Narayana Health Q2FY18 Concall Summary

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Financial Highlights 

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  • Strong revenue growth despite pressure from price regulation on drugs and implants
  • The company posted ~15% growth in Q2FY18 in revenues on the back of well-calibrated expansion exercise the company undertook in Northern and Western regions of the country along with sustained performance from Southern and Eastern clusters
  • Growth of ~15% in operating revenues on the back of newer facilities such as Dharamshila Narayana Superspecialty Hospital
  • Growth of ~15% in total operating income from INR 4,874 mn to INR 5, 592mn
  • EBITDA of INR 638 mn reflecting an EBITDA margin of 11.4% as compared to INR 681 mn in Q2 FY17;
  • Minor dip in profitability is on account of recent commissioning of SRCC Children hospital in Mumbai
  • Q2FY18 was a healthy mix of sustained growth in the matured facilities falling into greater than 5 years’ bucket coupled with a strong ramp up at newer facilities
  • Company’s mature centres continue to provide a steady cushion to group’s performance in terms of industry leading growth of ~12% YoY with consistent, best-in class ~23% EBITDA margin

International business

  • In the International market, NH entered into a definitive agreement with Ascension Health Alliance and its affiliate Ascension Health Ventures LLC to effectively increase NH’s shareholding in HCCI to 100%
  • The enterprise value of Cayman facility is ~$70 million
  • Success of NH’s differentiated business model in unexplored international territories like Caribbean Islands
  • NH is garnering attention of patients across the Middle East, Africa nations and South Asia
  • International patients’ base contributing ~9-10% to group revenues
  • In the larger centre in the East, that is RTIICS, the growth has been muted in the last quarter due to capacity constraint; while, Bangalore cluster still have a further headroom in terms of occupancy

 Operational And Business Highlights

  • Ramp up of operations in newer facilities such as Mysore, Whitefield, Guwahati and Jammu; allowing less than five years’ bucket to grow at ~32% 
  • High-end specialties like Gastroenterology and Oncologycontributing ~17% and ~10% respectively
  • With regard to the sequential QoQ ARPOB drop is due to seasonal factor as well as relatively higher proportion of government scheme empanelled patients
  • The occupancy rate is a little lower than Q2 FY17because the company commissioned a new hospital in Mumbai, and that dragged the overall number down
  • Impact of the stent pricing is about 7 crores; splitting the procedure (Services) price and the stent (product) price as a sort of price readjustment
  • The construction of NewRise is in full swing and should be ready, operationally at least, by the end of this year
  • The company has a large M&A team that's looking at the acquisition opportunities, with most of them being asset-light in nature
  • ARPOB growth of 10% year-on-year basis

Group's Performance

  • Northern and Western clusters have started contributing meaningfully to the group’s performance
  • SRCC Narayana Children’s Hospital in Mumbai is fast gaining eminence in the region and has been recently awarded  “The Best Emerging Brand” award
  • Dharamshila Narayana Cancer Hospital has been upgraded to a state-of-the-art Superspeciality hospital with tertiary healthcare specialties like Orthopedics, Urology, Nephrology and Gastroenterology under one roof
  • Jaipur grew by about 3% and Ahmedabad reported a negative growth compared to same quarter of last year


  •  CAPEX involved in upgradation of Dharamshila, from cancer only facility to multispeciality, is being borne by the partner to the tune of around 25 crores; 100% revenue is booked in NH’s account books
  • The CAPEX for FY18 will roughly be around 350 crores, including Mumbai and including Gurgaon
  • From the replacement/maintenance / upgradation CAPEX, it would be approximately around 150 crores or even less than that on yearly basis
  • In H1 2018, the company has incurred around 50 crores towards replacement / upgradation and maintenance CAPEX other than what has been incurred for Mumbai and Gurgaon, which are one off in nature
  • Gurgaon was 180 crores of CAPEX and Mumbai was 52 crores CAPEX, bulk of which was incurred in last fiscal year
  • Another 50 to 100 crores CAPEX amount this year
  • CAPEX in FY19 would generally be 150 crores

Mumbai Hospital

  • EBITDA loss of ~Rs 8 crores in this quarter against Rs 7 crores in the last quarter
  • The unit can breakeven within 18 to 24 months from now with around 50 beds occupied
  • In Q1, the average occupied beds was 4, against 18 in Q2, while currently, the occupancy is about 25 beds

Cayman Island Hospital

  • The company’s discussion to increase its stake to 50% turned into an outright acquisition as Ascension Health Alliance from the US faced significant regulatory and financial challenges over the past couple of years
  • The payout involves around $32 million for the balance stake of 71.4% to be made to Ascension
  • Cayman facility continues to grow on the solid platform laid down in FY17
  • Revenues of US$11.6 mn in Q2 FY18 with an EBITDA of US$1.8 mn reflecting a strong margin of 15.9%
  • Broke even at monthly EBITDA level in the 24th month of its operations and became profitable at Net Profit (PAT) level in Q4 FY17
  • The occupancy of 24-odd beds out of the 90-odd census beds that's commissioned over there; excluding day care procedures being undertaken by this facility, it possibly will go up to as high as 35-36
  • The hospital has done extremely well and is believed to have very strong growth both in the Cayman Islands as well as at the broader Caribbean and Latin American markets
  • U$1.9 million ARPOB at Cayman Islands

Dharmshila Facility

  • The number of operational beds in Dharamshila is around 190 with census beds of around 150
  • 48 occupied beds in Q2 that is an occupancy of ~33%
  • The reason of low occupancy: it was an oncology only centre till Q2, with large daycare (radiation and medical oncology) volumes

Clinical Developments (significant progress/ achievements)

  • Company’s super speciality hospital at Vaishno Devi, Jammu performed its 5,000th dialysis in August 2017 (17th month of operations) cementing the facility’s pre-eminence in nephrology in the northern region of the country
  • The hospital in Mumbai performed Extracorporeal Membrane Oxygenation (ECMO) on a little girl suffering from H1N1 and severe hypoxemic respiratory failure, the procedure being first of its kind in a paediatric case in Mumbai
  • For the first time in Eastern India, a patient was successfully treated with Flattering FilterFree Radiotherapy in Narayana Superspeciality Hospital, Howrah bolstering company’s reputation as a leading player in oncology
  • The hospital in Howrah successfully performed a complicated procedure involving IntraCardiac Repair for Tetralogy of Fallot along with a complete chest wall reconstruction on a 2-year-old girl

Awards and Accolades

  • NH won The Economic Times “The Best Asian Healthcare Brands 2017” award in September 2017
  • SRCC NH Children’s Hospital won “The Best Emerging Brand” award at the National Award for Marketing Excellence presented by Times Network in September 2017
  • NH won “The Express Healthcare Excellence Award 2017” in Health Tourism category in September 2017
  • Narayana Institute of Cardiac Sciences, Bengaluru was listed among “The Most Trusted Hospitals” in Bangalore by Reader’s Digest in September 2017
  • Dharamshila Narayana Superspecialty Hospital, Delhi was listed among “The Most Trusted Hospitals” for Oncology in Delhi by Reader’s Digest in September 2017