Apollo Hospitals Enterprise (NSE:APOLLOHOSP) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to Apollo Hospitals Limited earnings conference call. As a reminder, all participant lines will be in the listen only mode, and there'll be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. And I'll hand the conference over to Mr. Mayank Ghaswani from CDR India. Thank you, and over to you, sir. Thank you, Neera. Good afternoon, everyone, and thank you for joining us on this call hosted by Apollo Hospitals to discuss the financial results for the second quarter of FY 'twenty seven, which were announced yesterday.

0:46 We have with us today the senior management team represented by Mrs. Sunita Reddy, Managing Director Mr. A. Krishnan, Group CFO Doctor. Madhu Sashidhar, President and CEO of the Hospitals Division Mr. Madhivanan Balakrishnan, CEO of Apollo Health Co Mr. Sriram Ayat, CEO of AHLL Mr. Sanjeev Gupta, CFO of Apollo Health Co and Mr. Obal Reddy, CFO of the Pharmacy business. Before we begin, I would like to mention that some of the statements made in today's discussion may be forward looking in nature and may involve risks and uncertainties. Please note the disclaimer mentioning these risks and uncertainties, which is on Slide two of the investor presentation shared with all of you earlier.

1:38 Other documents relating to our financial performance have been circulated earlier, and these have also been posted on the corporate website. I would now like to turn the call over to missus Sunita Rehdi for her opening remarks. Thank you, and over to you, ma'am. Thank you, Mayank. Good afternoon, everyone. Thank you for joining us on today's call. I trust you have reviewed the earnings material that we have shared with you. We are pleased to report another quarter of strong performance with all three of our business verticals, health care services, health care, and Yeah.

2:30 So let me start by saying the the performance of this quarter builds on the momentum of the previous quarter and reflects the strength of our integrated health care platform. The underlying demand across our businesses and our continued focus on execution, it also marks a healthy first half for FY twenty seven. The broader health care sector is witnessing strong momentum with players across the industry reporting healthy volumes and revenue growth as well. We are also seeing increased participation from multiple players and investments flowing into the sector, reflecting the confidence in India's health care opportunity. This is an important development in the country as it will help to expand health care capacity and strengthen capabilities and accelerate the adoption of advanced technologies.

3:24 With strong structural demand and significant headroom for growth, the sector offers considerable opportunities for value creation. On a consolidated basis, revenues grew by 23% year on year to 7,615 crore during quarter two FY twenty seven. Consolidated EBITDA stood at thousand $1.91 crore, registering a growth of 29 year on year with margins improving from 15... To 15.6 from 14.9 in quarter two last year. Within this, health care services business reported revenues of 3,900 crore, delivering a strong growth of 23% year on year. Established hospitals revenues grew by 19% to 3,765 crores, and new hospitals contributed a 135 crores during the quarter.

4:21 Inpatient volumes overall saw growth of 14% year on year and occupancy at 73%. Average revenue per patient increased by 8% year on year to 1 lakh 86,880 thousand. These metrics reflect sustained demand across our hospital network alongside continued improvement in clinical complexity and asset utilization. Insurance and self pay continue to form the core of our payer mix together contributing 82% of in in patient revenues. International patient revenues grew by 37% year on year. Our international patient business is gaining significant momentum increasingly with patients from across the world choosing India for advanced clinical capabilities, quality of care, and affordability.

5:20 APOLLOHOSP integrated model supported by the depth of clinical expertise is contributing to this growing confidence. This is encouraging and a validation of India's potential to become a global destination for health care and closer to the government's vision of healing India. Our focus on high acuity specialties, cardiac oncology, neuro sciences, gastro, orthopedics, and transplant continue to form the bedrock of our growth. Congo tea revenues grew 22% year on year. Tea specialties constituted 61% of inpatient revenues, reinforcing the strength of our clinical offering across complex care. Within health care services, EBITDA increased 20% year on year to 937 crores and margins at 24%.

6:12 However, established hospitals delivered an EBITDA of 971 crores, reflecting 22% year on year growth, margins improving by 61 basis points to 25.8% compared to the same period last year. New hospitals reported an EBITDA loss of 35 crores, reflecting the ongoing ramp up of recently commissioned capacity and the hiring of new doctors. We continue to focus on operating leverage, productivity initiatives, and disciplined cost management across the mature hospital network while investing in the next phase of capacity expansion. As you are aware, we have planned to add 1,395 census beds across FY 2627.

7:04 Of these, five twenty have been commissioned, the remaining will be commissioned in the next twelve to eighteen months. Moving to APOLLOHOSPOR, the business reported revenues of 3,286 crores, a 23% year on year growth. EBITDA grew by 75% to $1.93 crores. An important milestone this quarter was 24 by seven turning cash positive with digital cash profit at 1 crore compared to a loss of 39 crore in the corresponding quarter last year. APOLLOHOSPOR reported a part of a 118 crores during quarter two f y twenty seven compared to 73 crores in the corresponding quarter last year, demonstrating continuous improvement in profitability.

7:50 AHLL also delivered an encouraging performance this quarter. Revenues grew 20% year on year to 429 crores, while EBITDA increased by 79 crores to 61 crores. EBITDA margins improved 14.3% from 9.5 quarter two last year. AHLL reported a part of 26 crores compared to a loss of 4 of 4 crores in quarter two f y twenty six. With all three businesses reporting healthy growth and improved profitability, consolidated PAT increased by 32% year on year to INR $6.30 crore during quarter two FY 'twenty seven. For the first half of FY 'twenty seven, consolidated revenues stood at INR 14,547 crores, growing 22% year on year. EBITDA increased by 29% to 2,268 crores.

8:51 Consolidated pack grew by 33 to $1,002,211 crores. Health care services revenue grew by 22% to 7,467 crore. APOLLOHOSPOR and AHLL reported revenue growth of 2219% respectively. This performance reflects the strength of our integrated health care platform and our continued focus on execution across the businesses. We continue to make progress on hospital capacity expansion as discussed in the previous call. We have been investing in new capacity across key markets while remaining focused on phase commissioning and ramp up, clinical capabilities, and operating discipline.

9:41 We believe this expansion provides a visible runway for growth over the coming years. We remain focused on the proposed strategic restructuring of our omnichannel pharmacy and digital health business. We believe the transaction is an important step towards a skilled integrated health care platform and unlocking long term value for the shareholders. We expect the demerger to be completed in quarter four of FY twenty seven. At the center of our growth strategies, our focus on patients, investments in clinical excellence, advanced technology, robotics, and specialized care pathways are directed towards improving clinical outcomes and strengthening the quality and consistency of care.

10:29 This remains fundamental to how we build our capabilities and differentiate our health care proposition. Patients come to APOLLOHOSPER than individual drug, consumable, or procedure, but for the entire continuum of care. What we deliver is an integrated clinical service bringing together medical expertise, diagnostics, technology, infrastructure, and round the clock care. The value of our health care must therefore be understood in the context of the complete patient journey and and the outcomes it delivers. As we enter the second half of FY twenty seven, we are encouraged by the momentum across our businesses. Our focus remains on sustaining growth in health care services, scaling our digital and retail platforms profitably, and progressing our expansion program with disciplined capital allocation.

11:26 We we believe these priorities position Apollo well to deliver high quality care and sustainable long term value for all stakeholders. On that note, I would like to hand it over to the moderator and and open the line for questions. I have Krishna, our group CFO, Madi Vanden from Apollo Health Co, Sriram from AHLL, and other senior management colleagues with me to take your questions. Thank you. Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touch tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question.

12:12 Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. First question is from the line of Neha Manapuria from Bank of America. First question is on the hospital business. I think we've seen a very sharp step up in growth in the existing hospitals in the last two quarters. Based on the performance that we are seeing, is it fair to assume that hospital growth can now be closer to the 20% level versus the high teens that we're guiding essentially? Because I see that, you know, as against our expectation that existing hospitals would probably grow mid teens, we seem to be growing, you know, high teens with the existing network.

13:07 That's the first question. And second is, I think we've guided to about a 100 basis points margin expansion in the existing hospital network, and, you know, that seemed to have come through in the last year. Given we are at close to about 26% margins in the existing hospital, is there more room left for margin expansion in the existing network, or should we now assume the new hospitals ramping up and achieving breakeven and therefore margin expansion from that? Thank you. It will be a combination of both, Neha. You will see an improvement in the established as well as looking at new hospitals, of course, because they will achieve... We have one which is in Hyderabad, which is already at EBITDA breakeven. The other three will breakeven by the end of the year.

13:54 So it'll be a combination of both. And about your 20% guidance, I don't wanna make forward looking statements, but you've seen the momentum of growth led by strong structural demand and the fact that APOLLOHO is accessible because of our average revenue per patient is 1.8 lakhs. So, therefore, I think the demand... Structural demand for health care is very, very strong, and APOLLOHO is a network that's present all over India. Understood, ma'am. That's very helpful. My second question is on, you know, on the health core business. Now that we've achieved cash breakeven, you know, how should we think about the next milestone for this, you know, business, and, you know, what would drive that improvement from here?, will you take that?

14:51 Yes, ma'am. I think now that we have achieved the basic level of cash breakeven, our entire objective is to continuously keep improving our unit economics, primarily in the pharma businesses. So the intent is to increase our daily orders from the current situation to go almost by 20, 30%. That's something which we hope to do over the next six months. And given the fact that our cost structure is more or less stable, the... Any kind of an increase in margin and unit economics would start adding to the growth. Our intent is to be on par with the offline pharmacy to begin with. And then once we... You know, the the objective is not just to look at it as pure digital business, but as an omni business with much more synergies between the two groups, the market structure should start looking up. So give us around two more quarters before this starts today.

15:47 When you say you want to be in par with the offline business, you mean in terms of, you know, preOpEx margin at... On on what parameters do you mean that? Sorry. Primarily pre OpEx and then at the EBITDA level because the cost structure will remain the same. Our unit economics as it keeps improving should start contributing to that base. Understood. Thank you so much. Thank you. A request to all the participants kindly limit yourself to two questions per participant and rejoin for a follow-up. Next question is from the line of Abdul Kalirupuranwala from ICICI Securities. Please go ahead. Yeah. Hi. Thank you for the opportunity. My first question is with regards to the the pro form a numbers of Apollo Health Co, that is a combined entity.

16:41 Ma'am, I wanted to know any specific reason why we have reduced our margin expectation for end of, you know, q four twenty seven to close to 6%. And so earlier, we used to talk about six and a half, 7% for this entity. Yeah. Sanjeev, will you take, sir? Yeah. I'll take this question. Hi. This is Sanjeev this time. I think the prime most, you know, thing that we should always remember in this business is that, you know, we strongly believe with time this business would move into a higher single digit number. In next three to four years, we can expect this to move in that range. As far as the short term period is concerned for this year, there are two, three things which have resulted into the guiding near INR 1,500 crores of EBITDA for the entire integrated business. One is that there has been investment into manpower across the pharmacy private label and generics lines.

17:39 There is always... There is also a bonus which was paid to the employees this year that is related into a little bit of definitely percentile and apart from the fact that there are onetime scheme and integration related expenses. So some of these expenses are one time in nature and they would also fall into this financial year as move towards the NCT approval scheme related things and get into the listing. So you would expect a certain more expenses to come in into q three and q four, and that's a... That... That's just one reason we thought that it'd be rightful to say that, you know, we should be hitting a number 1,500 crore plus for this year. Trust, I have given the answer. But these are... Some of them are one time. Next year onwards, these things will not happen. So, obviously, you would start seeing a percentile to be going up.

18:30 Sure, sir. Very clear. And, ma'am, next on our hospital expansion plan. So, you know, when you are at five thirty expansion plan, what we have discussed earlier, are we are we we are are we to the timelines broadly what we have shared earlier or any changes to those validation plan? Yeah. So, yes, you know, we are speaking to what we have said. If you look at the next twelve months, you know, Gurudram will be actually launched in the coming quarter, first point. Or with that, if you look at it, we would have launched all the seven hospitals which we have said between '26 and '27 that we have to launch. Right? Which is Pune, Calcutta, Hyderabad, Delhi, Sarjapur, and Gurugram. All of this put together have 1,400 beds, thirteen ninety five census beds, which will all have to get operationalized now.

19:20 We will commission it slowly, you know, but the... All blocks are ready and we can... As the demand grows, we will keep opening it up. As of now, you have seen that we are at five twenty bed commission. Gurugram will get commission before the next quarter that we are going to be announcing, and you will see this all of the 1,400 beds also getting fully operationalized over the next twelve months. That's that's what we are looking at. Beyond that, as you look at FY '28 and '29, Jubilee Hills expansion is there on... Already working on full flakes. You know, second, there is an existing hospital which we are expanding. You know, there is a hospital in Bangalore and Mysoon, which is expanding and indoor. All of that is also expected in the next two years of another three twenty odd beds, which will take it to 1,800 odd beds in the next two years. So that's...

20:08 And then you have some time gap before we launch some of the others, which will all come mostly in '30 and '30... No. '31 rather. That's when it will all come. But it's all... Whatever you have out here, all of that work is started in some way or form. Understood, sir. Thank you. Thank you very much. Next question is from the line of Tamyanti Khirai from HSBC. Please go ahead. Yeah. Hi. Thank you for the opportunity. My first question is on your offerings on Apollo twenty four seven platform. So if you can update us on the pharmacy part, the virtual consultation part? And also, if you can comment on your step up plan for insurance services in view of the regulatory development industry?

21:02 That's my first question. So let me take that. So this is Madhu Anil. APOLLOHOSPHANI has been consistently growing in the range of around we started last year around 28%. On a pre dosing basis, we had a pretty good quarter. It was almost 14%. Similarly, the Diagnostic business also grew in the range of around 17%. This is just the digital part, which is 4.47 content. That's one of the 12% sequential growth. Both these are primarily driven on one hand by the constantly increasing number of customers, our ability to cross sell to the pharmacy base. So these are the two businesses that we evaluate on the GMV.

21:49 We are reasonably confident that we will continue to grow at least at this base level. All efforts are on to see how we can drive the decision forward. So both of them are steady businesses for us. On the consults business, we created based on the revenue. There again, our revenue story on a sequential business was a 7% increase. We are working very closely with the hospital to build what we call as an hospital mode to expand the access that we can have for more customers and thereby dramatically drive services. We will also be focusing a little bit more on the digital conference to get more and more of the APOLLO medical professionals getting a direct access to our customers. These three businesses are on a good line.

22:34 And however, on the insurance business, we have been a little bit more calibrating our approach. We are not growing at that speed. In fact, we are consolidating. Given the new consultation paper that IRD has put out, some of the economics of this business is will be undergoing a very radical change. So we are watching the situation. We're waiting for the agreements to come in. So in fact, while we showed a growth of around 4% on a quarter on quarter basis sequentially, this quarter, we are sort of putting the brakes on. But it actually helps on the EBITDA side because as of now, insurance continues to be a negative business. On the overall monetization, our improvement in Circle, which is our core paying loyal customers, there has been a good sequential growth of 11%.

23:21 So these that is another region which is sustaining itself. So other than the insurance business, which we are looking at, will go cap cautiously, all the other businesses are on a steady state of business. There is any specific question that you want me to answer, happy to do it. Yeah. So as you are taking more calibrated approach for the insurance business and other other segments are going reasonably well, and now you have, I think, broadly optimized the cost, etcetera, we should be seeing consistent margin improvement. Right? And the insurance part should not be dragging while we get clarity on how how the sector emerges. No. I'm with you completely.

24:08 Given the fact that the drag on the insurance business will be much more slower, we'll wait for the IRDA final agreement. The unit economics continues to improve. Our number of orders is slowly shaping up. Our mix is becoming better, which is a mix of private label, generics and the others. And with more synergies with our off line team, I think this story should only Like I said in the earlier response to the earlier question, give us around two quarters before this entire thing stabilizes, and we should continue to keep growing on our margin basis. Sure. My last question will be on your international patient business. So if you can comment on if we have seen complete normalization in terms of patient flow from neighboring states and which all newer market you are tapping on to sustain growth here?

25:04 So we have seen a good rebound coming from Bangladesh. I think we are if you look at the annualized number, we are close to 85% to 90% of what we used to see see as peak from Bangladesh. So I think that's a good rebound that we are now seeing. And we are seeing neighboring countries. Apart from neighboring countries, Africa has been one area that we have been focusing on significantly. We have information centers now in many geographies like Tanzania, Kenya, etcetera, and we are seeing good growth coming from some of these markets, especially in Africa. Apart from that, yeah, we've also seen growth coming from some developed countries as well this quarter, you know, including some Europe, etcetera. So we are seeing this, you know, the overall growth has been 35, 36% this quarter on IPS, and we are hoping to continue to see the momentum going up as we move forward as well.

26:01 Especially Gurugram coming in next quarter, you know, it's going to be helpful for us because, as you know, the... You know, Delhi is very well connected also. And this is one one one one hospital where we are we are going to be looking at all facilities, including, is all really a lot of IPS to the hospital. Sure. Thank you for your response. I will get back in the queue. Thank you. Participants, you may press star and one to ask a question. Next question is from the line of Yash Siddani from Integrity Ventures. Please go ahead. Hi, sir.

26:48 Just wanted to ask on the recent regulatory changes that are happening and also the time process of of getting reviewed. We have multiple businesses which can get affected by this changes. So I wanted to know your views on personal hospital business then on maybe pharma business... Optical pharmacy business. How these changes are going to affect and what kind of margin reduction you expect if the changes are limited? So if you look at the larger picture, which is what we're sharing with, you know, with the government and what we need to share with the public is that if you look at the country, we really need to add more beds, therefore, the structural demand for health care. India will need another 1,300,000 additional beds, 1,000,000 doctors, and 3,500,000 nurses.

27:45 Hospitals are a long horizon investment, and predictable regulation is essential to attract the capital that the sector requires. I think that more than anything else, we are also emphasizing the fact that the affordability is high. And with the insurance penetration, more people have access. So if you look at structural demand, the fact that there are only 170,000 private health care beds in India available. So this... If anything, this legislation will impact both small hospitals and large hospitals. And, therefore, I think we, as a hospital, are willing to work with the government to see that more hospitals are built, more beds are built because this is what the country needs at this time.

28:38 And having looked at... I think they've not had a... We've... We need to continue to sensitize them on the fact that this is the the way that they are looking at it in terms of cost of, let's say, cancer medicine or or, like, a pretty consumable, it's not a cost plus model. It's a model where the entire service is delivered and the costs are attached to it. I think the product pricing was a proxy for the service earlier, but we are also... We are... You know, we hope to move the service pricing, and we continue to stay in touch with the government. The government has represented its case very strongly in the supreme court, and and I think that this engagement will continue.

29:28 Meanwhile, we do... You know, we we will continue to keep our growth and margins growing and strong. So I think that I hope I've answered your questions. If you see the parliamentary... Yeah. I agreed on hospital space. What about the pharmacy business? I can basically maybe on the team with distribution business. If if this price cap is limited across all the medicines, are we expecting any margin reduction in those businesses? We we are awaiting the revised, you know, MRPs and then analyze the impact. There will be some impact, but we will be quantifying it going forward once it is effective from November 9.

30:17 Okay. Okay. And and what is the progress on our demerger process? And is the timeline intact? Yep. We are we are on time on the schedule of activities as planned. We expect to complete it and then announce it in the last quarter of eighty seven as stated earlier. Okay. Thank you so much. Thank you. A reminder to all the participants, you may press star and one to ask the question. As there are no further questions, I'll now hand the conference over to the management for closing comments.

31:08 So thank you, ladies and gentlemen, for taking time this afternoon just before the public. Our quarter two and first half of FY twenty seven reflect the strength of our business and the progress we are making across integrated health care platform. We remain focused on building clinical capabilities, expanding capacity in a calibrated manner, and scaling our digital and retail businesses profitably. The structural demand for health care in India coupled with our investments in clinical excellence, technology, and capacity provides a strong foundation for the next phase of growth. Our priorities remain clear, delivering superior clinical outcome, improving access to quality health care, and creating long term sustainable value for all stakeholders.

31:56 On behalf of Apollo Hospitals, I wish each one of you and your families a very happy Deepavli and a prosperous year ahead. Thank you once again, and look forward to connecting with you next quarter. Thank you very much. On behalf of Apollo Hospitals Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines. Thank you.