Max Healthcare net profit growth down due to higher taxes: Abhay Soi

Abhay Soi, MD & CEO, Max Healthcare, says in the previous year, EBITDA to free cash flow translation used to be 78%, it has come down to 70%. It is due to the higher amount of taxes that Max Healthcare is paying. Soi further says that any hospital chain which has capacity constraints going forward will see a lower increment in occupancy but a higher increment in ARPOB because the beds are not there and one prioritises the higher end surgeries and procedures.

There’s a double-digit growth in terms of revenues as well as EBITDA for Max Healthcare. But the bottom line has seen a decline on a year-on-year basis. Can you help us understand what has impacted your numbers in terms of profitability this time?
Abhay Soi: Whilst we have had a 16% year-on-year growth in EBITDA, you have seen a kind of flat performance as far as net profit is concerned and this is largely if not entirely, due to higher incidence of tax. In the previous year, our EBITDA to free cash flow translation used to be 78%, it has come down to 70%. So, it is just a higher amount of tax that we are paying.

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Let us focus on your ARPOB because your ARPOBs have actually shown a good growth in the quarter gone by. How much of the push was due to the price hike and also if you could tell us what is the outlook going ahead for that particular segment or element?
Abhay Soi: ARPOB (average revenue per occupied bed) has less to do with volumes. It has nothing to do with volumes per occupied bed irrespective of what those volumes are. But as far as the price hike is concerned, typically the price hike impact on revenue is about two-and-a-quarter percent and the rest is real growth, real growth both in clinical as well as payor mix.

Do keep in mind any hospital chain which has capacity constraints going forward will see a lower increment in occupancy but a higher increment in ARPOB simply because you do not have the beds and then you sort of prioritise the higher end surgeries and procedures, etc, which leads to higher ARPOBs and yet because you do not have any spare capacity, occupancy is tempered.

And as the company has major capex underway, do you see any impact on margins in the next couple of years on the back of that and since generally when you look at it, the company sees that occupancy levels are lower for newer facilities, how does that also shape up?
Abhay Soi: So, it is above 75%. It has always been above 75% every quarter of last year and I think last many years that I can remember it has never sort of been… 74-75% is perhaps the lowest levels that we have operated at. So, depending on seasonality, it fluctuates between 74% to about 77-78%. The new facilities, of course, are operating at about 65% occupancy levels. This is the lower occupancy levels.

But, we expect a hockey stick growth over the next year or so as far as these, the newer additions are concerned and once… we have put our turnaround strategy to see overall occupancy increasing. We will be coming up with new capacity in the current year, 300 beds will be operational in Dwarka in the early part of June, so that should lead to further capacity and yes, further ability to ramp up as well.Max Labs has shown a good growth of over 20% and this has been a consistent growth coming in from Max Labs. What are your plans about this particular segment, what are the outlook that you have on this? Also, any update on price hikes? Did the company take any high price hikes in that particular segment in the quarter gone by?
Abhay Soi: We have consistently seen a 25-27-28% year-on-year growth and for us it never sort of comes down to this number. Again, this quarter, there has been a 27% growth on a year-on-year basis as far as Q4 is concerned. We have seen very healthy numbers in Max Lab and competitive intensity as you are saying maybe back now, was not there previously or was there, but we have seen the same amount of robust growth.We believe that for the expansion of the company, you are open to inorganic opportunities as well. Any specific geography or segment that you are eyeing?
Abhay Soi: There are about 21 cities where we believe at least one or two of our peers have proven viability and we intend to go there and do it better. So, those are already proven sort of chartered territories for us and that is . what we are looking at quite simply.

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