INR 400 crores. The benefit of that will come in this year and next year. By end of next year, we will exhaust our MAT and move into the new tax regime in the year after next. What that does this year is we have a TDS, tax deducted at source of -- at some of our -- because of our credit sales, where they deduct almost around 10%, and there is an excess tax which is getting deducted because we are actually -- our effective tax rate of MAT is only 18%, whereas the TDS is much higher than that. Overall, that is getting held, and we will get a tax refund by the end of the year of INR 40 crores, INR 45 crores, INR 50 crores. That also gets factored into the cash flows because it gets -- it comes only later. So you will see the cash flow getting unlocked significantly from H1 of next year.

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Operator [116]

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Mr. Chheda, do you have any further questions?

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [117]

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Yes. Actually, my call got dropped. So I got that answer. Sir, I couldn't understand why are we referring to INR 3,050 crores debt when in the presentation, it's written as INR 3,400 crores. So is there any difference in the numbers?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [118]

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No. Sorry, one is the standalone, the other is a consolidated. The consolidated debt will be the -- the delta will be the same INR 600 crores, whichever way you look at it. Because the consolidated debt includes Ahmedabad and Apollo Health & Lifestyle and a couple of other subsidiaries.

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [119]

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Calcutta.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [120]

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Okay, okay. Lastly, on the communication part, where we said that we'll again restart using the cash flow for growth beginning FY '21. At the cash flow that you will have surplus available for growth, it will be fairly less. So does it mean that you again get into releveraging more or a capital need in form of equity, that's how one should look at?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [121]

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No, we said no, because we said that we would solve for a 2% to 2.5% debt to EBITDA. And you would see that the cash flows -- if you do the cash flows and the EBITDA increase in the next 2 years, you would see that the cash flows would be able to support growth as well in 2 years.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [122]

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Okay. Okay. Lastly, ma'am, is there -- so we have looked at reducing the pledge, which is a very good activity. There are 2 other areas, any thought on the related party transaction? And what are the corporate guarantees that were given out of Apollo's value?

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [123]

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So no corporate guarantees from Apollo. Any thoughts on the related party transaction, first, I have to say that this was certified. We did an audit -- PwC did an audit. They have certified everything as an arm's length transaction and that's available in our annual report. So if you look at it, I think you'll be able to see the exact picture of all the related party transactions. If you want me to get into details, I may...

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [124]

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No, no, no. Actually, not. We were actually have...

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [125]

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Could you please refer to the annual report...

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [126]

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And the second thing, the analysts who cover us know us and they know that, for example, even in Keimed, it is a different business altogether. It is a B2B business, and there is -- it is distribution and logistics and B2B and even Mitsui is there an investor there at almost around 20%. And we should be rest assured that someone like Mitsui would not invest in a business like that, when things are not at arm's length.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [127]

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Okay. I was just looking at -- requesting, it can be resolved. I'm not doubting transaction. I'm just saying, is there any other way where we can rectify.

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [128]

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And at this point in time, I think without -- the hospitals are also suffering because of it, I don't think so.

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Operator [129]

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The next question is from the line of Shyam Srinivasan from Goldman Sachs.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [130]

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Just the first 1 is on Proton. Can you just remind us what the guidance for the full year losses? Is it that INR 25 crore number that we highlighted earlier in the year, is that the number, the same, EBITDA loss?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [131]

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So we are still working on the INR 25 crores as the number for the year. So which means Q4 should see as a significant uplift from Proton.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [132]

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So 7 going to -- I'm just making up number, 6 5, something like that to get to...

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [133]

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Yes.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [134]

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Yes. Okay. Second question, Krishnan, the utilization, when you said INR 15 crores of revenue, what is the utilization rate that is commensurate to that?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [135]

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Currently, it is very little because we are doing only -- it will be -- how many patients have we did last month? So we have only 1 gantry working now.

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [136]

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And it is working only 8 hours.

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [137]

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Correct. So what happens is the gantry, I think it is a stabilization period. It will take some time. As we said by Q4 of this year and Q1 of next year is when you will see the full -- all the 3 gantries working in full capacity, and that will be 16 hours operation. So currently, we are working with 1 gantry, 8 hours. And we will start 2 gantries with 8 hours now in this quarter. Then we will -- the third gantry comes in and then it goes to 12 hours and then 16 hours. So it is Q1 of next year, when you will see the -- all the gantries at 16 hours.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [138]

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And I may have got the number wrong, you said 1,000 patients will...

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [139]

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Eventually, that is year 5.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [140]

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Eventually, yes, year 5. So -- and when you did the 40% number that you told, that is how many patients? I'm just trying to...

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [141]

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Next year, we are hoping that we should still get almost around 350 to 400 patients.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [142]

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350 to 400. And today, how much are we seeing?

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [143]

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It may not be relevant because it's also our capacity, yes, because there are people in the waiting list and all, as we speak.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [144]

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No problem. I just want to try to get a sense of the ramp here. That's where I was coming from.

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [145]

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Ramp, it will be better to see it by Q4, which is when we will get a much cleaner idea, all of us.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [146]

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Got it. Got it. My second question is a generic question, just on the pricing environment, you talked about taking 2% to 3% hike. ARPOB seems to be growing higher than that from first quarter, second quarter, both. So are you able to take price plus this mix changes, do you think that is something that you can sustain in any of your conversations with government, Minister of Health, any of those entities, are you picking up any conversations? It seems to suggest that they are looking at price action, any of those from a general market color perspective would be helpful across the value chain? You are not doing multiple things, right, so.

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [147]

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Right. I think the government is looking at rural. They can roll out Ayushman Bharat and look for the private sector. That is their focus. From all the meetings that we've had in Delhi, it's been mostly about that and you would also have read in papers that even their -- the conversations with the U.S. has been on restricting this margin capping, especially on imported devices.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [148]

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Suneeta, you don't think there is more things coming like what happened with stents and stuff, other than the trade margin...

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [149]

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No, I don't think what happened to stents indeed is coming again, let me be upfront about that. In terms of us getting reasonable margins, they know that we cannot operate without that and they also know that -- they do want us to work with them on Ayushman Bharat, so that is their first priority.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [150]

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Got it. And what is the plan for that from an Ayushman Bharat...

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [151]

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So our plan for that is, if you look -- what has happened is they've revised the range from 256 procedures, out of which some are really good to work with. We are having a dialogue with them to allow the private sector to do the tertiary care work, where I think the pricing is quite beneficial. On a marginal costing basis, it should work. And we're only doing it in our Tier 3 hospitals and some of our Tier 2. So it's -- let me say 5% bed allocation for these surgeries, but it has not impacted our P&L significantly. But going forward, we do hope to work with the government on doing more of the tertiary care work.

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Operator [152]

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The next question is from the line of [Sudhir R. from A Capital.]

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Unidentified Analyst, [153]

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My question have been responded. This was with respect with tax rate, why it is less 35% and not gone down.

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Krishnan Akhileswaran, Apollo Hospitals Enterprise Limited - CFO [154]

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So which is what I said, I don't know whether you joined now. But we have not -- we've not taken the benefit of the new regime because we have -- the past 35% ratings that we had claimed direction on, the 100% 150% depreciation. We have MAT of almost around INR 400 crores in our balance sheet, and that's INR 400 crores -- which means that effectively if you look at our effective tax rate that we will be paying this year, it will be equal to MAT, which is from a cash flow perspective 18% as compared to the 25% the government has come up with without any MAT. So for the next 2 years, we will be having a cash flow of 18%, whereas the reported number because of deferred tax, et cetera will show -- continue to show the same 33%, 34%. But in the year after next, which is FY '22, we will get into the 25%.

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Operator [155]

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Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

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Suneeta Reddy, Apollo Hospitals Enterprise Limited - MD & Executive Director [156]

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Ladies and gentlemen, thank you very much for joining this call. Thank you for your patience. I hope that we've answered all your queries, but more important, I want to say that we are committed to this journey of providing world-class health care and in the process of providing great clinical outcome, investing in technology, we believe that it will benefit all our stakeholders and enhance shareholder value. Thank you very much.

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Operator [157]

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Thank you very much. Ladies and gentlemen, on behalf of Apollo Hospitals, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.