Nephrocare Health Services (NSE:NEPHROPLUS) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to Nephrocare Health Services Q2 FY 'twenty seven Earnings Conference Call hosted by IIFL Capital. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Norman Baguaja from IIFL Capital. Thank you, and over to you, Mr. Baguaja. Thank you. Good morning, everyone. On behalf of IFL Capital Services Limited, I welcome you all to quarter two and H1 FY 'twenty seven earnings conference call of Nephrocare Health Services Limited.

0:50 We are pleased to have with us management team represented by Mr. Vikram Mupula, Chairman and Managing Director Mr. Kamal Shah, Co Founder Mr. Rohit Singh, Group CEO and Mr. Prashant Goenka, Group CFO for Nephrocare Health Services Limited. We will have opening remarks from the management followed by a Q and A session. Thank you and over to you Vikram. Thank you. Thanks and good morning everyone. Thank you for joining our Q2 FY 'twenty seven earnings call. With me are Kamal Shah, Co Founder Rohit Singh, our Group CEO and Prashant Goenka, our Group CFO. I'm happy to note that we continue to grow healthily as reflected in our H1 FY 'twenty seven numbers. Dialysis business is all about scaling up volume.

1:37 As volume increases, the overheads get amortized over a larger base of revenue and margins continue to improve over a period of time. Few strategic initiatives to strengthen the platform need upfront investments, which give results after a few quarters. Also, as we enter new markets, there will always be initial couple of years of suboptimal margins in those new geographies. But with time, our India platform model kicks in and starts making that country platform more and more efficient. Hence, you may see a bit of volatility in the short term margins, but we are quite clear that we'll be focusing on revenue growth and the leverage will kick in over a period of time. I'm excited that we finally opened Nephroplus network in Kazakhstan last quarter.

2:24 As we mentioned earlier, there are three growth levers for Nephroplus. The first is existing clinics in existing geographies. Second is new clinics in existing geographies. Third lever, which is a big lever, is opening new geographies. Now opening new geography is a key pillar for growth. And as we said, this will happen every twelve to eighteen months. Since we have already been present in Uzbekistan over the last four plus years, Kazakhstan is a natural geographical extension and the market dynamics here are similar to Philippines. Private clinics and panel with government reinvestment program. The two clinics we acquired in Kazakhstan are a good starting point for us to better understand local market nuances before we start scaling this network in Kazakhstan.

3:14 We are also happy to state that we have technically qualified in the Saudi Arabia's Ministry of Health Tender, which we have spoken about earlier. We are one of the 12 providers and the only one from Asia who qualified to bid for four regions of this tender. All the large global dialysis networks and all the major Saudi hospital groups are qualified, and hence, this will be a very competitive process. While we are doing everything we can to improve the chances of winning this tender, of winning a region, by no means we can assure you that we'll be one of the winners in this process. As we plan to enter more international markets, we recently launched a new initiative called NEDA, Nephroplus International Dialysis Academy.

4:01 Still very early days, but the intent is to train a lot of nurses from Philippines and India who already provide the nurses for the global dialysis market and help plug the supply shortage of nurses in many of the new international markets, like Saudi Arabia and many other markets that we may in the future. Also, there is a lot of attention these days on capping off margins on pharmaceutical products sold in healthcare facilities in India. We just want to let you know that pharmacy products account for less than 1% of our overall revenue, and we do not make much margins on that small base. Hence, we do not expect to see any major impact even if these guidelines make their way from cancer care products to dialysis related products.

4:51 Overall, we continue to be bullish on our growth prospects in India as well as other markets we operate in. With that, I'll hand over to Rohit. Thank you, Vikram. Good morning, everyone. I will cover the quarter then each of our markets and conclude with our clinical and platform initiatives. The quarter, Q2 revenue grew 23.5% year on year to INR $30.03 crores, taking H1 revenue to INR $5.85 crores, up 24%. Adjusted EBITDA for H1 was INR 135 crores at a margin of 23%. We ended September with 38,814 guests, up 10% year on year. Treatments grew faster, up 12% in the quarter, while revenue per treatment improved by 10% to 2,785.

5:39 Our network now stands at five seventy clinics across six countries, with 500 in India, 70 international. We added clinics in India and The Philippines during the half and entered Kazakhstan and started our clinic in Saudi Arabia. Let me take each market in turn now. India, we run through 500 clinics across three fourteen cities, serving more than 33,000 guests, with around 80% in Tier two and Tier three towns. Captive partnerships and private hospitals remain our core model and primary engine of growth. In public private partnership, Bihar continues to scale and we are rolling out our Tamil Nadu contract as well. We also secured a contract for six clinics in Haryana.

6:24 India is more than our largest market. It is the platform itself. Sixteen years of standardized protocols, processes and governance that we now replicate abroad. Nephroplus is a dialysis platform built in India for the world. Philippines, we crossed 55 clinics adding 11 this year, including 10 acquisitions in the first half. The market has around 900 clinics with a long tail of 500 plus clinics owned by individuals running one or two clinics. That segmentation gives us multiyear visibility for roll ups complemented by a greenfield strategy. Uzbekistan, we serve more than fourteen fifty guests across six clinics in three provinces. Our Tashkent clinic is a 165 bedded, remains the largest clinic in the world and business is stable there.

7:12 Kazakhstan is our new U. S. Market entered this quarter through the acquisition of two clinics in MRT. The country has around 12,000 dialysis patients across 150 clinics with universal coverage and prices of roughly $75 to $80 per treatment. Our focus is now to integrate the Anmaty clinics and grow from there, including through acquisitions that meet our thresholds. We expect about a year to reach a steady state margins. Saudi Arabia, our first clinic in Riyadh is now operational and home dialysis has started in both Riyadh and JETA. The Ministry of Health tender has been issued covering about 11,720 patients across four clusters. We are one of the 12 providers who have technically qualified and are eligible to bid.

7:58 So we expect this to be competitive. Bids are due in February 2027. Until the awards are known, Saudi remains an investment phase for us. Clinical quality and people. Nephrocare Health Services Index, our composite clinical score is now being rolled up from guest level to clinic and cluster level, giving us a single lens on clinical performance across the network. NEDA, our nurse academy launched this year, is building a pipeline of renal nurses for our international clinics. Access to trained renal nurse is a real constraint on international expansion, and we intend to solve it structurally rather than market by market. GFR, our CKD care platform, is in the pilot stage.

8:43 We have begun onboarding select patients for trials. It remains in pilot, and we will share more details in future. This is a clear focus, reaching patients earlier in the disease well before they need dialysis. Looking ahead, our priorities remain unchanged. Scale India platform, continue growing in The Philippines, integrate and expand the new market we just entered, continue exploring new geographies, stay disciplined in execution and keep clinical quality and care centricity as the foundation of our business. With that, I hand over to Prashant. Thank you, Rohit, and good morning, everyone. Let me walk you through numbers and address the key queries around margins. Revenue, H1 FY twenty twenty seven revenue was INR $5.85 crores, up 23.6% year on year.

9:35 Q2 revenue was INR $30.03 crores, up 23.5% year on year and 7.7% over Q1. Revenue per treatment rose 9.7% to $2,785 for the first half year, driven mainly by international mix, which reached about 47% of revenue, up from 42% in FY 'twenty six. Coming to EBITDA and margins. Adjusted EBITDA for the first half year was INR134 crore, up 15.3 at 23% margin. Q2 adjusted EBITDA was INR68.9 crore, up 3.3% year on year and 5.8% over Q1 at a 22.7% margin.

10:21 A word on how to read our year on year margin comparison. Last year, we were a private company with an annual audit cycle. Our quarterly numbers, therefore, had more variability and provisions were trued up during the year end audit. This year, as a listed company, our numbers are now reviewed by auditors every quarter, so those true up happens as we go. Our quarterly margins this year are therefore not directly comparable with the same quarter last year. Q2 FY 'twenty six, 27.1% margin is a case in point. The more meaningful benchmark is our full year FY 'twenty six margin, which already reflects the year end adjustments. On that basis, EBITDA margin was 23.8% in FY 'twenty six against 23.0% in H1 FY 'twenty seven, a reduction of about 80 basis point.

11:20 Margins have remained largely within R and D range. Some of this compression is due to higher other expenses, which rose from 18.2% in FY twenty twenty six to 20% in the first half. That reflects our investment in international business development and new country teams, technology, the cost of being a listed company and a model based ECL provisioning that grows with revenue. The clinic level lines improved. Materials or COGS fell about 95 basis points to 22% of revenue. Professional and hospital fees fell about 83 basis points to 18.4% of revenue. Employee cost was broadly stable.

12:05 The margin moderation is investment in future growth and not weaker unit economics. Now coming to profit. Adjusted EBITDA was INR76.1 crore, up 34.7%, with margin up 107 basis points to 13%. Finance costs fell from INR 51 crore to INR 5.3 crore after we repaid borrowings from IPO proceeds and other income rose to INR 15.1 crore. Our share of Saudi JV loss was INR 7.5 crore for the first half year, shown below EBITDA and added back in the adjusted PAT. Now coming to cash flow and capital deployment. As I indicated in the earlier call, as a company, we are very focused on cash flow on a daily basis and very disciplined on capital allocation.

12:57 Operating cash flow for the half year was INR 89 crore, about 67% of our adjusted EBITDA, of which INR 52.4 crore came in Q2. This reflects a strong focus on cash conversion and quality of earnings. We deployed about INR 102 crore in the first half year. We expect FY 'twenty seven capital deployment to exceed FY 'twenty six crores 165 crores as we build out our newest geography. We remain comfortably net cash, with cash deposit and investment of about INR $50.07 crore against the borrowing of INR 80 crore as of September 30. And overall, we are in a good position to drive both our India and international growth strategy.

13:45 Coming to the guidance, we reiterate our medium term guidance of 15% to 20% revenue growth over three to four years. We do not give annual guidance. With that, we open the floor for questions. Thank you. We will now begin the question and answer session. Participants are requested to use handsets while asking a question. The first question comes from the line of Akshay Thakur with Helios Capital. Go ahead. My first question is on so there were some discussions happening with respect to qualitative eligibility for tender submissions in India. Is there any update on that recently?

14:49 Or still the eligibility for tenders is based on price? So this is Vikram. I'll take this question. NHSRC, which is part of the Union Health Ministry, recently came up with a recommendation of QCBS based tendering model to all the states. QCBS is quality and cost based selection process, right? But as we all know, health is a state subject. The states can listen to the QCBS recommendation or the states can disregard and use their own price base. So we are seeing a mix of QCBS as well as few of the tenders continue to be on an L1 price model. It depends state by state. But the good news is that compared to five years back, more and more tenders are now coming based on QCBS model where Nephroplus probability of winning increases significantly.

15:51 Thank you, sir. Thank you for answering that question. The second question is with respect to the dialyzer price. So what was what would be the price trend in terms for a dialyzer income when we see from an India point of view, what would be the so is there a price decrease that has happened due to technological improvement, say in past five or ten years? Do we see that trend or it does not work like that? So, this is Rohit. I'll take this question. Dialyzer, think it's fairly stable technology that we use. But the idea is that whether it's a reuse or a single use dialyzer, we have two quality and two categories of dialyzer.

16:39 And also the factor here is whether it is imported or has a production in the country. So in the last few years, we have seen one company producing in India. And at the same time, there are one or two in the pipeline, which are to be starting operational commencing operation in a year's time. So with this supply increasing, the pressure the pricing has come down a bit. So largely, we would expect the price to remain on a stable state, not having any great change in that until oil prices really shoot up because of the PVC impacting it. Otherwise, I think it's a demand supply case. And with India manufacturing increasing, the pricing should stabilize or have a little reduction. Okay. Thanks for answering that question. One more question is on what would be the key parameters you select when you enter a new geography? Like we started with India, then moved to Philippines, then now we are... Within Uzbekistan, now in Kazakhstan. So what would be the common parameters across the geography?

17:42 And are there any change in such parameters going forward? Or what would be the strategy behind that? Yes. This is Vikram again, actually. The strategy continues to be the same. We look at whether we can build a sustainable network, Nephrocare Health Services Network in any new geography. What do I mean by that? Whether there are enough dialysis patients in that country who are reimbursed by a health insurance or government such as Ministry of Health in that country. We look at whether the repatriation of proceeds of the profits is possible or not. We look at whether there is political stability or not in that geography.

18:27 And overall, the financial economics, the unit economics, the ability to plug in the India platform, Nephroplus India platform and extract more margins in international, that model will translate into sustainable profits over the long term. The strategy continues to be the same since the last six years. You, sir. I'll get back in queue. Thank you. Next question comes from the line of Devianchi Shah with HUF Capital. Please go ahead. Ahead. Hello.

19:14 Yes. Hello. Yes. Thank you for the opportunity. So I had a question, sir. Despite an improving international margin expansion has remained limited. So could you please explain the underlying cost structure and why the benefits of international mix are not yet translating into meaningful margin improvement? Devayanshi. This is Prashant. I'll take this question. So I think as I indicated in my script also that we are a newly public company. We are now going through quarterly audits. So comparing our numbers of this quarter to last year same quarter is not a meaningful comparison because as a private company, we were only going through a year end audit and there were a lot of true ups happening at the end of the year. So the best way to look at the margins would be to compare the FY 'twenty six margin, which was about 23.8% to the first half of this year, which is 23%.

20:17 So on that basis, the margins have reduced by about 80 basis point. Now on that to explain that 80 basis point, there are two components. One is the core operational components, which is where we talked about the clinic level component like COGS. The COGS improved 95 basis point to 22% of the revenue. The professional health and hospital fees, which is the second biggest component on operational side, has improved by 83 basis points. Employee costs, we have absorbed the inflation and it has remained largely flat. So on the core operational metrics, we have actually seen a margin expansion. But when you come to the other expenses, that's where we have seen an increase in the expenses, mainly because we are now trying to expand internationally.

21:03 For example, Rohit talked about opening the new country in Kazakhstan. We invested a lot in building the foundation before entering the geography. And now that we have entered the geography, there will be a ramp up phase. In addition, as a public company, there are new costs that have started to come in, and they will probably be there for the first year before they become part of the numbers. So that component has also come in. And ACL, which we have indicated in the previous calls, they grow as the revenue also grows. So there are some of these components which are non core components, which have resulted in this 80 basis point compression. But largely, we believe as we implement our strategy of growing in existing geography and newer geography, the margins will continue to fluctuate in a healthy range.

21:50 Our primary focus is to grow the revenue by 15% to 20% on a three, four year basis. While we focus on achieving that, margins will fluctuate, but we will make sure that they remain in a healthy range. Yes. Just to add to what Prashant said, I would look at it in two parts. One is the existing geographies that we are present in. The other is the new geographies or the business development in new geographies, right? So if you take out the new geographies and the business development expenses for new geographies, let's say, there is no international business development effort and we have stopped growing internationally. Let's take only the existing geographies. There, of course, the margins will continue to improve, stabilize and so on. But Nephroplus is we are not fixated on just existing geographies, right? The strategy is to grow every one year to one point five years, we will launch a new country. So there are significant expenses that we are incurring today, which will generate cash flows over the short, medium term, right? So the existing geographies, the scenario is very predictable, very stable and growing. But the new geographies and the business development for new geographies, that will continue to be an investment from Nephroplus side.

23:06 Hope that answers. Got it, sir. That was very helpful. Also, sir, given The Philippines is our second largest market, how should we assess the competitive intensity in the region? As in what differentiates Nephroplus from other operators and supports its ability to sustain growth? Yes. Devanshi, I'll take this question, Rohit here. So Philippines, as we said, we are now operating 55 clinics. There is a long tail of 500 plus clinics, which are individually run by operators who own one or two clinics. So definitely there is a potential of roll ups and aggregation there. But at the same time, given the price points and the areas, there is obviously interest coming from other international players and locally as well. So the competition there will be between us and new international players who want to enter or also existing players who want to scale up. But having said so, Nephroplus now from a network perspective is the second largest network there. So we are well positioned. We have established our brand value. So I don't see big concerns on the growth from a short to medium term basis there.

24:20 So I think we will continue our momentum there in Philippines, but obviously there is competition that is growing up. Next question comes from the line of Yugam Modi with AB Capital. Sir, I just have two questions from my end. Sir, can you elaborate on the recently launched home dialysis program in Saudi Arabia, including its pricing model, total addressable market and the expected revenue growth over the medium term? Okay. This is Rohit. I'll take this question.

25:06 So in the developed markets, home care is a preferred modality, and there is a strategic push by the regulators as well on the home care space. And the Saudi new tender that has also come in talks about having 10% to 15% of the volume move towards home care. And the home care, there is home dialysis, home hemodialysis, which is a conventional one. And then there is a portion of peritoneal dialysis. That fragmentation has not happened. So we can expect that in the developed markets, home care would be anything between 10% to 20% in that range. And so we are also preparing for that. As of now, we are servicing close to 20 patients. Out of them, 10 are home care and 10 are in HD. But again, this is a very early numbers. This will change as we move forward. And price points also vary depending on the geography. Saudi Arabia is a very diverse country where there is remote areas, the cost of operation is very high versus C4 big cities. So I think the price range varies significantly.

26:06 And we will also discover that when we participate in the tender. And that's the best we can say of the whole. Okay. Sir, that answers my question. Thank you, sir. Thank you. Next question comes from the line of Bilanjan Karfa with TCG AMC. Just following up on the previous question, could you help with if the margin differences between, let's say, home services and cleaning corporate services in various markets, how is that different? So Nirajan home services margin on the operation basis is a little higher than the clinic services, but in the home services CapEx deployment is also higher, right? So the return profile, we want to balance it in the both ways. One place that is CapEx, which is used by multiple guests.

27:13 And in home, it is high deployment of CapEx to be utilized by one particular person. So hence, the margin is higher. But when you net off from the return profile, the return profile is in the similar range for both of them. So hence, home will be a little higher than the regular central convention actually, but as said, return to same. Right, right, right. Okay. And secondly, you know, increasingly, our international revenues are growing. It was, I think, 42% same time last year to 47 now. Could you quantify the impact of currency? Or would you want to qualify how the constant currency kind of grows on on the new side? The question I'm asking you this, the reason I'm asking this is, if I look at revenue per treatment and this is a ballpark number I'm trying to calculate.

28:07 I think per treatment on the foreign side used to be roughly about 6,500 rupees same time last year in rupee terms. Now that is showing up almost like 8,200 to 8,300, if my numbers are right. So why is this jump? Is it EUV currency or some pricing level changes are also happening? Hi, Nalanjan. This is Prashant. I'll take that question. So as you know, we operate in Philippines where currency is peso, Uzbekistan, so we deal with multiple currency. So ForEx is always a factor in the revenue numbers and RPT numbers. Just to give you a little bit of benchmark, the revenue growth that we saw in this quarter, 6% of sorry, 3% of that was contributed by ForEx, 97% was contributed by organic, inorganic or price related factors.

29:01 ForEx contributed about 3%. Most of it was in the SOM currency, those biggest currency, which appreciated by 10% compared to rupees. And therefore, we had a favorable ForEx revenue in that country. But outside of that, 97% of the revenue growth came from non ForEx related factors. Would you elaborate on that non ForEx part because that's quite interesting actually. What makes those pricing changes or the mix composition, if there is any? Yes. So we typically don't go into too much specifics at the country level. But the primary driver is, as we discussed in the previous calls, there are three levers of growth. Lever one is existing geography, existing clinic footprint. We have about five seventy clinics.

29:55 This footprint grows at a very predictable scale. So that is one lever of growth. The second lever is adding new clinics in India and Philippines. We aspire to add about 40, 50 clinics in India every year and 10, 15 clinics in Philippines every year. We are on track to achieve that target this year. So that is the second lever of growth. And third is there is a price increase or the price mix changes because of the international mix. And markets like Uzbekistan, we saw 5% increment in price. So that is the third factor. In addition to these things, the third lever, which is the biggest lever, where every one, one point five year we add a new country. In this quarter, we added Kazakhstan. It will go through a ramp up phase, but that will also then contribute to the revenue growth. So these three levers and the price movement overall contributes to the revenue growth.

30:51 No, no, I didn't even stop you, but my question was precisely on the price part, not on the growth part. The price per treatment, what is it other than the currency that is changing quite the math? That's what feeds from the number. Correct. Yes. So the pricing part is largely driven by the international mix. The price increase in respective country is not something we get into the specifics here. But to answer your question, most of it is driven by the international mix. Okay. If you can qualitatively also kind of high indicate which country offers the highest, let's say, on a dollar term as we stand today.

31:43 If you can just range from the highest to the lowest. I appreciate your question, but we don't go into that level of details at a constant. Okay. Sure, sure, sure. Understood. And a quick one, if I look at the accounting statement and pardon me, it's my you know, I'm not able to understand it. Maybe I don't know. In that... In the consult statement, there is something called which is 18 difference, which will be classified into profit and loss, but it is not currently. It is currently at, $800,000,000 What is it that exactly? And when does it get reclassified into profit and loss? Sorry, Nelinda, I did not get your question. Say that. If you look at the financial statement and you look below the profit and loss, there is an item called items that would be reclassified to profit and loss.

32:41 The number is 9,880,000,000, which is the exchange difference on translation from foreign operation. The question is, when does this get reclassified to profit and loss? No, sir. This again, I can through the Investor Relations mailbox, we can respond back to you with more But I think this may be the OCI component, which is the unrealizable investments that we have made in the foreign geographies. They typically they remain for a very long period of time. We don't sort of the investment remains in the country and only the transfer pricing money comes every year. But we'll get back to you through the Investor Relations mailbox.

33:27 I'll send an e mail to you separately, sir. You. Next question comes from the line of Umeish Lada with Ambit Capital. Hello, sir. Thank you for the opportunity. Sir, our India business has grown by almost 11% Y o Y, and we have added 40 clinics in the first half of FY twenty seven. So, like, given the bed limitations in the mature clinics, so how much of our India business growth is driven by the newer clinic addition versus some kind of ramp up in the existing clinics? And second question is on how much time does it take for us to, say like whenever we acquire a newer clinic or open a newer clinic to ramp it up to the optimal utilizations in India and in Philippines?

34:23 Okay. Omish, I'll take this question over here. So our capacity utilization at the India network level is 75% approximately. So there is obviously little room to go, but dialysis business does not operate at 100% utilization. Typically, will operate the max out or the maximum theoretical max is around 90%. So there is obviously room for organic growth, and we see a decent organic growth on year on year. And the inorganic addition of the 40 clinics that we're talking about, they typically stabilize in five to six months time period of after acquisition, depending on whether they are brownfield or they're a new PPP start. So that also varies that what is the mix between them. The 40 that you see here were the component came from the Bihar PPP, which was greenfield units started fresh and it took us two to three months to stabilize on the volume. Whereas when you take a brownfield unit in a captive setting, that stabilizes on the volume front from day one or maximum in a time. So there's a difference between the model of a new clinic also that we start, whether it's a greenfield or a captive organic brownfield unit.

35:30 And hence, the time lags changes the time changes for the stability of that. Now to answer your second piece around stability of NeoClinic in Philippines versus India, I think the concept remains the same. When we are starting a greenfield clinic, greenfield stabilizes on the volume front, say, in the eighteen months to twenty four months in that range, Whereas a brownfield clinic, which is already running clinic, and if we are acquiring that in Philippines or a captive unit that we are taking in India, that would be in the range of three to six months stabilizes. But obviously, there is growth coming it's already running, but growth keeps happening year on year depending on the capacity utilization of the clinic, which also varies clinic by clinic. But net net, I think at the network level, we are operating at a 75% utilization. There is room for organic growth and we keep adding new clinics to add capacity, which further grows.

36:23 Okay. So sir, will it be fair to assume that majority of our growth would, I mean going forward will only come through clinic additions or maybe like some brownfield expansion at the current any mature stores? Omish, yes, it's like a eighty-twenty rule, majority of the growth will come by clinic addition because that adds capacity to the network also. While the existing network is running at a healthy utilization, which will also continue to grow gradually. Okay, so good. Thank you. Thank you. The next question comes from the line of Naman Pangvekar with IFL Capital. Please go ahead.

37:15 Sir, one question on expansion. If you could also clarify, we added 13 centers on net basis in India. Is that correct? And if yes, can you provide us in terms of how many were PPP, how many were stand alone or captive projects? Hi, Nammand. This is Prashant. I'll take that question. You're correct. We have added we've gone from four eighty seven clinics to 500 clinics in India, so a net addition of 13 clinics. During the course of the year, new clinics are added and some of the existing clinics also shut down depending on various factors. But in most cases, the new clinics add volume. The clinics that get shut down, in most cases, we move the guest and session to a nearby clinic.

38:04 So that one dynamic, I think, it's worth understanding. Yes. Sorry, what was your second question? Question on this part itself was if you could help us in terms of a breakup or in terms of PPP projects, standalone or captive, the non or net basis? Correct. So we our business development team is always focused on both PPP and captive. This quarter in particular, the PPP gave a bigger share of growth came from PPP. As Rohit talked about Tamil Nadu, Bihar and Haryana, these three states have come into the mix, and they have contributed a bigger share of that growth.

38:52 Nammal, if I may just add to that, Rohit here. We see contracts are on contract basis. So there might be little cyclic. If one has come today, it will not happen. While the captive growth is continuous and is steady. So I think whenever PPP comes, it comes in chunk, contributes significantly for that short time period, while the captive private center keeps rolling up, keeps happening on a month on month basis. So that's gradual. So in a short time period in a quarter, if the PPP comes, that will be the growth will be weighed heavily towards PPP. But on a longer duration, it averages out. Yes, yes, yes. On India itself, I mean, I understand we guide 40, 50, let's say, centers per annum.

39:37 If you look, we have already added 32 centers in first half of 'twenty seven. This is on net basis, while on gross basis, we have already done 40. So how should we look at, let's say, second half? Is it that center addition will not be there or we'll maintain this, let's say, 1H run rate going ahead in the second half of 'twenty seven as well? Yes, Naman, this is Vikram. I think at a macro level, what we have mentioned is 40 to 50 clinics in India per year, right? And business development happens in chunks, as Rohit mentioned. Some quarters are very strong, some quarters are quite weak. So I wouldn't change the 40, 50 clinics from a guidance perspective in a very big manner. It could be slightly higher than 50.

40:33 But again, I've seen so many BD cycles in the last sixteen years that it all averages out at the end of the day. And, Naman, just to add to what Vikram said, I think the clinics can have a lot of variability, right? There could be a clinic with five beds, there could be a clinic with 20 beds, average is 10. But what is more important is the revenue guidance that we have given, 15% to 20% revenue CAGR growth over three, four years. That remains our focus. And the BD activity modulates to ensure that we are meeting that guidance. Yes, yes, yes, yes. Sure. One more thing, I mean, this expansion, given that we will continue to expand and enter new markets, right?

41:23 So do we expect, let's say, margins to remain flattish or there will be, let's say, periods or transition period, let's say, for example, now we have entered into Saudi, we have entered into Kazakhstan, and hence, there is pressure on margins. But let's say, in the next twelve months, margins expand. And then again, when we enter new market, margins kind of contract. How should we look at this cyclicality to play out for us? Yes. Hi, Numan. Prashant here. I think you said it rightly. We are currently sitting on INR $50.07 crore of cash. We will be we are evaluating and we will continue to evaluate growth opportunities both in India and international.

42:14 As you can appreciate, it's not always clear what those opportunities will be at any point in time in terms of what will convert, what will come. So there will be an element of discovery that will go on. But I think as you rightly mentioned that as we add a new country or as we add a new capability, there will be an element of margin fluctuation. But we believe the margin will remain in a healthy range. Like for example, currently we are at 23% and the margin will remain in a healthy range as we continue to deploy our growth strategy both in India and international. Thanks for this. Lastly, let's say one bookkeeping question, what would be our overall capacity utilization?

43:03 Our overall capacity utilization currently is 74%. As Rohit mentioned, this is a decent utilization. In dialysis, as you know, the first there are three shifts. The first two shifts are very well occupied. The third shift end at ten p. M. In the night, which people typically prefer less because they would like to go home for dinner with family. So the third shift is typically less utilized across the world. So therefore 75% reflects 74% reflects a good utilization. We believe we can improve it and we have improved it in the last few quarters, but it will be marginal. Sure, sure, sure. Thanks. I'll get back in the queue. Thank you.

43:50 Thank you. Next question comes from the line of Deepika Murakar with Choice Institutional Equities. Please go ahead. Hi. I'll just touch upon the Saudi Arabia business. If you can provide me some clarity on the expected CapEx per machine on the third bed for the Saudi. Additionally, how does we see the cost of management machine and margin profile compared to India? Just to get some clarity on the Saudi business. I know it is still an optionality, but just need some clarity on that part. So Deepika, we do not get into specifics of CapEx per country, but it is obvious that the Saudi Arabia is considerably more CapEx heavy as compared to India or any other business. And we are in the process of preparing ourselves for the tender that has to be submitted in February. So I think we'll may not be able to disclose all the specifics at this moment.

44:53 Thank you. Next question comes from the line of Abdul Karthakuranwala with ICIC Securities. Please go ahead. Yes. Hi. Thank you for opportunity. So I joined the queue a little late, but I had a couple of questions. First, on surrounding your Saudi Arabia business. So if you could help me understand about the Home Direct, what you have introduced and how are the unit economics there? And apart from this any other region you're trying to venture into home dialysis as well apart from the India part where you already have this kind of a service? So, Abdul, as I briefly mentioned in one of the previous questions that in Saudi Arabia, the tender, the new tender which has come talks about having home care from 10% to 15% range and that is home dialysis, conventional home dialysis and peritoneal dialysis.

45:50 So we are at the stage of investment in Saudi Arabia and building our capacity and understanding the market. And on that basis, we are now we are right now doing home hemodialysis. At the same time, we are running a clinic in Riyadh hospital there. So at the moment, we are patients with a split between Riyadh City and Tendash City, which are the two largest cities of the country. And we plan to be in that range right now given that the pandemic is already live given and depending on which cluster we win and because clusters are divided into geographical regions in the country, which cluster we win, that geography we will if we win, we will compute resources and capabilities in that particular region. So as of now, we want to be in the same range, but depending on the cluster, we take the call. Sure. Understood. And sir, if I have to think from a two to three years perspective, then between Saudi and Kazakhstan, which one do you think would be more meaningful contributor to your top line, say, from a two to three years perspective?

46:50 I think Prashant had mentioned Saudi Arabia has a binary outcome, right? Either we get it or we don't get it. So really be putting it across the new geography, which we have just entered a month and a half ago and which we are understanding and where there is potential, but we are still trying to understand how Nephroplus platform can be executed there and at what velocity we can grow there. So, I think these two are very different questions. So to us to be comparing both and putting a finger on one will be hard at this moment. But as we will give more clarity as we proceed in few quarters to come. All right, sir. Wish you all the best. Thank you. Thank you. Next question comes from the line of Harsh Shah with Avner Capital. Please go ahead.

47:41 Hi, sir. Thanks for taking my question. Sir, we have mentioned that whenever we enter a new geography, there's a lot of investment which goes over there. So could you just highlight, like, what are the bigger investments which go over there and which of these are recurring and nonrecurring? And specifically, in terms of Kazakhstan, could you put out a number on that as well? Harjit. This is Rohit again. So when we are looking at a new geography, it is obviously that there is a significant amount of time that goes in evaluating a geography, making multiple trips there, understanding the potential. That's a business development expense, which does not really reflect in the immediate P and L of the first month, but has been incurred for a decent amount of time period beforehand. And then there is a cost of secretarial and establishing the entity in the country, which also is significant depending on every country again.

48:33 And then there is commencing of business, which is the CapEx deployment on starting the clinic. And then there is an OpEx that goes on. So I think everything till the CapEx is a onetime activity. OpEx is the efficiency front once we do it. But again, we keep deploying resources there as we scale up in that geography. So if we were to just maintain the existing business, then the OpEx efficiency will come. But I think when we commit to a new geography, we are in the investment stage or the growth stage for few years. And hence, these are the two different ways to look at it. So the existing clinic which are running will be OpEx, any investment that goes for growth will be onetime and CapEx length. Yes. And Harsh, just to add, there will be an element of legal, financial, tax due diligence, which goes on for an extended period of time and incurs a meaningful expense.

49:26 Okay. And secondly, the market has around 12 patients. So how is the market over there? Is there any organized they are capturing a bigger a bigger market over there? Or there are only unorganized players, a single or couple... Two, three kind of units kind of gain? And... Yeah. This is the second one. There is already two large players there. One is, which is probably world's third largest dialysis network operating in 30 odd countries, which is the largest player there, second largest player. And the largest is a local player there, which is already been operational for last fifteen years. So between both of them, I think they control close to 60%, 65% of the market. But then there is the balanced market, which is there and plus the new growth that comes out of patient addition.

50:12 So the market is seen aggregated players, national players who have already been there for some time. And it is like Philippines, which is stand alone clinics with the universal health coverage. So we see a decent potential there. Okay. And sir, my last question is on The Philippines market. So maybe in 2024, 2025, we have seen a couple of big price hikes. But now as we see over the next two, three years, are there inflationary linked price hikes or price revisions or the prices remain constant? First, we don't expect any price increase to be coming in there because this fill in price also increased probably close to a decade after close to a decade. So they would we cannot foresee anything until there is something that we don't know of, but we don't foresee any price increase there because the price hike just happened probably a few years ago from now. Okay.

51:09 Okay. Thank you. Thank you. Next question comes from the line of Devank Patel with Samikshire Capital. Please go ahead. Firstly, on the global nursing initiative, I wanted to ask how is it different from our existing technician training program? And how does that this initiative impact our margins? Devang, Govit here. So this global nursing initiative, so this is for the global supply, right? And NPDR, which is our existing technician program is for the India supply. So that is a primary differentiator. And NPDR is for India, which trains dialysis technicians versus which is different qualification people versus NEDA, which trains nurses who will be trained as renal nurses and will be eligible to work in the global market. So the technician versus nurses, India versus global and having a different capabilities to operate in those offices and eligibility as well.

52:17 Does this add to our cost or does at some point help us with margins and recruitment? Marginal, any strategic initiative obviously comes with a little cost, but it is not very significant. But the upside, if we get if this is translates to the expectation, really bring in great synergies at the international level. So cost addition is not that significant. Okay. On trade margin cap, if it is expanded to more drug and consumables, how could it impact us, if you could comment on that, please? Shivang, we missed the voice echo a bit. Could you please repeat the question?

53:04 If there is a trade margin cap on wider basket of drugs and consumer rates, how would that impact us? No, actually, this does not I think the margin capping is put on more hospital pharmacy products where the MRP is quite different from the acquisition cost, right? In the dialysis industry, those issues do not enter at all. The delta between the acquisition cost and the MRP is negligible. So or very, very reasonable. So I don't think that's relevant to dialysis industry at all. Okay. And just lastly, in Kazakhstan, is there also an opportunity for PPP?

53:55 No, there is as far as we know, there is none at this point. They have not done it yet, but if it comes up, it may come up in few years, but we are not actively engaged on the PPP front at all. Next question comes from the line of with Precinct Capital. Thanks for the opportunity. I have a few basic and possibly stupid questions. My first question is that my understanding is that as an organized chain, our share of the Indian dialysis market is still very low at 10%.

54:42 And given the, like, lucrativeness of outsourcing from a, like, captive hospital or nursing home is proven and our business model is also proven. So what are the factors that are like maybe limiting more accelerated like adoption of our outsourcing model by hospitals or nursing homes? Yes, some light on that would be helpful, yes. Anubhav, Vikram here. I think logically speaking, it's a proven model. Theoretically speaking, 100% of the private hospitals should have outsourced dialysis by now, right? But that theory, what happens is there are various dynamics at play at a private hospital level.

55:33 One, do they even understand that they're losing money at a dialysis department level for a smaller hospital like a nursing home or a 80 bedded hospital, they do not do P and L at a department wise department level, right? They look at it at console level usually. So we have to educate these people that they actually lose money on dialysis. In the corporate setup, in the big hospital setup, let's say, 50 bed hospital, 300 bed hospital, there's usually they may see that dialysis is a health care service, and there is a little bit of resistance from the nephrologist wherein in an unorganized setting where the nephrologist controls the dialysis unit, there is a lot of hiring, there is a lot of firing, there is a lot of preferential treatment to chosen patients, all sorts of unorganized process activities happen, right?

56:33 When Nephroplus comes in, it's going to be completely professionally run, no preferential treatment, completely hiring, everything has to go through a proper HR process. So in an ideal world, yes, the organized market, which is 20% organized market in India should ideally be close to 80%, 90%. But practical constraints or practical, it's a slow and evolutionary curve. We expect in the next five years that 20% may go to 30%, right? But will it go to 60%, 70%? Very unlikely. Because there are only 2,500 nephrologists in India for 1,500,000,000 population. So it's not like a massive burning issue for the hospital and for them to push the nephrologist saying, hey, let's bring a professional high quality operator to run it in a very transparent manner, there is some resistance there, right?

57:34 So we expect this to be a slow evolution rather than a sudden inflection. Yes. That is very helpful. Just a small follow-up. Is it also the case that some part of this existing market, given your benchmark for profitability and return on capital, it is not meaningful for you also as a business proposition? Of course. Of course. So we look at every I think, Pratant, CFO also alluded earlier that every project that we take has to meet return thresholds, right? If we lower our return thresholds by 5%, we'll probably add another 30, 40 clinics, another 60, 70 clinics per year. But what's the point of growing with such low ROCE returns, right? We are very, very particular that we'll grow, but in a healthy margin, healthy returns threshold range.

58:37 There's no point in growing at any cost according to me. And my last question is like, obviously, the revenue per treatment is much higher for your international locations, Philippines and all. But given like CapEx is also higher and cost of operation is also higher. So how does the international operation compare with India in terms of return on capital and profitability? Are those also similar or better? Yes, some color on that would be helpful. Yes. So I think you rightly mentioned the price points are very different, India versus international.

59:22 And so is the CapEx is also very different. So I think what happens because of the price being higher and the CapEx being higher, the return profile tends to be somewhat similar on both India and international front. The return profile is the same three to four years horizon. So the return profile sort of normalizes because of both the factors going higher. Thanks. That's all from this side. Thank you. Next question comes from the line of Akshay Thakur, Helios Capital. Please go ahead. For taking Yes, my yes.

1:00:09 Thanks for taking my question. Sir, I have a question on Philippines geography. Currently, we are the second largest clinic chain in Philippines. So are we happy to restart that stage where we can do more greenfield because our brand recognition must have been improved as compared to the acquisition strategy which we followed earlier? If not now, then what would be the timeline to strategically change the pathway from moving from acquisition to the greenfield strategy? Sachin, this is Rohit. I'll take this question. Good question. I think now with our network and understanding of the market, we've been there for five years plus and we operate in 30 plus cities. So obviously, there is much better market understanding that has been developed. And I think we will explore the greenfield strategy.

1:01:06 I mentioned in my remarks also that we will be exploring greenfield strategy in short to medium term. So I think we are almost there, and we'll execute that. Thank you. Thank you. One small question and a quick question is what would be the depreciable life of a dialyzer? Would it be ten years? Dialyzer is a consumable, so there is no depreciation on that, but stylus machine typically would be ten years. Machine would be ten years. Okay. Okay. Thank you. Thank you so much. Thank you. Next question comes from the line of Milanjan Karza with TCG AMC. Will you be able to guide on the CapEx for the rest of the year and maybe over next two, three years?

1:02:10 Yes. So in the first half of the this is Prashanth here. I'll take this question. For the first half of the year, we have deployed about INR102 crores of CapEx. If you look at FY 'twenty six, we deployed INR 165 crore through the course of FY 'twenty six. As I said in my opening remarks, we are anticipating to do more than what we did last year, which was INR 165 crore. While I cannot give you a precise number, but I think that will give you an idea that it will be more than INR 165 crore and we have already spent INR 102 crore. Right. And correct me because I might have missed it. The Saudi market, you are saying we have received a license only for home dialysis, right? No. In Saudi, we are operating a clinic.

1:02:58 So and at the same time, we are operating home. So we have license for both. Then what is this? You're saying fifty-fifty probability of winning licenses in other areas. How is that different? Is it a different structure or something? Yes. So I'll clarify that, Anjan. Saudi primarily is a tender market, wherein the Ministry of Health controls the largest chunk of patients there. And the Ministry of Health has just released a tender a few days ago, where submission is due in February 2027. And then it will go through evaluation stage for another four to five months. So this so we were preparing and investing in Saudi Arabia for this tender for the past two to three years. And we established our footprint with one clinic and few home dialysis patients to understand the market and also showcase our clinical capabilities to the market.

1:03:55 But main end goal or the objective was this MOH tender, which has just got released. And as I mentioned, there are four clusters, 12 qualified bidders with a binary outcome, not fifty-fifty, I said binary. So we can't I really can't put up stage to the success as of now is that if we are able to secure a cluster, then we will grow further in The Saudi. Until the time the results of this tender is not out, we will stay in the investment phase in Saudi. Okay, okay. Since I understand, this is like a PPP model? Yes. Okay. Okay. So will this also let's say, we are all hoping that you win this. Will this entail an additional CapEx beyond what Prashant kind of explained?

1:04:41 Yes, absolutely. And that will be in the next financial year. So next financial year. I said the tender submission is only in February 2027 and evaluation will take another five, six months. And Niranjan, just to add to it, Rohit, we have 51% share in the JV and whatever contribution comes from this geography is not done does not go through a line by line consolidation. It is shown as a single line item in our P and L below EBITDA as a JV share of profit or loss. Until we are in the investment phase, that line item can give you clarity on what's the outcome from that. Understood. Understood. And my final question is how many nurses and technicians do we currently have for operating, let's say, five seventy odd clinics that we have?

1:05:37 So our clinical staff is about 5,000, shy of 5,000, 4,018 something. So but there are blend of technician and nurses across geographies. Is there a ballpark number for the clinic that we run this? As I think we've mentioned earlier also, the clinic varies on size and size of the machine, the capacity. And then it changes depending on the size side. Okay. Actually, I'll tell you why I'm asking. The LEDA program that you mentioned, is it going to be a quite a sizable program there? Or it's like on a small scale, you are trying out only for yourself? Or is there a potential of growing it into something else?

1:06:27 Yes. And this is not as sizable given the present base that we have. So we are looking at early or few of them only. So it will not be a significant needle mover in the network, as I said. And essentially, this will be gating for the future expansion growth, will come after a year or two. So it's not something which is very immediate. But this is an investment in the future and preparing ourselves structurally for future. Thank you. Ladies and gentlemen, due to time constraints, we have reached the end of question and answer session. I now hand the conference over to the management for closing comments. Yes. Thank you everyone for your great questions and your time.

1:07:17 To sum it up, we continue to grow healthily across India and other markets where we operate. We entered Kazakhstan, our sixth country last quarter and we also continue to keep our medium term guidance unchanged. We are investing for the next phase of growth and will stay disciplined on returns. We'll keep you informed of material updates through the exchanges. For any follow-up questions, please reach out to us or to SGA, our Investor Relations partner. Thank you and have a great day. Thank you. On behalf of IIFL Capital, that concludes this conference. Thank you for joining us. You may now disconnect your lines.