Apollo Hospitals Enterprise Ltd (BOM:508869) (Q1 2027) Earnings Call Highlights: Revenue Surges ...

Negative Points

• New hospitals reported an EBITDA loss of INR38 crores in the quarter, with losses expected to inch up by INR20 crores per quarter before declining.

• The insurance business within Apollo HealthCo is still in investment mode, with setbacks in the feet-on-street model pushing breakeven to Q3 FY27.

• International patient volumes from Bangladesh are only at 60-70% of pre-crisis peak, though value per patient is higher.

• The company faces potential regulatory and pricing scrutiny from parliamentary committee recommendations, which could impact future pricing power.

• Some brownfield expansions, such as Jubilee Hills and a second facility, have been delayed to FY28 due to configuration changes and landlord delays.

• The digital business revenue growth lags GMV growth due to a shift in the consult revenue model, creating a discrepancy that may persist.

• The company closed three hospitals during the quarter, including a renovation in Tondiarpet and a non-operational facility in Lavasa, which may signal operational challenges.

Q & A Highlights

Q: In the last earnings call, we talked about around mid-teens growth in the hospital business. We had a pretty strong start to the year and ramp-up is yet to play out. So do you see that this year, you could actually hit more closer to 20% revenue growth in hospitals? A: Yes, for this call. Yes, I believe we're on track to deliver 30%. (Unidentified Company Representative)

Q: Just extending the hospital margin. We have seen hospital margins obviously improved meaningfully in the last few quarters. And I think ma'am, in her opening remarks, also mentioned scope for more structural cost savings. Given we are already touching close to about 26% margins in existing hospitals, could you give us color in terms of how much more room there is to improve margins in these hospitals? And what would be the areas of those that would drive that improvement? A: The current numbers are a good set of numbers. As you have seen, we have got the benefit of both operating leverage as well as some cost -- some of the cost control measures that has already been taken. And the other important point is the -- we are getting back the IPS volumes as well as you have seen in this quarter. So it is a good margin. We would like to -- we would like to first sustain these margins. There are some costs -- some more cost takeouts, which are possible, but we would -- the margins are something that we are happy with. (Unidentified Company Representative)

Q: My second question is on the digital business. I do see a pre-OpEx margin has improved pretty meaningfully here. So if you could give us some color as to what's driven this? Is it the insurance business, et cetera. And I also see the cost increasing. So is it fair to assume that now the breakeven would be essentially driven by revenue momentum and therefore, the pre-OpEx margin expanding? A: So no, your observation is right. While our primary three core businesses of pharmacy, diagnostics, and cancels are in a good, reasonable run rate state. Insurance is still in a buildup mode. We have now 4 centers across. So that's one of the reasons why both our cost and cost of building up of these operations is going up. We were genuinely hoping that we should be able to get insurance under control, but there have been one or two setbacks, which is pushing it up. And there are one or two other costs which were onetime cost as we are rationalizing our organization. So those are the only two reasons. But otherwise, the momentum when it comes to our core businesses, at around 25% to 30% growth rate on the pharmacy side. Around 27% of the diagnostics side continues to grow. Insurance actually grew at around 80%, but that's on a very small base. And like I said, it's still in the investment mode. So the momentum will be maintained. And as we rationalize some of our costs, we should get into a consistent mode. (Madhivanan Balakrishnan, CEO of Apollo HealthCo)

Q: Continuing the discussion on your effort to scaling up insurance business. So in terms of certain milestones or a sudden scale in mind, where do you think -- how long it will take you to reach there when we will see significant scale up in that part of the business? And then the losses declining significantly. So if you can explain the insurance part a bit better, a bit elaborate on that? A: Let me take that, ma'am. So (inaudible) business, we are a corporate agent. So effectively, we are not into manufacturing, but we are into the business of setting up a comprehensive sales engine that will enable us to sell our products to our existing customers. So our operating model is very simple. We do not advertise or we did not spend money to get customers. Our insurance business is primarily driven through cross-pollination to our existing base of pharmacy, concert and our overall Apollo ecosystem customers. Our aspiration is to actually run -- because as a corporate agent, we are entitled to sell all three kinds of insurance, health, life and non-life. But given our natural alliance with the health care (inaudible) part of the health care, our health insurance is what has taken off. We've been seeing some very good traction. We are almost in double digits in terms of the gross premium that we are earning. And as you know, while the margins are very good at a gross level, the cost which are typically an entity incurs in the early stages of this operation is reasonably high. Just to give you a flavor, now we have four call centers across four big cities. We have now two in Hyderabad and one in Bangalore, Out of these four centers, two centers are completely broken even on an incremental CM2 level. So only the overage seems to be covered for. And this is covering all the technology investment that we have made a total workforce of around 250-odd people. And it includes business, which is set up for the first time. As we progress quarter-on-quarter basis, we also start getting annuity income from the businesses that we have booked before hand. So that is -- that particular revenue engine has not yet started kicking off. So it's primarily the first-time business that we are building in. So if you were to track us on milestones, it would be typically all the core centers becoming viable our digital business, which is pure digital products. We have two big products, one with [Nivagupa] and the [Adawitcare] insurance. which do not incur rather than the technical costs that have incurred, I don't need to do anything. It's a pure digital business, targeted through my app and by web. So that's the second engine, it will grow. One area, which from a disclosure perspective is we had actually made an attempt to build a feet on street very similar to some of the other brokers like insurance deco and renew by. That's one engine, which has not sort of worked out for us. We are reworking that engine, and that's a bit of a setback. We hope to sort that over the next two quarters. And we hope to break even on the insurance business by Q3 end. While all the other three businesses are already at the same two posit level, once this business comes in, our ability to show even a clean digital level would be much better. (Unidentified Company Representative)

Q: Just on the [Tamilnadu] region, we have seen like an occupancy rate, which has been quite encouraging, right? Now 70%, we're not seeing this kind of prints for a long time. So from an overall operational standpoint, has something changed? Was it just a seasonal quarter that uptick? I know we've been rationalizing our beds there overall over the last 2 over 12 months. But I

For the complete transcript of the earnings call, please refer to the full earnings call transcript .