Earnings Call Transcript Analysis Report #
HCG Q3 FY'25 Earnings Call Analysis #
Financial Performance #
- Key Financial Metrics:
- Revenue: Q3 FY ‘25: INR 559 crores (highest ever quarterly revenue), 19% YoY growth. 9 Months FY'25: INR 1,638 crores, 16% YoY growth.
- Adjusted EBITDA: Q3 FY ‘25: INR 92.3 crores, 15% YoY growth.
- Adjusted EBITDA Margin: Q3 FY ‘25: 16.5%.
- PAT Growth: 23% YoY.
- MG Hospital (Vizag) Revenue: INR 25 crores, with a 24% margin.
- ARPOB (Average Revenue Per Occupied Bed): Grew by 3.5%, standing at INR 44,284. Established centers: INR 42,798 (2.8% growth). Emerging centers: INR 66,000 (12.3% growth).
- Effective Tax Rate: 3% for a 9-month period.
- South Mumbai Center Losses: INR 10-12 Crores for FY'25
- Comparison with Previous Periods:
- Q3 revenue showed a 19% YoY increase.
- 9-month revenue showed a 16% YoY increase.
- Adjusted EBITDA grew by 15% YoY in Q3.
- Bed occupancy improved from 52% in Q3 FY24 to 55% in Q3 FY25
- Revised Guidance/Forecasts:
- Expect stronger growth in Q4 FY ‘25 (revenue and EBITDA).
- Expect EBITDA margin to expand by 1% to 1.5% in the next financial year compared to FY25.
- South Mumbai center expected to break even by Q1 of next financial year.
- Capex for the year estimated to be INR 275 crores, with INR 172 crores already deployed.
- Maintenance Capex to be around 100cr per annum.
- Areas of Growth/Decline:
- Growth:
- Oncology business (post MG Hospital Vizag acquisition): 24% growth.
- Emerging centers: 25% YoY revenue growth.
- Kolkata centers: 40% growth.
- South Mumbai center: 28% growth.
- Chemotherapy sessions: 19% growth.
- Established centers: 20% revenue growth, 14% EBITDA growth.
- Core HCG Centers (excluding Milann): 21% revenue increase. 16% EBITDA growth, with a 20% EBITDA margin
- Oncology Centers (excluding Milann, multispeciality, and MG Vizag): 18% revenue increase, 14% EBITDA growth, 21% margin.
- Decline:
- Milann revenue continues to decline, although management is optimistic about a turnaround.
- Growth:
Strategic Initiatives & Business Updates #
- Major Strategic Announcements:
- Ownership Change: CVC sold a majority stake to KKR. KKR is expected to hold 54-77% equity stake post-transaction and open offer. Dr. B.S. Ajaikumar will be a co-promoter. CVC will be a public shareholder
- Focus on Precision Oncology: Emphasis on personalized treatment, genomics, proteomics, research, and academics.
- Restructuring of diagnostic business, Triesta.
- New Products/Services/Markets:
- Continued focus on expanding the hub-and-spoke model with infusion clinics.
- Operational Changes:
- Dr. B.S. Ajaikumar will transition from Executive Chairman to Chairman of the Board, focusing on clinical excellence, research, and academics, with limited involvement in daily operations.
- Consolidation of MG Hospital operations in Vizag.
- Strengthening the andrology department at Milann.
- Ongoing/Completed Projects:
- Two new brownfield centers in Bangalore are expected to be operationalized in FY ‘26.
Market & Competitive Landscape #
- Industry Trends:
- Oncology is growing rapidly in India.
- Indian genomics is different from Caucasians, necessitating localized treatment approaches.
- Infertility is becoming a major issue in India.
- Medical Tourism impacted due to the Indian government restricting medical visas.
- Competitive Positioning:
- HCG positions itself as a leader in comprehensive cancer care.
- Focus on asset-light model for efficient expansion.
- Market Challenges/Opportunities:
- Opportunity: Growing demand for oncology services in India.
- Opportunity: Potential for mergers and acquisitions.
- Challenge: Geopolitical issues impacting international business, specifically mentioned for the South Mumbai center.
- Market Share/Positioning:
- Indicates growth in market share across regions.
Risk Factors & Challenges #
- Concerns/Challenges:
- Seasonality impacting Q3 performance.
- Geopolitical issues impacting international patient flow, particularly from Bangladesh.
- Decline in Milann revenue due to increased competition.
- Operational losses from new centers.
- Regulatory Issues:
- Mention of regulatory processes related to the KKR acquisition and open offer.
- Operational Constraints:
- Mention of subdued international business
- Market Uncertainties:
- Uncertainty regarding the open offer participation.
Forward-Looking Statements #
- Outlook and Projections:
- Expect continued strong growth in emerging centers.
- Expect recovery in international business by the upcoming quarter.
- Anticipates normalization of modality mix and revenue scale-up, improving margins.
- Commitments/Targets:
- Focus on long-term growth with KKR.
- Aim to minimize cancer recurrence.
- South Mumbai center expected to break even by Q1 of next financial year.
- Planned Investments:
- Continued investment in medical infrastructure, specialized treatments, and clinical talent.
- Capital expenditure of approximately INR275-280 crores for FY25 and FY26.
- Sentiment:
- Positive sentiment about future performance, and “gung-ho about the potential of the organization”.
Q&A Insights #
- Most Pressing Analyst Questions:
- Clarification on the shareholding structure post-acquisition.
- Dr. Ajaikumar’s role in the organization after the transition.
- Margin trajectory and impact of new centers.
- Growth rate of established centers.
- Performance and turnaround plans for Mumbai centers (Borivali and South Mumbai).
- Impact of the KKR acquisition on business plans.
- Outlook on international patient business.
- Capex guidance and debt levels.
- Strategy for Milann.
- Challenging Questions & Responses:
- Debt Levels: Management stated they are comfortable with current debt levels and banking covenants.
- Milann’s Performance: Management acknowledged the decline but expressed optimism about a turnaround due to new strategies and leadership changes.
- Y-o-Y Margin Pressure in Established Centers: Management attributed this to lower operating leverage due to revenue reduction and a higher proportion of pharmacy business, expecting normalization in Q4.
- Indirect Answers:
- Specific details on the timeline of the open offer were deferred, citing regulatory processes.
- Details about profit/loss contribution on the PBT level for MG Hospital was not disclosed.
- New Information:
- Confirmation that Dr. Ajaikumar will be a co-promoter with KKR.
- CVC will be classified as a public shareholder.
- South Mumbai center’s EBITDA loss for FY ‘25 is estimated at INR 10-12 crores.
- Andrology focus as a growth driver for Milann.
Management Tone & Sentiment #
- Overall Tone: The overall tone is very confident and optimistic. Management repeatedly emphasizes the company’s strong performance, growth potential, and strategic direction.
- Changes in Language: No significant changes were noted compared to hypothetical previous calls, as this is the first analysis. However, the language is strongly positive, emphasizing achievements and future plans.
- Confidence/Concern:
- Confident: Growth prospects, clinical excellence, operational efficiency, new partnerships, and market leadership.
- Concerned (but optimistic): Milann’s performance, although management is actively addressing the challenges. Impact of geopolitical issues on international business, but expect a quick recovery.
Key Takeaways #
- Strong Financial Performance: HCG reported its highest-ever quarterly revenue and solid YoY growth, demonstrating resilience despite seasonality.
- Strategic Shift: The KKR acquisition marks a significant strategic shift, with Dr. Ajaikumar focusing on clinical excellence and research, while KKR takes a majority stake.
- Growth Focus: HCG is committed to both organic growth (existing centers, brownfield expansions) and potential inorganic growth (mergers and acquisitions).
- Turnaround Potential: While Milann faces challenges, management is optimistic about a turnaround. The South Mumbai center is also projected to break even soon.
- Positive Outlook: Management is highly confident about the future, expecting continued growth, margin expansion, and a strong performance in the coming quarters.
- International business is expected to rebound.
- Effective tax rate is low (3%) due to the recognision of a deferred tax.