U.S. Markets closed

Edited Transcript of HCG.NSE earnings conference call or presentation 8-Aug-19 12:00pm GMT

Q1 2020 Healthcare Global Enterprises Ltd Earnings Call

BANGALORE Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Healthcare Global Enterprises Ltd earnings conference call or presentation Thursday, August 8, 2019 at 12:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* B. S. Ajai Kumar

HealthCare Global Enterprises Limited - Chairman & CEO

* Niraj S. Didwania

HealthCare Global Enterprises Limited - Head of IR

* V. Srinivasa Raghavan

HealthCare Global Enterprises Limited - CFO

================================================================================

Conference Call Participants

================================================================================

* Abhishek Sharma

IIFL Research - VP & Head of Life Sciences

* Chandramouli Muthiah

Goldman Sachs Group Inc., Research Division - Research Analyst

* Fiona Chan;Buena Vista Fund Management, LLC;Investment Analyst

* Harith Ahamed Mohammed

Spark Capital Advisors (India) Private Limited, Research Division - VP

* Lalaram Singh

Vibrant Securities Private Limited, Research Division - Research Analyst

* Nitin Agarwal

IDFC Securities Limited, Research Division - Analyst

* Rashmi Sancheti

Anand Rathi Financial Services Limited, Research Division - Research Analyst

* Sriraam Rathi

ICICI Securities Limited, Research Division - Research Analyst

* Sudarshan Padmanabhan

Sundaram Asset Management Company Ltd. - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, good day, and welcome to the Healthcare Global Enterprises Q1 FY '20 Earnings Conference Call. (Operator Instructions) I now hand the conference over to Mr. Niraj Didwania, Head of Investor Relations. Thank you, and over to you, sir.

--------------------------------------------------------------------------------

Niraj S. Didwania, HealthCare Global Enterprises Limited - Head of IR [2]

--------------------------------------------------------------------------------

Thank you. Good evening, and a very warm welcome to all participants for the Healthcare Global Enterprises Limited Q1 FY 2020 Earnings Conference Call. Today we have with us Dr. B.S. Ajai Kumar, Chairman and CEO of TV, along with the management team to share highlights of our business and financials. We have uploaded our earnings update presentation to stock exchanges and also shared with them to our mailers.

Without further ado, I hand over the call to Dr. B. S. Ajai Kumar.

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [3]

--------------------------------------------------------------------------------

Thank you, Niraj. Good evening. We are pleased to report Q1 FY '20 results continuing growth across our business. For the quarter, HCG oncology business continues to get stronger with enhanced presence in scale across attractive markets. At a time when cancer incidents are on rising trend, our oncology-focused business model is fundamentally robust, clinical and operational excellence, the economies of scale, especially with majority CapEx and investment cycle behind us, we remain excited about the growth prospects for the business in spite of short-term challenges and negative outlook in the ecosystem for health care industry and economy at large.

With strong performance of existing centers at the [Dates] foundation, a new center's nearing inflection point to replicate the existing centers at the future growth drivers. We are positively looking forward towards superior cash flows and return generation from capital deployed over last few years. Having created a unique platform across oncology, fertility and physician diagnostics with planned India leadership, we remain committed to driving value creation for all of our stakeholders.

Business updates for Q1 FY '20, 34% growth in Gujarat as multiple new centers ramped up. Presence across 4 cities now contributes 31 percentage HCG centers revenue, 78% revenue growth in Bhavnagar driven by ramp-up of the new oncology unit. Baroda Cancer Center launched in May 2016, clocking double-digit EBITDA margin consistently. Rajkot Center ramping up well with reduction in losses nearing breakeven point. Continuing strong growth in Maharashtra region with 25% revenue growth y-o-y. Continued reduction in losses from Borivali and marked 2 new centers.

Nashik Center expansion driving enhancement of specialized services offering in the region. Kolkata Cancer Center launched offering comprehensive services in an upcoming urban locality. Positive trend at Milann reflected in growth registration IVF cycles in revenues. New PET/CT Scan Oncology information system goes live at Bangalore Center of Excellence, which will drive digital transformation and set the foundations for data-driven analytics and research towards into (inaudible).

At this point I would like to request our CFO, Mr. Srinivas Raghavan, to share the financial highlights. Srinivas.

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [4]

--------------------------------------------------------------------------------

Thanks, Dr. Ajai, and welcome to everybody. The custom first cycle 2019, the company has adopted India's foremost legal standard apply to lease contractors -- contract existing on 1st April 2019. The effect of this adoption has not been discussed with India's (inaudible) for the year ended March 31 '19 and previous period financials are not comparable.

Highlights for quarter ended June 30, 2019. Consolidated revenue was in INR 2,689 million as compared to INR 2,266 million in the corresponding quarter of the previous year, reflecting a y-o-y increase of 19%. Consolidated EBITDA was INR 452 million, including IND AS 116 adjustment and INR 317 million, excluding IND AS 116 adjustment as compared to INR 315 million in the corresponding quarter of the previous year. Consolidated operating EBITDA was INR 449 million including IND AS 116 adjustments and IND AS 304 million, including -- excluding IND AS 116 adjustment has come out to INR 306 million in the corresponding quarter of the previous year.

Operating EBITDA for existing centers was INR 491 million, including IND AS 116 adjustment and INR 394 million, excluding IND AS 116 adjustment, reflecting an operating EBITDA margin of 17%, excluding IND AS 116 adjustment. Loss from new centers was INR 424 million, including IND AS 116 adjustment on INR 90 million, excluding IND AS 116 as compared to a loss of INR 57 million in the corresponding quarter of the previous year.

Consolidated [PAT] was a loss of INR 180 million, including IND AS 116 adjustment and a loss of INR 100 million, excluding 1 month with adjustment as compared to a loss of INR 34 million in the corresponding quarter of the previous year.

I'll now request your attention to Slide 4 of earnings updates presentation, please. Q1 '20 revenue grew 18.7% y-o-y. (inaudible) grew by 19.3 percentage; Milann center 11 percentage. Q1 '20 operating EBITDA excluding centers INR 394 million, 17.5% margin and new centers loss of INR 19 million with this loss of INR 57 million in the corresponding quarter of the previous year.

I now request Dr. Ajai Kumar to share the operating highlights.

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [5]

--------------------------------------------------------------------------------

Thank, Srini. I would like to draw your attention to Slide 5 of the presentation. Revenues picked up our businesses in from 90 -- with 94% contribution to HCG centers, and 6% by Milann Fertility Centers. Within HCG centers, Western India comprising Gujarat and Maharashtra contribute 44% of the total revenue, followed the Karnataka at 35%, Ongole 37% and East India 7%. South India contribute 4% and North India contributes 2% of the Q3 FY as of Q3 FY '19.

I would now like to draw your attention to Slide 6 of the presentation. Strong growth continues to several existing and new centers in Q1 FY '20. Bhavnagar 77.8% y-o-y, Nagpur 32.3% y-o-y, Borivali will be 31.2% y-o-y and Baroda 21% y-o-y. New Centers contributed revenue of INR 342 million in Q1 FY '20 versus INR 174 million in Q1 FY '19.

Our revenue from existing HCG Centers grew 12% in Q1 FY '20 on a y-o-y basis. I would now like to draw your attention to Slide 8 of the presentation. Our core existing centers for INR 33,162 as against INR 31,344 in Q1 FY '19. Continuing reduction of ALOS to 2.01 on account of trend towards daycare procedures and changing patient's profile. Operating EBITDA margin impacted with scale-up and losses of new centers. Existing centers operating EBITDA margin declined by 44 bps (sic) [42 bps] to 21.1% against 21.5% in Q1 FY '19. Looking at key geographies in Slide 9. Karnataka region continues its focus on improving realization parameters. Center of Excellence or cost is INR 49,200 with 27.6% operating EBITDA margin at unit level. Q1 FY '20 COE ROCE improved from 23.5% to 26.6%. Focus on margin and returns optimization across regions. With respect to Gujarat region, strong occupancy and revenue growth, downward oncology ramps up with 78% revenue growth y-o-y. EBITDA margin of existing centers at 18% for Q1 '20. In Maharashtra, Nashik Center expansion driving enhancement of specialized services offering in the region, Borivali and Nashik new centers ramping up with continued reduction in losses.

In Andhra Pradesh, center in Baroda continues to ramp up well focus on improving revenue mix with reduction of steel business. In East India, you've seen center EBITDA margin improve on 539 basis points driven by improvements in patient and procedure mix. Kolkata Center operationalized.

Coming to Slide 10, covering the key highlights of Milann Fertility Business. New registration grows 3% y-o-y, Q1 FY '20 while (inaudible) continues to ramp up as leadership in attractive Bengal market.

Now I request Srini to explain the CapEx and debt highlights.

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [6]

--------------------------------------------------------------------------------

Thanks, Dr. Ajai. Kindly draw your attention to Slide #12. With respect to the CapEx statement, we are nearing the last leg of our expansion. Total CapEx was INR 354 million, of which INR 240 million was in new centers. With respect to net debt, we closed the quarter at an EBITDA INR 623 crores without the 1-month impact, which (inaudible) an increase of INR 15.8 crores for that with the previous quarter.

We'd also like to draw your attention to Slide #13. Kolkata, West Bengal is operationalize in Q1 FY '20. South Mumbai has commenced outpatient services and will be operationalize in Q2 FY '20. We are not expecting any new centers for next few quarters. We do not have any more committed incentive for Milann.

I would like to hand over the call back to Niraj, please.

--------------------------------------------------------------------------------

Niraj S. Didwania, HealthCare Global Enterprises Limited - Head of IR [7]

--------------------------------------------------------------------------------

Thanks, Srini and Dr. Ajai, for the business and financial highlights. We would like to open the call now for questions for the participants.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.

--------------------------------------------------------------------------------

Sudarshan Padmanabhan, Sundaram Asset Management Company Ltd. - Research Analyst [2]

--------------------------------------------------------------------------------

Sir, my question is on the adoption of IND AS 116, while we agree that it's just an accounting entry. If I'm actually looking at your general parametrics, which probably a lender I know would have a look at primarily before giving additional loans. One is your debt almost doubles to almost INR 1,200-odd crores. Second is, even if I adjust the incremental EBITDA, which comes from this, of course, even if you annualize the current thing, it comes to about INR 60 crores. So net-net, if I look at your debt to EBITDA, primarily increases probably from 5x to 6x. And also from a debt-to-equity perspective, given that your reserves and surplus only goes down and not goes up, even from that side, the numbers don't look good. In fact, they look a tad worse. From -- it's not only specifically for you, but for the Hospital segment, do you think that, number one, from a rating agency, this could kind of be a little incrementally negative? And number two, from drawing incremental debt or do you think that probably your lenders would ask for additional collaterals, et cetera, for this?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [3]

--------------------------------------------------------------------------------

To answer your question, our banking covenants are without this 116 impact. We have supplemented it with an adviser. And all our measurements will be based on our BAU results, which means this incremental EBITDA that comes from 116 and the incremental debt that comes from 116, are not taking into consideration for the banking covenants. We have socialization across the bankers and with the rating agency have said, and people to understand that.

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [4]

--------------------------------------------------------------------------------

So it may be an accounting.

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [5]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Sudarshan Padmanabhan, Sundaram Asset Management Company Ltd. - Research Analyst [6]

--------------------------------------------------------------------------------

Sure. That's what I just wanted to take a second and see if I'm actually looking at your losses from the new centers. While on a y-on-y basis, there is a INR 3 crores increase. But if I look at it on a Q-on-Q basis, last quarter, if I remember, the number was about INR 2.2 crores, it has gone to about INR 9 crores. So the jump is about INR 7 crores. Have you also factored in the #1 is whether there is an impact of the oncology drugs that is sitting in over here? Or why is that number not so huge? Because we were also looking at probably a number which is about INR 5 crores, INR 6 crores at max. So the number seems to be slightly higher.

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [7]

--------------------------------------------------------------------------------

So what we have done is there is a reclassification. There were centers, which were operational as of calendar year 2016 and before, which has now moved to existing centers. So when we were reporting losses earlier, the losses were also cushioned by the profits of these new centers and it was a net loss. Now what you're seeing is only the new centers, which are pretty much 2 years or under. And so the only loss-making centers that are together are showing the loss amount. That is one. And second is also what we have done going forward from this year, is there is some amount of corporate cost allocation that has also been aligned to new centers. This is because what we have seen as a trend for the last 3 years, and otherwise we have changed this from this year onwards, is a large amount of the corporate cost addition are to the credit of new centers that are coming and getting operationalized. So that are 2 changes that have happened in classification. Because of which, the quarter-on-quarter number is not comparable. The year-on-year numbers, we have made that like-to-like. So that is what you should compare.

--------------------------------------------------------------------------------

Sudarshan Padmanabhan, Sundaram Asset Management Company Ltd. - Research Analyst [8]

--------------------------------------------------------------------------------

And specifically to the new center at Borivali, earlier we were looking at breaking even in first quarter, end of second quarter. So are we largely in line to do that? Or would there be any further delays to that?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [9]

--------------------------------------------------------------------------------

We had actually guided last time, it will be Q3 -- Q2, Q3. So we are very much on line to break even in that time. So we have -- the ramp-up has been very good. And I think we expect this to happen in Q3.

--------------------------------------------------------------------------------

Sudarshan Padmanabhan, Sundaram Asset Management Company Ltd. - Research Analyst [10]

--------------------------------------------------------------------------------

And specifically with respect to Milann center. One is, it's pretty nice to see the growth coming back, INR 17.5 crores this quarter. Any kind of clarity which you can give us specifically with respect to the operational profit? Whether we have seen improvement on the profits that we have seen (inaudible).

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [11]

--------------------------------------------------------------------------------

Yes. So see even last year, why it was a very challenging year from the lend. We have always been profitable and Bangalore is a very strong business with solid foundations and market leadership. So we are -- what we have seen as now across mature centers, as well as (inaudible) centers we have seen margins improved. So net-net, it is (inaudible) improve in trend.

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [12]

--------------------------------------------------------------------------------

And our revenues also has improved significant, Sudarshan. So we expect good revenue as well as compared to last year -- last year, certainly, good division of profitability happening as we go towards Q2 and Q3.

--------------------------------------------------------------------------------

Sudarshan Padmanabhan, Sundaram Asset Management Company Ltd. - Research Analyst [13]

--------------------------------------------------------------------------------

Sure. And you mentioned that the South Mumbai has not fully been taken -- the losses have not been taken into account in this quarter. Is that right? Or would there be a rational impact on the losses as we move in the next quarter or so?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [14]

--------------------------------------------------------------------------------

So to Mumbai has not been fully rolled out. We are just waiting for some regulatory things in terms of lift approval and overstate approval. So we expect that to happen anytime. So we think by quarter 3, the South Mumbai will definitely be rolled out, but the indications are most of the regulatory things would be in place by then.

--------------------------------------------------------------------------------

Sudarshan Padmanabhan, Sundaram Asset Management Company Ltd. - Research Analyst [15]

--------------------------------------------------------------------------------

The cost has not been factored in, right? So that can be an incremental cost probably in [INR 2 crores] now that comes from? Would that be meaningful or that would be -- what could be the impact if this come true?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [16]

--------------------------------------------------------------------------------

The minimal (inaudible) impact.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

The next question is from the line of Rashmi Sancheti from Anand Rathi.

--------------------------------------------------------------------------------

Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [18]

--------------------------------------------------------------------------------

Sir, just want to know that out of this INR 9 crores, if you can split how much losses were from Borivali center as well as from the other recently loan centers.

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [19]

--------------------------------------------------------------------------------

So the growth in -- the losses [of last quarter] are largely from the new centers because as of Q1 last year, we did not have Rajkot and Jaipur net losses have come in. And also, a large chunk of the Q1 FY '20. There is a corporate allocation because that is allocated to all the new centers now. So those are the main drivers of the difference between last year to this year.

--------------------------------------------------------------------------------

Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [20]

--------------------------------------------------------------------------------

And if you can just split how much losses were from Borivali, out of INR 9 crores and how much was the corporate cost and operated to the -- what we call -- if you can just give the split?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [21]

--------------------------------------------------------------------------------

Yes. So now, we are allocating roughly about INR 2.4 crores of corporate costs to the new centers from Q1 '20. This was about INR 80 lakhs in the same quarter last year.

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [22]

--------------------------------------------------------------------------------

(inaudible).

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [23]

--------------------------------------------------------------------------------

This is the corporate cost of new centers. All centers, all users. And the Borivali specifically is roughly around INR 2 crores.

--------------------------------------------------------------------------------

Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [24]

--------------------------------------------------------------------------------

INR 2 crores, okay, which we are expecting that from next quarter onwards or next to next quarter onwards, it can break even?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [25]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [26]

--------------------------------------------------------------------------------

Okay. And what about the CapEx? Are we going to add any new centers further in Milann or in FCD or currently, there won't be any new centers to be added and the CapEx would remain in the range of INR 100 crores to INR 150 crores?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [27]

--------------------------------------------------------------------------------

Yes. It will remain in that range. And also, certainly, we have no plans for adding any CapEx in Milann. As far as the HCG is concerned, whatever is already in the works is what we're completing. So as we said, we are coming to CapEx by the cycle end. So we do not have any plans for any future CapEx apart from the plans we're already in works.

--------------------------------------------------------------------------------

Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [28]

--------------------------------------------------------------------------------

So that said, our debt of INR 623 crores will also remain at the same level at the end of the year or it will go down?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [29]

--------------------------------------------------------------------------------

Of course, this year it will not go down because, as we said, there are 2 centers that we are completing. And so we already been able to fund a large portion of our CapEx from internal accrual, so there could be some debt increase for this year.

--------------------------------------------------------------------------------

Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [30]

--------------------------------------------------------------------------------

Okay. And lastly, on Milann. I don't understand that. Is it something that we are facing local competition, and that is why our new registration is just showing 2%, 3% kind of growth? And we are not able to come up with strong 14%, 15% growth, which all year you guided, but from now on, we will see a rebound in this particular centers.

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [31]

--------------------------------------------------------------------------------

So last year, actually we had couple of centers because of some regulatory things we closed the Mumbai center as well as (inaudible) so that is the reason (inaudible) we did not see. But last year, as you know was a tough year, we did not really grow. So this year, within this remember we do not have Mumbai, another center, and we are still growing. And also going forward, we are seeing a good trend in the growth.

--------------------------------------------------------------------------------

Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [32]

--------------------------------------------------------------------------------

But assets, our registrations are not growing that strong. If I just compare Q1 FY '20 versus Q1 FY '19 also. So I'm just asking that is it something that -- what are the challenges that we are facing? Is it a local competition or anything else?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [33]

--------------------------------------------------------------------------------

So Rashmi, we need to reiterate what Dr. Ajai said. If you look at registrations last year to this year, last year had registration of (inaudible) and (inaudible). Those centers were pretty much exited in December and Jan. So that base has gone away. So this is the growth you are seeing, 3%, is on the total base. So that base is higher from last year.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

The next question is from the line of Sriraam Rathi from ICICI Securities.

--------------------------------------------------------------------------------

Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [35]

--------------------------------------------------------------------------------

3 questions. Firstly, can you quantify, what is the impact of the trade margin for oncology drugs by government? And is it visible in this quarter?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [36]

--------------------------------------------------------------------------------

As you know, to achieve growth we never gave up the breakup of pharmacy. We always said, it is a part of the revenue of 20%, 25%. So what has happened since the oncology drug impact, we had very certain amount marginal lowering of the revenue we have seen. But as far as our margins are concerned, we are not seeing any major impact because we have taken a lot of measures in terms of strengthening our operational excellence measures to improve our efficiency in operations, cost-cutting measures, which has helped us successfully to overcome this issue. So we are happy to say that this issue so far, we have been able to overcome with only minimal impact to other top line.

--------------------------------------------------------------------------------

Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [37]

--------------------------------------------------------------------------------

Okay, okay. So basically, we can assume that on the EBITDA margins, there will be no impact largely and in a certain number, there could be marginal impact because of the level?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [38]

--------------------------------------------------------------------------------

Yes, yes.

--------------------------------------------------------------------------------

Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [39]

--------------------------------------------------------------------------------

Okay. Got it. Okay. And sir, I think 1 new center, which is getting started in Q2. So how should we look at the margins, is it like 11 -- if we exclude the IND AS impact like 11.7% margin in this quarter, can we assume that this is like kind of bottom of the margins? Or can there more impact with the new center coming in Q2?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [40]

--------------------------------------------------------------------------------

I think the margin will be pretty much a (inaudible) [center] because as we go farther into Q3, we are like Q2 to Q3, the centers as we said, are beginning to narrow their losses. So because of that, we have the new centers to come. The only center [reach] the South Mumbai. By the time it comes, we expect at least Mumbai, the Borivali center to narrow the losses, which will offset. So we don't really expect much of a change in the margin.

--------------------------------------------------------------------------------

Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [41]

--------------------------------------------------------------------------------

Okay. So with INR 9 crores of losses in the new centers and (inaudible) break even by when we can expect that?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [42]

--------------------------------------------------------------------------------

It is not really new centers (inaudible) for us (inaudible).

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [43]

--------------------------------------------------------------------------------

So what we are expecting is a large chunk of these is Borivali and Nagpur, which must contribute 40%, 50% of this. So once they achieve a breakeven in Q2, Q3, then the incremental only South Mumbai addition should be set also. We should be minimizing this.

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [44]

--------------------------------------------------------------------------------

And also

(technical difficulty)

But as you know, Kolkata is already there, but that has to ramp up. That will take few quarters to reach breakeven.

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [45]

--------------------------------------------------------------------------------

So Q3 to Q4 is that we see that we should be going into the marginal revenues because next quarter Q2, you will see some Kolkata impact also because Kolkata was not operational for the full quarter.

--------------------------------------------------------------------------------

Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [46]

--------------------------------------------------------------------------------

Right specifically by end of this year in Q4, probably this loss amount can become half or even less than that.

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [47]

--------------------------------------------------------------------------------

Yes, we certainly expect that to happen. Okay?

--------------------------------------------------------------------------------

Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [48]

--------------------------------------------------------------------------------

Sure. And sir, overall debt increase this year, how much we should refrain (inaudible) given guidance is around INR 100 crores to INR 150 crores for this year? Am I correct?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [49]

--------------------------------------------------------------------------------

Okay. We expect it to be around 60 to 630 kind of a range by the end of this year.

--------------------------------------------------------------------------------

Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [50]

--------------------------------------------------------------------------------

End of this year. And then from next year versus should start coming down?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [51]

--------------------------------------------------------------------------------

Yes, that is the plan.

--------------------------------------------------------------------------------

Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [52]

--------------------------------------------------------------------------------

Okay. And lastly, sir, this consultancy fees that we report in the P&L. So that has been consistently increasing as a percentage of sales. So it is now 22.7% of sales, almost 150 million bps higher on y-o-y basis. So is it likely because of the new centers or anything more to that?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [53]

--------------------------------------------------------------------------------

You don't want the consultancy?

--------------------------------------------------------------------------------

Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [54]

--------------------------------------------------------------------------------

Yes, so which is like INR 61 crores this quarter?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [55]

--------------------------------------------------------------------------------

Yes, I did -- see, what happens is the infrastructure and talent and team contract both straightaway, revenue comes later on. So that is why you're some increase in that.

--------------------------------------------------------------------------------

Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [56]

--------------------------------------------------------------------------------

Okay. So without those centers pick up then [OpEx] should come down that (inaudible) range.

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [57]

--------------------------------------------------------------------------------

Yes. Of course.

--------------------------------------------------------------------------------

Operator [58]

--------------------------------------------------------------------------------

The next question is from the line of Chandramouli from Goldman Sachs.

--------------------------------------------------------------------------------

Chandramouli Muthiah, Goldman Sachs Group Inc., Research Division - Research Analyst [59]

--------------------------------------------------------------------------------

First question is related to the drug price caps that had impacted the previous quarter. So it's heartening to see that you've been able to offset some of that. But I was just looking for some additional color on the initiatives you've taken on the cost side.

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [60]

--------------------------------------------------------------------------------

Yes. I think one of the things we have done is we have looked at operational excellence, complete pharma core chain, how we can work with the manufacturer and the distributor, with that we have made some changes within certain cost expenses related to that maintaining the cold chain. And with that, the service is end-to-end provided. So that has helped a lot to bring down some of the HR costs and related costs. Second area is we have looked at areas between the system of the operation like unique level costs in cutting, which has also given us this extra benefit. So these are the measures to come, measures from the corporate, where we were doing the wholesale on the corporate as we had done in the past, somewhat a unique level. Both of these combined have definitely helped us to mitigate this but the losses we were about to incur because of the regulation.

--------------------------------------------------------------------------------

Chandramouli Muthiah, Goldman Sachs Group Inc., Research Division - Research Analyst [61]

--------------------------------------------------------------------------------

That's helpful. Second question is on the repurchase of shares from Vadodara in Milann. I understand that there's an event that might happen around September this year. So I was wondering how the company is thinking about this and what kind of impact it might have on leverage, looking at in terms of year-end leverage for the company.

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [62]

--------------------------------------------------------------------------------

Yes. I think definitely we are -- this does not mean we're out of debt. We do this through our in terms of (inaudible). We are looking at ways and means to kind of generate cash through monetizing and unlocking value in some of our assets. Through that, we will be able to kind of build a payout for production.

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [63]

--------------------------------------------------------------------------------

So what exactly we have time till 30th of September. So some of the measures we have taken, which will reveal on the stakes to happen that by this, we are hoping, without that we'll be able to take care of the obligation of foot option with Milann with Dr. Kamani Rao.

--------------------------------------------------------------------------------

Chandramouli Muthiah, Goldman Sachs Group Inc., Research Division - Research Analyst [64]

--------------------------------------------------------------------------------

So what would be the level of net debt to expect (inaudible) at the end of the year?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [65]

--------------------------------------------------------------------------------

So I mentioned, we are looking at anywhere between 660 to 675 by the end of the year.

--------------------------------------------------------------------------------

Operator [66]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from the line of Fiona Chan from Buena Vista Funds.

--------------------------------------------------------------------------------

Fiona Chan;Buena Vista Fund Management, LLC;Investment Analyst, [67]

--------------------------------------------------------------------------------

My first question is on the trade margin cap. Announced the impact for this quarter was limited. Do we expect it to become more severe next quarter?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [68]

--------------------------------------------------------------------------------

No. The answer is, at this point, we do not see it becoming severe because of our in-depth knowledge of the onco drugs and the measures, which are already articulated. We feel confident that this will not affect further the margins, unless, of course, the government comes up with new regulatory issues. And we do not see that in the horizon at this point in the new regulatory.

--------------------------------------------------------------------------------

Fiona Chan;Buena Vista Fund Management, LLC;Investment Analyst, [69]

--------------------------------------------------------------------------------

And my second question is, excluding the AS 116 impact and then excluding also the corporate costs you mentioned, are there any other reasons why EBITDA this quarter hasn't grown a lot?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [70]

--------------------------------------------------------------------------------

EBITDA (inaudible).

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [71]

--------------------------------------------------------------------------------

So there are EBITDA of existing tanker continues to grow. If you look at the losses and item back, there has been about a 10%-plus growth. This is in spite of some of the increased expenses in (inaudible) existing centers, not yet ramping up to expectations. So the overall consolidated EBITDA, of course, as you rightly said, the reason for the lower growth impact is new centers, generally, the losses that are increased. So we have -- so last year, delivered INR 35.7 crores last year in spite of INR 9 crores losses this quarter, we have delivered INR 30 crores again. In INR terms 30 crores.

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [72]

--------------------------------------------------------------------------------

And existing centers EBITDA is around 39. Yes. As of now, which has been a growth from the last quarter. (inaudible) 11% growth (inaudible).

--------------------------------------------------------------------------------

Operator [73]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from the line of Aditya Mehta from -- who is an individual investor.

--------------------------------------------------------------------------------

Unidentified Shareholder, [74]

--------------------------------------------------------------------------------

Yes. Actually I've joined the call late. So just wanted to know the outlook of -- regarding when we profitable net debt level?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [75]

--------------------------------------------------------------------------------

Yes. The issue is because of this 116, as you know, is at a patch. So it according to us, we should -- we should be moving to a bi-particle situation by 2022. That's the outlook we have, and we are moving in that direction. So the way you should look at it is currently what's happening is the new centers that we have operationalized over the last 2, 3 years, we are not only getting EBITDA maybe has come down, but there is also depreciation and interest impact. So because of that, once we generate commensurate EBITDA from them, then we should be able to come off the depreciation and interest, which are the reasons for the past negative largely.

--------------------------------------------------------------------------------

Unidentified Shareholder, [76]

--------------------------------------------------------------------------------

Okay. And our finance costs have nearly doubled resonate last quarter. So what's the main reason behind that? Has our debt been increased?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [77]

--------------------------------------------------------------------------------

Yes, the finance costs, I think we need to look at without the IND AS adjustment. This quarter, it has increased because of the new accounting sector 116 that is the reason why it has gone up. Otherwise, it's pretty much in line with our warrants.

--------------------------------------------------------------------------------

Unidentified Shareholder, [78]

--------------------------------------------------------------------------------

Okay. And good, what is the total debt on the books?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [79]

--------------------------------------------------------------------------------

The total debt on the books at INR 623 crores, net debt.

--------------------------------------------------------------------------------

Unidentified Shareholder, [80]

--------------------------------------------------------------------------------

Net debt INR 624 crores.

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [81]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Unidentified Shareholder, [82]

--------------------------------------------------------------------------------

And is there a plan to bring down the debt from now going forward?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [83]

--------------------------------------------------------------------------------

See as I mentioned earlier enough to (inaudible), we are tightening our CapEx and we are limiting our debt. So we're looking at the debt outlook, net debt outlook of about 660 [to 675] by the end of the year. And from next year onwards we expect the debt to come down.

--------------------------------------------------------------------------------

Operator [84]

--------------------------------------------------------------------------------

The next question is from the line of Lalaram Singh from Vibrant Securities.

--------------------------------------------------------------------------------

Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [85]

--------------------------------------------------------------------------------

My first question is, in terms of impact of drug pricing cap on revenues. Can you give us the number of how many (inaudible) has in terms of annual gross?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [86]

--------------------------------------------------------------------------------

So as I mentioned to you, normally we don't break up pharma.

As I said, in terms of revenue, it has been very -- not that significant. And we already said that in terms of EBITDA, we have been able to overcome that by some of the measures we have taken. So overall, the impact is not that significant, because of the measures we have taken.

--------------------------------------------------------------------------------

Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [87]

--------------------------------------------------------------------------------

Okay. Second question is, tied to the drug margin that was 20%. What about the margin before that was comparable? The first time there was a 20% cap.

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [88]

--------------------------------------------------------------------------------

So see, for example, this is only for this 42 drugs. So it is very difficult to give what was the margin. We never discuss the margins, we just gave the usually as a group, what is approximate revenue from pharma, which is 25%, 26%. So that is what we have given out, and we do believe that the margin impact cannot be tough because it is mixture of regular trucks non under those, which are commentator on control. So overall, it will be difficult to give you a margin.

--------------------------------------------------------------------------------

Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [89]

--------------------------------------------------------------------------------

Okay. In terms of capital raise, I think last quarter we raised INR 21 crores from a U.S.-based doctor attempt. Have that money right?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [90]

--------------------------------------------------------------------------------

Yes, yes, definitely.

--------------------------------------------------------------------------------

Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [91]

--------------------------------------------------------------------------------

Okay. So going forward the next 1, 2 years, any sort of capital raise include cost?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [92]

--------------------------------------------------------------------------------

No, in the interest of the shareholders and the company, certainly we always look at what is the best interest of the company, the shareholders. We look at various ways, what are the possible ways we can bring in more capital. These investments, various ways, we do look at other operational excellence, sale and APAC. So there are a lot of things we do look at it. But nothing is concrete, nothing is done. But as and when it happens, we'll be very glad to share.

--------------------------------------------------------------------------------

Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [93]

--------------------------------------------------------------------------------

Okay. Any of the centers in which we own the land, how many centers? Or can you share that?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [94]

--------------------------------------------------------------------------------

We also own 2 buildings in Bangalore, and own maybe 2 in Bangalore, and we own 1 center in Vijayawada, center in Ahmedabad, so these are the few centers we own, because always HCG model has been asset-light in terms of real estate, because we consider ourselves oncology service providers. So real estate has not been heavy throughout, this has been our sites from the beginning, that is how we are functioning.

--------------------------------------------------------------------------------

Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [95]

--------------------------------------------------------------------------------

So going forward, there's a possibility there we might end up monetizing in terms of sanity (inaudible)?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [96]

--------------------------------------------------------------------------------

Yes. Like I said, we looked at maybe all the options. Whenever we feel it is in the interest of the company and the shareholders we'll certainly look at it. We like to do then accessed diligence and bring it to the board as we -- as you know. So certainly, we'll be looking at.

--------------------------------------------------------------------------------

Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [97]

--------------------------------------------------------------------------------

Final question is, in the light of strong reduction in the market value of the company, do you believe, for year is where we can also use capability to maybe buy back shares? Is that something which we are thinking of? Or any other way of creating value?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [98]

--------------------------------------------------------------------------------

I don't think I can comment on that. Okay. Hello?

--------------------------------------------------------------------------------

Operator [99]

--------------------------------------------------------------------------------

The next question is from the line of Harith Mohammed from Spark Capital.

--------------------------------------------------------------------------------

Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [100]

--------------------------------------------------------------------------------

The cash outflow expected on account of the expected exercise of the production by the minority shareholder in Milann. What is the expected amount?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [101]

--------------------------------------------------------------------------------

Expected amount is around INR 70 crores.

--------------------------------------------------------------------------------

Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [102]

--------------------------------------------------------------------------------

Okay. And the second question is related to the existing center EBITDA that we reported for the quarter of around INR 39 crores. How much of this would be from centers which got reclassified from new centers to existing centers? I'm referring centers at Gulbarga, Baroda, (inaudible) and Borivali. So just that end of how much these reclassified centers account for this INR 39 crores existing center EBITDA?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [103]

--------------------------------------------------------------------------------

Roughly about INR 4 crores.

--------------------------------------------------------------------------------

Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [104]

--------------------------------------------------------------------------------

Okay. And then would you look at further ramp-up at the center there cost?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [105]

--------------------------------------------------------------------------------

So Baroda is part of those centers that were classified as existing. And if you see the region-wise highlighted grown 21% year-on-year. So these vendors are ramping up.

So just to add 1 more clarification. The new centers have got classified as around INR 3 crores.

--------------------------------------------------------------------------------

Operator [106]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [107]

--------------------------------------------------------------------------------

Just 2 things. One is a going forward, you identify the new plan, adding R&D centers, what is going to be our recurring CapEx we should be modeling going forward?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [108]

--------------------------------------------------------------------------------

So Nitin, you're asking about the CapEx for the entire HCG Group or for the particular centers?

--------------------------------------------------------------------------------

Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [109]

--------------------------------------------------------------------------------

Sir, for the group (inaudible) onwards (inaudible) centers, excluding the investments of the new centers, what should be the recurring CapEx that we should predict for the current network?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [110]

--------------------------------------------------------------------------------

I think we are looking at in the range of INR 40 crores to INR 50 crores per annum recurring CapEx.

--------------------------------------------------------------------------------

Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [111]

--------------------------------------------------------------------------------

I think at INR 120 crores or INR 130 crores this year, what would the critical price of in terms of (inaudible) is coming up, right? Kolkata is already operational. So where is it spent?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [112]

--------------------------------------------------------------------------------

So that application or that operational is South Mumbai, which is going to be operational, and also Baroda, these are the 2 centers and (inaudible) in the 22, 23, we are looking at.

--------------------------------------------------------------------------------

Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [113]

--------------------------------------------------------------------------------

And so, attended 120, 130 will be to invest some money (inaudible) is also part of that?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [114]

--------------------------------------------------------------------------------

We're talking about?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [115]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [116]

--------------------------------------------------------------------------------

And secondly (inaudible) more from broader perspective over the last few years, I think the management has been fairly busy with in terms of a (inaudible) is actually getting operationalized. So they're also a factor from our -- how do we own our prioritization change as far as business focus on concern now. So the (inaudible), the consolidation in the business? What are your priorities now going forward?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [117]

--------------------------------------------------------------------------------

So our priority right now, Nitin, is we have lots of new centers is coming in now around the same time, because as I've explained in the past, because of the regulatory issues, some delays, like we had Nagpur, Borivali, Jaipur all of them coming around, Rajkot coming around the same one after another. As we are now trying to ramp up this and try to make them to break even that is being followed by Kolkata now and then South Mumbai and then in Gurgaon. So we have these pipeline centers, which is growing. So one day, we are looking at a growth for future is there, however the plan is laid out.

So another way to look at it, obviously there has been the -- a negative current EBITDA for some of these centers until the ramp-up and become positive. As these centers become positive, some of the new centers coming will always show negative. So this is what will happen, a balancing act, as we go forward. Existing centers as the ramp-up as we continue to grow 10% to 20%. So the way to look at it is what is going to happen in 2, 3 years from now. So we will see a ramp-up in EBITDA, we'll see a ramp-up in revenue but we'll also see some EBITDA being pulled down by these centers, which are negative.

So that is what we will be focusing on in answer to your question and manage that and put all our efforts to see how quickly we can ramp up these centers. As we know, the CapEx cycle coming to an end, obviously, we will not be focusing on any new projects. So there's no focus on new projects, our focus will be on developing these centers, bringing them to a point of capacity utilization. And we do see significant opportunity to do that. If you look at our Mumbai center (inaudible) for example, between 14, 15 months, it has not only been operationalized, but it is researching a very high mark in terms of radiation, and even medical oncology is ramping up and such with the new surgical team, we have it is ramping up.

So we see very positive signs happening in centers like Borivali. And same thing is not for there were some regulatory issues, we're getting some of the approvals, all of that has happened, and we are a very strong management team there with a partner.

We see that also improving. For example, if you look at Jaipur, same thing in our oncology center in Jaipur has really ramped up extremely well. Even this one day, we have escalated reaching almost capacity utilization between 6 to 8 months. So these are all positive indications. The reception we are getting for some of the things we have planned for Kolkata is also good but -- obviously, with this kind of a plan we have an investor has to be patient because if you look at quarter-to-quarter, obviously, you will see some changes because of the negative, which is coming in. So if you understand the business and we look at little bit longer [arrival], you will see what the growth strategy we are, as you have seen, 19% growth in revenue year-on-year, it is significant.

So all of this has to be looked at a macro level and see what we achieve is going to be down the road. And that is what we are laying out the foundation for it and develop new centers coming in, almost more than doubling happening in the next -- last 3 years, which is significant in oncology space. And I think this has to be appreciated by the market and the investors.

And obviously, we understand that we have to be patient. We have to take time because there is this optics of the revenue. This optic of EBITDA. Optic of India. Optic of debt. Whether what is the serviceability, all we said are there. We have serviceable debt, non-serviceable debt. But we are very comfortable in where we are. We know we are able to service the debt. We know we are able to grow, and we are specialists in oncology. Oncology has become a destination at TD. Everywhere, we are very well known. So future is very bright. What something came in the way like even we were concerned about the pharmacy. We are concerned about some regulatory issue, concerned about all the centers coming together. But I think we are executing. We have a strong management branded. We are able to execute it very well. And that is the trend we are going to take it forward, and we have the team, and we have a strong doctor's group, we see nearly now 100,000 mutations, which is one of the largest in the world, so forth. So that has to be also looked at. So we are very confident of the future growth, but I think patience is required, obviously.

--------------------------------------------------------------------------------

Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [118]

--------------------------------------------------------------------------------

And then lastly, while we're not going to be putting any more (inaudible) CapEx (inaudible) as you mentioned. I was just curious, are there other models that you probably tell you are exploring? Or wherein if you can react to capacity in some sense? Or by the virtual capacity by not committing capital to it, is there other orders out there?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [119]

--------------------------------------------------------------------------------

Yes, we are looking at models. Unfortunately, historically also, these kind of models have been given an average in U.S. also has been very common where there is a finance model operationally, (inaudible) margin and all. But the Indian conditions are not permitted that in the past. Because there are issues in (inaudible). There are issues in terms of the custom is GST, which has come -- which is the proponent for some of these measures. If you do it, you have to save 20%, and then share revenue, what is left. So this is why a lot of people are sharing (inaudible). Obviously, we don't want to be equipment owners. We don't want to be CapEx owners. We are good in operational excellence. We are good in providing outcomes, we are outcome-based cancer care provider for patients. We are not -- we don't want to an acceptance, but the system is not conducive. But now, we are obviously looking at these options, whether there are ways to do it. For example, (inaudible) model, revenue share model, without the GST component or with GST component. What does that mean for us because we are RPC, we don't pay -- if we buy the equipment, we don't pay 20% custom duty. Is that better of having a CapEx where somebody coming in and taking the CapEx for the manufacturer. So these are all kinds of things taking place now, when we have certain macro environment, which has made us change. So I will, of course, as and when we do, be very happy to share and update some of these things in the firm up.

--------------------------------------------------------------------------------

Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [120]

--------------------------------------------------------------------------------

And then lastly, in terms of what you've heard over the last few quarters to look at the same multiple of hospitals that are focusing on oncology in a reasonably focused way. Have you seen that chain impacting your competitiveness across market in any way?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [121]

--------------------------------------------------------------------------------

I have told you we are seeing 100,000 new patients. And in (inaudible) a record number of new patients, over 120 to 130 new patients per month. So we are being a destination. People, I can talk a lot about it. Let me just summarize saying we are looked upon as a destination. See, for example, when a new patient is diagnosed with cancer, they will not come to us directly. The competition is there, multi-specialty, they go with abdominal pain, they get cancer of the pancreas, it was treated there. But when the cancer comes back, which unfortunately happens in significant number of patients, then they look for an expertise because they think, "Why did the cancer come back?" and they don't want to come to an expert. That is when they come to a place, like for example, just to give you my own clinical (inaudible) last Tuesday I had a patient come all the way from Marisa, and with lots of difficulty with his bank, big bank manager, why did he come? He say, "I did lot of research, I wanted to go to because a cancer institute isn't an answer why he was selling the structure to come to us." And he got the solution, so nearly 10 days got a solution. He wrote a very happy note to us how the father is much better now. So I think we not only get from India from outside India also. So we are looking at a global company. One of the things I want to say, it's just not only India provider, we are a global cancer care provider. We have provide cancers for Middle East, Oman, Middle East people come, Africa. So we want to also -- we are also focusing on that with a situation in India, the regulatory things we have to be focused on international also. So all of these things, in the future, and we are very well far through. We have a clear vision, and we are going to move forward on those.

--------------------------------------------------------------------------------

Operator [122]

--------------------------------------------------------------------------------

(Operator Instructions) The question next question is from Abhishek Sharma from India Infoline.

--------------------------------------------------------------------------------

Abhishek Sharma, IIFL Research - VP & Head of Life Sciences [123]

--------------------------------------------------------------------------------

Sir, I was just looking at your average occupancy rate in 3 of your largest clusters, Karnataka, Gujarat and East India. It's tightly clustered around 50%. So for example, Karnataka at 47%, Gujarat at 53% and East India at 53%. So do we see occupancy -- improvement in occupancy led gains from here? Or is this the kind of maximum occupancy that we are looking at some in these 3 clusters?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [124]

--------------------------------------------------------------------------------

One rate, as we have discussed in the past on this issue of occupancy. We are going forward, we are looking at less and less than occupancy. In our own model also, we are going to put less number of beds because most of the treatment now is outpatient rates, for example, anti-radiation is outpatient, chemotherapy, I would say, 60% to 70% is daycare chemotherapy. Patients were admitted are primarily for high-end therapy, high-end surgery also 3, 4 days to go on with robotic surgery. So we are expecting, like I mentioned in my initial before the ALOS is only coming down, it's not going up. So with all this, some of these centers, the value was reached long time ago. We're certainly looking at that trend part is significantly increasing, but the footfall will increase. Similarly, in the new release, we have recruited Kolkata, I think. So that is why you are seeing some otherwise occupancy is higher. And even in Ahmadabad area also, the brain cancer center is quite high. So when you include the -- huh? -- Rajkot and some new centers is showing less. But Ahmadabad center is pretty much saturated 70%, 73%. Okay.

--------------------------------------------------------------------------------

Abhishek Sharma, IIFL Research - VP & Head of Life Sciences [125]

--------------------------------------------------------------------------------

Yes. So that reflecting your ARPU, which has been consistently going up. So for example, this year on a y-o-y basis, it's up INR 232,000. But I was more asking about occupancy you basically see around these levels. Is that right?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [126]

--------------------------------------------------------------------------------

I think it has consistently remained same. But one of the things we said, we change the mix, as we look at more international patients, as we look at service mix. Maybe that fluctuates 2 points higher up, but we don't see, like a center in value at this point, going up to 70% or 80% occupancy.

--------------------------------------------------------------------------------

Operator [127]

--------------------------------------------------------------------------------

The next question is from the line of Fiona Chan from Buena Vista Fund.

--------------------------------------------------------------------------------

Fiona Chan;Buena Vista Fund Management, LLC;Investment Analyst, [128]

--------------------------------------------------------------------------------

I wanted to ask about Milann. How you guys have been continuing the business since Dr. Rao has cut down operationally.

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [129]

--------------------------------------------------------------------------------

So since Kamani is sometimes [dirt cheap], we have the [15] (inaudible) fully exercised end of September. So she -- as of now she's still a 49% partner.

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [130]

--------------------------------------------------------------------------------

Okay. Once Dr. Kamani Rao is committed as a clinician, she will be with us. As you know, she was original person of -- she is a medical director. She will continue to be there. And there is also agreements with our post disclosure ratio what we have for several years. So under this -- they are -- this has been her start at Milann. So she is very much committed to working. The foot option was primarily exercised for contractual reasons.

--------------------------------------------------------------------------------

Fiona Chan;Buena Vista Fund Management, LLC;Investment Analyst, [131]

--------------------------------------------------------------------------------

And given the recur registration growth this quarter, are we concerned that cycles will not recover as strongly as we hoped in the coming quarters?

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [132]

--------------------------------------------------------------------------------

The lesser number of registrations for the quarter are only an impression because of the last year reduction also having Mumbai and Bhavnagar, no more that the existing center of Milann. The have shown good pipeline in some of registration.

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [133]

--------------------------------------------------------------------------------

And one of the things is also the IVF cycles have increased significantly 8.1%. And also the revenue increase is 11%.

--------------------------------------------------------------------------------

Fiona Chan;Buena Vista Fund Management, LLC;Investment Analyst, [134]

--------------------------------------------------------------------------------

So if you remove the center that you mentioned that was captured in FY '19, what would the growth look like for registration?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [135]

--------------------------------------------------------------------------------

We will get back. We will share that separately with you.

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [136]

--------------------------------------------------------------------------------

Yes, we can share that. We don't have it exactly. We'd be glad to share that with you separately.

--------------------------------------------------------------------------------

Fiona Chan;Buena Vista Fund Management, LLC;Investment Analyst, [137]

--------------------------------------------------------------------------------

Okay. And one more question. On the corporate expenses. Just trying to understand, what was the EBITDA level this quarter for IVF functions?

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [138]

--------------------------------------------------------------------------------

There's some disturbance, we can't hear anything. Hello, can you repeat the question? Sorry.

--------------------------------------------------------------------------------

Fiona Chan;Buena Vista Fund Management, LLC;Investment Analyst, [139]

--------------------------------------------------------------------------------

I'm just trying to understand the EBITDA level for the IVF functions this quarter? EBITDA contribution from the IVF business for Milann.

--------------------------------------------------------------------------------

V. Srinivasa Raghavan, HealthCare Global Enterprises Limited - CFO [140]

--------------------------------------------------------------------------------

Yes, the EBITDA margins are improving and it's now reaching the double-digit range for IVF as of Q1.

--------------------------------------------------------------------------------

Operator [141]

--------------------------------------------------------------------------------

That was the last question on queue. I would now like to hand the conference back to the management team for closing comments.

--------------------------------------------------------------------------------

Niraj S. Didwania, HealthCare Global Enterprises Limited - Head of IR [142]

--------------------------------------------------------------------------------

We thank you for the active participation on the call. We are available offline for any further discussion and details you may require. With this, we conclude the Q1 FY '20 conference call for Healthcare Global Enterprises. Thank you for participation.

--------------------------------------------------------------------------------

B. S. Ajai Kumar, HealthCare Global Enterprises Limited - Chairman & CEO [143]

--------------------------------------------------------------------------------

Thank you very much.

--------------------------------------------------------------------------------

Operator [144]

--------------------------------------------------------------------------------

On behalf of Healthcare Global Enterprise Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.